That practice is called transcription:
1.2 A form in which a speech sound or a foreign character is represented:
ODO
Transliteration is not necessarily a phonetic operation:
Write or print (a letter or word) using the closest corresponding letters of a different alphabet or language:
ODO
Because Arabic has a dissimilar alphabet system, جهاد ǧihād [dʒiˈhæːd] comes across as a phonetic transliteration, which is technically transcription.
There are specific principles of transcription applied to each language separatey.