THE APPLICATIONS OF ISLAMIC BANKING IN THE

LIGHT OF MAQASID AL SHARIA’H

ANAS P.A
M.A ISLAMIC STUDIES
ALIGARH MUSLIM UNIVERSITY (A.M.U)
ALIGARH - INDIA

CONTENTS

Introduction.
I. Islamic law; an over view.
II. Islamic commercial law; an over view.
III. Maqasid al-shari`ah; an over view.
IV. Governors of Mua’malath; The completion of Maqsid al sharia’h.
V. Applications of Islamic bank.
VI. Islamic banking; The completion of Maqsid al sharia’h.
VII. The challenges of realizing Maqasid al-shari`ah in Islamic banking.
Conclusions and Remarks.
References.

INTRODUCTION
Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called
fiqh muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat
came from the Quran and the Sunnah, and other secondary sources of Islamic law. The
foundations of Islamic economics, the parent science of Islamic Banking, are based on

~1~
the concepts of economic wellbeing, universal brotherhood and justice, equitable
distribution of income, and freedom of the individual within the context of social
welfare. These objectives promote for a society of well being, where every individual
and organization commits to justice, equity, and freedom. None of these foundations
promote a mere profiteering and material gain with no concern for the ultimate falah
in the Hereafter. Similarly, the foundations of Islamic Banking promote a balanced life
between the life here and Hereafter. Thus this development can only be achieved in a
conformity with the maqasid al-Shari`ah.

Islamic banks have started more than fifty years ago, with the inception of Mit Ghamr
project initiated by Ahmed al-Naggar in the early sixties(1963). The project was
based on the ‘profit-loss sharing’ (PLS) system of Islamic economics. However, the first
commercial Islamic bank to run was in Dubai, the Dubai Islamic Bank, in 1975. Since then,
the Islamic Banking industry has developed with much greater pace and zeal.

This system becomes an alternative of interest based conventional banks. The main
philosophy behind it’s, the Shariah prohibits ‘interest’ but it does not prohibit all gains on
capital. It is only the increase stipulated or sought over the principal of a loan or debt that is
prohibited. Islamic principles simply require that performance of capital should also be
considered while rewarding the capital. The prohibition of a risk free return and
permission of trading, as enshrined in the Verse 2:275 of the Holy Quran, makes the
financial activities in an Islamic set-up real asset-backed with ability to cause ‘value
addition’.

Throughout history of Islamic banking, it assumed much controversies and criticism in its
run to win the hearts of the scholars and Muslim clients. Established with the objective
of providing an interest-free (riba-free), it has so far been criticized to open several
other back-doors to riba-based transactions, despite its immense success in creating
an alternative to the conventional banking system. Actually this is a big challenge in this
sector. It’s some products are like Bai’ al-Inah, bai’ al-dayn, Bai’ Bithaman ‘Ajil (BBA), rahn
and other such contracts have been criticized to be simply a ‘backdoor’ to riba. And it
become against the maqasid al sharia’h.

~2~
This work aims at analyzing the Maqasid al-Shari`ah in the contemporary muamalah
transactions particularly with respect to the development and operation of Islamic
banking . It has proceeds with seven chapters. The First two chapters revolve around the
basic knowledge of Islamic law (sharia’h) and fiqh mua’malath. It gives us the basic
concepts of shria’h rules and its transactions. Third and fourth chapter discuss about
maqsid al shria’h, its importance, and how it included in fiqh mua’malath. The last three
chapters are handling the core of the topic. It illustrates the applications of Islamic banking,
analyzes how they are completing the maqasid al shria’h, and what are the main
controversies and criticism in this field.

SCOPE OF STUDY

This study has a wide-ranging scope. In this period peoples have a millions of
misconception towards Islamic banks and its applications. Some Muslims thinks that the
applications of Islamic banks are not in the real way and it misuse the Islamic name and
sharia’h. The main reasons behind of these jargons are the ignorance of islam law
(sharia’h) and its objectives. In the same time, Islamic banking has emerged as one of the
fastest growing industries. It has spread to all corners of the globe.

sharia’h is a divine guideline of human being. The main objective of sharia is promoting
welfares of man and protects his harms. In sooth, the main objective of Islamic banking is
removing exploitations and harms in financial sector. Protect the wealth from all misuse
and create a well efficient finance system in society. Islamic banking products are really
completed these objectives. This work has illustrate the whole pitchers of its. So it has an
important role in this field.

OBJECTIVES OF STUDY

 To convey an outline of sharia’h and fiqh muamalath.

 To understand the idea of maqasid al-sharia’h and its practices in muamalath.
 To study about Islamic banking and its products.
 To analyses the application of this products are how much complete the
maqasid al sharia’h.

~3~
  To point out the challenges of realizing maqasid al-shari`ah in some products.

METHODOLOGY

The research methodology used for the preparation of this project is that of secondary
data. Secondary materials are obtained from related books, documents and journals. The
materials are also collected from some seminars conducted in this topic. And also Internet
facility help to collection of important information related to the topic.

LIMITATIONS OF THE STUDY

The main limitation of the study is the required time of the research was very limited. Deep
study was not able with in the short time. Non availability of the precise data created some
difficulties to this study. And the main limitation of this study is limited knowledge and
experience of researcher. But I overcome all limitation as much as I can by the help of my
God.

~4~
 Chapter 1

ISLAMIC LAW AN OVER VIEW

Islam is a complete coed of life .It is a god oriented way for human being. In Islam, Allah is a
supreme authority, creator, ruler, sustainer and power of almighty. He is the last word of
what we do, what we make, what we think and what we feel as well as addresses the
question of where we come form and where we going. So Islamic law (Sharia’h) has
generally converged to all aspect of human activity and has provided the principles that
govern and protect life and make living easy and enjoyable.

Islamic law, know as the Sharia’h, is the framework of ultimate reality and the ethical
guidance that Muslim scholars have derived form the direct revelation of Allah to man.
Although Allah reveals the pattern of ultimate truth indirectly through the working of the
physical universe and in the observable nature of man, the ultimate source of knowledge
about both the physical and metaphysical reality, and therefore the ultimate source of the
Sharia’h is the Quran. This divine text was revealed directly in human language to the
prophet Muhammad (pbuh), and is exemplified in the Sunnah, which reports the prophet
(pbuh) understanding of the Quran as shown through his word and deeds.

This chapter gives a comprehensive overview of the Islamic law its factors. Here we will be
discuss the meaning of sharia’h,fiqh and usool al fiqh, suorse of islamic law and the type of
its rules(hukm)

SHARIA’H

Al Sharia’h ) ‫( الشريعة‬literally means the path way, path to be fallowed or clear way to be
followed, and has come to mean the road to the watering place or path leading to the
water1. In the spirit of Islamic law, professor Berned G Weiss states” In the archaic Arabic,
the term sharia’h means ‘path to the water hole’. When we consider the importance of a
well-trodden path to a source of water for man and beast in the aria resort environment,

1 Irshad abdul haqq,Undrstanding Islamic law from classical to contemporary, Alta mira press(2006),page -4

~5~
we can readily appreciate why this term in Muslim usage should have become a metaphor
for a whole way of life ordained by God.2

According to Abdul mannan omar in his Dictionary of the Holy qura’n , the word at 45:18
derives from the “Quranic root” shara’a. Derivation include: ‘shara’a’ , meaning “He
ordained”., appearing once in the Qur’an at verse (45:13); ‘shara’u’, “they decreed (a law )”
appearing once at (42:21); ‘shiratun(n)’ “spiritual law” used at (5:48);finally ‘shariatun’
“system of divine law, way of belief and practice” is used at (45:18)3.

Shafi’I jurists define Islamic law as “the knowledge of the law of the sharia’h, relating to
men’s acts and derived from specific sources ‘. Maliki jurists define sharia’h as the science
of the commands in particular matters deduced by the application of a process of
reasoning’. A prominent Muslim scholar, Dr abdulKarim Zidan defined sharia’h “as the path
of religion and the various aspects of laws (al-ahkam) which Allah provides for his servants
ie human.

There is difference between the terms sharia,h and fiqh. Yet, these two terms are often used
interchangeably.

Fiqh

The term Fiqh- ‫ فقه‬-is used in the literal sense to mean ”understanding ‘and” discernment”.
In this sense the words Fiqh and Fahm…. are synonymous. It implies an understanding of
Islam in a general way. It may also mean what prudent person is likely to conclude from
obvious sense, on several occasions; (4: 78),(7:179).

The same meaning is reflected in the words of prophet

‫من يردهللا به خيرا يفقهه في الدين‬

“He for whom Allah wills His blessing is granted the understanding of Din”

2 Bernard G. weiss , the sprit of Islamic law , Alta mira press ,1998,page-17
3 Nor foundation , intimation inc,2003,p.287

~6~
The term “Ilm”(knowledge)also has the same literal meaning as fiqh. During the first
century of the Hijarah, the scholars are concerned in that sense and it also included the
meaning of the term Kalam” with in it. fqh till such time embraced both theological
problems and legal issues4. For this reason thet Abu Hanifah(d-150A.H) defined fiqh as;

‫معرفة النفس ما لها و ما عليها‬

“A person’s knowledge of his rights and duties“5.

The definition is very wide and includes elements that are part of the subject of Kalam;like
the tenets of faith(aqa’id).

The term fiqh was defined later by the shafi’I jurists in a very narrow technical sense. The
definition is attributed by some to Al –Shafii himself. He defines fiqh in its technical sense
as follws:

‫العلم باألحكام الشرعية العملية المكتبة من ادلتها التفسيلية‬

“it is the knowledge of the sharai’ ahkam (legal rules), pertaining to conduct, that have been
derived from their specific evidences.6

This definition carries within it a number of meaning and concepts. Firstly the word
knowledge of the sharai’ ahkam; its meaning is narrowed down further by the term shari’
and the domain of fiqh is confined to the knowledge of the sharai’ ahkam alone, that is, legal
rules. Here it must distinguish between sharia’h and non sharia’h (ghayr sharia’h) ahka’m.;
like rational, perceived by senses and discovered through experience.

“Amaliya’ah” meanes ahkam or restricts it to those that pertain to acts (physical, or the
heart or speech). The word “muktasabah” significant; it is derived or acquired by the effort
of jurist (Faqih). Just as it is the law, the law man gets his knowledge of the law from
specific evidences. “Adillah al tafsiliyyah” means specific evidences. Primarily they are
Qur’an then Sunnah, Ijma’ and Qiyas (Ijthihad).

4 Islamic jurisprudence .p.19

5 Sadr al shariah(d747a.H/1346C.E),Al Tawdih Fi Hall Jaw’amid Al Tanqih, Karachi ,1979,p.22
6 Wahabah al-zuhayli, Usul al fiqh al islami ,Tehran,Dar Ihsa’n 1997,Vol-1,p19

~7~
Finlay we can declare the definition of the Fiqh, is the knowledge of the rules of conduct
that have been derived by the jurist from specific evidences in Ijma’ and Qiyas.

Some are -Imam Al Ghazali, Imam Al Razi- criticized this definition very deeply. They point
out that, it is very narrow .and it has not mentioned second –level principles like maslaha of
sharia and its maqasid. Then they reform it”s definition.

Al Ghazali states the definition of fiqh as follow:

‫عبارة عن العلم باألحكام الشرعية الثابتة ألفعال المكلفين خاصة‬

“an egression for the knowledge of legal rules established specifically for human conduct”7.

Al razi states that;

‫العلم بالألحكام الشرعية العملية المستدلة علي اعانها بحيث ال يعلم كونها من الدين صرورة‬

“ The knowledge of the legal rules, pertaining to conduct with reference to their sources,
when this knowledge is not obtained by way of necessity (in religion).”8

DISTINCTION BETWEEN SHARIA’H AND FIQH

From the above definitions, there is difference between the meaning of the sharia’h and
Fiqh. Yet, these two terms are often used interchangeably. The definition, however,
indicates that the term sharia’h has a wider meaning than Fiqh. The term shariaa’h includes
both law and the tenets of faith, that is, the ‘aqa’id’. The real distinction between sharia’h
and Fiqh, however, is that sharia’h is the whole divine law and values as given by Allah .and
fiqh is the laws, or rather opinion on the laws,. In other word sharia’h is the divine law
while Fiqh is the product of human understanding that has sought interpret and apply the
divine law in space and time.

7 Al Ghazali, Al mustafa’ min “Ilm al us’al,Vol-1,p.4

8 Al Razi, Al mahsulafi ‘ilmi usul a fiqh,vol1,p.78l

~8~
Usul al fiqh

We discuss above, fiqh is interpretation and explainion of sharia’h (divine law). This task is
not taken in easy way. It has some methodology and specific rules which derive from
analysis of fuqah .The science and principles which follows to it’s method commonly call
usul al fiqh. The principal objective of usul al-fiqh is to regulate ijtihad and to guide the
jurist in his effort at deducing the law from its sources. The need for the methodology of
usul al-fiqh became prominent when unqualified persons attempted to carry out ijtihad,
and the risk of error and confusion in the development of Shari'ah became a source of
anxiety for the ulema. The purpose of usul al-fiqh is tohelp the jurist to obtain an adequate
knowledge of the sources of Shari’ah and of the methods of juristic deduction and
inference.

Ibn al Ha’jib simpiy defined usul al fiqh as follow

‫هي القواعد التي يتوصل بها المجتهد الي االحكام الشرعية العملية من االدلتها التفصيلية‬

“They are the principles by the use of which the mujthahid derives the legal rules of
conduct from the specific evidences.9

This definition is very narrow. It states the usul al fiqh is a body of principles of
interpretation by the help of which the mujtahid is able derive the law from the detailed
evidences in the Quran the Sunnah, Ijma’ and Qiyas.10 But the aria of usul al fiqh is very
vast. It also contains the principles of like maslahah and Istihsan in so far as these methods
are based on the Qawa’id al Fiqhiyyah. So we would prefer the definition which mantion al
Gazali and Al Razi. Al Razi defined,

‫عبارة عن مجموع طرق الفقه علي سبيل االخمال وكيفية استدالل بها وكيفية حال المستدل بها‬

9 Ibn al Ha’jib, mukhtasar al muntaha’, vol1,p.4

10 Islamic jurisprudence. P.37

~9~
“It is an expression that includes all the paths (evidences) leading to fiqh when these are
considered in a broad sense, and for the status (skill) of the person undertaking such
reasoning.”11

The word paths (turuq) is employed in the sense of all the evidences (adillah) and sings
(ama’rat). The words ‘considered in a broad sense” means that the discipline talks about
the legal validity and strength of the general evidence, for example, the legal validity of Ijma
as a source of Islamic law. The words “legal reasoning proceeding from these path ‘ are
intended to cover the boundary conditions under which such reasoning is to proceed and
in this sense broad general principles like istihsan and maslahah would be included in the
meaning .

Al Ghazali defines usul al fiqh as follows

‫أصول الفقه عباراة عن أدلة هذه األحكام و عن معرفة وجوب داللتها علي األخكام من حيث الجملة ال من‬
‫حيث التفصيل‬

Usual al fiqh is an expression employed for the evidences of these legal rules and for
knowledge of the broad ways in which they reveal such rules, and not by way of a specific
indication (for a specific rule).”12

He gives on to explain that it is not the task of the discipline of usul al fiqh to indicate what
the specific arguments and sources are for a specific rule. That, He says, is the task of “ilm al
–khila’f” where the specific arguments of jurists for a specific rule are compared and
analyses for a deeper understanding .Perhaps, it was this explanation that led some to
focus more on the specific evidences.

Differences between the Islamic Shari`ah and Man-Made Law

Islamic Shari`ah Man-Made Law
1 Divine origin Human origin
2 Consequences in this world and the This world only.
Hereafter

11 Al Razi , Al Mahsu’l fi ‘Ilmi usul al fiqh,vol1,p.80

12 Al Ghazali, Al mustafa’ min ‘Ilmal usul,Vol1, p.3

~ 10 ~
 3 Development of personal Mere loyalty to the law
accountability to Allah
4 Absolute criteria providing for the Popular opinion which may or may not be
benefit of creatures beneficial.

The sources of Islamic law

In Islamic law ,the term use for source is “Dalil” (pl.Adillah). the word dalil means guide.
Technical usage of it’s

‫ما يمكن التوصل بصحيح النطر فيه الي مطلوب خبري‬

“A valid examination of which yields transmitted information (which is the hukm).”13

The term’dalil is also cosiered in equivalent to the terms usul al ahkam (legal sources of the
ahkam) and al masadir al shariyyah li al ahkam( legal sources of the ahkam).

The jurists state that the sources of Islamic law are: (1) The Holy Qur’an ,(2)The Sunnah,
(3) Ijma’, (4)Qiyas, (5)Istihsan (6) Qawl al sahabi, (7) maslaha mursalah (80Sadd al
dhari,iah (9) Istishab al hal ( 10) urf ,(11) shara,u man kablana .

1) The Holy Qur’an

The Quran is the primary source containing all the fundamental directives and instructions
of Allah. Herein are to be found not only directives relating individual conduct but also
principles relating to all the aspects of social and cultural life of human being. The Quran is
the last and complete edition of Divine Guidance and this is the only book of Allah which
has not been distorted.

'Qur’an' literally means 'reading' or 'recitation'. The Meaning Of The Holy Quran is the
words of Allah s.w.t., which are miracles that have been revealed to His Messenger Prophet
Muhammad s.a.w., which are written in book form, which are reliably transmitted to all

13 Al Amidi’, Al Inkaa’m fi usul al ahkam,Vol-3,P.11

~ 11 ~
mankind by continuous testimony ( tawatur'),with the pronunciations and meanings in the
Arabic language and its recitations are made as acts of devotion to Allah s.w.t. (‘Ibadah’).

The Quran is not only a book of law. The main purpose of Quran is to awaken in man the
higher consciousness of his relation with Allah and the universe. However, in the Quran
there are at least five hundred verses which possess definite legal elements. The scholars of
Islam have developed a complete science of interpretation of the Quranic verses which can
be seen in any book of Islamic jurisprudence.

The Field of Laws in the Holy Quran

From the viewpoint of jurisprudence, the Holy Quran contains 3 most important groups of
laws, that is:

 First Group -The Laws of ‘Aqidah’ (Faith)

 Second Group-The Laws of ‘Ahlaqi’ (Morality)
 Third Group -The Laws of ‘Amaliyah’ (Practices).
From the Viewpoint of the Strength of the Law

From this viewpoint, the text of the Holy Quran can be sub-divided into two:
1. ‘Qat’iy’ - Text that indicates on a specific meaning that is understood
and there is no possibility at all of indicating another meaning
2. ‘Dzanniy’ - Text that indicates on a specific meaning that is understood but
there is a possibility that it also indicate another meaning.

2) ‘As-Sunnatun Nabawiyah’ (Prophetic Traditions)

The Sunnah is the second source of Islamic law. Sunnah is an Arabic word which means
"Method". It was applied by the Prophet Muhammad (peace be upon him) as a legal term to
represent what he said, did and agreed to. Its authority is derived from the text of the
Quran. The Quran says,

"For you the life of the Prophet is a model of behaviour" (Al-Quran 33:21)

~ 12 ~
Many of books of traditions were compiled by the companions of the Prophet Sm). These
were later on incorporated in the great collections of Hadith (i.e. traditions) of Bukhari,
Muslim etc. The collectors of the traditions adopted a very scientific system in collection
the Traditions. They did not record any tradition except with the chain of narrators. Every
tradition gives the names of the last narrator of the tradition from whom he learnt the
tradition and so on back to the Prophet or Companion of the Prophet. The Sunnah which is
established through reliable narrators is fully dependable as legal element.

The Classification of ‘As-Sunnah’

There are three classes of ‘As-Sunnatun Nabawiyah’:

1. ‘Sunnah Qauliyah’ or ‘Hadith’ (Word)

2. ‘Sunnah Fi’liyah’ (Action)
3. ‘Sunnah Taqririyah’ (Admission)

3) Ijma’(Consensus of Opinion)

It must be noted at the outset that unlike the Qur'an and Sunnah, ijma does not directly
partake in divine revelation. As a doctrine and proof of Shari'ah, ijma' is basically a rational
proof. But it has the importance of delegated legislation to the Muslim community. The
Muslim society requires such a rule making power to meet the practical problems for the
implementation of Islamic Shariah (Islamic Law). Ijma has been technically defined as the
consensus of the jurists of a certain period over a religious matter. Ijma is considered a
sufficient evidence for action because the Prophet if Islam said, "Muslim will never agreee
on a wrong matter." As such the agreement of the scholars of Islam on any religious matter
is a source of law in Islam.

Types of ‘Ijma’

There are 2 types of ‘Ijma’:

~ 13 ~
1. ‘Ijma Nutqi’ /‘Ijma Sharih’

An agreement among all ‘Mujtahid’ in the form of clear words and/or actions.

2. ‘Ijma Sukuuti’

An agreement among some of the ‘Mujtahid’ only but the other ‘Mujtahid’ were not against
the agreement after making an in-depth study.14

4) Qiyas(analogy)

Qiyas is the fourth important source of Islamic law. Literally, qiyas means measuring or
ascertaining the length, weight, or quality of something, which is why scales are called
miqyas. Qiyas also means comparison, with a view to suggesting equality or similarity
between two things.

Technically, qiyas is the extension of a Shari'ah value from an original case, or asl, to a new
case, because the latter has the same effective cause as the former. The original case is
regulated by a given text, and qiyas seeks to extend the same textual ruling to the new
case.15 In other words Qiyas is resorted to in respect of problems about which there is no
specific provision in the Quran or the Sunnah of the Prophet. In such issues, the scholars
have derived law through analogical deductionon the basis of the provisions of the Quran
and the Sunnah on some similar situation.

Among the proofs for this source are:

1. Allah s.w.t. says in the Holy Quran which means,

“…take warning, then, O ye with eyes (to see)!” (59:2)
2. The ‘Sunnah’ of Rasulullah s.a.w. when he ‘Qiyas’ the debt to Allah s.w.t. as the debt to
human beings.

14 More study: Ref: Principles of Islamic Jurispredence by M. Hashim Kamali

15 Shawkani, Irshad, p. 198.

~ 14 ~
The scholars have developed detailed principles of analogical deductions or Qiyas in the
books of Islamic jurisprudence.

The Principles of ‘Qiyas’

‘Qiyas’ must meet the following 4 principles:

1. Asl - The original case, on which a ruling is given in the text and which

analogy seeks to extend to a new case.

2. Hukm - The rule (hukm) governing the original case which is to be extend

to the new case.

3. Far’ - The new case (far`) on which a ruling is wanting.

4.‘Illah’ - The effective cause which is an attribute (wasf) of the asland is

found to be in common between the original and the new case

To illustrate these, we might adduce the example of the Qur'an (al-Ma'idah, 5:90), which
explicitly forbids wine drinking. If this prohibition is to be extended by analogy to narcotic
drugs, the four pillars of analogy in this example would be:

Asl- wine drinking,

Far’- taking drugs,

‘Illah- the intoxicating effect,

Hukm- prohibition

These are the primary (common agreed) sources of sharia’h. It has some secondary sources
which consisting different school of thought. They are generally:

5) Qawl al sahabi -The Fatwa of a Companion

6) Maslahah Mursalah - Considerations of jurisprudential or Public Interest

7) Istihsan - Juristic preference or Equity in Islamic Law

~ 15 ~
8) Urf - Custom

9) Istishab - Presumption of Continuity of a rule

10) Sadd al-Dhara'i` - Blocking lawful Means to an unlawful end

11) Shara’u man kablana- Earlier scriptural laws

Type of sharia’h rules (Hukum)

The Aabic word hukum (pl. ahka’m) in its literal means ‘a command’. In its technical senses
it means “a rule”. Hear, we are concerned with the legal rule, which is called the hukm al
sharai, Jurists define it as;

‫حطاب هللا تعالى المتعلق بأفعال المكلفين باالقتضاء أو التحيير أو الوضيع‬

“A communication from Allah, the Exalted, related to the acts of the subjects through a
demand or option or through a declaration.”16

Sharia’h rules are broadly divided in to two categories.

(1) hukum al taklifi (obligation rule),

(2) hukum al wad’I (declaratory rule).

The type of hukm al taklifi occurs in the well-known five categories:

a) wajib (obligatory),
b) mandub (recommended),
c) haram (forbidden),
d) makruh (abominable)
e) mubah (permissible).

16 Dr. Wahabath Azuhari, Usul al fiqh al Islami, darul Fiqra, Vol-1,p.38

~ 16 ~
Hanafi scholers divided it in seven categories which are (1)fard ,(2)wajid,(3)mundub (4)
karahath al tanzih, (5) karahath al tahrim,(6) haram ,(7)mubah

Al-hukm al-wad'i is rendered 'declaratory law', as this type of hukm mainly declares the
legal relationship between the cause (sabab) and its effect (musabbab) or between the
condition (shart) and its object (mashrut)

~ 17 ~
 Chapter -2

ISLAMIC COMMERCIAL LAW AN OVER VIEW

As we mention in privies chapter sharia’h included two part .first one is Ibadath
(devotional act) and other is muhamalath (transactions). Genaraliy Ibadath mean
transactions between man and his creator(God) and muhamalath is man and other
creation(men and other things his around).and Fiqh as Shariah which is refered to as
Islamic Law, is further sub-divided into four as follows:(i) Ibadat (rituals),(ii) Munakahat
(marriage or family laws),(iii) Muamalat (commercial transactions),(iv) Jinayat (offences,
crimes and punishments)

In the view of Fiqh, Fiqh Muamalat al malia’ is the part of Fiqh dealing with relations
between people, such as the Islamic commercial law. It is the area of fiqh which governs the
review process for Islamic financial products from the perspective of Shari'ah-compliance
and does not have legal force in countries without explicitly Islamic legal systems that
cover commercial transactions. Generally this part deals with the principles of contracts,
the elements of contracts , condition of subject matter, qualification of contracting parties ,
classification of contracts with regard to validity, etc…

In this chapter we can discus about basic knowledge of fiqh muamalath, its basic principles
and ethics, and other issues like contracts and its validity etc..

Fiqh muamalat

Muamalat is plural and the singular is muamalah. Muamalah is from the verb “aamala”
literally meaning to interact. Muamalat means interactions or transactions.

In technically commercial transactions are concluded through contracts which are

permitted by the Shariah as evidenced by the Quran, the Sunnah and other sources of
Islamic Law.

We can address the Common terms in muamalath .they are:

~ 18 ~
1) MA’L (property)

Wealth is anything that is useable and has legal and material value for the people. It means
that anything considered Ma’l from a juristic point of view should be of value, possessable
and it should have a legitimate use. It also includes abstract and intangible rights (like
trademarks and intellectual property)17.In addition to other goods, fiduciary money is also
a kind of M’al. It serves as a medium of exchange or the standard by which the value of
other goods is measured but in itself it is not a subject matter of sale.

Ma’l or property in Islamic commercial law is divided into:

1) movable (Mnkul) and immovable (A’qar)

movabl means an article which can remove from one place to anther. And
immovable is can not to it. Eg :l and and house are immovable ,vehicals and
lifestocks are movable
2) fungible (Zwatul Amth al or Mithli) and nonfungible (Zwatul Qiyam or Qimi)
An article is said to be Mithli if all of itsunits are similar, like wheat or rice of
particular varieties or vehicles of a given trademark. People choose any of their
units while the purchasing price of all units in the market is the same. A commodity
belongs to a dissimilar category if its like is not available in the market and each of
its units has a different value due to differences in quality or otherwise, like
paintings, gems and buildings. This categorization is important for Islamic financial
institutions because, for example, Salam can be conducted for Mithli goods, while
Istisna‘a is used for Qimi goods.
3) determinate (‘Ain) and indeterminate (Dayn)
‘Ain is a specific or determinate type of Ma’l while Dayn is a nonspecific or
indeterminate property. In contracts, when a person is to get a certain/specific
property from other, this is determinate or ‘Ain. When a nonspecific unit of any kind
of property is to be taken, it is regarded as Dayn.

17
Mustafa Zarqa, cf. Mansoori , Islamic law of contracts and business transactions , islamabad, 2005, p. 190.

~ 19 ~
2) Milk (ownership)

In islam ,allah is the altimate owner of wealth. Human being are holding these resources in
trust. Behaving as vicegarent of the oreator they free to earn and spend the wealth
according to his orders given to mankind through His massengers. The following arethe
means of prossessing gooda,work, inheritance, purchasing or obtaining poperty for
sustenance, properties granted as gifts and the state granting possession of something to
citizens.

According to this contracts ownership can be categories in following :

1) Ownership of assets (milk al ,’ain) eg:sale contract.

2) Ownership of debt (milk al dai’yn) eg:loan contract
3) Ownership of usufruct (milk al manfa’ath) eg: lease contract.

If a person gets ownership of ‘Ain (the asset itself), he gets ownership of its Manf‘at also,
but not the other way round, meaning that getting usufruct of something does not mean
ownership of the asset itself, as in the case of Ijarah where usufruct is transferred to the
lessee and the ownership remains with the lessor. If an Ijarah contract involves transfer of
ownership as an automatic impact of lease, the contract is void.

Milk ul‘Ain is definite and not related to time, meaning that when someone gets ownership
of an asset through purchase, the asset is subject to his discretion; his ownership cannot be
ended or done away with, but can be transferred with his free will and according to any
valid contract as per the respective juristic rules. For example, a buyer of a commodity on
credit becomes the owner of that commodity and the seller, after execution of the sale, has
no jurisdiction to take it back from the purchaser; he can only ask for payment of the debt
or the credit price. As such, the concept of transfer of ownership of an asset, as
distinguished from the transfer of its usufruct, is of immense importance for Islamic banks,
as it determines the liability, right, risk and reward for them in their asset-based
operations.

~ 20 ~
Milk ul Manf‘at is related to time, meaning that usufruct of any asset against rental can be
taken or given for a specified time. Thus, a valid Ijarah (lease) contract always needs
stipulation about the lease period.

3) BAI’ – (SALES/EXCHANGE OF VALUES)

Literally, Bai’ means exchange of one thing with another; one thing being the subject matter
(Mabi‘) and the other being price (Thaman). The Majallah, a code of Islamic commercial law
based on the Hanafi Fiqh, defines a sale as “the exchange of property for property”, and in
the language of the law, it signifies an exchange of property for property with mutual
consent of the parties, which is completed by declaration and acceptance.18 Legally, Bai’
refers to giving ownership of a commodity to another person in compensation of the other
commodity. The seller gives ownership of the commodity to the buyer on a permanent
basis in exchange for the price.

The word Bai’ in its widest meaning stands for any bilateral contract. In that sense, a simple
word for Bai’ would be “exchange”. This may involve all types of business and any exchange
or sales.

Kinds of Sale:

With respect to legality, bai’ are majoriy two types. (1) lawful (sahih)
sales,(2)unlawful (batil) sales.

Lawful sales are four types:

1. Muqaezah : It is sale of kind for kind.

2. Sarf : It is sale of cash for cash as sale of gold for silver.

3. Salm : It is sale of a credit for kind in cash as crops are taken for payment
in future
4. Mutleq Sale : Free sale as sale of a thing in cash for price in cash, is called Mutleq
akalklakljkjlsale.

18 Al-Atasi, 1403 AH, Majallah, Article 105.

~ 21 ~
Unlawful Sales:

Following types of sales, which were very common in Arabia in those days, were
prohibited and declared unlawful by the Holy Prophet as they involved some element
of riba, exploitation, fraud, blackmail, deception, misrepresentation, injustice, gamble,
chance or unfairness:

1. Sale Muzabanah: Sale of a known quantity for unknown quantity or price. It is

applicable to fruits on trees which are sold in exchange for dry fruits.

2. Sale Munabazah: Sale by stone-throwing at commodity of sale. One man

throws the cloth he has for sale towards another and the sale becomes
confirmed, even though the other man may not have touched it or seen it.

3. Habal-Al-Habala: Sale of foetus in womb. One purchased a she-camel with the

promise that he would pay the price when it would give birth to a she-camel.

4. Mulamasah: Sale by touch. One purchases cloth by touching it without opening

it or seeing it or examining it.

5. Muhaqalah: Grain in ear was sold for dry grain.

6. Mu’awamah: Sale of fruits while upon trees for one year, two years or more
whether the fruits appear or not.

7. Mukhabarah: Transfer of a limited and not absolute interest in a land.

8. Sunnayah: Sale of fruits upon trees after leaving some fruit from the subject
matter of sale.

9. Talqi-Jalab: Purchase of corn and food-stuffs on the way before merchandize

actually reach their destined places. It was a common practice with the people
of Madinah that, when the farmers brought grain to the town, they would meet
them outside the town and purchase all the grain, and then sell it at their own
price.

10. Sale by Al-Hadir-Libad: Some people worked as agents of the grain-sellers

(middle-men) and all grain was sold through them. They earned a profit from

~ 22 ~
 both the seller and the buyer and often deprived the cultivator of his just profit
and the buyer of a just and fair price. The Holy Prophet forbade this type of
bargaining in the interest of the cultivator as well as the buyer.

11. Sale Ainiyah: Sale of commodities, especially perishable, without obtaining

their possession.

12. Sale Sarf: Sale of gold and silver for gold and silver is prohibited unless sold
hand to hand and in equal quantity, otherwise it is `riba’.

13. Sale al-Gharar: Any sale by deceiving the opposite party. Examples of such
type of sale are as follows:

(a) Misrat: Sale of animal which is not milked for a number of days
and its milk is left in the udder to deceive the buyer.

(b) Najsh: Raising the price of an article of merchandise or

outbidding in sale, not from a desire to purchase it, but with a
view to trap the buyer.

(c) Sale by Oath: To sell articles by taking oaths regarding their

superior quality.

(d) Adulteration of articles of inferior quality with superior quality

as water in milk.

AQD’ (CONTRACTS) IN FIQH MUAMALATH

‘Aqd, which lexically means conjunction or to tie, is synonymous with the word
“contract” of modern law. The Holy Qur’an says about the “aqd’” in different verses.19
Some of them are: (1:5),(2:325),(5:88). Murshid al-Hayran has defined it as the
conjunction of an offer emanating from one of the two contracting parties with the
acceptance by the other in a manner that it affects the subject matter of the contract.
According to Majallah al-Ahkam al-Adliyyah, an ‘Aqd takes place when two parties
undertake obligations in respect of any matter. It is effected by the combination of an

19The other related terms to Aqd’ are: (a) Mithaq [see verses:(4:21),(4:90),(8:72),(13:20)] (b)’Ahd orW’adah
[see:(2:40),(2:177),(17:40)]

~ 23 ~
offer (Ijab) and acceptance (Qabul). Al ‘Inayah has defined ‘Aqd as a legal relationship
created by the conjunction of two declarations, from which flow legal consequences with
regard to the subject matter. Among modern jurists, Abd al-Razzaq al-Sanhuri defines
‘Aqd as the concurrence of two wills to create an obligation or to shift it or to relinquish
it.20

An analysis of the above definitions would reveal that a contract involves: the existence
of two parties; the issuance of an outward act depicting internal willingness; an offer
(Ijab) and acceptance (Qabul). Further, there must be a legal union between the two
declarations regarding the subject matter or the contractual obligations.21

In a general sense, the validity of the contract requires that its motivating and underiying
cause should be according to requirements of shariah. All contracts which promote
immorality or against public, harmful to person or property of a third party or forbidden
by law are deemed to be void.

ELEMENTS OF A CONTRACT

A contract comprises the following elements: the existence of two parties who must be
capable of entering into contracts, i.e. they must be mature and sane; an offer (Ijab) and
acceptance (Qabul); a legal (Sharie) basis of union between the two declarations and the
contractual obligations; and free from all prohibited factors. Muslim jurists in general
hold that, intrinsically, the essential elements of a contract are threefold and if these
elements are not found properly, the contract is invalid:

• The form, i.e. offer and acceptance (Sighah);

• The contracting parties (‘Aqidain);

• The subject matter (Ma‘qud ‘alayh).

TYPES OF CONTRACTS

Contracts can be classified with respect to a number of perspectives. Some of them:

20 Mansoori, 2005, pp. 19.

21 Mansoori,2005,pp21

~ 24 ~
I ) ON THE BASIS OF VALIDITY

With respect to validity or otherwise as per Sharı´ah rules, jurists in general divide
contracts into two types, namely:

1) Valid (Sahih) contracts - A valid contract is one that satisfies all of its conditions

2) Invalid (Batil) contracts - An invalid contract is one in which one or more conditions
for legality are violated.

Hanafis, however, divide contracts into three categories of valid (Sahih),

voidable/defective (F’asid) and void (Batil). Thus, they divide the void contracts into
defective/irregular (F’asid) and invalid categories.22

These classifications are provides more options for practitioners to apply the Islamic law
of contracts in modern-day operations. So we can explain it more usefully.

I.a) Valid Contracts

A valid contract is one which is in accordance with Islamic law, both as regards its ‘Asl
(fundamental components, nature or essence) and Wasf (accessory circumstances or
external attributes). A contract is deemed valid when all elements of the contract (form
or offer and acceptance, the subject matter and the contracting parties) are found to be in
order; the conditions of each element have been met and it is free from external
prohibited activities like Riba, Gharar, etc. The form of the contract requires conformity
between offer and acceptance, their issuance in the same session and the existence of
Ijab until the issuance of Qabul.

A valid contract assigns all its effects which the Sharıa’h has determined for it. It becomes
effective (Nafiz) upon execution if not suspended (Mawquf), in which case it is enforced
upon the removal of the cause of suspension. Some jurists, including Hanafis, Malikis and
some Hanbalis, are of the view that the effectiveness of a valid contract can be delayed
until the happening of a future event. To them, a valid contract can be either Nafiz
(immediately effective) or Mawquf (suspended or tied to any future event). According to
Shawafi‘e and some of the Hanbalis, however, a valid contract must be effective

22 For details see Zuhayli, 2003, pp. 71, 72

~ 25 ~
immediately upon its execution. A Nafiz contract is one in which the elements are found
to be in order, the conditions are met, the external attributes are legal and it is not
suspended or dependent upon ratification.

I.b) Voidable (Fasid) Contracts

A contract that is legal in its ’Asl, i.e. it has all the elements of a contract, but is not legal in
its Wasf, i.e. with respect to external or nonessential attributes of the contract, will not
necessarily be void, rather it will be voidable or F’asid, and can be regularized or
validated by removing the cause of irregularity.

Causes of invalidity are of two types:

1. Intrinsic causes which relate to the basic elements of the contract, such as
unlawfulness or nonexistence of the subject matter, or the absence of contractual
capacity in any of the parties.

Eg : Relating to the subject matter, e.g. indeterminate object in a sale contract or uniden-
tified/not sufficiently defined asset in an Ijarah contract. In Ijarah Mosufah bil Zimmah23,
which is permissible, the asset might not be exactly identified but should be sufficiently
described as to leave no ambiguity regarding the use or usufruct to be taken.

2. Extrinsic causes that relate to Wasf, i.e. external attributes such as Riba or Gharar
contained in the contract.

Eg : It is pertinent to note that Riba and Gharar are causes of irregularity of a contract in
Hanafi law, while in other schools they are causes of invalidity of a contract. However,
even in Hanafi law, a Riba- or Gharar-based contract is not enforceable and only removal
of the term involving Riba or Gharar would validate it. So if a lender has put the condition
of interest in a loan contract, the condition of charging interest is invalid and if this
condition is removed, the loan contract becomes valid and the debtor has to pay only the
principal sum of the loan. Here, the rule may be kept in mind that non commutative

23In Ijarah Mosufah bil Zimmah, the lessor undertakes to provide a well-defined service or benefit without identifying any
particular units of asset rendering the related service. For example, an Islamic bank may require a transporter to pick up and
drop its officers from their houses to the office on air-conditioned vans of a defined nature. In this case, any particular van is
not hired, neither will the destruction of any van terminate the lease contract; the lessor has to arrange the vans as per the
agreement.

~ 26 ~
contracts (like the contract of loan) do not become void with a void condition. Only the
condition has to be removed

Legal Status of the F’asid (Voidable) Contract: A voidable contract must be revoked
without the consent of either party. Therefore, no rights or obligations arise. However, if
the cause of defect or irregularity is removed, the contract becomes valid. The legal
position of such a contract depends upon whether the goods have been delivered or not.

I.C) Void (Batil) Contracts

Contracts that do not fulfil the conditions relating to offer and acceptance, subject matter,
consideration and possession or delivery, or involve some illegal external attributes are
considered void (Batil). Also, the sale of a thing having an element of absolute
uncertainty or speculation is not valid, for example, the sale of milk in the udder of a cow
is not a valid sale.

A Batil contract does not give rise to any effect, i.e. the buyer will not have the title to the
subject matter; the seller will not have the title to price or the consideration; ownership
will not transfer and the transaction will be null and void. If delivery of the goods has
already been made, the same would have to be returned to the other party regardless of
whether such illegality was known to the parties. If the buyer sells the goods to a third
party after taking delivery, the original seller cannot be prevented from claiming the
goods. The reason is that ownership cannot be transferred through a contract that is
Batil.

II ) WITH RESPECT TO THE CONSIDERATION OR COUNTER VALUE IN EXCHANGE.

It has two types:

1) Uqood-e-Mu‘awadha, or compensatory/commutative contracts:

As a result of this contract, one party can get remuneration or compensation – like sale,
purchase, lease and Wakalah contracts.

2) Uqood Ghair Mu‘awadha or noncommutative contracts:

~ 27 ~
Uqood ghair mu‘awadha is a contract one cannot get any return or compensation. Eg:
contracts of loan (Qard), gift (Tabarru/Hibah), guarantee (Kafalah) and assignment of
debt (Hawalah).

Legal Status of Commutative and Noncommutative Contracts:

Compensatory/commutative contracts like sale, purchase, lease and other remunerative
agree- ments become void by inserting any void condition. Noncompensatory/voluntary
agreements do not become void because of a void condition. The void condition itself
becomes ineffective. For example, a person enters into an interest-based loan; the
condition of charging interest on the loan would be void but the loan contract will remain
effective, the debtor will have to repay the loan/debt as it becomes due. Similarly, Gharar
(uncertainty) does not invalidate noncompensatory contracts; for example, jurists
indicate that donation of a stray or unidentified animal or fruit before its benefits are
evident or a usurped commodity is permissible, but their sale is not valid.

GENERAL RULES FOR THE VALIDITY OF MUAMALATH

All commercial transactions must be governed by the respective rules and norms of
Islamic ethics, as enunciated by the Sharıa’h. The Islamic system disapproves of any
exploitation or injustice on the part of any of the parties involved. To achieve this
objective, the Sharıa’h has advised some prohibitions and recommended some ethics. We
can disuses it in a summarized manner.

1) Free From Prohibited Element.

Jurist commonly prohibited some elements whch are coming aginst spirit of ahariah law.
They are; a) Ikrah (duress), b) Ghalath (mistake), c) Taghrir (deception), d) Ghubn (non-
conformity)

2) Free Mutual Consent.

All transactions, in order to be valid and enforceable, must be based on free mutual
consent of the parties. The consent that is required for the formation of a valid contract is
free consent. Consent obtained through oppression, fraud and misperception renders a
contract invalid as per Islamic law. It also requires that consenting parties have certain

~ 28 ~
and definite knowledge of the subject matter of the contract and the rights and the
obligations arising from it. Practices like Najash (false bidding to prices), Ghaban-e-
Fahish (charging exorbitant prices while giving the impression that the normal market
price has been charged), Talaqqi-al-Rukban (a city dweller taking advantage of the
ignorance of a Bedouin by purchasing his goods at a far lower price before the latter
comes to the market) and concealing any material defect in the goods or any value-
related information in trust sales like Murabaha have been strictly prohibited so that the
parties can decide with free will and confidence.

3) Prohibition of Gharar.

All valid contracts must be free from excessive uncertainty (Gharar) about the subject
matter or the consideration (price) given in exchange. This is particularly a requirement
of all compensatory or commutative contracts. In noncompensatory contracts, like gifts,
some uncertainty is affordable. Gharar conveys the meaning of uncertainty about the
ultimate outcome of the contract, which may lead to dispute and litigation. Examples of
transactions based on Gharar are the sale of fish in water, fruits of trees at the beginning
of the season when their quality cannot be established or the future sale of not fully
defined or specified products of a factory which is still under construction.

4) Avoiding Riba

As discussed in detail in previous chapters, Riba is an increase that has no corresponding

consideration in an exchange of an asset for another asset. The increase without
corresponding consideration could be either in exchange or loan transactions. As a
logical corollary to the prohibition of riba , the sharia’h has prohibited all benefits
accruing to a person without any labor, risk, or expertise. Any person who wishes to earn
profit on his monetary investment must bear the loss or dockages accruing to the
business where his money capital has been used.

5) Avoiding Qim’ar and Maisir (Games of Chance).

Qim,ar includes every form of gain or money, the acquisition of which depends purely on
luck and chance. Maisir means getting something too easily or getting a profit without
working for it. All contracts involving Qim¯ ar and Maisir are prohibited. Example of it a

~ 29 ~
person puts his money or a part of his wealth at stake wherein the amount of money at
risk might bring huge sums of money or might be lost or damaged. Present – day lottery
are also coming under it.24

6) Prohibition of Two Mutually Contingent Contracts.

Two mutually contingent and inconsistent contracts have been prohibited by the holy
Prophet (pbuh). This refers to

1. The sale of two articles in such a way that one who intends to purchase an article is
obliged to purchase the other also at any given price.

2. The sale of a single article for two prices when one of the prices is not finally stipulated
at the time of the execution of the sale.

3. Contingent sale.

4. Combining sale and lending in one contract.

In order to avoid this prohibition, jurists consider it preferable that a contract of sale
must relate to only one transaction, and different contracts should not be mixed in such a
way that the reward and liability of contracting parties involved in a transaction are not
fully defined. Therefore, rather than signing a single contract to cover more than one
transaction, parties should enter into separate transactions under separate contracts

7) Conformity of Contracts with the Maqasid of Sharı´ah

The injunctions of the Sharı´ah are directed towards the realization of various objectives
for the welfare of mankind. The objectives of the Sharı´ah have been emphasized in a
large number of the texts of the Qur’an and Sunnah. Any contract or transaction that
militates against any of these objectives is invalid in Sharı´ah. It is quite obvious that the
rights of fellow beings have to be honoured in respect of all transactions. The rights of
Allah (SWT) in Sharı´ah also refer to everything that involves the benefit of the
community at large. In this sense, they correspond with public rights in modern law.
Therefore, any contract should not be against the benefits of the public at large.25

24 -ie : in Webster’s dictionary, a lottery has been defined as “a distribution of prizes by lost or chance.
25 Mansoori ,2005 pp.11

~ 30 ~
8) Principle Of Profits With Liability /Risk and reward.

This principle states that a person is entitled to profit only when he bears the risk of loss
in business. It operates in a number of contracts such as the contract of sale, hire or
partnership. Any excess over and above the principal sum paid to the creditor by the
debtor is prohibited because the creditor does not bear any business risk with regard to
the amount lent. In sale and lease agreements, parties have to bear risk as per the
requirements of the respective contracts.

9) Permissibility as a General Rule

Everything that is not prohibited is permissible. The principle of permissibility

establishes the fact that all agreements and conditions contained in them are permissible
as long as they do not contradict any explicit text of the Qur’an or Sunnah.

~ 31 ~
 Chapter 3

MAQASID AL-SHARI`AH

Allah created all things in the world with His own purpose. He declared it in the Holy
Qur’an:

“And we created not the haven and the earth and all that is between them without
purpose.”(38:27).

Beside of its, His law –Shari’ah- is carried higher objectives to completion of His creations.
The Shari’ah generally is predicated on benefits to the individual and the community, and
its laws are designed so as to protect these benefits and to facilitate the improvement and
perfection of the conditions of human life on earth. The Qur’an is expressive of this when it
singles out the most important purpose of the Prophet Hood of Muhammad (saw): “We
have not sent you but as a Mercy to the worlds” (21:107). This can also be seen in the
Qur’an’s characterization of itself as “a healing to the (spiritual) ailments of the hearts” and
“a Guidance and Mercy” for the believers and mankind (10:57).

Maqasid al-Shari’ah, or the Objectives of Islamic Law, is an important and yet somewhat
neglected science of the Shari’ah. In this chapter we can discuss about it. Here we will
analyses the meaning of Maqasid al Shari’ah, its calcifications, levels and other related
terms of it, etc...

MEANING AND DEFINITION

The term Maqasid al-Shari’ah is a possessive construction, known in Arabic grammar as an

Idafa, by which the meaning, “The Maqasid of the Shari’ah” is conveyed. We discussed the
term ‘Shari’ah’ in first chapter. Here we shall look at the first component in this construct
first.

The linguistic meaning of the word Maqasid is as follows: Maqasid is the plural of the word
Maqasid and comes from the verbal root qa-sa-da which has several meanings, some of

~ 32 ~
which are: ‘to intend,’ ‘to take a middle course’ and ‘to walk towards.’ From this root comes
the noun, Qasd which means ‘a goal,’ ‘an aim purpose,’ or ‘an aspiration.’

Technically Maqasid al Shari’ah is:

‫قصد الشارع الي تحقيقها من وراء تشريعاته و أحكامه و التي يستقريها العلماء المجتهدون من النصوص الشرعية‬

“The objective of law giver-Allah-to fulfilled (the purpose) from his laws and rules; and
whither explores the Ijthihadi’ (interpreting) scholars from the nass of Shari’ah (solid
evidence of Shari’ah)26

EVIDENCE OF THE MAQASID AL-SHARI’AH

Islamic law is comprehensive in tackling aspects of human activities. Allah says:

“Nothing have we omitted from the book”(6:38)

The ultimate goal of all Islamic teaching is to be a blessing for mankind. This is the primary
purpose for which the prophet and Quran was sent to this world. 27One of the indispensable
ways to realize this goal is to promote the Falah or well –being of all the people living on
earth. The Holy Qur’an and sunnah emphasizes flexibility and leniency in the principles
that guide human life .Allah says:

“Allah desires ease for you and not hardship”. (2:185)

“Allah desires ease to make things easier for you, for mankind is created weak (to resist his
lusts)”.(4: 28)

The main purpose of behind it’s to promote the benefits and protect the harms in human
life. So Islam conceded purpose of laws.

The Qur’an is expressive, in numerous places and a variety of contexts, of the rationale,
purpose and benefit of its laws so much so that its text becomes characteristically goal-

26 Dr. Jasir A’vdah, Maqasid al shari’ah,international institution of Islamic thought, U.S.A, p.17
27 See (2:107),(10:27),(31:2,3)

~ 33 ~
oriented. This feature of the Qur’ânic language is common to its laws on civil transactions
(mu’amalat)as well as devotional matters (‘ibadat). Thus when the text expounds the
rituals of wudû (ablution for prayer) it follows on to declare that "God does not intend to
inflict hardship on you. He intends cleanliness for you and to accomplish his favour upon
you" (5: 6). Then with regard to the prayer itself, it is declared that "truly salâh obstructs
promiscuity and evil" (29: 45). With reference to jihâd the Qur’an similarly proclaims its
purpose in such term that "permission is granted to those who fight because they have
been wronged" (22: 39). The purpose, in other words, of legalizing jihâd is to fight injustice
(zulm) and the purpose of salah is to attain spiritual purity and excellence that is
accomplished together with physical cleanliness through ablution before prayer. With
reference to the law of just retaliation (qisas), the text similarly declares that "in qisas there
is life for you, o people of understanding" (2: 179); and with regard to poor-due (zakah),
the Qur’an validates it "so that wealth does not circulate only among the wealthy" (57:7).
According to another text, the believers are under duty to lower their gaze in their
encounter with members of the opposite sex, "for this will help you to attain greater purity"
(24: 30).
We can add many more examples of the law which show how the Qur’an and the Sunnah
are expressive of their goal justification, cause and benefit in the affirmative sense. These
are the good evidence of Maqasid al- Shari’ah.

MAQASID AL SHARI’AH: A BRIEF HISTORY

If we were look back to the time of the Prophet Muhammad (s) and his Companions (ra),
we would be not find them referring to the science of Maqasid as we do today. But as with
all the sciences,[ Fiqh, Hadith, Tafsir etc..] the concepts and knowledge therein were being
understood and applied by the Prophet (s), his Companions (ra) and later generations, just
not in the form we do today.

In terms of its relationship with other sciences of the Shari’ah, Maqasid is closely linked
with Fiqh and Usool al-Fiqh in that it evolved directly from the science of Usool al-Fiqh
(Principles of Islamic Law), which itself evolved from Fiqh (Jurisprudence) itself. We can
illustrate this by looking at the example of a house. Maqasid can be thought of as the
~ 34 ~
foundations. Usool as the pillars holding up the structure and Fiqh, the building itself, the
end result. As per rule, the maqâsid are obviously relevant to ijtihâd. And it has been
treated as such in the conventional expositionsof the theory of ijtihâd.

Islamic legal thought is, broadly speaking, preoccupied with concerns over conformity to
the letter of the divine text, and the legal theory of Usool al-Fiqh has advanced that purpose
to a large extent. This literalist orientation of the juristic thought was generally more
pronounced in the approach of the tendency - the traditionist - the Ahl al-Hadîth - than that
of the Rationalists - the Ahl al-Ray. The literalists thus tended to view the Shari’ah as a set
of rules, commands and prohibitions that were addressed to the competent individual
mukallaf and all that the latter was expected to conform to its directives. The precedent of
the leading Companions indicated, on the other hand, that they saw the Shari’ah both as a
set of rules and a value system in which the specific rules were seen as tangible
manifestations of the overriding values. The textualist tradition of the first three centuries
did not take much interest in maqâsid al-Shari’ah and it was not until the time of al-Ghazâlî
(d. 505/1111) and then al-Shâtibi (d. 790/1388) that significant developments were made
in the formulation of the theory of maqâsid.

The basic outlook that was advocated by the theory of the maqâsid was not denied by the
leading schools, yet the maqâsid remained on the fringes of the mainstream juristic thought
that was manifested in the various themes and doctrines of Usool al-Fiqh. Except for the
Zâhirîs who maintained that the maqâsid are only known when they are identified and
declared by the clear text, the majority of ‘ulamâ’ did not confine the maqâsid to the clear
text alone. For they perceived and understood the Shari’ah to be rational, goal-oriented and
its rules generally founded on identifiable causes. A mere conformity to rules that went
against the purpose and outlook of the Shari’ah was., therefore, generally considered
unacceptable. A totally different approach to the maqâsid was taken by the Bâtiniyyah who
held, contrary to the Zâhirîs, that the essence and objective of the nusûs were always to be
found, not in the explicit words of the text, but in its hidden meaning (i.e. bâtin), hence their
name, the Bâtiniyyah. There were also differences of orientation among the leading
madhâhib toward the maqâsid: some were more open to it than others, but elaboration

~ 35 ~
into the goals and objectives of the Sharî’ah was generally not encouraged. This rather
unspoken attitude contrasted with the fact that the Qur’ân itself exhibits considerable
awareness of the underlying purposes and objectives of its laws and often expounds the
causes and rationale on which they are founded. The general reticence of the ‘ulamâ’ in
respect of the identification of the maqâsid might have partly been due to the elements of
projection and prognostication that such an exercise was likely to involve. Who can tell, for
sure, for example, that this or that is the purpose and overriding objective of the Lawgiver,
without engaging in a degree of speculation, unless of course, the text itself declared it so.
But then to confine the scope of the maqâsid only to the clear declaration of the texts was
also not enough, as I shall presently elaborate.

It was not until the early fourth century that the term ‘maqâsid’ was used in. the juristic
writings of Abû ‘Abd Allâh al-Tirmidhî al-Hakîm (d. 320/932) and recurrent references to it
appeared in the works of lmâm al-Haramayn al-Juwaynî (d. 478/1085) who was probably
the first to classify the maqâsid al-Sharî’ah into the three categories of essential,
complementary and desirable (darûriyyât, hâjiyyât, tahsîniyyât)which has gained general
acceptance ever since. Juwaynî’s ideas were then developed further by his pupil, Abû
Hamîd al-Ghazâlî who wrote at length on public interest (maslahah)and ratiocination
(ta’lîl)in his works, Shifâ’ al-Ghalîl and al-Mustasfâ. Ghazâlî was generally critical of
maslahah as a proof but validated it if it promoted the maqâsid of the Sharî’ah. As for the
maqâsid themselves, Ghazâlî wrote categorically that the Sharî’ah pursued five objectives,
namely those of faith, life, intellect, lineage and property which were to be protected as a
matter of absolute priority.

A number of prominent writers continued to contribute to the maqâsid, not all of them
consistently perhaps, yet important to the development of ideas. Sayf al-Dîn al-Âmidî (d.
631/1233) identified the maqâsid as criteria of preference al-tarjîh among conflicting
analogies and elaborated on an internal order of priorities among the various classes of
maqâsid. Âmidî also confined the essential maqâsid to only five. The Mâlikî jurist, Shihab al-
Din al-Qarâfî (d. 684/1285) added a sixth to the existing list, namely the protection of
honour (al-‘ird)and this was endorsed by Taj al-Din ‘Abd al-Wahhab ibn al-Subki (d.

~ 36 ~
771/1370) and later by Muhammad ibn ‘Ali al-Shawkânî (d. 1250/1834). The list of five
essential values was evidently based on a reading of the relevant parts of the Qur’ân and
the Sunnah on the prescribed penalties (hudud). The value that each of these penalties
sought to vindicate and defend was consequently identified as an essential value. The latest
addition (i.e. al-‘ird) was initially thought to have been covered under lineage (al-nasl, also
al-nasab), but the proponents of this addition relied on the fact that the Shari’ah had
enacted a separate hadd punishment for slanderous accusation (al-qadhf), which justified
the addition. ‘Izz al-Dîn ‘Abd al-Salâm al-Sulami’s (d. 660/1262) renowned work, Qawa’id
al-Ahkam, was in his own characterisation a work on ‘maqasid al-ahkam’ and addressed
the various aspects of the maqasid especially in relationship to ‘illah (effective cause) and
maslahah (public interest) in greater detail. Thus he wrote at the outset of his work that
"the greatest of all the objectives of the Qur’ân is to facilitate benefits (masâlih)and the
means that secure them and that the realisation of benefit also included the prevention of
evil." Sulamî added that all the obligations of the Shari’ah (al-takalif)were predicated on
securing benefits for the people in this world and the next. For God Most High is Himself in
no need of benefit nor is He in need of the obedience of His servants. He is above all this
and cannot be harmed by the disobedience of transgressors, nor benefit from the
obedience of the righteous. The Sharî’ah is, in other words, concerned, from the beginning
to the end, with the benefits of God’s creatures.

Taqi al-Din ibn Taymiyyah (d. 728/1328) was probably the first scholar to depart from the
notion of confining the maqasid to a specific number and added, to the existing list of the
maqasid, such things as fulfilment of contracts, preservation of the ties of kinship,
honouring the rights of one’s neighbour, in so far as the affairs of this world are concerned,
and the love of God, sincerity, trustworthiness, and moral purity, in relationship to the
hereafter. Ibn Taymiyyah thus revised the scope of the maqasid from a designated and
specified list into an open-ended list of values, and his approach is now generally accepted
by contemporary commentators, including Ahmad al-Raysuni, Yusuf al-Qaradawi and
others. Qaradawi has further extended the list of the maqasid to include social welfare and
support (al-takaful), freedom, human dignity and human fraternity, among the higher

~ 37 ~
objectives and maqasid of the Shari’ah. These are undoubtedly upheld by both the detailed
and the general weight of evidence in the Qur’an and the Sunnah.

I propose to add economic development and strengthening in technology and science to the
structure of maqasid as they are crucially important in determining the standing of the
ummah in the world community. It would appear from this analysis that the maqâsid al-
Shari’ah remain open to further enhancement which will depend, to some extent, on the
priorities of every age.

CLASSIFICATION OF OBJECTIVES

The objectives can be divided into two: I ) Primary objectives. II ) Secondary objectives.

I) Primary Objectives

The primary objectives that Shar ı´ah tends to realize are the protection and preservation
of:

1) Al-din (Religion). 3) Al-nas’l (Progeny – family unit). 5). Al-aq’l (Intellect).

2) Al-nafs (Life). 4) Al-ma’l (Property).

1) The protection of Al-nafs (Life).

The protection of religion means achieving the purpose of worship of Allah (SWT). In Islam
there is a comprehensive system of beliefs and Sharı´ah makes it the responsibility of the
State to implement Sharı´ah requirements in respect of beliefs.

2) The protection of Al-nas’l (Progeny – family unit).

The protection and preservation of human life refers to the sanctity of life as emphasized in
the Qur’an and Sunnah. There is the law of Qis’as to punish those who cause any harm to
human life. This objective also refers to the provision of basic necessities to all human
beings.

~ 38 ~
3) The protection of Al-nas’l (Progeny – family unit).

The protection of progeny or the family unit relates to marriage and the family institution,
whose purposes are: procreation, protection against lack of chastity and the proper
upbringing of children, enabling them to become good human beings and Muslims and to
bring peace and tranquility to society. Means to realize this objective are the promotion of
the marriage contract, tenets relating to family life and the prohibition of adultery.

4) The protection of Al-ma’l (Property).

The protection of wealth and property refers to the sanctity of the wealth of all members of
society, with an emphasis on valid (Halal) earning and discouragement of a concentration
of wealth leading to a vast gap between the poor and the rich and the inability of the former
to meet their basic needs of food, health and fundamental education. For this purpose,
Islam provides a comprehensive law governing Mu‘amalat or transactions among members
of a society.

5) The protection of Al-aq’l (Intellect).

The promotion of human intellect refers to acquiring knowledge, thus enabling people to
differentiate between good and bad and to play their part in enhancing the welfare of
human society as a whole.

Allamah Qarafi and many other scholars have added a sixth essential, namely ‘ird
(dignity)28; which, however, can be considered within the scope of nafs (life). Kamali
suggested examples which include encouragement of work and trading activities for
smooth flow of living and economic development, and similarly commandment of
education is for the interest of intellectual wellbeing, advancement in science, arts and
cultures29.

28Shatibi, Muwafaqat, Vol.1, p. 243, in Qaradawi, Madkhal, p.55.

29Hashim Kamali, “Al-Maqasid al-Shariah: The Objectives of Islamic Law”, The Muslim Lawyer Journal, 3,
No.1, (April-June, 1998), 2; available at http://www.aml.org.uk/journal/3.1/Kamali%20-%20Maqasid.pdf;
internet.

~ 39 ~
II) Secondary Objectives

The above primary objectives of Sharı´ah lead to a number of secondary objectives,which

are:

1. The establishment of justice and equity in society.

2. The promotion of social security, mutual help and solidarity, particularly to help the
poor and the needy in meeting their basic needs.
3. The maintenance of peace and security.
4. The promotion of cooperation in matters of goodness and prohibition of evil deeds
and actions.
5. The promotion of supreme universal moral values and all actions necessary for the
preservation and authority of nature.

Relating the objectives of Sharı´ah with human welfare, Muhammad Umer Chapra, an
economist at the Jeddah-based Islamic Development Bank (IDB), contends:

“However, if well-being were to be defined in a way that rises above the materialist and hedonist
sense and incorporates humanitarian and spiritual goals, then economics may not be able to avoid a
discussion of what these goals are and how they may be realized. These goals may include not only
economic well being, but also human brotherhood and socio-economic justice, mental peace and
happiness, and family as well as social harmony. One of the tests for the realization of these goals
may be the extent to which social equality, need fulfilment of all, full employment, equitable
distribution of income and wealth, and economic stability have been attained without a heavy debt-
servicing burden, high rates of inflation, undue depletion of nonrenewable resources, or damage to
the ecosystem in a way that endangers life on Earth. Another test may be the realization of family
and social solidarity, which would become reflected in the mutual care of members of society for
each other, particularly the children, the aged, the sick, and the vulnerable, and absence, or at least
minimization, of broken families, juvenile delinquency, crime, and social unrest.”30

30 Chapra, 2000a, pp. 4–8. (Also published in The Journal of Socio-economics, 29, pp. 21–37).

~ 40 ~
THREE LEVELS OF MAQA’SID

1) Al-Darooriyaat (TheEssentials)

Translated as “the essentials,” and defined as meaning ‘those things which are necessary for
the establishment of the benefits and interests in both religious and worldly affairs, an
absence of which leads to a disordered and incomplete life.’ These must be protected and all
measures aimed at safeguarding them must be taken, whether by individual or the
government authorities. There values include the five fundamental matters in life for
example: the protection of the wealth, Allah prohibited stolen and interest: and He allowed
sales and work.

2) Al-Haajiyaat (The Supportive Needs)

Translated as the “needs,” and defined as meaning ‘those things which are needed for the
protection, establishment and execution of the darooriyaat. They are those things which are
not prescribed in isolation, rather in support of the essentials’. Examples in mua’malath
include the permissibility of trading and other kind of transactions such as Ijarah9leasing,
and murabaha (cost plus sales).

3) Al-Tahseeniyaat (The Embellishments)

Translated as “the embellishments,” and defined as meaning ‘those things which help in the
completion of the essentials and whose presence is more preferable than their absence’. Eg:
the application in muamalath include the prohibition of selling item that have no material
value, selling of public properties etc..

FIQHI TOOLS RELATED WHIT THE MAQASID AL-SHARI’AH

As we mention before, the maqâsid are obviously relevant to ijtihâd. And it is an important
tool of mujtahîd. As per, some fiqhi tools are used it’s same manner. We can discuss them in
below. It help us to understand the subject in real sense.

~ 41 ~
I ) MASLAHA

Literally, maslahah means ‘benefit’ or ‘interest’, ‘welfare’, or ‘advantage’; or “Manf’a” in

Arabic. In the technical sense it means “the preservation of the purposes of islamic law in
the settlement of legal issues.31With in the range of usul al fiqh, the maslaih (plural of
maslahah) are considered to be of three broad categories, from the viewpoint of the
availability of any textual reference. They are:

1) Al-Masalih Al-Mu’tabarah :

Benefits acknowledged by the Shari’ah are those which are vividly expressed in the
Shari’ah texts, and approved its benefits. As examples, the commandment for Jihad,
which is aimed to safeguard the Deen.32

2) Al-Masalih Al-Mulghat:

The benefits which are rejected are also clearly mentioned in the texts, and that are
disapproved in the Shari’ah. Examples transactions with riba (interest, sometimes also
used for ‘usury’) are also prohibited33, despite the fact that riba enables one to make profit.

3) Al-Masalih Al-Mursalah

Those benefits which are neither mentioned explicitly in favor, nor denied outright in
the textual scriptures. In a clearer definition, Khallaf mentions it as: “the benefits which
the lawgiver did not impose as a rule to be implemented, and neither there is any textual
indication acknowledging it nor rejecting it.”34Eg: there is no penalty in the Quran for
drinking of wine. In sunnah the traditions very, with some providing 80 lashes and others
40. Ali fixed the penalty at 80 on the Analogy of Qadf(slander). He says: “He who drinks is
intoxicated, he who is intoxicated raves, he who raves slander, I(therefore) uphold the
penalty of the slanderer for him.

31 Ail Ghazali, Al Mustasfa min ilmi al usu’al,Vol-1, p.286

32 See (2:193)
33 See (2:275)
34 Abd al-Wahab Khallaf, ‘Ilm Usul al-Fiqh (Cairo:Maktabah al-Da’wah al-Islamiyyah), 84.

~ 42 ~
Conditions of Masalih

Although the Shari’ah accepts benefits, and opts for ease, however does not accept all
that leads to a benefit. The benefits are bounded by some guidelines to accommodate
it in the Shari’ah. In a very brief manner, these conditions are:35

1. Not to contradict an established hukm: when a ruling has been enacted by the
Shari’ah, there can be no maslahah to be considered against it, as the (new)
hukm would then be maslahah mulghat.
2. There can be no maslaha to create a new ibadah, nor to add any rukn or shart of any
established ibadah,nor to eliminate some parts of any ibadah.
3. Maslahah should be based on a qat’ee (definitive) references, and not zanni
(speculative).
4. When a hukm is enacted, the maslahah of that hukm should be greater than
the mafsadah of it, neither equal nor less.
5. The maslahah should be a general (kulliya) and inclusive maslahah, not limited
(hash’a) and specific to some individual or group.
6. The maslahah should be compatible with the Shari’ah standards of maslahah, and
reasonably understood.

II ) Qawaa’ id Fiqhiyyah

Linguistic definition: The tri-literal root of qawaa’ed is qa’ada, which has the meaning of
“fixation”, “consistency”, and “to become well established”. When someone sits on the
floor, it is called qa’ada because he is established and fixated. Qawaa’ed is a plural of
qaa’ada, which means: The base and foundation of a structure, Rule and principle, Model and
pattern. Technical definition: “Qaa’eda fiqhya is a general rule of fiqh (jurisprudence)
which applies to all of its related particulars.” General rule means that it gives a general
meaning but not necessarily an exclusive meaning or inclusive meaning. There will always
be some exceptions to a general rule.

35 See Sulaiman al-Ashqar, Al-Waadhih fi usul al-Fiqh (Jordan: Dar al-Nafais, 2004), 150-1.

~ 43 ~
Qawaa’ id Fiqhiyyah are Categories in to two;

1) Qawaa’id al kulliyah /al asliyyah (Nominative/comprehensive/primary maxim)

2) Qawaa’id al far’iyya/ al thaba’iyyah (Supplementary/Secondary maxim)

1. Nominative (Comprehensive – Primary) Qawaa’id

Under each of these are many sub-rules. These are the five that you need to memorize.
These are the five comprehensive maxims governing fiqh and Islamic law on which there is
unanimous agreement among the different madhabs.

1. Acts are judged by the intentions behind them.” (Al-umuru bi-maqasidiha).

When we see something, we shouldn’t immediately judge by the action itself.
Intention is very important.
2. Certainty is not overruled by doubt. (Al-yaqinu la yazulu bish-shakk)
If you are certain of something, you cannot change that certainty because of mere
doubt. We assume presumption of continuity.
3. Hardship begets facility/ hardship brings about ease. (Al-mashaqqatu tujlab at-
taysir).
If someone is traveling and lacks water, then he makes tayammum.
4. Harm must be eliminated.(Ad-dararu yuzal).
5. Custom is the basis of judgment / Custom rules. (Al-‘addatu muhakkamatun)
If two individuals argue about the meaning of a contract, then go by the tradition of
the marketplace. For example, if someone from Palestine goes to Egypt and finds
nice factories of laban (yogurt) and makes a contract to buy $100,000 of laban, but
when he returns home, he finds that he has received haleeb (milk), which the
Egyptians calls laban. Which one should be observed? Custom rules.

2. Supplementary (Secondary) Qawaa’id

These are less comprehensive qawaa’id upon which there is unanimous agreement, some
fall under the primary ones but others do not. Examples: Profit follows responsibility. (Al-
kharaju bid-daman) For example: if you borrow someone’s car, you should use it for it
was made for. A man borrows a car and drives from Houston to Dallas and takes some

~ 44 ~
people who pay for the trip. The owner sees him receiving payment for using the car and
asks for half of the profit. The money is all halal to the one who borrows the car because if
something were to happen to the car, then he would be liable for it

The twelfth century author, Abu Sa‘id al-Khadimi compiled 154 maxims in his work entitled
Majma‘ al-Haqaa’iq. The Maliki jurist Shihab ad-Din al-Qarafi’s Kitab al-Furuq (in four
volumes) discusses five hundred and forty-eight maxims, and two hundred and seventy-
four distinctions and differences (furuq) between similar themes and idea. Qawaa’id are
considered in Islamic law broad guidelines for the jurists to go by. They are designed to
facilitate a better understanding of the Shari’ah. A legal maxim is reflective of a
consolidated reading of the fiqh. It brings together different rules of fiqh of different
themes of Islamic law under one unifying maxim in an organized method. It helps the
faqih (jurist) to connect the different areas of Islamic law for the purpose of
memorizing and studying. It sharpens the skills of inference for the faqih or the student of
fiqh.

III ) ISTIHSAN (EQUITY IN ISLAMIC LAW)

Istihsan is an important branch of ijtihad, and has played a prominent role in the
adaptation of Islamic law to the changing needs of society. It has provided Islamic law with
the necessary means with which to encourage flexibility and growth. Notwithstanding a
measure of juristic technicality which seems to have been injected into an originally simple
idea, istihsan remains basically flexible, and can be used for a variety of purposes. Yet
because of its essential flexibility, the jurists have discouraged an over-reliance on istihsan
lest it result in the suspension of the injunctions of the Shari'ah and become a means of
circumventing its general principles. Istihsan has thus become the subject of much
controversy among our jurists. Whereas the Hanafi, Maliki, and Hanbali jurists have
validated istihsan as a subsidiary source of law, the Shafi'i, Zahiri and Shi'i ulema have

~ 45 ~
rejected it altogether and refused to give it any credence in their formulation of the legal
theory of usul al-fiqh.36

Istihsan literally means `to approve, or to deem something preferable'. It is a derivation

from ‘Hasuna’, which means being good or beautiful. In its juristic sense, istihsan is a
method of exercising personal opinion in order to avoid any rigidity and unfairness that
might result from the literal enforcement of the existing law. Ibn Taymiyyah, defines
istihsan is the abandonment of one legal norm (hukm) for another which is considered
better on the basis of the Qur'an, Sunnah, or consensus.37

Examples: It has been suggested that the ruling of the second caliph, `Umar al-Khattab (R),
not to enforce the had penalty of the amputation of the hand for theft during a widespread
famine, and the ban which he imposed on the sale of slave-mothers (ummahat al-awlad),
and marriage with kitabiyahs in certain cases were all instances of istihsan.38 For `Umar set
aside the established law in these cases on grounds of public interest, equity and justice.39

IV) ISTISHAB (PRESUMPTION OF CONTINUITY)

Literally, Istishab means 'escorting' or `companionship'. Technically, istishab denotes a

rational proof which may be employed in the absence of other indications; specifically,
those facts, or rules of law and reason, whose existence or non-existence had been proven
in the past, and which are presumed to remain so for lack of evidence to establish any
change.40 The technical meaning of istishab relates to its literal meaning in the sense that
the past `accompanies' the present without any interruption or change.

36 For details see Al Sabuni, Madkhal, p. 119ff.

37 Ibn Taymiyyah, Mas'alah al-istihsan, p.446.
38 Umm al-walad is a female slave who has borne a child to her master, and who is consequently free at his death. A kitabiyah is

a woman who is a follower of a revealed religion, namely Christianity and Judaism.

39 Cf. Ahmad Hasan, Early Development, p.145

40 Shawkani, Irshad, p. 237; Amidi, Ihkam,Vol- 4, P.127; Ibn al-Qayyim, I'lam, vol-1, P. 294.

~ 46 ~
Istishab is validated by the Shafi'i school, the Hanbalis, the Zahiris and the Shi'ah
Imamiyyah, but the Hanafis, the Malikis and the mutakallimun, including Abu al-Husayn al-
Basri do not consider it a proof in its own right.

Istishab is supported by both shar`i and rational (`aqli) evidences. Reason tells us that in
God's order of creation and in popular custom, it is normal to expect that pledges, contracts
and laws will probably continue to remain operative until the contrary is established by
evidence. It is equally normal to expect that things which had not existed will probably
remain so until the contrary is proved. When reasonable men ('uqala') and men who
comply with the accepted norms of society (ahl al-`urf) have known of the existence or non-
existence of something, as al-Amidi observes, from that point onwards they tend to
formulate their judgement, on the basis of what they know, until they are assured by their
own observation or evidence that there is a change.

V) Sadd al-Dhara'i` (Blocking the Means)

The word Dhari'ah (pl. dhara'i') is literally means `blocking'. Sadd al-dhara'i` thus implies
blocking the means to an expected end which is likely to materialise if the means towards it
is not obstructed. In juristic view sadd al- dhara’I is ‘ blocking the lawful means to an
unlawful end.’

The whole concept of sadd al-dhara'i' is founded in the idea of preventing an evil before it
actually materialises. It is therefore not always necessary that the result should actually
obtain. It is rather the objective expectation that a means is likely to lead to an evil result
which renders the means in question unlawful even without the realisation of the expected
result. This is, for example, borne out by the Qur'anic text which forbids the Muslims from
insulting idol worshippers, notwithstanding the inherent enormity of idol-worshipping or
the actual intention behind it. The text thus proceeds: 'And insult not the associators lest
they [in return] insult God out of spite and ignorance' (al-An'am; 6:108). And khalwah (
)‫خلوة‬or illicit privacy between members of the opposite sexes, is unlawful because it
constitutes a means to zina whether or not it actually leads to it. All sexual overtures which
are expected to lead to zina are similarly forbidden by virtue of the certainty or likelihood
that the conduct in question would lead to zina.

~ 47 ~
 Chapter -4

GOVERNORS OF MUA’MALATH; THE COMPLETION OF MAQSID

AL SHARIA’H

In the previous chapter we discussed about Maqasid al sharia’h and its main features. It is
significant as they reflect the sharia’h and help jurists in determining the prohibition or
permission of any matters on the basis of Ijhihad and Qiyas. Cerate to the well- being of
people in the worldly life as well as in the here after or reliving them of hardship is the
basic objective of sharia’h. Islam takes a positive view of life. The virtue does not mean
abandon the beauties of life, but enjoying those while remaining within the framework of
the values though which Islam seeks to maximize human welfare. It requires living a
morally responsible life, earning only by fair means and considering wealth as a
stewardship from which account id to be rendered to Allah Almighty. For this purpose,
Islam provides a comprehensive law governing mua’malath or transactions among
members of a society.

Islam has constrained the freedom to engage in business and financial transaction on the
basis of number of prohibition, ethics and norms this restriction and regulation are provide
completion of maqasid al shariah. This chapter is organized to include discussions how this
governors completed the objectives of sharia’h. We shall discuss here the basic prohibitions
like ribe garer, miser, etc... And other principles and ethics as justice equity ,Mutual
Cooperation and Solidarity etc….

The basic principle of transaction and interactions

The basic principle in Sharia’h is that Quran and Sunnah establishes the framework
for our way of living. It establishes the boundaries, the four corners within which we
practice all our transactions and interactions. These Usool (basic principles) serves the
objectives of Sharia’h, the reason which Allah revealed Islam to mankind.

~ 48 ~
As like, all branches of jurisprudences, Islamic commercial law (fiqh mua’malath al maliya)
is founded on following key principles, namely:

i. Restore human’s like in every walk of like to its natural behavior ( ‫)فطرت‬.
ii. Tazkiya Nafs ( ‫ تزكية النفس‬- purification of inner self) by improving ethics and moral
standards in society.
iii. Justice and Equality, by demolishing elite-class system and providing equal
opportunity and justice.
iv. Equal distribution of wealth amongst all member of jamat and prohibition of
hoarding money amongst the elite few.
v. Prohibition of exploitation and Injustice (‫ ) ظلم‬by protecting the rights of peasants
and ordinary low income members of society
vi. Balance between Right to own/trade and Right of jamat in one’s wealth

The first three principles are common in all branches of jurisprudences. The last numbers
are coming under economic system.

Mawdudi has identified three key objectives of Islamic Economic System:41

i. Freedom for Citizens are utmost priority, and the bounds are implemented only
when absolute necessary in the interest of collective benefit of mankind. In the
context, it includes his right to own and right to do business with equal opportunity
and access. The items that are haram to consume are also considered haram to sell,
as they are harmful to the society (e.g. Khamr, Riba)
ii. Balance between moral values and material accumulation. i.e. Islam highly focus on
building a moral sense and responsibility through elm (education), iman (faith) and
Tazkiya (cleansing of inner self), so that the mindset (of me first and give me
more) is replaced with honesty, compassion and need for collective(jamat first).
iii. Harmony and cooperation between members of jamat, because Islam is absolutely
against creating “Classes” in a society (e.g. the classes created by Feudal System, or
by western capitalist system).And it brings harmony between the natural classes of

41 Maa’yishatul Islam- Abu Ala-Mawdudi ,Page 143-Addressing Punjab University 7 th Dec 1965

~ 49 ~
 the society (i.e. between poor and rich, orphans) by enforcing laws to create
equality and opportunity between them.

The basic prohibitions in islam

The muhamalath (Islamic transactional law ) is broadly based on some prohibition and
encouragement. The prohibition of riba and permission to trade, as enshrined in the verse
2:275 of the Holy Quran, drive the financial activities in Islamic economy towards asset-
backed businesses and transaction. This implies that all financial transactions must be
representative of real transactions or the sale of goods, services or benefits. For this
purpose, shariah has identified some elements which are to be avoided in commerce or
business transactions. In this regard, the prohibition of Riba, Gharar and Maisir /Qima’r is
the most strategic factor that defines invalid and valid able contracts. These prohibitions
are treading to complete objectives of shariah. We will elaborate upon these one by one.

(a) Riba

Linguistically; the word “Riba” ( ‫ )ربا‬means to increase, to grow, to exceed, to be more than42.
Allah used term “Riba” many times in the Quran43. In context of interest/usury, the word
“Riba” is used as increase in wealth: “And whatever you give for interest to increase within
the wealth of people will not increase with Allah” [ar-Room;30:39]44.

In Sharia’h meaning “Riba” is a term that is used when two parties exchange item of same
kind, and in return one party received extra (or in excess) of what he gave. A simple
example is when gives 100 units of Gold and received 120 units of Gold in return. The
extra or excess 20 units are considered “Riba”.

Majority of Fuqaha (jurists) stated two types of Riba in transactions45:

42 Al –Mawarid-Dr Rohi Baalbaki

43 See Quran-[22:5],[16:92],[22:276],[13:17],[32:50]
44 See Quran-[2:278,279]
45 Fiqh al hadith- Translation&commentery of Imam Shawkani’s ‘aldararul bahiyath” with addition from Sh Ahlbani

~ 50 ~
i. Riba on Credit

a) ‫( ربا الجهلية‬Riba of Jahiliya) as we mentioned earlier in introduction, its

additional interest payment to extend the due date of payment.
b) ‫( ربا النسية‬Riba an-nasiya): This is the Riba on Credit Transaction, when two
items of same kinds are exchanged but one or both parties delays delivery or
payment.

ii. ‫( ربا الفضل‬Riba al-Fadl): Selling or exchanging same kind of item with more/less.
(e.g. 10 lbs gold exchanged for 12 lbs gold). The excess payment when items of same kinds
are exchanged is called Riba al-Fadl. The Prophet (pbuh) declared that prohibited.

Bin Qayyim said46 Riba has two types: (1) Jahli,(2) Hafiy

1. ‫( جلي‬Clear): This is prohibited to protect (mankind) from great harm. This is

same type of loan that existed in Jahiliya (Riba Jahiliya), i.e. increase the period for
loan payment and take interest for extension (commonly known as interest or usury
today). This was levied on poor people who spent their entire live but couldn’t repay
it as it kept increasing. Hence, it deserved that prohibited it all together. Imam
Ahmed said this is the absolute form of Riba that interest is charged to extend the
period of payment.
2. ‫( خفي‬veiled, disguised): This is prohibited because it leads to the first (so kind of
blocking the means – ). This is same as .i.e. in Hadith it said do not sell one dirham
for two dirham. And such sale will occur only when items are of same kind but
there is different in their types, e.g. Dates but type is either in quality, quantity or
weight. Hence, prohibited it all together (i.e. selling same for same) both as cash or
credit.

Different quarters have expressed different opinions with regard to the rationale or
purpose of prohibiting interest by the Sharia’h. Some jurists,like ’Ibn Kays’an and Al-
Nawaw’I are opined that the prohibition of riba was based on its exploitative nature. Al-

46 “I’alanul muvaq’ieen”, Ibn Qayyim Jawzia, Urdu translation, Maktaba Qudosia. Page 404

~ 51 ~
Nawaw’I says: “the reason (al-maqsud) for the prohibition of Riba is kindness towards
people (i.e. by not charging an increase)47.

As a whole, the major Sharia’h objectives, socio-economic and distributive justice,

intergenerational equity, economic instability and ecological destruction are considered
the basis of the prohibition of interest. The prohibition of Riba is intended to prevent the
accumulation of wealth in few hands; that is, it is not be allowed to “circulate among the
rich”( Quran,59:7). Therefore, the major propose of Riba prohibition is to block the lead to
the accumulation of wealth in the hands of a few, whether they are institutions or
individuals.

The impact of Riba on the lives of people and its oppressiveness can not be denied. In the
name of profit taking people have been pushed into corner to continuously earn money for
“lenders” and pay them monthly interest on top of interest. This has created the culture
and environment that promotes certain behaviors in to people that includes selfishness,
stinginess, mercilessness and hardness of the heart. It takes the helping gesture out

of human’s heart and it promotes a “status‟ race where every one is competing to

make more money then other person. And in the process, he doesn’t care how much harm
he inflict to other fellow humans. Riba is a mindset that creates self centeredness, that
instead of helping out fellow being by giving him money in need, I can made money of his
needs.

Islam prohibits eating people’s money unjustly and considers Riba as one way of stealing
people’s money unjustly. Allah states: “And do not consume one another's wealth unjustly
or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a
portion of the wealth of the people in sin, while you know [it is unlawful].”48

47 Al-Nawaw’I -“far‘ fI madhahib al-ulama’ fi bayan ‘illat al riba fı al-’ajnas al’arba‘ah”, vol.9
48 Quran 2:188 [al-Baqarah]

~ 52 ~
Instead, Islam promotes giving out. As the Prophet (pbuh) use to say that giving hand is
better49. Hence, Islam always promotes charity and helping hands. That’s why Allah
repeatedly said: “Allah destroys interest and gives increase for charities “ 50. And that: “And
whatever you give for interest to increase within the wealth of people will not increase
with Allah. But what you give in zakat, desiring the countenance of Allah – those are the
multipliers“51.

Protect the wealth of people so that no one takes it away by illegal or in just means
(as today Riba is legalized, even when it is inherently unjust and illegal!).And Islam is pure
(‫)طيبة‬, and it promotes purity (‫ )طيبة‬in food, in life, in spending, in earning, in thoughts. Its
purpose is to purify us inwardly (‫ ) تزكية النفس‬and outwardly. Hence it ask people to find pure
and just ways to earn money where is no injustice or disguise. “One man earning should not
be other man’s loss”.

They were Some jurists who asserted that the prohibition of riba was based on the
exploitative nature of the latter. This was the opinion of ’Ibn Kays’an, that “the reason (al-
maqsud) for the prohibition of Riba is kindness towards people (i.e. by not charging an
increase). This opinion was reported and debunked in Al-Nawaw’ı.52

(b) Gharar

The Arabic root for gharar means deception - but in practice the term is used quite widely.
Gharar encompasses: uncertainty, risk, hazard and deceit. Unlike riba, gharar is not
precisely defined. Gharar is also considered to be of lesser significance than riba. While the
prohibition of riba is absolute, some degree of gharar or uncertainty is acceptable in the
Islamic framework. Only conditions of excessive gharar need be avoided.

49 Sahih Al-Bukhari: Narrated Hakim bin Hizam, The Prophet said, "The upper hand is better than the lower hand (i.e. he who
gives in charity is better than him who takes it)…” [Volume 2, Book 24, # 508]. Here one who takeis a begger as explained in
other similar hadiths.

50Quran 2:276 [al-Baqarah]

51Quran 30:39 [ar-Room]
52Al-Nawaw’i ,Far‘ Fi Madhahib Al-Ulama’ Fi Bayan ‘Illat Al Riba Fı Al’ajnas Al’arba‘ah, vol.9

~ 53 ~
As noted, scholars have faced many challenges in defining gharar, with Al-Zuhaylı
providing a good overview53:

 Al-Sarakhsi (Hanafi school): "gharar is that whose consequences are hidden".

 Al-Shıraazı (Shafi'i school): "gharar is that whose nature and consequences

are hidden"

 Ibn Taymiya (Hanbali school): "gharar is that whose consequences are

unknown"54
Once reviewing the above definitions, Al-Zuhayly's commented: "gharar sale is any
contract which incorporates a risk which affects one or more of the parties, and may result
in loss of property."According to Al-Qarafi, the definition of gharar is "that which has a
pleasant appearance and a hated essence"55.
The origin of gharar can be divided into two categories, namely: Tadlis (cheating in
business) and Ghabn (to deceive), as noted by the Encyclopedia of Jurisprudence.56
The Quran has clearly forbidden all business transactions, which cause injustice in any
form to any of the parties. It may be in the form of hazard or peril leading to uncertainty in
any business, or deceit or fraud or undue advantage. It become against of the object of
sharia’h. There have been differences among legal scholars with regards to the legal reason
(‘illah) for the prohibition of gharar. Thus, some said that the prohibition is due to the
unjustified devouring of people’s property, others said that it is due to the potential for
disputation, and a third group said that it is based on the inability to deliver the promised
goods.

53 Al-Zuhaylı, Al-Fiqh Al-'Islamı wa 'Adillatuh. (1997, vol.5, pp.2408-3411) Damascus: Dar Al-Fikr. Fourth revised edition.

54'Ibn Taymiya, A. 1998. Al-Fatawa Al-Kubra. Cairo: Harf (reprod.): Dar Al-Kutub Al-‘Ilmiyyah. in Encyclopedia of Islamic
Jurisprudence (CDROM).

55 Al-Qarafı, A. n.d. Al-Furuq.Beirut: ‘Alam Al-Kutub.

56 The Encyclopedia Of Jurisprudence; vol.21, CDROM version, Cairo: Harf, 1998.

~ 54 ~
Al-Shatbı point out the Objectives of Islamic Law (maqasid al-sharı‘ah), explicitly analyses
the issuance of injunctions in cost-benefit terms:

“Of course, the Law may contain injunctions which result in hardship for those who have to
abide by it. However, the hardship itself is never the intention of the LawGiver. Indeed, the
intention of the LawGiver must be to bring a [larger] benefit or prevent a [larger] loss. For
instance, [harsh] punishments for various transgressions are intended to give significant
disincentives for the transgressors and others from ever repeating that transgression… In
this regard, one would never accuse a [good] physician of giving a bitter medicine [to heal]
or cutting a limb [to preserve the patient’s life and the health of the rest of his body] simply
to cause hardship. Indeed, [this is an apt analogy since] Allah is the Greatest Physician.”57

Of course, The Qur’anic prohibition of gambling (the extreme form of trading in risk) is
itself stated in terms of a cost-benefit analysis:

“They ask you [O Muhammad] about wine and gambling. Say there is great sin (harm/
’ithsm) in them, and some benefit to mankind. However, their sin (harm/’ithsm) outweighs
their benefits.” [2:219]

In this regard, we notice that Islamic Law and Jurisprudence does not always resort to
injunctions to alleviate the possibility of “wrongful devouring of people’s wealth”. In this
regard, many options are given to buyers to return defective merchandise (khiy¯ ar al-‘ayb),
or simply to inspect the merchandise (khiyar al-ru’yah) if its presence at the contract
session is not possible or if the inspection requires a prolonged period of time. It leads to
the objectives of sharia’h, to protect from harm and promote fairness.

(C) Al-Qimar and Al-Maisir

Gambling or al-maisir from Islamic perspective is defined to mean a game of haphazard in

all matters particularly a game of chance by means of divinatory arrows. The word maisir is
derived from the root ‘yasara’, means to become gentle, to draw lots by arrows or ‘yasaar’,
means affluence because maisir brings about profit or yusr, that is convenience, ease

57 Al-Shatibı, Al-muwafaq’at fı ’usul al-’ah’akam p.265,in arabic.Khubar, Saudi Arabia: Dar ’Ibn ‘Affa’n.

~ 55 ~
because it is an earning without toil and exertion or yasr, means dividing a thing into a
number of shares and distributing them among themselves. Gambling is called maisir
because those who partake in the games of chance divide the meat of sacrificial animal
among themselves.58

All the above connotations are vividly found in the word maisir. According to Imam Malik
gambling is of two categories that are; a game of chance that is partaken in with a view of
sport (fun) and the game of chance which involves gambling. To make it clearer, gambling
means all dealings in which people are require making a bet and every dealing which
involves some aspects of gambling is maisir.

There are verses from the Qur’an which highlighted the prohibition of gambling and the
wisdom behind its prohibition. Allah says:

“‘They asked the Prophet (S.A.W) about khamr (intoxicants) and games of chance
(gambling). Say, in both of them there is great harm although there is some advantage
as well in them for men, but their harm is much greater than their advantages.[2:219]

In another verse, Allah mentions:

“O, you who believe, verily wine and game of chance, ungodly shrines, and divining
devices are abomination of Satan’s work. Avoid them, that your may prosper. Only
would Satan sow hatred and strife among you, by wine and games of chance, and turn
you aside from, the remembrance of Allah and from prayer. Will you not, therefore
abstaifi from them?” [5:90, 91]

From the above verses, it is obvious that maisir entail great sins and promises petty
benefits and that maisir is an abominable act of Satan. It is therefore imperative to avoid
gambling in order to achieve success and happiness in our lives. Satan sows in our hearts

58 Muhammad Iqbal Siddiqi, Why Islam Forbids Intoxicants and Gambling, Kazi Publication, Lahore, Pakistan, 1981, p.130-131

~ 56 ~
the seeds of enmity and hatred against one another and turns us aside from the
remembrance of Allah and other obligation particularly prayer by means of games of
chance. Although it entails some benefits as mentioned in the verse, we have to bear in
mind that its harmful effects outweigh d benefits to individual as well as people at large.

It is clear that the prohibition of gambling is not only mentioned in the Qur’an but also
supported by the tradition of the Prophet

Ibn Abi Al Dunya has reported Yahya b. Kathir as saying:

Allah’s Messenger was passed by people playing backgammon. He said, “Their heart are
preoccupied in sport, their hands are ill and their tongues make absurd utterances. Every
game which involves gambling or mischief is a game of chance (maisir).”

There is no difference of opinion among the jurists that every sort of gambling is harmful,
except betting for horse race and archery which have been declared lawful for persuading
for horsemanship archery and preparation for Jihad59.

The purpose behind the prohibition of gambling is very clear. Islam is respond against the
behaviour of individuals which infringes upon public interest and it is universally believed
that acts which provoke social relations must be punished.

Gambling brings about religious, social, moral and economic harm. From the Qura’nic
verses that have been discussed before it is clear that gambling entails following evil
effects.

First, gambling distracts those who partake to the game from the remembrance of Allah
and Prayer. When a gambler sits continuously for hours together, he is so absorbed in it
that he forgets everything around him; rather he becomes unconscious of his own self. He

59
See Quranic verse no: 8:60, More details: Muhammad lqbal Siddiqi, The Penal Law of lslam, Kazi Publications,
Lahore, Pakistan, 1985

~ 57 ~
forgets his household and family’s responsibilities. How then, can be take care of his
prayer?

Second, it sows the seeds of disputes and quarrels among the gamblers which ultimately
assume the shape of enmity and hatred among them. This point is made clear in the
following verse:

“Only Satan sow hatred and strife among you, by wine and games of chance and turn you
aside from the remembrance of Allah and from Prayer; Will you not, therefore abstain from
them?

Third, the sin of gambling is greater than its benefit. The verse 2: 219 enunciated two
invaluable principles namely:

1. Dispelling mischief is precedent to acquiring benefits and,

2. The commission of lesser evil is obligatory when the commission of either of the two
evils is necessarily essential.

Fourth, it corrupts morals making people sluggish in waiting for providence by whimsical
means and giving up activities essential for making earnings viz agriculture, industry and
business which are the foundation stone of social living and human prosperity and
happiness in this mundane life.

Fifth, it enslaves the gambler who becomes a mute slave in the hands of gambling and
seldom succeeds in abandoning it. When he earns some benefit, his greed for gambling
increases and when he losses the game, even then his interest in the games of chance
increase to make good the loss. In this way, he remains awfully engaged in gambling till he
becomes a destitute.

Sixth, it brings about a sudden havoc in the countries due to sheer waste of wealth by losing
the game. Finally, it usurps the wealth of towns and transfers it to the band of the mischief
mongers within and outside the country. Thus, gambling is a root cause of innumerable

~ 58 ~
economic evils reducing many rich people to destitution and ultimately forcing them to
commit suicide.

From the wording of the Qura’nic verse (22:19), Allah has mentioned that there exist
benefit (manfa’a) in gambling and wine drinking (khamr). However, the mundane benefits
of gambling as compared with its great harm and ruinous complexities are mere whimsical
benefits. Some of petty benefits of gambling are:

1. It gives some transitory pleasure to the winning gambler, for this pleasure is
followed by grief as a reaction, when he suffers loss’ by gambling.
2. It promises munificence to the poor just as people winning lottery, a form of
gambling build asylums and hospitals and do other good works. But the fact is that
the wealth acquired by unlawful means and spent on good works have no reward
because Allah is Pure and He accepts only pure things. The same thing is true about
gambling or lottery for it brings about a benefit to a very small group of people and
causes a crushing loss to the majority of them.
3. It makes a destitute a rich man all of a sudden without any toil and in the next
moment reduces a rich man to a destitute.

In short, all the benefits of gambling enumerated above are imaginary and whimsical
whereas its harms are real. When the gambler spends his wealth for a fancied profit and
when a person wastes his hard earned money for the fancied things having no existence, he
corrupts his thinking and weakens his reason. Gambling has forced a large number of
gamblers to commit suicide and made them content with living a life of humiliation and
abjection.

These are major prohibition in economical sector of Islam. The purpose of prohibition is
to protection of wealth from all misuse and production of it to personal and social
welfare. Thus all illegal activity like Interest, bribery, stealing, robbery, embezzlement,
corruption, Prostitution, Gambling, betting, speculation, forward selling and games of
chance are unlawful means of earning. Business malpractices such as hoarding, black-

~ 59 ~
marketing, profiteering, monopoly, short weighing and short measuring, adulteration,
false oaths, misrepresentation, fraud, deception, etc. are prohibited.

The Basic Ethics And Principles In Mua’malath

In addition to the major prohibitions, including Riba,Gharar and gambling, Islamic
sharia’h has enunciated a set of principles that provide a basic framework for the
conduct of economic activities in general, and financial and commercial transactions in
particular. The Holy Quran and Sunnah refer to a number of norms and principles which
govern the rights and obligation of parties. Principles enunciating justice, mutual
cooperation, solidarity, equilibrium and avoiding fraud etc.., are related to the
accountability of society to completion of welfare and happiness. These are ensured the
propos of sharia’h in the transactions and relation of human being. Below, we can disuse
briefly some important ethics and norms.

1. Principle of Justice:

Islamic principle of justice operates in every sphere of human activity, may it be legal,
social, political or economic. Islamic economic system, in fact is based upon the principle
of justice which governs all the basic aspects of economy like production, distribution,
consumption and exchange.

Justice means fair dealing with all and keeping a balance. Justice keeps the sky and the
earth in their right places and is the cementing force between various segments in a
society. The Holy Qur’an says:”O you who believe! Stand out firmly for Allah and be just
witnesses and let not the enmity and hatred of others make you avoid justice. Be just: that
is nearer to piety, and fear Allah. Verily, Allah is Well-Acquainted with what you
do”.[5:8].stressing this point, the Qur’an further sayes:”O you who believe! Stand out firmly
for justice, as witnesses to Allah, even though it be against yourselves, or your parents, or
your kin, be he rich or poor, Allah is a Better Protector to both (than you). So follow not the
lusts (of your hearts), lest you may avoid justice, and if you distort your witness or refuse
to give it, verily, Allah is Ever Well-Acquainted with what you do.”[4:135].This makes point
clear that whoever believes in god has to be just with everyone – even with enemy. In

~ 60 ~
another place, the qur’an says: “And eat up not one another's property unjustly (in any
illegal way e.g. stealing, robbing, deceiving, etc.), nor give bribery to the rulers (judges
before presenting your cases) that you may knowingly eat up a part of the property of
others sinfully“ (2:188).

Islamic principle of justice ensures that nobody is exploited by the other and that nobody
acquires wealth by unjust, unfair, unlawful and fraudulent means. Islam requires the rights
and obligations of any person are neither greater nor lesser in any way than the rights and
obligations of other people. Business rules are equally applicable to all. In his celebrated
speech at the time of the last pilgrimage, the holy Prophet (pbuh) declared the inviolability
of the rights of human beings in all the three categories of person, property and honour.

2. Mutual Cooperation and Solidarity:

This norm is central to Islamic ethics. The second verse of Surah Al Maida in the holy
Quran says:

“Assist one another in the doing of good and righteousness. Assist not one another
in sin and transgression, but keep your duty to Allah"(5:2)

The following ahadith by the Prophet (pbuh) reinforce this principle of cooperation and
mutual assistance.

“Believers are to other believers like parts of a structure that tighten and reinforce
each other." (Al-Bukhari and Muslim)

“The Believers, in their affection, mercy and sympathy towards each other, are
like the body- if one of its organs suffers and complains, the entire body responds
with insomnia and fever." (Muslim)

"Whosoever removes a worldly hardship from a believer, Allah (swt) will remove
from him one of the hardships of the Day of Judgment. Whosoever alleviates from
one, Allah (swt) will alleviate his lot in this world and the next...." (Al-Bukhari)

The list of norms of Islamic ethics stated above is by no means exhaustive. It differs from
the norms of mainstream financial ethics significantly - in imposing injunctions against

~ 61 ~
al-riba, al-qimar, and al-maysir. In the base of these norms islam promote zakaht , and
other charity .

3. Honesty and Gentleness:

Honesty, truthfulness and care for others are the basic lessons taught to Muslims by the
Sharı´ah, with relatively more emphasis in respect of business transactions. The holy
Prophet (pbuh) has said: “The truthful and honest merchant shall be with the Prophets,
the truthful and the martyrs on the day of Resurrection.” He also said: “It is not lawful for
a Muslim to sell to his brother something defective without pointing out the defect”.
Cheating others and telling lies is considered a great sin. Allah’s Apostle used to invoke
Allah in the prayer saying: “O Allah, I seek refuge with you from all sins, and from being
in debt.” Someone said: “O Allah’s Apostle! You very often seek refuge with Allah from
being in debt”. He replied: “If a person is in debt, he tells lies when he speaks, and breaks
his promise when he promises.”60This does not mean that taking a loan is prohibited; the
holy Prophet (pbuh) borrowed for himself and also for the Islamic State. The emphasis is
on honesty and speaking the truth and avoiding the sinful act of telling lies.

Ibn Umar (Gbpwh) narrates: “A man came to the Prophet (pbuh) and said: ‘I am often
betrayed in bargaining.’ The Prophet advised him:“When you buy something, say (to the
seller): “No deception”.’ The man used to say so afterwards”. In the case of deception one
is entitled to rescind the contract. Similarly, Ghaban, which means misappropriation or
defrauding others in respect of specifications of the goods and their prices, is prohibited
with the purpose of ensuring that the seller gives the commodity as per its known and
apparent characteristics and charges the fair price. The Holy Qur’an says: “Fill the
measure when you measure, and weigh with a perfectly right balance.” (17: 35; also
verses 86: 1–6). And another feature of a good businessman is that he avoids harshness
and is gentle with other parties and stakeholders. As reported by Imam Bukhari, Allah’s
Apostle said: “May Allah have mercy on a person who is gentle when he sells, when he

60
Reported by Tirmizi, Darimi, Ibn Majah

~ 62 ~
buys and when he demands his rights.” These are shows sharia,h concerns honesty and
gentleness, and avoid cheating and falsehood.

4. Promotion Of Brotherhood And Unity:

Another objective of the Islamic economic system is to establish brotherhood and unity
among the Muslims.The Holy Quran says: “It is not righteousness that ye turn your faces
to the East and the West; but righteous is he who believeth in Allah and the Last Day and
the Angels and the Scripture and the Prophets; and giveth his wealth, for love of Him, to
kinsfolk and to orphans and the needy and the wayfarer and to those who ask, and to set
slaves free; and observeth proper worship and payeth Zakat” (2 : 177). Again the Holy
Book enjoins upon its followers: “They ask thee, (O Muhammad), what they shall spend.
Say: That which ye spend for good (must go) to parents and near kindred and orphans
and the needy and the wayfarer. And whatsoever good ye do, Lo! Allah is aware of it”
(2:215). Thus by enjoining upon the rich and wealthy to pay Zakat and spend for their
poor parents, relatives, orphans and needy, Islam lays the foundations of fellow-feeling,
brotherhood, friendship and love among all the members of Muslim Ummah. By helping
the poor, the rich persons not only discharge their religious obligations but also earn
their gratitude, love and affection. So the Zakat and alms pave the way for national
solidarity and social cohesion by cementing the bonds of fraternity among the rich and
the poor.

Dr. Khalifa Abdul Hakim writes: “Islam desires to mould the economic life of society in
such a manner that antagonistic class divisions of millionaires and paupers shall not
come into existence”. Thus the Islamic economic system through Zakat, Sadaqat and
other means of helping the poor, achieves social harmony and promotes brotherhood
between different sections of society. In an Islamic society there exist no antagonist
classes of haves and have-nots which are set against each other. Despite existence of
inequalities of wealth, the Islamic society is not divided into conflicting classes because
the difference between the rich and the poor is not too wide to provoke bloody
revolution. Rather the rich and the poor are brothers of each other. Full cooperation and
unity exists between them and it is all due to Islam’s economic system.

~ 63 ~
 5. Principle of moderation:

Islam unequivocally discourages its followers to cross the limits and follows extremes.
The Muslims have been called by the Qur’an a middle nation (2:143). Therefore, the
principle of moderation carries paramount importance especially in the economic field.
This principle is followed by the true believers in the production of wealth as well as in
the consumption and spending of wealth. Although earning of wealth through permitted
(Halal) means is allowed, yet the piety demands that a Muslim should not become mad
after amassing wealth like a greedy materialist. He should exercise restraint and earn
wealth to meet his lawful needs. Extra wealth, if at all is earned by him somehow, may be
spent in the path of Allah on charity and relief of the poor. Similarly, in the consumption
and spending of wealth, the believer is recommended to strike balance avoiding
miserliness and extravagance. Miser is he who does not even provide for the legitimate
needs of himself and his family let alone spending on charitable and noble causes.
Extravagant or spend thrift is a person who squanders his wealth in luxury, gambling,
drinking, and on lavish expenditure on festivities, weddings, day to day living. Islam
condemns both miserliness and extravagance and enjoins upon a believer to exercise
moderation. The Qur’an appreciates those who exercise moderation in spending when it
says: “And those who, when they spend, are neither prodigal nor grudging; and there is
ever a firm station between the two.”(25:67)

6. Economic freedom:

Islam provides a basic freedom to enter into transactions. The holy Quran says:

“Allah has made trade lawful” (2:275).

Further, no contract is valid if it involves an element of coercion for either of the parties.
The holy Quran also says:

“Let there be among you traffic and trade by mutual goodwill” (4:29).

~ 64 ~
Islamic principle of economic freedom means that an individual has been allowed liberty
by God to earn wealth, own it, enjoy it and spend it as he likes. It also entails freedom to
adopt any profession, business or vocation to earn livelihood. But Islam has not allowed
unlimited freedom in the economic sphere. As we have already discussed, Islam makes
distinction between Halal (lawful) and Haram (unlawful). In the field of production,
distribution, exchange and consumption, only Halal (lawful) means are permitted.
Remaining within the restrictions of Halal and Haram, an individual enjoys full freedom
to earn and spend wealth as he likes. Thus Islam recognizes free enterprise, human
initiative, and individual’s potential. It also recognizes role of organization, capital, labour
and market forces in economic field. No unnecessary curbs are placed on the individual
or the organization regarding earning or owning of wealth. No upper limit or ceiling is
imposed on properties or holdings. Besides restrictions of Halal and Haram, other
restrictions are rarely placed on economic activities, prices of goods, ownership or on
monopolies unless the same are really necessary for safeguarding the common interest
of Muslim community.

7. Entitlement to Equal, Adequate and Accurate Information:

Islam attaches great importance to the role of information in the market. Release of
inaccurate information is forbidden. The concealment of vital information (ghish) also
violates the norms of Islamic ethics and according to the traditions of the Prophet
(pbuh), the informational disadvantaged party at the time of the entering into the
contract has the option to annul the contract. The traditions refer to price information in
the market as well as other information relevant for valuation of the commodity. Islamic
scholars are of the opinion that a transaction must be free from jahalah or
misrepresentation to be considered Islamic. The institution of a transparent market is,
thus, quite important and transactions should be executed within the market after taking
into account all relevant information. It may be noted that the traditions (ahadith) that
deal with the issue, refer to a commodity transaction. In case of a commodity transaction,
the commodity in question is subject to inspection and both the parties can be
reasonably sure about the benefits that are going to flow from future possession of the

~ 65 ~
commodity. Unlike a commodity, however, the benefits from possession of a financial
asset are in the form of expected cash flows. These expected cash flows are subject to
continuous revision as new events occur. Hence, Islamic ethics requires that all
information relevant to expected cash flows and asset valuation should be equally
accessible to all investors in the market. It is consistent with the investors’ right to search
information, freedom from misrepresentation, and right to equal information.

Chapter-5

APPLICATIONS OF ISLAMIC BANK

INTRODUCTION

Islamic banking and finance has emerged as one of the fastest growing industries. It has
spread to all corners of the globe and received wide acceptance by both Muslim and non-
Muslim. Islamic banking differ significantly from conventional banking, not only in the
ways they practice their businesses, but above all the values which guide Islamic banking
whole operation and outlook. The values which are prevailed within the ambit of Shari`ah,
are expressed not only in the minutiae of its transactions but in the breadth of its role in
realizing the Maqasid al-Shari`ah (objectives of Shari`ah).As well as we discussed in
pervious chapters, the most important objectives of the Islam in general and particularly
the Islamic commercial law, is the establishment of justice and elimination of exploitation
in the world. This can be done in Islamic finance by the prohibition in of all sources of
illegal “unjustified” enrichment and the prohibition of dealing in transactions that contain
excessive risk or speculation.

The chapter seeks to explain what is the Islamic banking, it’s principles ,objectives and
different modals or practices in modern world.

~ 66 ~
WHAT IS BANKING OR A BANK?

Bank is one of the part of financial system .The purpose of a financial system is to facilitate
the flow of funds from savings-surplus-units (SSUs) to savings-deficit-units (SDUs) in the
most efficient manner. The banks play the role of an intermediary in the process. In the
absence of intermediaries like banks, the flow of funds would have to be direct from the
lenders to the borrowers. Such direct financing has a few problems. One is the absence of
double coincidence of needs in terms of the characteristics of the financial product. Eg: the
lender may prefer a longer time horizon, and larger denomination for the financing as
compared to the borrower. Financial intermediaries like commercial banks seek to
overcome such problems. They intervene between the fund-user and fund-provider. They
purchase direct claims with one set of characteristics (e.g., term to maturity, denomination)
from savers or fund-providers and transform them into indirect claims with a different set
of characteristics, which they sell to the fund-users. This transformation process is called
intermediation. Firms that specialize in intermediation are called financial intermediaries
or more commonly, financial institutions. Commercial banks are the largest group of
financial intermediaries.

Meaning and Definition

Banking is a key subsector in the economic field. The word “bank” is said to have been
derived from the Italian word “banco”, meaning shelf or bench, on which the ancient
moneychangers used to display their coins. The bench of a medieval banker or money
changer was broken by the people if he failed in business and this probably is the origin of
the word “bankrupt”.61

A bank is an institution authorized to take deposits for the purpose of extending long-and
short-term finance facilities. It is an institution which deals with money and credit. It
accepts money from public, makes the funds available to those who need them. According

61Muslehuddin, 1993, p. 5, cf. Encyclopedia of Banking and Finance, Boston, 1962; also see the relevant text in
EncyclopediaBritannica.

~ 67 ~
to The Banking Regulation Act of India,1949 banking means” the accepting for the purpose
of lending or investment, of deposit of money from the public, repayable on demand and
withdrawable by cheque, draft or otherwise.”

Islamic banking

Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called
fiqh muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat
came from the Quran and the Sunnah, and other secondary sources of Islamic law such as
opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal
reasoning (ijtihad). The most important difference between Islamic and conventional
banking is that Islamic banking must follow the Shariah.

Like any conventional bank, an Islamic bank is a financial intermediary and trustee of
people’s money with the difference that the Islamic banks reject the receipt and payment of
interest on any of its operations. What distinguish an Islamic bank from a conventional one
is that the Islamic bank keeps in view certain social objectives intended for the benefit of
society. The Islamic banks aim to establish distributive justice free from all sorts of
exploitation. From the Islamic point of view, business transactions can never be dissociated
from the moral objectives of the society.

Islamic banking aims the social justice through forbidding all forms of economic activities
which are morally or socially injurious, ensuring ownership of wealth legitimately
acquired, allowing an individual to retain any surplus wealth and seeking to prevent the
accumulation of wealth in a few hands to the detriment of society as a whole through its
laws of inheritance.

Principles of Islamic banks

As we mention, the goals of the Islamic finance are not mainly materialistic but are based
on the concepts of human well being and achieving a good life overall. It emphasise on
community values, socio-economic justice and a balance between the material and spiritual
needs of its followers.

~ 68 ~
The main principles of Islamic banks include:

a) The prohibition of taking or receiving interest: Financial transaction should be

free from interest (Riba) and directly or indirectly linked to a real economic
transaction. Profit from indebtedness or the trading of debts is seen to be unethical.
b) Making money from money is not Islamically acceptable: Money is only a medium
of exchange, a way of defining the value of a thing; it has no value in itself, and
therefore should not be allowed to give rise to more money, via fixed interest
payments, simply by being put in a bank or lent to someone else. The human effort,
initiative, and risk involved in a productive venture are more important than the
money used to finance it.
c) A financial transaction should not lead to the exploitation of any party of the
transaction; parties to a financial contract should share in the risks and rewards
derived from such financing or investment transaction.
d) The lender must share in the profits or losses arising out of the enterprise for
which the money was lent. As defined in the Shari'ah, or Islamic law, Islamic finance
is based on the belief that the provider of capital and the user of capital should equally
share the risk of business ventures, whether those are industries, farms, service
companies or simple trade deals. Translated into banking terms, the depositor, the
bank and the borrower should all share the risks and the rewards of financing
business ventures.
e) The ban on unlawful assets: no financial transaction should be directed towards
economic sectors considered unlawful such as investments in businesses dealing with
tobacco, alcohol, gambling industries, drugs, harmful substances, pork as well as all
enterprises for which financial leverage (indebtedness level) would be deemed
excessive (including conventional financial activities) or anything else that the
Shariah considers unlawful are deemed undesirable and prohibited "haram" or sinful
activities.
f) Prohibition on transactions involving Maiser (speculation or gambling); and a
prohibition on gharar, hazardous or excessive ambiguity in transactions or
uncertainty about the subject-matter and terms of contracts – this includes a

~ 69 ~
 prohibition on selling something that one does not own. Islamic business principles
include respect for the environment and human welfare, fair and transparent dealing,
and fair and just employment.
g) Any financial transaction should be based on a tangible, identifiable underlying
asset.

The Structure of Islamic Banking

Islamic financial institutions (IFIs) also serve as intermediaries between the saving surplus
and the deficit units/households. However, the instrument of “interest” is replaced by a
number of instruments. While conventional banks mainly pay and charge interest in their
operations, Islamic financial institutions have to avoid interest and use more than one key
instrument as the basis of their intermediary activities. The striking difference is that risks
in Islamic banking remain with the ownership, as a result of which, IFIs share profit or loss
arising on investments and earn return on their trading and leasing activities by dint of the
risk and liability taken and adding value in real business activities. They mobilize deposits
on the basis of profit/loss sharing and to some extent on the basis of Wakalah against pre-
agreed service charges or agency fees.

On the assets side, they take the liability of loss, if any, in case of Musharakah/Mudarabah-
based financing and bear risk in trading activities so long as the assets remain in their
ownership. In leasing activities, they purchase the assets; give them on rental and bear
ownership-related risks and expenses. This implies that IFIs will remain as intermediaries,
as they collect savings from a large number of savers/investors for financing the needs of
business, agriculture and industry, but their modus operandi will change. Their subject
matter will be goods and real business activities.

Al-Jarhi and Munawar Iqbal have candidly described the operational set-up of an Islamic
bank in the following words:

“An Islamic bank is a deposit-taking banking institution whose scope of activities includes all currently
known banking activities, excluding borrowing and lending on the basis of interest. On the liabilities
side, it mobilizes funds on the basis of a Mudarabah or Wakalah (agency) contract. It can also accept
demand deposits, which are treated as interest-free loans from the clients to the bank and which are

~ 70 ~
guaranteed. On the assets side, it advances funds on a profit-and-loss sharing or a debt-creating basis,
in accordance with the principles of the Sharıah. It plays the role of an investment manager for the
owners of time deposits, usually called investment deposits. In addition, equity holding as well as
commodity and asset trading constitute an integral part of Islamic banking operations. An Islamic
bank shares its net earnings with its depositors in a way that depends on the size and maturity of each
deposit. Depositors must be informed beforehand of the formula used for sharing the net earnings with
the bank.”62

FINANCING TECHNIQUES OF ISLAMIC BANKS

Keeping in view the Shariah considerations, Islamic banks around the world have devised
many financial techniques that are basically derived from Islamic contract of partnerships,
exchange, the loans (Charity), fee-based and other isolated contracts. For day-to-day
banking activities, Islamic banks resort to these financial instruments that have been
devised to satisfy the Islamic doctrine and provide acceptable financial returns to the
investors. The Main Stream model can be grouped under three broad categories.

I) CONTRACTS OF PARTNERSHIP/ PROFIT AND LOSS SHAREING

1) MUDARABA (Capital Financing):Mudaraba is a contract between two parties: an

investor (Rab-Al-Mal) and an investment manager (Mudarib). Profit, if earned, is
distributed between the two parties in accordance with the ratio that they agree upon at
the time of the contract. Financial loss, if suffered, is borne by the investor; the loss to the
manager being the opportunity cost of his own labor, which failed to generate any income
for him.

2) MUSHARAKA (Partnership): A Musharaka contract is similar to that of the Mudaraba,

with the difference that in the case of Musharaka both partners participate in the
management and provision of capital and also share in the profit and loss. Profits are
distributed between partners in accordance with agreed ratios, but the loss must be
distributed in proportion to the share of each in the total capital.

62Jarhi, Mabid Ali and Munawar, Iqbal (2001) Islamic Banking: Answers to some Frequently Asked Questions, IRTI, IDB,
occasional paper No. 4.

~ 71 ~
II) CONTRACTS OF BASED ON TRADE

1) MURABAHA (Cost Plus Profit):Under a Murabaha contract, the client orders an Islamic
bank to purchase certain goods at a specific cash price, promising to purchase such goods
from the bank once it has been bought, but at a deferred price, which includes an agreed
upon, known and fixed profit in favor of the bank. The deferred price may be paid as a lump
sum or in installments.

2) SALAM (Deferred Delivery): Salam is a sales contract in which the price is paid in
advance at the time of contracting, against delivery of the purchased goods at a specified
future date. Not every commodity is suitable for a Salam contract. It is usually applied only
to fungible commodities.

3) IJARA (Leasing):Ijara is a contract pursuant to which a property/equipment/aircraft

etc. is leased by one party to the other with a specified permissible benefit in the form of a
usufruct obtained for a specified period in return for a specified permissible consideration.

4) IJARA-WA-IQTINA (Lease/Hire Purchase Transaction): Very similar to Ijarah except

that there is commitment form the client to buy the equipment at a pre agreed price at the
end of the lease. In this case rental also includes the costs of the equipment.

5) Bay Bithaman Ajil/BBA (Deferred Payment Sale): This contract refers to the sale of
goods on deferred payment. In this system the Islamic bank buys the item requested by the
client and sales it to the client on pre agreed installment including the cost of the
equipment and the markup. This is very similar to Murabahah except the payment is made
in installments some time after delivery of the underlying goods.

6) ISTISNA (Build / Manufacture): Istisna is a contract in which a party orders another to

manufacture and provide an asset/project, the description of which, delivery date, price
and payment date are all set in the contract. Istisna differs from ijara in that the
manufacturer must procure his own raw materials. Otherwise the contract would amount
to a hiring of the seller's wage labor as occurs under ijara.

III) CONTRACTS OF CHARITY

~ 72 ~
1) QARD HASAN (Interest Free Loan): It is benevolent loan/debt financing that does not
promise excess or profit to the lender. The loan amount will be repaid through deferred
payment or lump sum as agreed. This is only for poor/needy/low income
individual/unemployed youth etc

2) AL-HIBA (Gifts): Actually a form of voluntary charity, encouraged under Islam. In

Islamic banking this is used to oblige the depositors who have kept their money in Islamic
bank without hoping any return. These cases are especially noticed in Malaysia and Iran
where Islamic banks offer some gifts to the depositors to compensate for any losses they
might have incurred by choosing to deposit in an Islamic bank.

IV) FEE-BASED CONTRACTS

1) AL WADIAH (Safe Keeping):Wadiah linguistically means something put under the

custody of other than the owner. In the modern application of al-wadiah in the banking and
other financial system, it can be elaborated as a contract between the owner of the asset
(customer) and the custodian 9finacial institution ) to safeguard the asset on behalf of the
customer. This is applicable to savings and current accounts, and keeping of valuable item
or documents in a bank safe for a fee.

2) JU‘ALAH (Commissioned Transaction): Ju‘alah is a contract in which one party (the

Ja‘il) undertakes to give a specific reward (the Jua‘l) to anyone who may be able to realize a
specific or uncertain required result, for example, finding a stolen car. It is a unilaterally
concluded contract binding on the initiator. Bank charges and commission have been
interpreted to be ju’alah by the jurists and thus, considered lawful.

3) WAKALAH (Agency): Wakalah is the delegation of one person (the principale0for

another (the agent0 to take his place in a known and permissible dealing. It is therefore
necessary for a Wakil to discharge his responsibility in the way a trustee discharges his
responsibility in the case of Am’anah.

V) SUPPORTING CONTRACT

Besides the above contract, there are other isolated contracts applicable to
Islamic bankig. These five supporting contract are diacussed below.

~ 73 ~
 1) AL-KAFALAH (Suretyship): legally, al-kafalah means the pledge given by the
guarantor or the surety (al kafil) to a creditor on behalf of the principal debtor to
secure that the guarantee (al –makful) will be present at a definite place to pay his
debt or fine, in the case of retaliation lextalionis, to undergo punishment. In Islamic
law, kafalah is the creation of an additional liability with regard to the claim, not to
the debt, the assumption not of the debt but only of a liability, and it has its origin in
procedure.

2) AR-RAHN (Pledges): The Arabic word “rahn” means withholding or hold back. It in
Islamic jurisprudential terminology means: possession offered as security for a debt
so that the debt will be taken from them in case the debtor failed to pay back the due
money.

3) HIWALAH (Transfer Of Debt): it means transferring a debt from one debtor

(transferor) to another (transferee). Once the transferee has accepted the transfer
of debt, the transferor would be released from any obligation.

4) BAI’ AL INAH (Reparchase): Bai’al-inah is generally defined as a sale-based on the

transaction of Nasi’ah(delay). The (prospective) debtor sells to the (prospective)
creditor some object for cash which is payable immediately; the debtor immediately
buy as simultaneously the same object for a greater amount for a future date.

5) BAI’ AL DAYN (Sale Of Dedt): Bai’ al- dayn can be defined as the sale of payable
right either to the debtor himself, or to any third party. This type of sale is usually
for immediate payment or for deferred payment (al-Nasi’ah). The issue of bai’al-
diyn arises when the bonds are traded in the secondary market at a discount. This
method is very controversies thing .we will about it later.

ISLAMIC BANKING PRODUCTS AND SERVICES

We can simply understanding the products and services of Islamic banking from the list
below:

I. Deposits – fund mobilization

~ 74 ~
Nature of Product/Service Modes and Basis
1 Current deposits Am’anah – Qard to bank; no return payable
2 Savings deposits Mudarabah
3 General investment term deposits Mudarabah
4 Special investment deposits Mudarabah, closed-and open-ended mutual funds, Wakalatul
Istism’ar

4 Individual portfolios Mudarabah, Wakalatul Istism'ar

6 Liquidity generation Tawarruq – reverse Murabaha, sale to any 3rd party

II. Trade finance, corporate finance

Nature of Product/Service Modes and Basis

1 Project finance Musharakah, Mudarabah-based TFCs,syndication through
Mudarabah, Murabaha, Istisna‘a, Ijarah/Ujrah

2 Working capital finance Murabaha, Salam, Musharakah in single transactions

3 Export finance – preshipment Salam/Istisna‘a plus Murabaha and Wakalah, Murabaha,

Musharakah

4 Import finance Murabaha, Musharakah

5 Cash finance Salam, Istisna‘a, Tawarruq (sale to 3rd party)

6 Export finance – post shipment Qardal Hasan in local currency (spot rate) and promise to sell
(bill foreign exchange in future market – exchange rate differential
discounting) bank’s income; Murabaha if funds needed for next
consignment.

7 Letter of credit Commission, Ujrah along with Murabaha, etc.

8 Letter of guarantee Kafalah, service charge

III. Agriculture, forestry and fisheries

Nature of Product/Service Modes and Basis

1 Production finance for input and Murabaha, Salam
pesticides

2 Tubewells, tractors, trailers, farm Ijarah Munahia-bi-Tamleek, Salam,

machinery and transport (includingfishing boats) Murabaha

3 Plough cattle, milk cattle and other livestock; dairy and Murabaha, Salam
poultry

4 Land development Operating Ijarah, Salam

5 Storage and other farm construction Diminishing Musharakah or rent-

(sheds for animals, fencing, etc.) sharing

6 Orchards, nurseries, forestry Salam, Musaqat

IV. Treasury

~ 75 ~
Nature of Product/Service Modes and Basis
1 Money market – inter-bank Mudarabah with or without allocation of assets

2 Liquidity management Sale/purchase of permissible securities,Parallel Salam,

Tawarruq

3 Fund management Mudarabah, Wakalatul Istism’ar, trading in permissible stocks

and Sukuk

4 Trading in Sukuk, stocks Depending upon the nature of instruments

5 Forex operations Unilateral promise to buy/sell foreign exchange

simultaneously at pre-agreed rate

V. Personal advances (including consumer durables and housing)

Nature of Product/Service Modes and Basis

1 Consumer durables Murabaha/instalments sale
2 Automobiles Ijarah Munahia-bi-Tamleek, Murabaha
3 Housing finance Diminishing Musharakah, Murabaha
4 Providing cash for personal needs Salam if possible, Tawarruq

Sharia Principles Practiced in Selected Islamic Countries.

In terms of the number of Sharia principles, while Islamic banks in many countries
(especially Middle Eastern countries) operate with a minimum number of principles,
many additional principles have been introduced in countries such as Malaysia,
Bangladesh, Pakistan and Iran. In the case of Malaysia for example, there are fourteen
Sharia principles and all these principles bear Arabic names. Islamic banks in other
countries, however, retain Arabic words for certain principles only, using vernacular
words for others. Some of the Arabic words which are commonly used by almost all
Islamic banks are the principles of mudaraba, musharaka, murabaha, ijara and qard
hassan. The slight differences in spelling are due to the pronunciation of words in
various countries.

The principle of bai-mua’zzal or cost plus sales under deferred payment which is used by
IBBL only is similar to the principle of bai bithaman ajil of BIMB and the principle of
instalment sales which is used by Islamic banks in Iran. Although this principle is not
practiced by other Islamic banks, these banks still offer deferred payment facility to

~ 76 ~
their customers. This facility is nevertheless incorporated within the principle of
murabaha. In Pakistan, the principles of mark-up and buy-back arrangement also operate
in line with the principle of murabaha.

We can illustrate it in a list63:

Sl.no Category
Countries Profit and loss Trading/Fees or charges based Services Ancillary/
sharing principles principles principles Supporting
principles
1 Bahrain Musharaka Morabaha, Commission, Service Qard hassan
charges
2 Bangladesh Al-mudaraba Bai-mua’zzal Qurd-e-hasana Wadiah
Musharaka Bai-salam
Hire-purchase
Ijara
Murabaha
Commission
Service charges
3 Iran Civil partnership Forward delivery Qard
Legal partnership Transaction al-asanah
Direct Investment Instalment sales
Modarabah Jo’alah
Mozaarah Debt trading
Mosaqat Hire-purchase
4 Jordan Mudaraba Morabaha Al-qird Wadiah
Musharaka Commission al-hassan
Service charges
5 Kuwait Mudaraba Morabaha Qard-hassan
Musharaka Commission
Service charges
Istisna
Leasing
6 Malaysia Al-mudharabah Al-murabahah Al-qardhul Ar-rahn
Al-musyarakah Bai bithaman ajil hasan Al-wadiah yad
Bai al-dayn dhamana
Al-ijarah
Al-ijarah thumma al-bai
Al-wakalah
Al-kafalah
Al-hiwalah
Al-ujr

63
A Comparative Study of Islamic Banking Practices, SUDIN HARON , Islamic Econ., Vol. 10, pp. 23-50 (1418 A.H /
1998 A.D)

~ 77 ~
7 Pakistan Mushrika Mark-up Qard-e-hasna
Equity participa- Purchase of trade
tion and purchase Bills
of share Buy-back arrangement
Participation term Leasing
certificate (PTC) Hire-purchase
Modarabah Development charges
certificate Loan with service
Rent sharing Charges
8 Sudan Mudaraba Morabaha Qard hassan
Musharaka Ijara
Commission
Service charges
9 Tunisia Mudaraba Morabaha Interest free
Musharaka Taajir
Commission
Instalment sales
10 Turkey Mudaraba, Morabaha, Ijara Interest free Trust
Musharaka Irara wa-iktina
Commission
Service charges
11 UAE Mudaraba Morabahat Qard hassan
Musharaka Service charges

CHAPTER 6

ISALMIC BANKING; THE COMPLETION OF MAQSID AL SHARIA’H

We understand in privies chapters the idea of the Islamic bank, its basic principles
and functions. The main principle of it is to create an alternative system against riba
based banking and completed the sharia based ethics and principle. The main
objective of Islamic banking is removing exploitations and harms in financial sector.
Protect the wealth from all misuse and create a well efficient finance system in
society.

In this chapter we can discus how to complete Islamic banks it’s these objectives
and what are the challenges faced in this field to represent an example of ethically
and socially responsible investment services.

The Social Role and Social Effects of Islamic Banking

~ 78 ~
Islam concern all men are in equal eyes. There is no different between poor and rich.
Poverty and richness are created Allah to examine the man.64 In the view of islam,
wealth is always flowing in the society. Quran says: “…in order that it may not
become a fortune used by the rich among you. And whatsoever the Messenger
(Muhammad) gives you, take it, and whatsoever he forbids you, abstain (from it) , and
fear Allah. Verily, Allah is Severe in punishment.” (59:7). Allah promoted zakaht and
charity to complete this propose.

Among the social goals of the Islamic banks, the reduction of inequality between the
rich and the poor, the establishment of justice and transparency in all transactions,
and the allocation of society’s resources to the needy and unfortunate.

The concern over ethical investment is also relevant to Islamic banks. As a business
entity established within the respect of the Islamic Law (Shariah), which emphasize,
among other, on the principle of social justice and wellbeing.

The several prohibitions such as interest, gambling, excessive risks, etc aim to
provide a level of protection of the interests and benefits of all parties involved in
market transactions and to promote social harmony.

Islamic banking strives for a just, fair and balanced society as envisioned by the
Islamic law.

Islamic banking perform in accordance with their ethics and social responsibility
commitment as being more enduring since they are ultimately based on divine
revelations.

Role of the Islamic banks in alleviating poverty

Poverty is seen, from an Islamic point of view, as a threat to human’s believes and to
the security and stability of the society as a whole. The objectives of Shariah in

64 See quran – innamal amavalu al avalada

~ 79 ~
preserving faith, human soul, progeny, property and mind will be difficult to fulfil in
the state of poverty65

These objectives require the provision of basic human needs so that people may not
be forced to cross the limits of religion and morality. Islam has made the state as
well as the community responsible for reducing poverty from the society.

According to the Islamic principles of social responsibility and justice, Islamic bank
must care for the less fortunate in society to maintain equilibrium and social justice.

There are different methods of wealth distribution. One of these methods is called
Zakat (tax). Zakat is the wealth tax paid annually on non-working capital, savings,
and all types of wealth. Every Islamic bank thus has to establish a Zakat fund for
collecting the tax from investors and depositors and distributing it to the poor. The
purpose of the Zakat is to provide the less fortunate with minimum standard of good
life.

The goal of the Islamic bank in alleviating poverty can be achieved by expanding
their activities and services into rural areas and small communities, increasing
resources mobilization through the collection of Muslims Zakah and Sadaqah and
directing them to provide the poor with their basic needs and improving their
standard of living.

Zakah and Sadaqah (charity) are two of the main sources of finance for poverty
alleviation used by the Islamic banks. They are considered an obligatory form of
"charity". It is a fixed proportion collected from the surplus wealth and earnings of a
Muslim after subtracting the basic living expenses. Zakah has a deep humanitarian
and social-political value.

65 Mashhour, N., Social and Solidarity Activity in Islamic Banks, International Institute of Islamic Thoughts, 1996

~ 80 ~
Islamic banks can play a major role in managing the Zakah and Sadaqah fund which
can be used to finance poverty alleviation activities. Also an equitable wealth
distribution can be done through Qard-al-Hasan (benevolent loans) which is a zero
return of loan that the Islamic teachings urge Muslim to make available to those who
need them. , the borrower then is required to pay-back the principal amount of the
loan on maturity without an increment or interest. When no maturity is stipulated,
the loan is repaid when asked by the lender, again without any increment. The
applicant provides collateral (gold) as security for the principal amount of the loan.

Due to the strong emphasize on the ethical dimensions in Islam such as confidence,
solidarity and trust, these loans display high repayment rates.

Besides this, Qard-al-Hasan is used for meeting short-term funding requirements.

Whereas some Islamic banks only offer Qard-al-Hasan to clients, who also have
investment account with the bank, other banks provide any needy person with this
form of an interest-free loan.

Purposes of Qard-al-Hasan

Islam insists on enhancing brotherhood among the Muslims. The main principle of
brotherhood is to care about each-others and help other who need money or do not
have enough. The main objectives of qard al-hasan are: helping the needy fellow
people.

 The elimination of social and economical discrimination from the society

trough the establishment of better relationship among poor and the rich.
 The mobilization of wealth among all people in the society which may
enhance a helpful society.
 To facilitate the poor to create new jobs market and business ventures by
using their merits, skills and expertise and thus eradicates unemployment
problem from the society.

~ 81 ~
Islam intends to establish justice and eliminate exploitation in the society and tries
to avoid the accumulation of wealth in the hands of few ones. The Qard al-Hasan as
it is an interest free loan for humanitarian and welfare purpose may ensure the
proper movement of wealth amongst all classes of people in the society. That is why,
the Qur'an and the Sunnah have much emphasized and encouraged for the
implementation of Qard al-Hasan in the Muslims society.

Maqsid al sharia’h in financial Sector

Main objective of sharia is protected the wealth from its loss and it use in useful allah
commands in holly Quran:” And give not unto the foolish your property which Allah has made
a means of support for you , but feed and clothe them therewith, and speak to them words of
kindness and justice.(4:5).In the case of financial sector, islam recommended it should be
more efficient and stable. we would like to start our discussion from efficiency, how Islamic
syatem is more efficient in the task it is assigned to.

a) The Efficiency
The issue of bank efficiency is important at macro as well micro levels. At the
macroeconomic level, bank efficiency is a socially optimal target since it reduces the
average cost of financial transactions and therefore enhances the society’s welfare. The
issue of banking efficiency is important for various reasons few of them are as follows.

The measurement of financial efficiency is important to all parties that participate in the
banking industry. Assessing bank’s performance through measuring efficiency helps bank
management to improve managerial performance. It assists investors in making
investment decisions whether to participate in financial activities. Regulators are also
interested in banking efficiency since the performance of the banking sector has significant
impact on other parts of economy. Al-Jarhi, a senior economist at the IDB/IRTI, observes
that “Banks in Islamic economics system operate on the bases of universal banking, i.e.,
they can take equity and provide credit finance simultaneously to the same enterprises.
The practice of universal banking in a word of asymmetric information is known to reduce
the cost of monitoring borrowers. This means that the transaction costs of credit finance
provided by banks to enterprises in which they take stock would be lower with universal

~ 82 ~
rather than commercial banking. This in turn would imply lower transactions costs of
providing credit purchase to enterprises in which banks have stake”. 66

Islamic economics researches and their practical application have shown that the
economic system can function without interest. A system using profit-sharing
modes where possible and trade based modes, e.g. Murabahah, leasing, etc. where
necessary, will be more equitable, more efficient and more stable than the current
interest based system.

Islamic economists in their researches have shown that interest has had bad
consequences for the economy. As it results in inefficient allocation of society’s
resources, it contributes to the instability of the system and also it increases the
inequality in the distribution of income and wealth. As Professor Siddiqi rightly
points out it that the interest based system “guarantees a continuous increase in the
monies lent out, mostly by the wealthy, and puts the burden of bearing the losses on
entrepreneurs and, through loss of jobs of the workers”.67

On the contrary, Islamic modes of finance not only expose the money owner to some risk
but also bring him opportunity for higher returns. And so it is fair to the entrepreneur, as it
does not oblige him/her to bear losses occurring despite good, and honest management. It
is better for the society since it allocates financial resources on the basis of expected profits
which reflect productivity.

Another aspect of this argument is raised by Chapra who is of the view that the resources of
the financial institution come from a wide cross section of the population; they must be
utilized for the well being of all the sections of the population. The financial resources are
extremely scarce, therefore it needs to be used with optimum equity and efficiency, which
according to Chapra can be done only when finance goes to (a) the optimum number of
enterprises and (b) the production, import and distribution of goods and services needed

66 Al-Jarhi, M. Ali, ‘A Comparison of Transactions in Conventional and Islamic Economies’, Fourth Harvard University Forum on
Islamic Finance, Islamic Finance: The Task Ahead, Cambridge, October 2002, p. 30.
67
Siddiqi, M.N., Paper Presented at La Riba annual meet at Los Angeles, CA, on 30 March 2002.

~ 83 ~
for the need satisfaction of all the members of the society. Chapra points out that the
conventional interest based financial system is not capable of helping realize either of these
two goals. It leads to both inequity and inefficiency in the use of resources.68

b)The Stability

Several researchers have compared both the banking systems in order to assess their
implications for the stability of the banking system. In this regard Mohsin Khan (1986) 69
and Abbas Mirakhor (1987)70 of IMF have proved that banking contracts as found in
Islamic form of banking are more stable than the contracts found in conventional banking.

For Islamic economists profit-sharing finance synchronizes payment obligations of firms

with its revenue accruals, thus removing a great source of instability in the system. They
quoted from United Nation Development Report71, describes the implication of
conventional contracts in these words, "When the market goes too far in dominating social
and political outcomes, the opportunities and rewards of globalization spread unequally
and inequitably concentrating power and wealth in a select group of people, nations and
corporations, marginalizing the others. When the market gets out of hand, the instabilities
show up in boom and bust economies as in the financial crisis in East Asia and its
worldwide repercussions, cutting global output by an estimated $ 2 trillion in 1998-2000.
When the profit motives of market players get out of hand, they challenge people’s ethics
and sacrifice respect for justice and human rights"72.

In contrast to this the equity based Islamic financial system is not prone to such
vulnerability as the resultant profit is based on the actual outcome of the business. This is
also more equitable in the sense that no participants of an economic activity are ensured of
any fixed return in advance of the business result. Several of the Western economists too
have endorsed the view that equity based system is more stable as compared to the

68
Chapra, M. Umer, ‘Islam and the Economic Challenge’, The Islamic Foundation, Leicester, UK, 1995. p. 327-328.
69
See, Khan, S. Mohsin, ‘Islamic Interest -Free Banking A Theoretical Analysis, ‘International Monetary Fund Staff
Papers, March, 1986,
70 See, Khan, S. Mohsin, and Mirakhor, Abbas (ed.), ‘Theoretical Studies in Islamic Banking and Finance’, The Institute for
Research n Islamic Studies, 1987, pp. 245.
71 The United Nations Development Programme. Human Development Report 1999, New Delhi, Oxford University Press 1999,

p.2
72 Islamic banking ,Dr.Shariq nisar, Aligarh,Dec-2002,p.156

~ 84 ~
interest based and blamed interest for their economic woes.73 As Sundarrajan and Luca
have pointed out in their very recent study that owing to the structure of their balance
sheet and the use of profit and loss arrangements, Islamic banks are better poised than
conventional banks to absorb external shocks. Solvency risks are typically lower in Islamic
banks than in conventional banks.74

c)The Justice

As mentioned earlier that conventional banks lend money to earn interest while Islamic
banks provide finance to share profit. Interest of the conventional banks lie in ensuring that
the loan is paid back together with interest. Naturally the conventional banks, therefore,
are not much interested in the kind of economic activity, or the profitability of the projects
financed or any other moral concern, for which the loan is sought.

Thus, the conventional bank grants higher preference to the credit worthiness of the
borrowers than the viability of the project to be financed or the ability or the idea of the
entrepreneur. Islamic economists argue that this method of financing is the primary cause
of miss allocation of the economy’s resources.

Efficient entrepreneurs who are unable to provide collaterals are fail to get credit at
the cost of relatively rich entrepreneurs who are granted credit. Since those who are
granted credit have to pay a fixed interest irrespective of the actual out come of the
project. Since there is no monitoring of the funds available to the entrepreneurs
there are very likely chances that, to ensure their own profit plus the cost to be paid
to the bank, many a times entrepreneurs would try to adopt various methods that
are actually not in conformity with the societal objectives and lead to various
speculative and other harmful activities. Professor Siddiqi in his recent address at
the Harvard has rightly pointed out, “At the top of the list is the opportunity the

73For more detail please see, Henry, Simons, ‘Economic Policy for a Free Society, Chicago, University of Chicago Press, 1948, p.
320. And also see, Hymen, Minsky, ‘John Maynard Keynes’, Columbia University Press.
74
Sundarrajan, V. and Luca Errico, ‘islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk
Management and Challenges Ahead’, IMF Working Paper, WP/02/192, Washington DC, September 2002. p. 25.

~ 85 ~
current (Conventional) system provides for money to be exchanged for more money,
making the moneyed richer. Next in importance is the immense scope for gambling-
like speculation provided by the huge volumes of debt-based securities in a system
that permits sales on margin, short selling and other exotic money games. Last but
not the least is the philosophy that regards profit maximization as the only
legitimate concern of the investment managers to the neglect of all the other
ingredients of human weal.”75

Various researches have shown that even if the funds are used in proper economic
activities, the cost of the items produced has risen significantly. This has had harmful
effects on the consumers of those produced item as well on the employment in that sector
due to predetermined high cost of the capital. Many a time it is observed that the increased
cost of product is borne by the poor and it is again the poor who is to suffer if the
increasing costs lead to low demand resulting in lower production and employment.
Interest based financing by the conventional banks and the production result in two other
side effects that leads to high instability in the economy.

 Firstly, under this method of finance only those who are rich enough get finance and
so the profit, thereby rich getting richer. In the long run this result in transfer of
funds from poor to the rich.

 Secondly, since most of the industrial activities are financed through banks, the
costs of industrial products, therefore, perpetually become higher as compared to
the production of other sectors of the economy like agriculture. This also leads in
transferring of funds from non-industrialist to the industrialist sector. And thereby
making one sector of the economy richer at the cost of other.
d)The Growth

Islamic bank, which has to share the profit, due to Islamic prohibition of ex ante price of the
capital, is always more interested in the beauty and viability of the project as compared to
the face or wealth of the borrowers. Islamic bank is naturally more concerned about the

75
Siddiqi, Mohammad Nejatullah, ‘Comparative Advantages of Islamic Banking and Finance’, Presented at the Fifth
Harvard University Forum on Islamic Finance, 6 April 2002.

~ 86 ~
entrepreneurial capabilities, honesty, and truth fullness of the borrowers. Islamic bank will
provide capital to those who are known for their entrepreneurial capabilities rather than
those who are famous for the assets of their fathers. Inbuilt monitoring coupled with other
Islamic prohibitions like speculation; gamble and other kinds of frauds (Gharar) and
cheating ensure that the funds of Islamic banks are utilized for the overall benefit of the
community. Unlike the conventional banks where absence of monitoring may leads to
private profit but at the social cost.

Under Islamic system of banking projects with low expected profit may also be undertaken
as there is no ex ante cost involved to the capital. This will enhance the entrepreneurial
capabilities of the society as a whole and led to overall growth of the economy unlike the
commercial way of financing, which helps in producing a class of elites out of the funds of
the masses. Islamic economists affirm that the projects that are chosen for their viability
will naturally be more growth oriented than those that are chosen because they are
propose by rich borrowers.

Justifying the rationale of Islamic banking, Professor Khurshid notes, “The central issue is
that the contemporary financial system is exploitative, unjust, discriminatory, unstable and
crises generating. There is no denying the fact some positive contributions that have been
made by the banking and financial system towards the promotion of economics
development and global capitalism. But when a balance sheet of achievements and failures
is made, its failures outweigh and outnumber”.76 He further says that in Islamic system of
banking money does not beget money rather used as a facilitator for the greater production
of goods and services, resulting not merely in increasing the number of billionaires but
producing real well-being for the people.

From the discussion of above, we can realize that the function of Islamic banking is
completed the main propose of Islamic sharia’h. It can be seen as new ideas and
applications to bring ethics and social justice into the financial and economic fields. The
Islamic financial system has foundered to achieving prosperity and fair distribution of
income and wealth among the society. Islamic banking services are directed towards

76Ahmad, Khurshid, ‘Islamic Finance and Banking: The Challenges and Prospects’, Review of Islamic Economics, No. 9, 2000, p.
65.

~ 87 ~
helping the poor still limited and do not have significant contribution to poverty alleviation.
This can be improved by expanding the Islamic banking activities into rural areas and small
communities and increasing financial resources mobilization through the collection of
Muslims' Zakah and Sadaqah which have to be directing to the poor. The Islamic banks
could also maintain close contacts with the poor directly and/or indirectly, through its
cooperation with other governmental and non-governmental institutions.

Chapter -7

THE CHALLENGES OF REALIZING MAQASID AL-SHARI`AH IN

ISLAMIC BANKING

Islamic Banking system has developed more than fifty years ago. The most visible
practical achievement is the establishment of Islamic banks meant to avoid interest and
promoted Islamic norms of economic behaviour and ultimately realizing the noble
objectives of Shari`ah. It’s practices in the current trend have been facing tremendous
challenges from its counterpart conventional banking system. Various studies conducted
on the practices of Islamic banks have found a big gap between theory and practices of the
Islamic banks. These difficulties mainly stem from the circumstances created by their
existence in places and regions where they operate in an economic, legal, administrative,
cultural and social atmosphere of hostile or indifferent regimes.

In the present time, to facing the challenges from the conventional banking system, with
satisfactory services and products for the clients, the Islamic banks have come
forward to offer very similar, in many cases ‘same’ though, products many of which are
in serious criticism from a Shari’ah perspective. On the scale of maqasid al-Shari’ah
these products often do not fulfill any or many of the maqasids, hence itself creates
a mafsadah and prevents from upholding the maqasid as those are.

~ 88 ~
This chapter examines the challenges of the proper realization of Maqasid al-Shari`ah in
Islamic banking. And it also analyzes some of the contemporary Islamic Banking products
and practices (ie: Bai’ Bithaman Aajil (BBA), Bai’ al-‘Inah, rahn etc..) in the light of maslahah
and maqasid al-Shari’ah in order to propose a better banking system for the Muslims.

CHALLENGES OF ISLAMIC BANKING

Islamic banking is not only engaged in trade financing as presumed but in many of the
Muslim countries they offer most of the services of a conventional bank like savings
account, current account, special deposit account and money transfer through drafts,
cheques, letters of credit and guarantee etc. apart from offering financial instruments
ranging from interest free loans, venture capital, leasing and joint ventures to partnerships
all under Shariah principle. However, it is stressed that it needs to develop a more
professional organizational network and a wider client base. One of the earliest
propounder of Islamic banking Dr. Ahmad Al-Najjar, some twenty years ago, mentioned
major problems confronting Islamic banking, many of them are still valid.77

a) Islamic banks perform their duties in economic administrative, legal, cultural and
social situation where non-Islamic features prevail in one form or the other.

b) Islamic banks follow a neither system, a philosophy and practice that do not meet
with nor parallel to the system and practice of hundreds of other banks neighboring
them and living with them in the same community.

c) The legal problems, laws of countries where Islamic banks operate require that
banking should not be subject to any risks. These laws stipulate certain restrictions
which do not conform to Shariah.

d) There are some juridical issues where opinions diverge and unanimity is difficult to
obtain, there is little coordination among Islamic banks in this respect.

e) There is problem of seeking fast investment of liquid cash where available and the
prompt arrangement when needed, as the work of Islamic bank is based on

77Ahmad Al Najjar, ‘Islamic Banks, Achievements & Problems’, in papers on Islamic Banking, New Century Publication, London,
1984, p. 67-72.

~ 89 ~
 investment through partnership and requires a certain period of time for the study
of the project to be financed.

And it faced many macro levels problems,that are related with Islamic banking as an
industry. The major problems confronting Islamic banking as a whole includes problems of
Islamization of economy, which has not been encouraging yet. It may be pointed out that
almost 20 years has passed since the beginning of Islamization of economy in few noted
countries. Unfortunately these efforts have been sacrificed at the altar of politics.

Another major macro level problem faced by Islamic banking is the agency problems i.e.
moral hazard and adverse selection. Though this is a universal problem not specifically
linked to Islamic banking but it becomes more pertinent for Islamic banking when it is
characterized that Islamic economic system is more value oriented. Several of the problems
faced by Islamic banks are originates from this agency problem. Especially heavy reliance
of Islamic banks in short-term assets structure and resorting to financing techniques that
are more close to conventional financing. A visible shift of Islamic banks from paradigm
version is also the result of economic and social environment that is not conducive as far
the Islamic values are concern.

Another major problem confronted by Islamic banks is the small size of their operation.
Most of the Islamic banks are under capitalized and cannot enjoy the economies of scale.
This problem stems from the fact that most of the Islamic banks are the product of
individual initiatives (especially wealthy individuals of Middle East). Islamic banking in
spite of generating all the euphoria is yet to become a mass movement. As yet Islamic
banking has succeeded in select pockets only unless it reaches to the masses it will remain
undersized, undercapitalized.

Entry of western multinational financial institutions into Islamic banking arena has not
helped the cause. It has hastened the competition forcing Islamic banks to follow a quick-
buck psychosis. It is a well-known fact that conventional institutions are keener to follow
letter than sprit.78 In these situations Islamic banks are left with very narrow set of choices.
If the Islamic banks are to compete in the market they must follow the conventional

78 Iqbal, Munawar , et al ‘, Challenges Facing Islamic Banking’, Occasional Paper No. 2, IRTI/IDB, 1998, p. 57.

~ 90 ~
institutions that naturally are far more efficient in their operations as compared to their
Islamic counterparts.

Challenges With Financing Techniques And Maqsid Al Sharia’h

The objectives of islamic bank is promote for a society of well being, where every individual
and organization commits to justice, equity, and freedom. None of these foundations
promote a mere profiteering and material gain with no concern for the ultimate falah in the
Hereafter. Similarly, the foundations of Islamic Banking promote a balanced life between
the life here and Hereafter. Thus this development can only be achieved in a conformity
with the maqasid al-Shari`ah.

This implies the necessity on the Islamic Banks to develop products based on the overall
welfare and a greater perspective from the maqasid al-Shari’ah framework, and not simply
focusing on the legal forms of the products. Dusuki and Abozaid commented in this regard,

“…Instead, the substance that has greater implications to the realisation of maqasid al-
Shari’ah should be equally looked into especially when structuring a financial product.
Otherwise, Islamic banks are just appeared as exercise semantics; their functions and
operations are really no different from conventional banks.”79

With a meticulous analysis, it can be visible that the current practices of the Islamic banks
are, in many cases, not in conformity with the Shari’ah required standards. Many Muslim
economists, for example, favor equity-based instruments and place greater social welfare
responsibilities and religious commitments, in order to realize maqasid al-Shari’ah for
equitable distribution of wealth and promoting economic development and growth,80
whereas most of the Islamic banking products range from Bai’ Bithaman ‘Ajil (BBA), Bai’
al-Dayn, Islamic credit card with Bay’ al-‘Inah contract, Tawarruq, and many such other
contracts. Therefore, it has become one of the biggest challenges of time, to come up with
products which are not only Islamic compliant, but are also Shari’ah compliant, i.e.

79 Asyraf Wajdi Dusuki and Abdulazeem Abozaid, “A Critical Appraisal on the Challenges of Realizing
Maqasid al-Shari`ah in Islamic Banking and Finance,” IIUM Journal of Economics and Management 15,
no.4 (2007): 143-165.
80 See A. Ahmad; K. Ahmad, “Economic Development in Islamic Perspective Revisited”, Review of Islamic

Economics, 9, (2000): 83-102, “Islamic Finance and Banking: The Challenge and Prospect,” Review of
Islamic Economics, 9, (2000): 57-82; M. Umar Chapra, The Future of Economics; M. N. Siddiqi, Issues in
Islamic Banking (Leicester: The Islamic Foundation UK, 1983).

~ 91 ~
compliant with the maqasid al-Shari’ah, without violating the business natures of being
competitive, profitable and viable in the long run.

To understand how much maqasid al-Shari’ah oriented the above mentioned products are,
we can analyze some of those contracts in the following discussion.

1)Bai’ Bithaman ‘Ajil (BBA) contract

The Bai’ Bithaman ‘Ajil (BBA) contract, which is very close to Murabaha or Bai’ Mua’ajjal,
provides the buyer the benefit of a deferred payment, whereby it implies a sale on a cost
plus basis. The BBA contract has gained overwhelming popularity in the South-East Asian
region, and turned to a basic contract in the Islamic Banks. Obaidullah mentions a simple
difference between the BBA contract and the Bai’ Murabaha, that in the BBA contract both
the parties may or may not know the cost and the mark up price of the product;
however, in the murabaha contract, it is a binding for both the parties to be aware of the
cost and the mark up (profit) price.81 The BBA contract has been a subject of much
controversy around the world, to the effect that the Council of Islamic Ideology in
Pakistan has mentioned in its report Elimination of Interest from the Economy in this
manner:

“However, although this mode of financing is understood to be permissible under the

Shari’ah, it would not be advisable to use it widely or indiscriminately in view of the danger
attached to it of opening a back door for dealing on the basis of interest.”82

BBA contracts, usually in the home financing or in car loans, are unfortunately identical to
the interest rates. And in cases where the BBA profit rate is fixed, which raises other
questions, is usually higher than the interest based loans of the conventional banks, and
volatile for the long-run contracts. The bank according to the BBA contract, although
should be liable for the risks of the property sold, do not take any risk at all as it only owns
the property for a minimum period of time possible, usually a few minutes or less. This is a
direct violation of the principle “Al-kharaju bil-dhaman.”Similarly, in cases of default the
bank does not bear any responsibility, as it does not own the property anymore! On the
same stance, the bank does not provide any choice or ikhtiyar to the customer in case of

81 M. Obaidullah, Islamic Financial Services (Jeddah: King Abdul Aziz University, 2005), 68
82 The Council of Islamic Ideology, Elimination of Interest from the Economy (Islamabad: Government of Pakistan, 1977).

~ 92 ~
defects. Violation of the principles of “Al-kharaju bil-dhaman” renders it to the same state
of riba. On the other hand, BBA financing is calculated based on the market interest rate, as
its bench-mark.83This in no means, comply with the maqsad (objective) of eliminating
injustice, inequality and poverty, which were primary objectives behind the elimination of
riba.

Similarly, as the Islamic banks are simply imitating84 the conventional banking system,
based on the Fractional Reserve System, Islamic banks are also, in this way, making money
‘out of thin air’ violating the principles of equal distribution, societal welfare, justice, on
the way to create a higher default rate, debt loans and other greater harms.85

2) Rahn or Pawn Broking

Another example of the imitating Islamic baking practice is the rahn, which is a sort of
documentation of debt in its original sense. But in the modern Islamic banking practices, it
is widely known as a synonym for Pawn Broking, and a tool to generate profit in the
business. In this transaction, the Islamic bank will provide its customer with the so called
benevolent loan on condition that the customer guarantees it with a rahn; e.g. a valuable
jewellery to be kept by the bank as collateral. This would not have been a problem had the
bank not asked for a custodianship fee against the rahn. “The amount of this charge is
subject to the amount of the loan and, in practice, equivalent to the bank rate of profit”
writes Dusuki and Abozaid,86 hence, there seems no difference between the conventional
banking and the Islamic Banking systemThis violates the fundamental maqasid (objectives)
of establishing Islamic Banks, i.e. dealing with interest-free monetary policies for the
Muslims, providing economic welfare, social equality, and a free flow of money among the
citizens.

3) Bai` al-‘Inah
83 For further details, see Dzuljastri Abdul Razak, Mustafa Omer Mohammed, and Fauziah Md Taib,
“Customer’s Acceptance on Islamic Home Financing: Empirical Evidence on Bai Bithaman Ajil (BBA) in
Malaysia”, paper presented at IIUM International Accounting Conference IV (INTAV), Marriot Putrajaya Hotel,
24-26 June, 2008.
84 They are imitating because most of the products are the same products with simply a different name, and a little variance in

terms of terms and calculations. Dusuki and Abozaid also view similarly. See. Dusuki and Abozaid, “A Critical Appraisal”, 147
85 See Ahamed Kameel Mydin Meera and Dzuljastri Abdul Razak, Islamic Home Financing through Musharakah

Mutanaqisah and Bai’ Bithaman ‘Ajil contracts: A comparative analysis (KL: ISRA, 2009); also Ahamed Kameel Mydin Meera,
The Theft of Nations (Subang Jaya: Pelanduk publications, 2004).
86 Asyraf Wajdi Dusuki and Abdulazeem Abozaid, “A Critical Appraisal”, 148

~ 93 ~
Bai’ al-‘Inah is a sale and buy-back arrangement with fixed mark-ups. A murabaha can
change into Bai’ al-‘Inah if the identity of the seller is not different from its customer; this is
when the bank purchases a commodity from its client on a spot basis and sells it back to the
client at a cost-plus price and on a deferred basis.87This practice has gained some
popularity in the South East Asian region, despite the fact that it has been rejected outright
in almost all other Muslim countries by the Islamic scholars. One of the main reasons
behind its prohibition is that its rate of profit is indistinguishable from the rate of
interest in the conventional banks. And the ultimate aim of this transaction is to
enact a pure riba-transaction in the guise of buying and selling.

Although most of the Southeast Asian scholars deem it permissible on the basis of Imam al-
Shafi’i’s opinion, most of the other scholars do not find it permissible at all. In fact, it is
considered an alternative to riba. In point of fact, Imam al-Shafi’i’s opinion is only his
personal view and not based on any authentic Shar’i sources. Contrary to it, all other
scholars based their opinions on the consensus of the jurists (ijma’ul fuqaha). For
instance, Ibn Qayyim prohibited Bai` al-`Inah quoting the following Hadith that the
Prophet Muhammad (pbuh) is reported to have said:

“A time is certainty coming to mankind when they would legalise riba under the name
of bai’ (trade/sale).” 88

The transactions based on bai’ al-‘inah violate many fundamental objectives of

Islamic Banking practices. The harms that are caused due to bai’ al-‘Inah are primarily, the
lender or the bank is creating a ‘debt’ and making money ‘out of thin air,’ which causes
greater harm to the society overall. Secondarily, there is no sale and trade in real terms; it’s
only some paper work allowing exchanges of parties, and not real trade. This hinders the
Islamic objective of equal distribution and income distribution. Third, as mentioned earlier,
this is a different form of validation of riba. Fourth, the contract does not require the bank
to own the article for sale for such a period of time that would imply the liability side on the
bank, as the bank usually owns the article for a few minutes or less. The profit that the

87M. Obaidullah, Islamic Financial Services,103.

88See, Abu Umar Faruq Ahmad, Theory and Practice of Modern Islamic Finance: The Case Analysis from
Australia, (Florida: Brown Walker Press, 2010), 243-4.

~ 94 ~
bank is gaining without possessing the ownership and liability is invalid, as the
principles of “Al-Kharaju bil-Dhaman” demands. In fact, this implies the profit as riba.
Again, in case of default, based on the same concept, the bank cannot demand the article
back, as it does not own it. However, unfortunately, the case is just the opposite in practice.
Fifth, since the article for sale is only brought to be sold for the need of some cash, the
market price of the article need not resemble the price offered by the bank; on this ground
it is nothing other than zulm on the customer. Majority of the fiqh schools are in
agreement that the bai’ al-‘inah contract is invalid, and is tantamount to riba.

The bai’ al-‘inah contract is often used to offer credit cards in Malaysia. The Bank
Islam Malaysia Berhad’s (BIMB) Islamic credit card is one of such examples. In this
contract, there are two agreements with the bank. As the BIMB’s website describe, it reads
“... In the first agreement, the bank sells a piece of land to the customer at an agreed
price. While in the second agreement, the Bank re-purchases the land from the customer at
a lower price. The difference in the price is therefore the Bank's maximum profit,
which is determined in advance, unlike the conventional credit card whereby the
interest charged is undetermined and it may further increase.”89

The description mentioned above clearly shows hat the nature of the contract is that of
the prohibited contract, bai’ al-’inah. Similarly, many other banks in the South East Asian
region also offer Islamic credit card services on the basis of bai’ al-‘inah contract,
which is antagonistic to many maqasid of the Islamic economic and banking principles.

SOME MISGUIDED JUSTIFICATIONS AND ITS CRITICISM

The proponents of current controversial practices of Islamic banks and financial

institutions argue that Islamic banks need to be dealt with leniency especially at its
infancy stage. Thus the main reason for allowing Islamic banks to practice certain
controversial contracts is to facilitate their development and to ensure sustainability
and viability amid the hegemony and prevalence of the conventional banks and the
interest-based economic systems. Otherwise, Islamic banks would be deemed to fail, and
their failure is a failure of the whole Islamic economics which in turn affecting the very

89Bank Islam Malaysia Berhad, Bank Islam Card-I, (Bank Islam Malaysia Berhad, 2009, accessed 21st December, 2009);
available from http://www.bankislam.com.my/About_Bank_Islam Card.aspx; internet.

~ 95 ~
project of the modern Islamic state. This necessitates a more flexible and a liberal approach
when structuring Islamic financial system, its products and services. They base their
arguments on various Shari`ah concept include Al-Siyasah Al-Sha’iyyah, maqasid al-
Shari’ah, maslahah and dharurah.

To further address this issue we need to examine these concepts in details in order to have
a better understanding on how to approach the contemporary issue of financial
transactions. Already they have delineated in the third chapter (fiqhi tools related whit the
maqasid al-shari’ah). So,here we can focus to evaluate the application of that tools
especially with respect to maqasid al-shari`ah and maslahah in Islamic banking and
finace. Indeed, one of the biggest challenges of Islamic banking and finance industry
today is to come up with products and services that is Shari`ah compliant or legitimate
from Islamic point of view without undermining the business aspects of being
competitive, profitable and viable in the long run.

Overruling the prohibited practices on the grounds on Dharurah

Dharurah, which means necessity, unanimously renders the prohibited things

permissible as this constitutes a well-established Fiqh maxim in the Shari’ah
“Necessities permits the forbidden” (Al-Dharurat Tubih Al-Mahzurat). However, when
jurists discussed and explained the applications of this fiqh maxim they mentioned
what is known in Arabic as dhawabit, which means conditions and guidelines, for the
functionality of this maxim. These guidelines (dhawabit) are of course stated in or
derived from the Shari’ah texts. The first guideline (dhabit) is: what constitutes a dharurah.
The jurists’ approach of the concept of dharurah can be summarized by saying that
dharurah is something which is indispensable for the preservation and protection of
the five essential values or masalih: Faith, Life, Intellect, Posterity, Wealth. 90This means
the concept of dharurah would give the Mukallaf legal excuse to commit the forbidden;
what is indispensable for his survival, spiritually and physically.91

90Al-Shatibi, Al-Muwafaqat, 2/10.

91Majallat Al-Ahkam Al-‘adliyyah, section 22; Ibn Nujaim, Zainulddin, Al-Ashbah Wal Naza’ir, 1/105-107; Al-Seyoti,
Jalaulddin, (911 H). Al-Ashbah Wal Naza’ir, p.84-92; Al-Kurdi, Ahmad. Al-Madkhil Al-Fiqhi, p.48.

~ 96 ~
Applying the principle of dharurah to the case in question would not in any way imply that
rendering the unanimously forbidden transaction to be permissible so as to apply them in
Islamic banks. Even if we rightly presume that such products are inevitable for the Islamic
bank’s survival and long-term sustainability due to certain considerations, then the
argument is that the very concept of bank itself is not indispensable for the Mukallaf’s
survival from the Shari`ah perspective. If such dharurah hypothetically exists, then it
would rather legitimize dealing with conventional banks direct.

Obviously, When Shari’ah prohibits something it provides alternatives; when it

prohibits zina it permits marriage, when it prohibits wine and pork for consumption it
permits all other sorts of food and drinks. Likewise, when Shari’ah prohibits certain
contracts such as contract based on riba and gambling, it alternatively permits many
contracts like sale, lease, salam, istisna’, mudarabah and musharakah. To economists, such
contracts are the better alternatives for riba and gambling, and ultimately can help to
produce a prosperous and a healty economy. On the other hand economy based on riba and
gambling which premised on exploitation, leads to disparity and inequitable of wealth
distribution between rich and poor. So, where is the dharurah that may allow Muslim
to abandon these benefical contracts in favour of harmful and destructive one.

Preference of ‘Macro Maqasid’ over the ‘Micro Maqasid’92

It can be argued that the facilities devised from the contracts like BBA, rahn, bai’ al-‘inah,
and others, are serving the maqasid al-Shari’ah at a macro level, i.e. providing a flow
of economic activities in the economic system. On the same ground, the micro maqasid,
which are the maqasid related to individuals and individual financial transactions, are
overlooked for a greater benefit. However, these cannot be considered as part of the
maqasid al-Shari’ah in the first place, for its violation of clear text (nass) on prohibition
of riba, and promotion of zulm.Secondly, as mentioned earlier in the conditions of
maslahah that the maslahah should be greater than the mafsadah, neither less nor equal;
whereas the mafsadah of these contracts have been clarified earlier, which are
undoubtedly massive. Similarly, prevention of a mafsadah does not always guarantee a

92
Bank Islam Malaysia Berhad, Bank Islam Card-I, (Bank Islam Malaysia Berhad, 2009, accessed 21st
December, 2009); available from http://www.bankislam.com.my/About_Bank_Islam_Card.aspx; internet.

~ 97 ~
maslahah by nature; it can in many cases be a lesser mafsadah. In this case, only for the
sake of competing with the conventional banks, these Islamic banking products cannot
be considered as maslahah. In fact, the meticulous studies have proven those to be a
greater mafsadah in disguise of maslahah. At the end, there can remain no confusion in
preferring the ‘macro maqasid’ over the ‘micro maqasid’. Have been clarified earlier, which
are undoubtedly massive. Similarly, prevention of a mafsadah does not always guarantee a
maslahah by nature; it can in many cases be a lesser mafsadah. In this case, only for the
sake of competing with the conventional banks, these Islamic banking products cannot
be considered as maslahah. In fact, the meticulous studies have proven those to be a
greater mafsadah in disguise of maslahah. At the end, there can remain no confusion in
preferring the ‘macro maqasid’ over the ‘micro maqasid’.

We can conclude our discussion for give some alternatives to these contracts. Home
financing, car loans, and other loan contracts can be based on Musharakah,
Mutanaqisah (diminishing partnership) instead of the debated BBA contract. Similarly,
credit cards can be issued under the qardh hasan or even rahn contract (without charging
for the custodianship fee).

And it is also true that the Islamic banks are financial institutions, which are primarily
aimed at making money; hence they try to make money from every opportunity available.
As a result the contracts based on Profit-Loss Sharing, the mudharabah and the
musharakah, have declined in almost negligible form.This in fact requires renewed
understanding of the Islamic Economics and its objectives.

While summing up, the problems faced by Islamic banks, it would be worth to quote one of
the senior most Islamic economists who stressed to express that “the climates under which
Islamic banks are operating (domestic and external) is anything but congenial. The moral
fabric of the society is weak. The legal framework is antagonistic. The tax system is partial
towards the interest system and almost inimical to a profit sharing system. The state of
competition between the Islamic and traditional banking system is such that most of the
odds are against the Islamic system”.93

93Ahmad, Khursid, ‘Islamic Finance and Banking: The Challenges and Prospects’, Review of Islamic Economics, Islamic
Foundation, U.K., No. 9, 2000, p. 78.

~ 98 ~
 CONCLUSIONS AND REMARKS
We can conclude our study with some noteworthy observations. The Islamic financial
system has ethical foundations which are based on achieving prosperity and fair
distribution of income and wealth among the society. As a part of it’s, the Islamic banking
applications to bring ethics and social justice into the financial and economic fields.

The principles of Islamic banking were derived from the Shariah law (Islamic law).
According to the Islamic finance the ethical investment is based on a moral filter which
defines the levels of halal (permissible) and haram (prohibited and undesirable) promoting
a positive social climate for society, and providing an expedient legal framework.

The Islamic banks could play an important role in promoting socially desirable investment
through its strong emphasis on the ethical and moral dimensions of doing the business and
selecting the activities/ commodities to be financed.

In prohibiting transactions based on the interest rate, Islam seeks to establish a society
based upon fairness and justice. One way of manifesting the social role of Islamic banks is
the alleviation of poverty by providing finance (through Zakat distribution) to the poor to
increase their income and wealth, or by offering Qard-al-Hasan.

Islamic banks have involves various values such as commitment to the social interest,
promotion of human welfare, care for the environment and concerns for economic and
social justice.

Financial services directed towards helping the poor still limited and do not have
significant contribution to poverty alleviation.

This can be improved by expanding the Islamic banking activities into rural areas and small
communities and increasing financial resources mobilization through the collection of

~ 99 ~
Muslims' Zakah and Sadaqah which have to be directing to the poor. The Islamic banks
could also maintain close contacts with the poor directly and/or indirectly, through its
cooperation with other governmental and non-governmental institutions.

As we mention in previous pages, Islamic banking practices in the current trend have been
facing tremendous challenges from its counterpart conventional banking system. To keep
up in the run, with satisfactory services and products for the clients, the Islamic banks
have come forward to offer very similar, in many cases ‘same’ though, products many
of which are in serious criticism from a Shari’ah perspective. On the scale of maqasid al-
Shari’ah these products often do not fulfill any or many of the maqasids, hence itself
creates a mafsadah and prevents from upholding the maqasid as those are. In this
situation, we can ensure, Islamic banking will be overcome these challenges in near future.
We can quote Ali Muazzam,a most prominent scholar in this sector : “ Islamic scholars feel
that in order to develop Islamic banking further, in its true sense, it is essential to concentrate on
finding new products and instruments, to organize training programmes and to spread the Islamic
spirit among Islamic bankers. It is essential that Islamic banking institutions devote a large proportion
of their revenues towards research, development and training programmes. As there is no dearth of
talented people in the Muslim world who could be employed for the purpose. It is concluded that in the
near future the Islamic banks will be able to meet the needs of the financial world.”94

In conclusion, one may say that we are required by our religion to implement a complete
Islamic way of living in our individual and collective lives and the society and in our
government as well. The Islamic banking and financial system is part of such a system and
is not construed to be applicable in isolation while other laws and customs repugnant to
the Shariah requirements are still in force. Therefore, I do believe that Islamic banks
are fully Shariah compliant because it provides us interest-free banking system, give
reasonable prices and constructs Shariah products for the benefits of society.

94 Ali Muazzam, ‘US President Tries to Ratify the Ethical Values of the Country”, New Horizon, London, July-August, 2002, p. 3-4.

~ 100 ~
References

1. M. Hashim Kamali, Principles of Islamic Jurispredence

2. Al Razi , Al Mahsu’l fi ‘Ilmi usul al fiqh

3. Dr. Wahabath Azuhari, Usul al fiqh al Islami, darul Fiqra

4. M. Obaidullah, Islamic Financial Services, Jeddah: King Abdul Aziz University, 2005

5. Ahmad Al Najjar, ‘Islamic Banks, Achievements & Problems’, in papers on Islamic

Banking, New Century Publication, London, 1984

6. Irshad abdul haqq; Undrstanding Islamic law from classical to contemporary, Alta

mira press.

7. Al-Shatibi, Al-Muwafaqat.

8. Abu Umar Faruq Ahmad, Theory and Practice of Modern Islamic Finance.

9. Ahmad, Khursid, ‘Islamic Finance and Banking: The Challenges and Prospects’, Review

of Islamic Economics, Islamic Foundation, U.K.,

~ 101 ~