A Socially Responsible Islamic Finance: Character and The Common Good
A Socially Responsible Islamic Finance: Character and The Common Good
A Socially Responsible Islamic Finance: Character and The Common Good
ISLAMIC BANKING,
FINANCE, AND ECONOMICS
A SOCIALLY
RESPONSIBLE
ISLAMIC FINANCE
Character and the
Common Good
Umar F. Moghul
Palgrave Studies in Islamic Banking, Finance, and
Economics
Series Editors
Zamir Iqbal
World Bank
Potomac, USA
Jahangir Sultan
Bentley University
Boston, USA
Mehmet Asutay
Durham University
Durham, United Kingdom
The aim of this series is to explore the various disciplines and sub-
disciplines of Islamic banking, finance and economics through the lens
of theoretical, practical, and empirical research. Monographs and edited
collections in this series will focus on key developments in the Islamic
financial industry as well as relevant contributions made to moral econ-
omy, innovations in instruments, regulatory and supervisory issues, risk
management, insurance, and asset management. The scope of these
books will set this series apart from the competition by offering in-depth
critical analyses of conceptual, institutional, operational, and instru-
mental aspects of this emerging field. This series is expected to attract
focused theoretical studies, in-depth surveys of current practices, trends,
and standards, and cutting-edge empirical research.
A Socially Responsible
Islamic Finance
Character and the Common Good
Umar F. Moghul
Brooklyn, New York, USA
vii
Contents
7 Returning 295
Select Bibliography297
Index305
ix
Introduction
xi
xii INTRODUCTION
Note
1. By Islam is meant the normative Sunni practice of the religion, excluding
non-Sunni because of the limits of the author’s knowledge and experience.
CHAPTER 1
The desire to know God and live with purpose guides the believing Muslim
to temper profit motives with principles. Muslim scholars describe faith
and conduct as having an “inextricable organic and structural relation-
ship” so that individual ethical behavior depends upon faith and spiritual-
ity (iman), and obedience to the law, infused as it is with ethics, supports
spiritual growth.1 Acts of worship and spiritual practice prepare and enable
ethical conduct. The behavior of collectives depends upon the character
and ethics of their constituent individuals, the relationships they build,
and the systems they design. For the financial institutions or businesses
that seek to comply with the Shari’ah, it is through applications of faith
and spirituality that they may demonstrate honesty, empathy, and benevo-
lence toward Earth and its diverse inhabitants and construct participatory
governance in observations of others’ rights.
Though this book focuses on the Islamic spiritual tradition, the rel-
evancy of religion to good character, ethical behavior, and the themes of
this study are true among other faiths. Various faiths and ethics traditions
have brought their principles to bear in business and finance, concerning
themselves with questions of human rights,2 labor relations, environmen-
tal consciousness, and governance. Many faithful assert that the purpose of
their respective religions is the advancement of social justice through their
emphasis on spirituality and morality.3 The Jewish and Christian faiths,
for example, present traditions that support individual moral development
and engender positive social impact. Many religions teach living simply,
freeing resources for those in need and aiming to distribute them equita-
bly. “Spiritual sanction against excessive consumption” plays an important
role in mitigating the “economic forces” that promote and undermine
positive socioeconomic development.4 Religious discourse considers not
only the effects of consumption on the natural environment, but on how
the self, uncurbed by spiritual and moral restraints, affects consumption—
and behavior generally.5 Religious institutions carry moral authority, moti-
vate numerous peoples globally, and bring to bear critical assets—all of
which serve to shape worldviews, capacity, and willingness.6 Their role,
hence, in engendering sustainability, resilience, and positive social and
environmental impact is central.
Islamic spirituality, in its norms as well as its practices, establishes a
methodological framework and impetus to establish businesses and mar-
kets that support sustainability and social and environmental well-being.
The role of these principles and methods in developing individual charac-
ter is well-known. This study posits that such principles and methods are
additionally relevant at organizational levels. For Islamic finance and other
Muslim markets and communities to create social impact, environmental
welfare, and good governance, spiritual development and self-discipline
are essential precursors. This is so because, first, organizations and com-
munities are comprised of individuals, who establish objectives, products,
and processes. Second, by embedding Islamic spirituality, the character of
Islamic financial institutions and their products are expected to transform
positively to meet the primary challenge facing the industry, which is an
ethical one.7
The Shari’ah
Though often translated as “Islamic law,” the Shari’ah includes much
more8: beliefs and theology, values, ethics, and etiquettes to guide and
maintain life in this world in balance with the realities that exist in the
Afterlife.9 Islam countenances humans as having both spiritual or supra-
temporal components (such as the spirit [ruh]) and material or tempo-
ral components (such as the physical body). This duality is mirrored in
the Shari’ah. Ethics and principles relating to worship proper (ʿibadat),
such as prayer and fasting, are considered constant, immutable, and con-
sistent with the nature of the supratemporal. They prepare one to fulfill
the ethics and laws that govern relationships among humans and creation
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 3
(mu’amalat), such as contracts, trade, and finance, which are mutable and
dynamic, consistent with the nature of material life in this world. Ethical
values such as honesty, trust, and empathy are constants, applicable in
both the temporal and supratemporal.
The primary sources of the Shari‘ah are the Qur’an, the Sunnah, and
the principles they contain. The Qur’an is “the book containing the
speech of God revealed to the Prophet Muhammad, peace be upon him,
in Arabic.”10 “[T]o appreciate the ‘legal’ role that the Qur’an came to
play from the first moment the ProphetP began to receive it, we must rid
ourselves of the notion of boundaries and lines of separation between what
is legal and what is moral. The boundaries did not exist in any of the ways
we have come to draw them in this modern world of ours.”11 The Sunnah,
the written record of which is termed hadith, are the acts and sayings of
the Prophet Muhammad,P12 plus whatever he has tacitly approved as well
as reports that describe his physical attributes and character.13 God’s final
emissary, Muhammad,P was dispatched as a “loving mercy to the worlds”14
including “the various worlds of man, jinn, and beast.”15 The ProphetP
describes his role:
mu’amalat regulating acts among humans and creation, such as trade and
finance. Without such morality and the acts that prepare it, the law is
deprived of its true validity and force.
Purpose
Often explained as the unity of God, tawhid is better understood as an
active and dynamic process of affirming the unity of the Divine. Observing
reality through the lens of tawhid enables the human to be in greater
reverence of the Divine and to discover and beautify oneself, from within
and without, and one’s personal, social, economic, and political context.
The ultimate aim of Islam is loving submission to, and worship of, God.
As such, tawhid is the core of Islam.34 An intellectual appreciation of taw-
hid (tawhid al-ilmi) is necessary, but not sufficient, for more completely
ethical and beautiful conduct. Experiential tawhid (tawhid al-wijdani) is
the culmination of worship and reflection, understood broadly, and grace
(tawfiq) granted by God until the heart (qalb) is cleansed.
The world and all that it contains was created to both reveal and veil
God: “Either Allah, His Majesty and attributes, are manifested or they
are foreclosed from us depending on the perception and purity of our
hearts.”35 The very purpose of God’s creating the human is to worship
Him.36 This is the answer Islam gives to the question, ‘Why am I here?’
While worship, when considered from a jurisprudential point of view, is
construed narrowly, it is understood broadly in a religious context and
for the benefit of the worshipper. It potentially encompasses almost any
deed: reflection and remembrance, prayer and fasting, kind words, magna-
nimity and responsibility in transacting business, charity and philanthropy,
governance, and care for animals and the natural environment.37 We say
“potentially” because for any act to constitute worship it must, according
to the majority of Muslim scholars, first be intended solely for the sake of
God and be performed within the parameters laid down by Him and His
Final Prophet, Muhammad.P38
The Heart
Purification of the qalb of the presence of other than God, emptying (takh-
ali) it of attachments to other than God, and adorning (tahali) it with the
attributes of the Divine, at the finite human level, is a central purpose of
Islamic spiritual practices, in their various forms. By heart or qalb, we refer
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 7
A Cycle of Tazkiyyah
This is what one of the early believers [salaf] meant when he said, ‘A per-
son may commit a sin by which he goes to heaven and a good deed by
which he goes to hell.’ ‘How?’ someone asked. He replied, ‘Having com-
mitted the sin, he is ever watchful in fear, regretful, timorous, lamenting,
shamed before his Lord, his head in his hands and his heart rent. The sin
that brings him all that we have mentioned, wherein lie his happiness and
salvation, is more beneficial to him than numerous devotional acts. Indeed,
it becomes the means by which he enters Heaven. [On the other hand],
he may perform a goodly deed and constantly laud it before his Lord, wax
proud, boast, become vain and haughty with it, as he says, ‘I did this, I did
that.’ His self-importance, pride and arrogance provide him only with the
means to his own ruin. If God intends then what is good for this miserable
person, He will try him through something that breaks [his pride], abases
him and reduces his self-importance. But if He intends otherwise, He will
leave him to his self-importance and pride, and this misfortune is what leads
to his ruin.72
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 11
For some sins, concerning the rights of God, such as a missed obligatory
prayer or fast, repentance to God is required.73 For others concerning the
rights of individuals, such as an expropriation of rights or a breach of trust,
repentance to God and seeking pardon of those harmed are required. In
instances such as charging interest (riba) in loans and bribery, the return
of property is additionally required for complete repentance.74 The seeker
inculcates God’s attribute of Ever-Relenting (al-Tawab) “by pardoning
and forgiving” those in breach “without taking them to task…except in
a situation where it is incumbent to do so to uphold divine wisdom and
fulfill the law.”75 A hadith states good character “is that you should seek
reconciliation with those who avoid you, give to those who withhold from
you, and forgive those who deal with you unjustly.”76 Devoted and dili-
gent effort (mujahadah) is a necessary consequence of tawbah as is a firm
will (iradah), the locus of which is the qalb, to do better.
Good deeds—whether they be prayer or fasting, speaking honestly,
renunciation of materialism, giving charity, treating employees fairly,
consulting others, or fulfilling a contractual obligation—work to purify
the heart and draw one nearer to the Divine, rendering the heart sound
(salim). Such a heart observes and comprehends deeper meanings; it is
present and aware of God’s presence (hadir).77 And is thereby civilized
(hudur).78 It is not scattered and dispersed in its gaze among many, but
is rather focused upon The One (i.e., God), under the safeguard of the
Islamic law. Deeds are then means by which one may evaluate one’s char-
acter, and character is a means by which one may verify one’s affirmation
of Divine Oneness. “It is crucial to recognize the theological and eschato-
logical foundations that taqwa [God-consciousness] stands upon, because
for one to be guarded and maintain vigilance implies that there must be
an object that one is vigilant about and in this case it is ethical vigilance
shaped by an awareness of eschatological consequences.”79 Taqwa “impels
one to be righteous in convictions and actions.”80 One may look to how
the self occupies the time granted, the choices it makes, in what it finds
pleasure and delight, and if, and how, such differs from that of other cre-
ated beings to ascertain the presence of taqwa.
Unless God forgives—and forgiveness for all matters, except failing
to conceive of God in his Oneness, is certainly possible—a qalb con-
taminated by poor conduct is obscured and prevented from experiencing
its own happiness, often bringing the self into anxiety and depression,
among other lowly conditions. Moreover, such a qalb cannot but view
reality as a reflection of its own limits—whether they be of greed, arro-
12 U.F. MOGHUL
[The supplicant] enters as the one whose heart has been broken by poverty
and indigence, until neediness reaches his inner depths and he is shattered.
Destitution envelops him from all sides and he feels his utter need for God…
He feels that every whit of his inner and outer being is completely in need of
and dependent on His Lord. He feels that if he is left to himself for even the
blink of an eye, he will perish, lost beyond hope – unless his Lord returns to
him in His mercy to salvage him. There is no shorter way to God than that
of servitude, and no thicker veil then pretension.89
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 13
“who examines others.”99 To adorn the qalb with this Divine attribute, the
seeker pleads for an awareness of his or her faults. God is also al-Hasib,
The Reckoner, who measures all things and suffices entirely for seekers.100
Cultivation of this attribute is gaining in vigilance (muraqabah, which
we discuss shortly) and then in self-assessing. To be effective, muhasabah
should not only be done regularly but frequently with honesty and trans-
parency to evaluate whether one has abided by the stipulated conditions
and the Shari’ah generally. The scope of muhasabah is addressed in the
following Qur’anic passages:
On the day when God will raise them (the people) altogether and inform them
of what they did. God has kept account of it while they forget. And God is wit-
ness over all things.101
The day of judgment when people will issue for us and scattered groups to be
shown their deeds. Whoever does and atom’s weight will see you then, and what-
ever does an atom’s weight of evil will also see it.102
God, His Messenger, and the believers will take note and see the result of your
actions.103
have said; rather, the feedback received (even an insult) should be seized
as an opportunity for self-criticism, education, and refinement to be freed
“from all others [in creation].”109
Closely related to muhasabah is muraqabah—a mindfulness “that
God is watching over you with every breath you take.”110 God says in
the Qur’an: “No vision can attain Him, but He attains all vision”111 and
“wheresoever you turn, lo, there is the face of God.”112 As a spiritual practice,
“a seeker (salik) clears his mind of all foreign thoughts and reflects on
Allah, the Merciful and Majestic Lord.”113 The seeker actively strives to be
aware that God is watching from within aware of intent, not only outward
action. He or she, in other words, beholds that God beholds all and thus
struggles to not be present (internally or externally) in moments where
God does not love his servants’ presence. God is named Al-Raqib, a word
derived from the same linguistic roots as the word muraqabah. As such,
God is “the one who looks after something to the point of never forget-
ting it in the first place and who observes it with a constant and persistent
gaze – so that if one to whom it was forbidden knew about the surveil-
lance he would not approach it.”114 The believer connects with this name
by seeking “a closeness that engenders awe of, and shyness before, God to
prevent disobedience.”115
Among other tools available to the seeker are reprimand (mu’atabah)
and constructive consequences (mu’aqabah). Violations, if you will, are
subject to reprimand commensurate with the nature of the violation,
the condition of the seeking offender, and the rationale and purpose of
the principle breached. Sometimes further constructive consequences
(mu’aqabah) are necessary to discipline, train, and build spiritual poten-
tial energy. Their goal cannot be mere punishment. These may include
exercises (riyadah) against the nafs in an effort to deny it and build posi-
tive habits. Al-Ghazali illustrates, “The road to purifying the soul lies in
habituation…whosoever wants to gain the virtue of generosity has to train
himself/herself in actually being generous through spending money. He/
She keeps doing this til it becomes easy.”116 Training exercises to develop
self-discipline include eating, sleeping, and speaking little, for, among
many other supporting texts, the ProphetP has said, “The most exalted
amongst you in God’s sight on the Day of Judgment shall be those who
hungered and meditated the longest for His sake (Glorified is He!), while
the most loathsome amongst you in His sight on that Day will be those
who slept, ate, and drank abundantly.”117 Abstinence is designed to enable
a control of the nafs to distance it from the prohibited and harmful, fulfill
16 U.F. MOGHUL
obligation and responsibility, and guard against excess in the licit. While
the process of curbing impulses and appetites and fashioning the nafs may
begin with difficulty, the seeker continues in love of God and in hope of
Him until the desired conduct becomes second nature, laying the founda-
tion for the pursuit of other religious-social duties.
Sustenance and Work
by which one discharges debts and protects honor and good repute, and
bequeaths an inheritance to somebody else upon death.130 However,
wealth can be a source of trial, yet so can poverty, which Islam sees as a
potential path to corruption and the loss of faith.131 Accordingly, while
working, one must never forget the “marketplace” of the Hereafter as a
recompense for how business (and life generally) is conducted. “In houses
that God has permitted to be built and that His name be mentioned therein,
in which men who neither business nor barter distract from the remembrance
of God praise Him in the early morning and in the late afternoon.”132 Not
only must one avoid the prohibited and fulfill obligatory responsibilities,
but also avoid instances of doubt to purify one’s wealth and oneself.133
The term ‘Amal, or work, is used in the Qur’an approximately 360
times and its verbal derivative forms another 109 times.134 But the term’s
use in the texts of the Shari’ah extends beyond working to earn to encom-
pass devotional actions, such as fasting and social kindnesses. For exam-
ple, “Those who have faith and do good works shall have blessings and great
rewards.”135 A considerable number of Qur’anic passages (ayat) encourage
religious devotions and good conduct using commercial terminology.136
As will be shown, Prophetic precedent connects spirituality and religion
to work as well. The contemporary scholar al-Qaradawi notes that social
welfare and educational initiatives that aim to prevent harm and corrup-
tion, and bring benefit to poor “partake in the work the ProphetP has so
strongly recommended.”137 Work is often an obligation under the Shari’ah
upon individuals,138 particularly if it is the only way to prevent dependency
on others and begging, otherwise a heinous act.139 Economic activity is
not confined to producing enough to meet one’s needs and immediate
responsibilities only. “The most recommended use of fairly earned wealth
is to apply it to procuring of all means to fulfill a Muslim’s covenant with
Allah.”140 That covenant includes giving others in creation, not only the
human, their rightful due. Listing some of the stakeholders identified in
the Shari’ah, the Prophet Muhammad P has said, “Verily, your soul has a
right over you, and your family has a right over you, and Allah has a right
over you, so give to each owner of right its right.”141
Al-Ghazali recommends that earning begin with proper intention to
seek the Divine, and “a quest for sufficiency for himself and his family, and
a dignified life that relieves him of the need to ask others for help or be
covetous of them.”142 A statement of the ProphetP reads, “If you spend
a dinar in the way of God, and another with which to support your ser-
vant, and another that you given charity to the poor, and yet another by
18 U.F. MOGHUL
which you support your family – the dinar that you spend on your family
earns you the greatest reward.”143 This advice connects earning with social
responsibilities, first, to direct dependents and then with the poor and “in
the way of God”—that is, broader community welfare. Above the level of
sufficiency, Kamali asserts that earning is recommendable. Al-Muhasibi (d.
857 CE/243 AH) adds:
Seeking to allot the life of this world and the Hereafter their respective,
properly weighted due raises the notions of moderation (wasatiyyah) and
balance that permeate Islamic spiritual and legal teachings, and pervade
God’s creation. “And the earth we have spread out, set thereon heavy moun-
tains, and we have caused to grow in the earth all kinds of crops in due pro-
portion and balance.”145 The notion of balance extends to fair trade and
financial dealings as well. In this regard, the Qur’an directs, “You shall fill
the measure and the balance with justice.”146 The path of tazkiyyah is aimed
at maintaining the internal dimensions of humanity in balance with the
external so that life is lived not only justly but beautifully.
Renunciation (Zuhd)
Muslims are guided to see this world (dunya) as an important ground
by which proximity to the Divine and felicity are granted. It is not an
abode of settlement but of “transit and trial.”147 The Qur’an describes this
ephemerality:
They rejoice in the life of the world, whereas the life of the world is but brief
comfort as compared with the Hereafter.148
Lo! We have placed all that is in the earth as an ornament thereof that we may
try them: which of them is best in conduct.149
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 19
Know that the life of this world is only play, and idle talk, and pageantry, and
boasting among you, and rivalry in respect of wealth and children; as the like-
ness of vegetation after rain, whereof the growth is pleasing to the husbandman,
but afterward it drieth up and thou seest it turning yellow then it becometh
straw. And in the Hereafter there is grievous punishment, and (also) forgive-
ness from Allah and His good pleasure, whereas the life of the world is but mat-
ter of illusion.150
The world (dunya) itself is not condemned by Islam.151 The seeker looks
to disengage from attachments that have not come about by, for, or
through, the Divine. The love of worldly objects that is detestable is
such that it induces the seeker to ignore the Shari’ah. The ProphetP has
said, “With respect to the Afterlife, this world is only as if one of you put
his finger in the sea; let him see with what it would return.”152 And has
said, “Do without in this world and Allah will love you. And do without
what is in the hands of people, people will then love you.”153 He has also
warned, “By God, I am not afraid that you will become poor, but I am
afraid that worldly wealth will be given to you in abundance as it was
given to those before you. You will start competing with one another
for it as the previous nations competed for it, and then it will divert you
[from good] as it diverted them.”154 “[E]very man’s heart which inclines
to anything but the love of God (Exalted is He!) is afflicted by disease
in proportion to this inclination, unless he love a thing because it helps
him to love God and to practice his religion-which is not the symptoms
of an illness.”155 Pious historical predecessors (salaf) who serve as exem-
plars for believers gathered wealth “for the sake of acts of kindness and
benefaction such as grants and donations, and for the sake of assisting
the poor.”156 Appreciating this valuation, the seeker is equipped to miti-
gate against fear and worry in livelihood. Using this worldly existence
as a means to do good for the sake of God, transacting parties are urged
to look to the Hereafter through acts of honesty, transparency, and dis-
closure as well as empathy and kindness to create balanced, just, and
responsible outcomes.
Renunciation instills the habit of being generous with worldly posses-
sions, while love instills the habit of being generous with one’s own spirit.157
In the Islamic tradition, renunciation or zuhd may be understood as doing
“without in this world with one’s heart.”158 Al-Junayd (d. 910 CE/298
AH) adds, “It is keeping your hands free from possessions and your heart
from attachment to this world.”159 Ahmad b. Hanbal (d. 855 CE/241
AH) ties the principle to jurisprudence stating, “Doing without the world
20 U.F. MOGHUL
is not that you should declare what is halal (licit) to be haram (illicit).”160
Rather, it is abandoning what is prohibited by the Shari’ah, excess in the
lawful, and that which distracts from God.161 Many of the early Islamic
treatises on cultivating the heart arose in the immediate context of the
challenges of earning a living (kasb).162 Al-Shaybani (d. 805 CE/179 AH),
for example, says his Book of Earning a Livelihood was essentially about
zuhd. In fact, literature on earning as well as renunciation is “at a deeper
level about the economics of the soul – an economics of the material in
service of the spiritual, of this Life for the sake of the Afterlife.”163
Excellence (Ihsan)
In the aforementioned Hadith of Gabriel, the ProphetP is asked to inform
regarding ihsan (excellence). HeP replies, “It is that you should serve Allah
as though you could see Him, for though you cannot see Him, He never-
theless sees you.” From this hadith, Muslim scholars delineate two paths
to tawhid and character development. The first begins with witnessing
the Divine, “a primary intuition of the Creator back to understanding the
creation as His creative activity.”164 The other, more common path moves
from “contemplation of the creation to the Creator which it signifies.”165
Ihsan then “is to worship God alone with true sincerity, keeping nothing
but Him in the heart, and responding to His presence as though we are
able to see Him. Failing this, we are to remain constantly assured and
aware that He sees us wherever we are present through His knowledge
and other attributes.”166 This should ultimately result in self-restraint—in
remaining within the bounds laid by the Lawgiver—much as one does in
the presence of a respected person.167
Ihsan “is not something required at the basic level of the Shari’ah for
salvation.” Acting by it means “to do more than the required, literally to
surpass and excel in goodness.”168 God says, “And truly Allah is wholly
on the side of those who excel in goodness.”169 Al-Raghib al-Isfahani (d.
1109 CE/502 AH) elucidates, “Ihsan is above mere fairness (‘adl), for
fairness means giving what one is obliged to and only taking what one
deserves; while Ihsan means giving more than one is obliged to, and tak-
ing less than one deserves. Ihsan is accordingly higher than fairness, so
observing fairness is obligatory, while observing ihsan is recommended
and supererogatory.”170 It is very much part and parcel of the Islamic ethi-
cal–legal framework.
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 21
parties generally, must have an empathy for one another and the impact
of their business on the wider local community. A key element of empathy
is honesty.
“None of you truly believes until he wishes for himself what he wishes
for his brother,” reads an often recalled hadith.179 Lest one contend that
such selflessness and compassion is confined to one’s own community,
the Qur’an clarifies, “You should be kind to them [those of faiths other
than Islam] and act justly towards them, for God loves those who uphold
justice.” The Qur’an also broadly instructs:
Oh you believe, stand firmly for justice as witnesses for God, even against your
own selves.180
Indeed God commands you to render all trusts to their rightful people. Moreover,
whenever you judge between people, you shall judge with justice. Indeed, that
to which God exhorts you is most excellent. Indeed, ever is God all-hearing,
all-seeing.181
Al-Ghazali states that it is incumbent to “love for the rest of creation what
one loves for himself.”182 Based on these and a myriad of other texts, jus-
tice (‘adl) is a “universal objective.”183
Throughout a transaction, parties should be of easy, reasonable conduct.
Al-Shaybani echoes this, citing the Prophetic statement: “Whoever seeks
what is permissible (halal) of the world with temperance (muta’affifan)
shall meet Allah Most High with his face like the moon (qamar) on
the night of the full moon (al-badr); and whoever seeks it with conceit
(mufakhiran) and excess (mukaathiran) shall meet Allah Most High
while He is angry at him.”184 Excellence (ihsan) requires avoiding exces-
sive profit.185 The price sought should be fair, and not higher due to some
perceived disadvantage of the buyer’s standing or knowledge. Al-Ghazali
asserts, “Whosoever is content with a modest profit, his transactions will
be numerous and he will gain from their frequency much profit, and in
this manner blessings are manifested.”186 The Seller should, moreover,
preferably not acquiesce to a buyer’s willingness to pay more. In fact, al-
Ghazali recommends that the seller tolerate a usual than lower price if the
buyer is in difficulty (but not otherwise). Further, one who sells, forgoes
its immediate payment, and is not to fastidious in demanding payment
later, is like someone giving a [goodly] loan.187
Muslim scholars consider it “an aspect of magnanimity [ihsan] … to set-
tle one’s debts cordially.” The Prophet P has said, “May God show mercy
ISLAMIC SPIRITUALITY: AN IMPETUS TO RESPONSIBILITY AND IMPACT 23
Analysis and Recommendations
Notes
1. Wael Hallaq, “Groundwork of the Moral Law: A New Look at
the Qur’an and the Genesis of Shari’a”, 16 Islamic Law and
Society 16 (2009): 267. See also Toshihiko Izutsu, Ethico-Religious
Concepts in the Qur’an (Montreal: McGill Queen’s University
Press, 2002), 204.
2. See, for example, The Marrakesh Declaration, The Rights of
Religious Minorities in Predominantly Muslim Majority
Communities, http://www.marrakeshdeclaration.org.
3. Rania Kamla and Hassan Rammal, “Social Reporting By Islamic
Banks: Does Social Justice Matter?” (2013), 4, http://apira2010.
econ.usyd.edu.au/conference_proceedings/APIRA-2010-100-
Rammal-Social-reporting-by-Islamic-banks.pdf. See also Kamla
and Rammal, “Social Reporting By Islamic Banks: Does Social
Justice Matter?” Accounting, Auditing & Accountability Journal
26 (2013): 911–945.
4. Gary Gardner, Invoking the Spirit: Religion and Spirituality in the
Quest for a Sustainable World, ed. Jane Peterson (Worldwatch
Paper 164, December 2002): 10, http://www.worldwatch.org/
system/files/EWP164.pdf.
28 U.F. MOGHUL
Congruence and Convergence:
Contemporary Islamic Finance
and Social Responsibility
Introduction
Across the world, there is widespread belief that businesses, organizations,
and individuals must conduct themselves responsibly and sustainably. This
belief has fueled growth in Islamic finance and socially responsible busi-
ness markets, making them the two most rapidly growing areas of finance
over the last two decades, expanding at rates far exceeding that of financial
markets as a whole.1 Insurmountable differences between Islamic finance
and contemporary responsibility efforts, a term we use broadly,2 might
seem to begin with the religious basis of the former. But some, in fact,
place the origins of the latter in religion, noting, however, their grad-
ual separation.3 In limiting profit motives, their notions of what is ethical
and how to implement values do differ in some ways but share much.
Although they should be engaged with one another, active overlap has
begun only very recently. This chapter identifies points of divergence as
well as convergence among Islamic spiritual and ethical precepts, con-
temporary Islamic economic markets, and contemporary initiatives link-
ing business with sustainability, responsibility, and impact. Later chapters
expand upon this, detailing how classical Islamic spiritual and ethical-legal
thought foreshadows certain aspects of contemporary socially responsible
business and, in numerous respects, calls for it outright.
Islam, as a matter of its ethics and laws (fiqh) as derived from the
Shari’ah, teaches its adherents to act upon matters of environmental and
Islamic Finance
in the same manner as can those of the latter. In contrast to the spiritual,
rules governing the material are mutable and dynamic to reflect the “exis-
tential and material realities” as they impact realization of the Lawgiver’s
wisdoms and objectives.11 Theories of Islamic jurisprudence and law are
not monolithic; interpretations of the Shari’ah vary.12 Sunni Muslim
jurists eventually organized into four schools of jurisprudence (madhhab),
known commonly after their eponyms as the Hanafi, Maliki, Shafi’i, and
Hanbali schools.13 Recognizing the probabilistic nature of their interpre-
tations and their fallibility, jurists contend with, and respect, competing
opinions.14 One would be remiss if in attempting to understand Islamic
law one applied “conceptual categories, distinctions, and binarisms that
originated in modern Europe”15 for the “very term law is ideologically
charged with Foucauldian notions of surveillance, inconspicuous punish-
ment, hegemony and subordination of the docile subject, all of which
mechanisms of control (at the very least) make our modern notion of law,
and therefore of morality, quite different from any earlier legal system.”16
The Shari’ah is designed to secure benefit and prevent harm in this
world and in the hereafter. “‘Benefit’ and ‘harm’, as defined in the context
of objectives of Islamic law, have their own distinguishing features. “The
essence of benefit, then, is pleasure and enjoyment, be it physical, emo-
tional, mental or spiritual, while the essence of harm is pain or suffering,
be it physical, emotional, mental or spiritual.”17 But the benefit spoken of
here is not, for example, “simply the gratification of impelling desires or
short-lived caprices.”18 If an act has more beneficial than harmful effects,
then for the sake of attaining such benefit, Islamic law deems the action
praiseworthy. “[C]onversely, an action which has more harmful effects
than beneficial ones, it is this harm which is taken into consideration by
the Law, and it is for the sake of its elimination that the Law prohibits the
action concerned.”19 In order for any rule of Islamic law to be valid and
applicable, it must not violate the intent and purpose of the Shari’ah,20
known as maqasid al-Shariah and sometimes referred to as “public inter-
ests” or “common good” (maslahah). Such objectives, according to Ibn
Ashur (d. 1973 CE/1393 AH), may be understood as “the deeper mean-
ings and inner aspects of wisdom considered by the Lawgiver in all or most
of the areas and the circumstances of legislation.”21
To understand Islamic law, one must appreciate its “moral message and
structure.”22 The legal is a derivative of the moral, “the latter being the
archetype.”23 Classical Muslim jurists, such as al-Shāt ̣ibı̄ (d. 1388 CE/790
AH), set forth the Divine objectives in three tiers.24 First, the essentials
42 U.F. MOGHUL
Legal Values
Muslim jurists define a legal value (hukm shar’i) as a communication from
God concerning the conduct of those legally responsible, consisting of a
“demand, an option or an enactment.”44 A legal value comprises: (1) an
authorization from God45; (2) an object of the legal value (mahkum fih);
and (3) the one(s) held legally responsible (mukallaf or mahkum ‘alayh).46
Jurists further delineate a (1) defining law (hukm taklı̄fi), the area of
Islamic law that assesses acts into one of several categories, and (2) declar-
atory law (hukm wadʿi), which declares the relationship between cause
and effect, and a condition and its object.47 According to the majority of
jurists, there are five categories of defining law: (1) obligatory (wajib);
(2) recommended (mandub); (3) prohibited (haram); (4) disapproved or
reprehensible (makruh); and (5) permitted (mubah).48 An obligatory act’s
commission leads to heavenly reward and its omission leads to punish-
ment.49 Obligations may bind an individual or a community50; in the latter
case, they are fulfilled when completed by some community members.51
A recommended act is rewarded but its omission is not often punished.52
Al-Shāt ̣ibı̄ observes that the recommended leads to, and supports, the
obligatory.53 A prohibited action is one whose abandonment is required
by the Divine; its omission leads to reward while commission leads to
punishment.54 Actions may be prohibited intrinsically (li dhatihi), such as
murder, theft, and intoxicants, or for extrinsic reasons (li ghayri hi), “such
as a sale which is used as a disguise for securing usury (riba).”55 Those
actions falling under the former may be permitted only by dire necessity
(darurah), while those actions under the latter category may be permitted
by a lesser degree of need (hajah).56 The commission of a disapproved act
entails reward, while omission does not often subject the actor to punish-
ment.57 Finally, permissible actions are understood to mean The Lawgiver
44 U.F. MOGHUL
rewards neither their commission nor omission.58 For our purposes, it will
be for jurists to assess how the probable social and environmental conse-
quences, be they responsible or praiseworthy (mahmud) or irresponsible
and blameworthy (madhmum), affect the final Islamic ethical-legal assess-
ment assigned by an Islamic non-binding legal or advisory opinion (fatwa)
to a given organization, transaction, or project. To inform this opinion,
appropriate expertise will render a determination of the nature of such
social and environmental impact and work closely with Shari’ah advisors.
Stakeholders
The Shari’ah provides a framework by which stakeholders, and the nature
and extent of their rights, may be identified. It establishes an impor-
tance of profit and shapes motivations and efforts to earn it by nurtur-
ing a consciousness of responsibilities to others and not only of one’s
own rights. Many industry stakeholders appreciate this, for they look to
CONGRUENCE AND CONVERGENCE: CONTEMPORARY ISLAMIC FINANCE... 47
even if that assent should be expanded to more completely avoid riba and
(further) encompass socially and environmentally responsible b ehavior.
Nevertheless, many Islamic transactions fall under the jurisdiction of
Anglo-American common laws “known as a market based, shareholder
value or principle-agent system” that sets a very clear goal of shareholder
maximization.109 For that reason, an understanding of fiduciary duties
under these laws is important.
A fiduciary relationship is a relationship of responsibility and depen-
dency, arising when there is discretionary power over another’s interests.
It is generally understood that this power must be exercised in benefi-
ciaries’ interests, with a power of trust and with due care and prudence.
The trustee is prohibited “to invest for any other object than the high-
est return consistent with the preferred level of portfolio risk.”110 Many
argue that if fiduciaries integrate environmental, social, and governance
(ESG) considerations, “both the duty of loyalty and the prudent man
rule would be violated.”111 Fiduciary duties are beginning, however, to
be interpreted to accommodate such factors.112 The most prominent
assessment of fiduciary duty and stakeholders and “the single most effec-
tive document for promoting the integration of environmental, social
and governance (ESG) issues into institutional investment” is probably
the Freshfields Report.113
The general argument of the Freshfields Report is that profit maximiza-
tion has never in fact been the singular purpose of institutional investors’
fiduciary duties in any country.114 It presents three categories in which
accounting for ESG concerns is either lawful or obligatory. First, select-
ing investments on the basis of ESG factors is permissible when deciding
between investment choices with exactly similar financial characteristics
(however rare that may actually be). Second, the report deems consid-
ering ESG factors obligatory when financially relevant. Lastly, choosing
investments on the basis of their ESG performance is permitted when the
manager reasonably believes the beneficiaries would unanimously support
doing so. In July 2009, UNEP-FI published a follow-up to the Freshfields
Report, though “the law regarding fiduciary duty has changed very little
in the years since.”115 This update calls for decision makers to have at least
some regard for ESG considerations “in every decision... because there
is a body of credible evidence demonstrating that such considerations
often have a role to play in the proper analysis of investment value.”116
Richardson observes that if ESG characteristics may only lawfully be
taken into account when financially relevant, social responsibility can
CONGRUENCE AND CONVERGENCE: CONTEMPORARY ISLAMIC FINANCE... 51
Islamic investors (not all of whom are Muslim) rank the elements they
perceive as important, beginning with certain Islamic ethical-legal
(fiqhi) prohibitions, namely “not be involved in the production or sales
of haram products,” “not be involved in gambling related activities,”
and “not be involved in entertainment activities that are not accept-
able in Shari’ah.” These are followed by three economic factors of risk
management, returns, and efficient resource allocation.127 Over 60% of
stakeholders “perceive social responsibility as more or equally impor-
tant to economic aspects within Islamic investment.”128 Sairally’s study
found over 80% agreeing with the notion that Islamic financiers have
social responsibilities, preferring a redefinition of Islamic finance to
encompass both social and environmental welfare.129 The most com-
mitted Shari’ah-based investors, according to this study, place greater
importance in matters of social responsibility, such as poverty alleviation
and positive environmental impact, than those more “pragmatic” and
those not identifying as Muslim.130 Of those who viewed profits and
social objectives as equally important, 82.7% were of the opinion that
an [Islamic financial institution] shall be socially oriented. About 77%
of those who considered financial gain as more important still agreed/
strongly agreed to this assertion.131 While this latter point may seem
paradoxical, it emphasizes welfare and justice as the essence of Islamic
banking and finance—a point so apparently obvious that even those who
prefer financial gain bear witness to it. That there are varying priorities
and expectations among stakeholders “highlights the tremendous need”
to develop consistency in Shari’ah compliance.132 The same might be
said of defining ‘responsibility.’ But more likely is that it highlights the
spiritual and ethical preferences of stakeholders as individuals, be they
Muslims or otherwise.
Islamic investors have been afforded few investment opportunities to
affirmatively support socially responsible activities. “[T]he lack of supply
of such products is largely a result of a lack of clearly expressed demand
from investors.”133 That deficiency of expression is probably the result, in
part, of the dearth of spaces in which stakeholders connect with financiers
and communicate their views. If significant numbers of Shari’ah-conscious
consumers called on Islamic economic markets to promote community
development, social change, and environmental well-being, and such
markets were to meaningfully respond, they would fulfill requirements
and recommendations of the Shari’ah, address stakeholder feedback, pro-
vide an opportunity for product development and economic growth, and
CONGRUENCE AND CONVERGENCE: CONTEMPORARY ISLAMIC FINANCE... 53
Convergence
In 1927, Harvard Business School Dean Wallace Donham wrote that
the development of socially minded businessmen is a central problem:
“Unless more of our business leaders learned to exercise their powers and
CONGRUENCE AND CONVERGENCE: CONTEMPORARY ISLAMIC FINANCE... 57
seemingly unrelated to law. For instance, consider the following from the
Qur’an’s story of Joseph,201 in response to a request to interpret a dream:
[Joseph] said, “For seven years you shall sow continuously, then what you
reap leave it on the ear, except a little where of you eat. Then thereafter
there shall come upon you seven hard years, in which you shall devour all
that you have reserved for them, except a little you keep in store. Then there
shall come after that a year in which the people shall have rain and in which
they shall press (fruit and oil).202
Analysis and Recommendations
viding perspectives they may have yet to consider. By finding many of their
principles and much of their history in contemporary sustainability and
impact discourse, Islamic financial organizations and Muslim communities
can participate in building social and economic impact through business.
Notes
1. Michael Bennett and Zamir Iqbal, “How Socially Responsible
Investing Can Help Bridge The Gap Between Islamic And
Conventional Financial Markets”, International Journal Of
Islamic and Middle Eastern Finance and Management 6:3 (2013):
211.
2. Its use also excludes Islamic finance.
3. Russel Sparkes, Responsible Investment, ed., Rory Sullivan &
Craig Mackenzie (Greenleaf, 2006), 39–54.
4. Barom, “Conceptualizing,” 64–65.
5. Salma Sairally, “Evaluating the ‘Social Responsibility’ of Islamic
Finance: Learning From the Experiences of Socially Responsible
Investment Funds,” Advances Islamic Economics & Finance 1
(2007): 280.
6. See e.g., Muhammad Umer Chapra, Islam and the Economic
Challenge (Leicester: Islamic Foundation, 1992).
7. These factors include age, income, level of commitment to the
Shari’ah, gender, and marital status. Mohd Nizam Barom, “Social
Responsibility Dimension in Islamic Investment: A Survey Of
Investors Perspectives In Malaysia”, Ethics, Governance and
Regulation In Islamic Finance, ed. HA El-Karanshawy, et al.
(Doha: Bloomsbury Qatar Foundation, 2015).
8. Barom, “Dimension,” 94.s
9. Umar Moghul & Arshad Ahmed, “Contractual Forms in Islamic
Finance Law and Islamic Inv. Co. of the Gulf (Bahamas) Ltd. v.
Symphony Gems N.V. & Ors: A First Impression of Islamic
Finance”, Fordham International Law Journal 27 (2003): 163.
10. Aron Zysow, The Economy of Certainty: An Introduction to the
Typology of Islamic Legal Theory (2013), 199.
11. Moghul & Ahmed, “Symphony,” 164.
12. Regarding the causes for differences of opinion, including the
nature of Islamic law, colonial and postcolonial history and
impact, see Muhammad al-Bashir Muhammad al-Amine, Global
70 U.F. MOGHUL
189. See, e.g., Law Regulating Islamic Financial Business: DIFC Law
No.13 of 2004 (2004), http://dfsa.complinet.com/netfilestore/
newrulebooks/d/f/DFSA15477726VER40.pdf.
190. Benjamin J. Richardson, “Socially Responsible Investing Through
Voluntary Codes,” in Harnessing Foreign Investment to Promote
Environmental Protection: Incentives and Safeguards, eds., Pierre-
Marie Dupuy & Jorge E. Viñuales (Cambridge: Cambridge
University Press, 2013), 412.
191. Rania Abdelfattah Salem and Ahmad Mohamed Badreldin,
“Assessing the Relevance of Islamic Banks: An Empirical
Analysis,” in Ahmad et al., Crisis, 42.
192. Maher Hassan and Jemma Dridi, “The Effects of the Global
Crisis on Islamic and Conventional Banks: A Comparative Study,”
IMF Working Paper (Sept 2010): 6–7.
193. Ahmed, Sustainable, 5.
194. Hassan and Dridi, “Effects,” 17.
195. Hassan and Dridi, “Effects,” 15–16.
196. Hassan and Dridi, “Effects,” 7.
197. Hassan and Dridi, “Effects,” 6–7.
198. Sherin Binti Kunhibava, “Risk Management and Islamic Forward
Contracts,” in Ahmad, Crisis, 139.
199. See generally Kunhibava, “Derivatives.”
200. Hassan and Dridi, “Effects,” 7.
201. For an exegesis of the chapter of Joseph of the Qur’an, see Ahmad
Zaki Hammad, The Fairest of Stories (Bridgeview: Quranic
Literacy Institute, 2000).
202. Qur’an 12: 47–49.
203. Mohd Afandi Bakar, Radiah Abdul Kader, and Roza Hazli
Zakaria, “Islamic Banks’ Financing Behavior: A Pilot Study,” in
Ahmed, Crisis, 88.
204. Bakar, et al., “Behavior,” 100. This study has limits given the
small sample size and short run cyclical behavior of Islamic banks
financing activities. Id. at 102.
205. Bakar, et al., “Behavior,” 88.
206. Bakar, et al., “Behavior,” 93.
207. Bakar, et al., “Behavior,” 93.
208. Bakar, et al., “Behavior,” 100.
209. Bakar, et al., “Behavior,” 100.
210. Richardson, “Putting,” 246.
CONGRUENCE AND CONVERGENCE: CONTEMPORARY ISLAMIC FINANCE... 81
Spiritual Foundations
Islam’s ethical–legal framework provides a strong and thoughtful reli-
gious concern for the well-being of the Earth and its varied inhabitants.
As such, it is critical to understand the religious perspectives of Islam to
more fully understand the nature of this consciousness, related Islamic
laws, and the significance of both to contemporary Islamic finance and
Muslim communities. Islam instructs that the universe exists to support
life generally and human life particularly.11 Faith is often described by
parables linked to the natural environment; the MessengerP says, “These
are three important things: the roots of the tree of faith, its branches,
and its fruits. God alluded to all three in a similitude struck for the
people, that they may be reminded: ‘Have you not seen how God struck
a similitude: a goodly word is like a goodly tree, its roots are firm and its
branches extend into the heavens. It produces its food all the time by the
permission of its Lord. And God strikes a similitude for people that perhaps
they will be reminded.’”12 In addition to life and faith, Qur’anic literature
features a link among trade, environmental appreciation, and ultimately
86 U.F. MOGHUL
God. The Islamic jurist, philosopher, and physician al-Rāzı̄ (d. 925 or
932 CE) states:
If God did not create trees, iron, and the various tools needed to manufac-
ture ships; if He did not make known to people how to use all these items; if
He did not create water as a running body which allows ships to move on it;
if He did not create winds with their powerful movement and if He did not
widen and deepen rivers enough to allow the movement of ships in them; it
would have been impossible to benefit from these ships. He is the Manager
(al-Mudabbir) and the Subjugator (al-Musakhkhir) of these matters.13
Muslim scholars teach that human beings testified to their position within
the cosmos as servants to the Divine.14 The Qur’an informs:
And when your Lord extracted from the children of Adam, from their loins,
their posterity and He made them bear witness to their own souls[, saying,]
“Am I not your Lord?” They said, “Oh yes, indeed! We do so bear witness!” [This
We did in the event that] you should say on the Day of Resurrection: Indeed, we
were heedless of this [truth].15
For to God [alone] bow down all who are in the heavens and earth – willingly
or unwillingly – as do their [very] shadows in the early mornings and the late
afternoons.16
Assuredly the creation of the heavens and the earth is a greater [wonder] than
the creation of human beings. Yet most people understand not.17
God grants life and wealth for humanity to hold in trust (amānah). As a
servant (ʿabd) and representative (khalifah) of God, the human is neither
granted superiority nor license to subdue and exploit absolutely.18 The
trust is subject to the Shari’ah. “The faithful servants of the Beneficient [i.e.,
God] are they who tread upon the Earth gently.”19
Muslim scholars have long interpreted the foundational texts of the
Shari’ah to establish interconnectedness with animals, birds, insects, plant
life,20 earth, water, air, and imperceptible creatures—all of which are part
of God’s creation. The Qur’an states:
For there is not a single beast on the earth nor a bird flying with its two wings
but that they are communities like you.21
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 87
The seven heavens and the earth and all that are in them give due exaltation
to Him [i.e., God]. For there is not a [single] thing but that it exalts Him with
[all] praise. But you [human beings] fathom not their exaltations. Indeed, ever
is He most forbearing, all forgiving.22
Then let man look to his own food. Indeed, it is We who have poured out water
in showers. Then We clove the land [a measured] cleaving. Then We who have
caused to grow therein grains and grapes, and herbage, and olives and date
palms, and lush orchards, and fruits and pastures – [all as] enjoyment for you
and for your cattle [for a time].23
Have they not looked at the heaven above them, how [perfectly] We {i.e., God}
built and adorned it? Nor has it [even] a flaw. And the Earth – [it is] We who
who spread it wide [at its surface], and cast therein anchoring mountains to
[balance it as it spins]. And We alone who caused to grow in it something of
every delightful variety of plant life – as a [divine] insight [for humankind
into the wonders of creation] and as a reminder for every penitent servant.
For We sent down, from the sky, blessed water with which We grow gardens and
grain of the harvest, and tall date palms with spathes of clustered dates – as
a provision for all [God’s] servants. And, thereby, do We give life to a lifeless
habitation. Even so shall be the Resurrection [of man].24
for a while. During his absence, we saw a bird called hummarah with its
two young and we took the young ones. The mother-bird was circling
above us in the air, beating its wings in grief, when the ProphetP came
back and said, ‘Who has hurt the feelings of this bird by taking its young?
Return them to her.’”30 In comparison with Qur’anic content, the had-
ith typically contain more detailed expressions, teaching land cultivation
and conservation, thoughtful treatment of animals, plants, vegetation, and
environmentally and socially considerate guidelines on the construction of
buildings and neighborhoods, water usage, and mineral resource rights.
Land Pollution
Islamic law divides land into two categories: private and public.31 The for-
mer consists of lands owned by individuals. The latter consists of land that
is either (1) undeveloped (muwat)32; (2) subject to trusts or endowments
(awqaf); or (3) owned by the government.33 A person who pollutes any
land is liable for the damage caused under rules akin to common law nui-
sance.34 The Sunnah provides the bases for this; the Prophet MuhammadP
forbade his followers from polluting rivers, stagnant water, roads, and
areas used as shade.35 Even during times of war, classical Islamic military
jurisprudence provides such concerns of the environment and maintaining
its sustainability must be accorded by there being “[n]o destruction of
trees, crops, livestock or farmland.”36
Islamic law deals with hazardous activities by first assessing whether the
act itself is permitted. Impropriety in dealing with hazardous materials gives
rise to liability for damage, including to one’s own land.37 When damage is
caused by dangerous activities that are lawful and properly conducted, some
jurists hold that the landowner must have received notice of the danger.38
Others, namely the Hanbalis, hold that such notice is not a necessary pre-
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 89
Water Pollution
Unlike land, individual ownership of water resources is strongly cur-
tailed and their individual use is highly restricted.41 Islamic law catego-
rizes water, not only for the purposes of its consumption, but also for its
physical and spiritual cleansing properties.42 Bodies such as rivers, lakes,
streams, seas, oceans, and almost all wells43 are deemed pure, unless con-
taminated to such an extent that their physical and chemical nature has
been overwhelmed.44 When impurities mix and overwhelm it, water is
deemed polluted and legally impure.45 Islamic law allows natural bodies
of water, rainwater, snow, hail, and seawater to be unrestricted and free
(mutlaq), even if they become altered by natural causes.46
Islamic law instructs individuals not to waste water, even for uses as
religiously significant as the legally mandated cleansing prior to prayer
(salat).47 A Prophetic statement illustrates the significance of public access
to water and its intelligent use: “Among the three types of people with whom
God on the day of Resurrection will exchange no words, nor will He look at
them … is the one who possesses an excess of water but withholds it from oth-
ers. To him God will say, ‘Today I shall withhold from you my grace as you
withheld from others the superfluity of what you had not created yourself.’”48
The Ottoman Majallah provides a community with the right to use water,
even if found on private property.49 This follows from the hadith, “All
members of the community are equal partners in three things: water, fire,
and pasture.”50 Even when individuals invest their own resources to culti-
vate a body of water or establish access to it, they most often gain a p
riority
of usage rather than an exclusive right.51 Proper management of water
and controls against its pollution are legally required. Accordingly, private
owners of land where ground water is present are liable for its pollution,
and intent-based defenses are irrelevant.52 Pollution of water present on
public lands is also prohibited and gives rise to liability.53
Air Pollution
Classical Muslim jurists addressed the release of pollutants into the air in
a manner consistent with their historical context. Some suggest extend-
90 U.F. MOGHUL
ing classical Islamic law to more recent forms of air pollutants.54 This
is readily done given the rationale of the regulation of land and water,
and the importance of clean air to the preservation of life and property.55
Contemporary interpretations of Islamic law prohibit pesticides and limit
car exhaust, toxins, and noise—especially near residential areas, water
sources, and animal habitats.56
Resource Conservation
Islamic law divides land conservation in two broad categories. One is termed
al-haram,57 literally inviolable or sacred, referring to the Mecca and certain
parts of Medina in present-day Saudi Arabia. “[Both cities] are sanctuaries
for human beings, flora and fauna, none of which may be violated in the
zone.”58 The second category, hima (inviolate zone), constitutes all other
land, including undeveloped (muwat) lands reserved for public good.
Hima land began as a pre-Islamic institution whereby a powerful
individual would declare a fertile land forbidden for public access in an
exploitive act of land confiscation.59 The Prophet MuhammadP modified
this practice such that it became a mechanism exercisable only by govern-
mental authority to ensure sustainable land management, the creation of
wildlife reserves, afforestation, and plant and ecosystem preservation.60 To
ensure proper employment of hima land, Islamic law imposes certain con-
ditions. For its declaration, the Maliki school of jurisprudence (madhhab),
for example, requires that (1) there is a public need and benefit to the
community; (2) the area is proportional in size to the ecological concern
at hand; and (3) the land so declared is not built upon, commercialized,
or cultivated for financial gain.61 Human activity is restricted, as it is in al-
haram lands; hunting, fishing, felling of trees, and cutting of vegetation
are prohibited.62 It should be noted that early in Islamic legal history, per-
sons were appointed in charge of hima lands to ensure they were utilized
for the purposes for which they were set aside by government action.63
Minerals
Islamic law begins its treatment of minerals by dividing them into those
that are concealed and those plainly visible.64 Concealed deposits include
those that require extraction to derive a finished product. Open deposits
are considered common property65: Governments cannot assign them to
particular individuals.66 Among Muslim scholars, there are two opinions
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 91
Plants and Animals
Consistent with the religious perspectives described above, Islamic law
requires humans to maintain a dignified relationship with plants and ani-
mals. Humans may enjoy certain benefits of nature within a set of param-
eters designed to establish the rights of all to maintain “environmental
equilibrium.”69 Numerous prophetic teachings lay the foundations for a
high respect for plant life—so much so that Islamic law is understood to
consider wild vegetation common property70 and is understood to rec-
ommend, legally speaking, forestation.71 There are rulings relating to the
prohibition of causing unnecessary damage to plant life where “neces-
sity” is defined narrowly. Even in combat, Islamic rules protect against
environmental harm and deforestation; for instance, the first Caliph, Abu
Bakr al-Siddiq (d. 634 CE/12 AH), instructed: “Do not cut down fruit-
bearing trees. Do not destroy an inhabited place. Do not slaughter sheep
or camels except for food. Do not burn bees and do not scatter them.”72
Such rules and others like them aim to preserve the environment’s natural
capital. While texts relevant to forestation probably fall short of estab-
lishing a legal obligation per se, they could be used to readily establish a
recommendation. Insufficient plant life and/or air pollutants may cause
enough harm to give rise to a communal obligation under Islamic law.73
Islamic jurisprudential literature richly advances the rights and interests
of animals, a source from which to draw lessons and strengthen one’s
relationship with God.74 Such “laws, attitudes, and concerns were not
seen as mere niceties or optional virtues, but rather part and parcel of
Islam’s worldview and social philosophy, and what it means to live a life
in obedience and pleasing to Allah, Most High.”75 Classical and contem-
porary Qur’anic commentators speak of animals as possessing knowledge
of God’s existence, and glorifying and remembering the Divine in their
own ways.76 Many Qur’an verses and hadith provide guidance as to the
human treatment of and interaction with animal life and link the same
92 U.F. MOGHUL
The rights of livestock and animals with regard to their treatment by man:
These are that he spend on them the provision that their kind require, even
if they have aged or sickened such that no benefit comes from them; that he
not burden them beyond what they can bear; that he not put them together
with anything by which they would be injured, whether of their own kind or
other species, and whether by breaking their bones or butting or wounding
that he slaughter the with kindness if he slaughters them, and neither flay
their skins nor break their bones until their lives have passed away; that he
not slaughter their young within their sight; that he set them apart individu-
ally that he make comfortable their resting places and watering places; that
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 93
he put their males and females together during their mating seasons’ that he
not discard those which he takes in hunting; and neither shoot them with
anything that breaks their bones nor bring about their destruction by any
means that renders their meat unlawful to eat.82
Such rules extend to combat. “As the ten thousand strong Muslim army
traveled through the narrow valley of Al-‘Arj on their way to the opening
of Makkah in 630 CE/8 AH, the ProphetP noticed a dog nursing her pups
in the middle of a narrow section of the road. The MessengerP assigned
one of his men to guard her as the army made its way through the valley
so she would not be disturbed.”83 Muslim jurists hold an owner of an ani-
mal—in some respects considered an individual84 with “feelings and men-
tal states”85—liable for its well-being.86 One of the great classical Qur’anic
commentators and jurists, al-Qurt ̣ubı̄ (d. 1273 CE/671 AH) recognized
that humans may use beasts of burden for transportation purposes and
urged consideration of eschatological implications arising from the weight
they place on them.87 If “owners are unable to provide for their animals,
Muslim jurists stipulate that they should sell them, let them go free so
that they may find food and shelter, or slaughter them if eating their flesh
is permissible.”88 Hunting purely for sport and inciting animals to fight
one another are strictly prohibited, and carnivores cannot be consumed or
killed absent danger to life or property.89
Islamic law has very detailed rules about animal slaughter.90 Even more
compelling are the rules governing the context based on explicit hadith.
Slaughterers must not allow an animal to witness the slaughter of another,
not keep animals waiting for their slaughter, and not sharpen a knife in
their presence.91 Underlying such rules is the sense that animals have
feelings and mental states.92 The jurist Marginani (d. 1196 CE/593 AH)
writes, “It is abominable first to throw the animal down on its side, and
then to sharpen the knife, for it is related that the Prophet [MuhammadP]
once observing a man who had done so, said to him, ‘How many deaths
do you intend that this animal should die? Why did you not sharpen your
knife before you threw it down?’ It is abominable to let the knife reach
the spinal marrow, or to cut off the head of the animal. The reasons …
are FIRST, because the Prophet has forbidden this, and SECONDLY,
because it unnecessarily augments the pain of the animal, which is prohib-
ited in our LAW. In short, everything which unnecessarily augments the
pain of the animal is abominable … IT is abominable to seize an animal
destined for slaughter by the feet, and drag it … IT is abominable to break
94 U.F. MOGHUL
the neck of the animal whilst it is in the struggle of death.”93 Rules govern
animals’ treatment following slaughter as well. “[It] was forbidden by the
Holy [MuhammadP] to molest the carcass in any way; for example, by
breaking its neck, skinning, or slicing off any of its parts until the body
was dead cold … time should be given for the rigor mortis to set in before
cutting.”94 These rules are very relevant to meat production today,95 and
in educating those who seek to limit religious animal slaughter.96
Liability and Sanction
Both Islamic spirituality and law establish a framework of liability for
infractions against the natural environment. The believer keeps in mind
the constant Divine Presence and watchfulness, the negative impact upon
his or her qalb upon breach of the Shari’ah, and eschatological implica-
tions. Enforcement of civil and criminal infractions comes about through
spiritual and ethical consciousness, including rewards and relief from pun-
ishment in the Hereafter, as well as Earthly administrative and other gov-
ernmental bodies. Acts of virtue and vice not only have consequences, be
they emotional, material, or otherwise, in the next life but in this world as
well. The law establishes civil liability for most violations of the foregoing.
But Islamic criminal law does govern certain breaches, such as of the al-
haram (sacred) lands.97 Persons found guilty of civil violations are liable
for damages, with the goal to restore the object to its original condition,98
such as the cleanup of sites where toxic substances have been dumped.99
Harm to non-fungible items generally requires monetary compensation.
Earlier this study raised the concept of accountability (muhasabah) as
a key principle of character development in the cycle of tazkiyyah. The
seeker holds him or herself accountable in this life in an effort to progress
spiritually and ethically, mindful of ultimate accountability before God
who enforces His limits by consequences in this life and the hereafter.
Such consequences are particularly relevant to acts valued as recommen-
dations and disapprovals under Islamic laws of relationships and transac-
tions (mu’amalat), where state enforcement is generally absent, both in
theory and given contemporary realities of public applications of Islamic
laws. This spiritual practice is manifest in public governance through the
hisbah (derived from the same Arabic root as the word muhasabah), an
administration monitoring the implementation of certain laws and ethical
practices in the public realm.100 An officer of this institution, muhtasib,
was historically tasked with receipt and investigation of primarily public
complaints as well as enforcement in certain instances. Officers were usu-
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 95
billion in 2014.139 The S&P Dow Jones Indices report over $140 billion
in issuances and $120 billion in 2015.140
Although their geographic range is broad, most sukuk issuances
have come from Malaysia and the GCC. Malaysia has historically been
responsible for approximately two-thirds to three-quarters of global issu-
ances, followed by Saudi Arabia, Qatar, and the United Arab Emirates.141
Interestingly, most Malay issuances have been by corporations whereas
those in the GCC nations have been by sovereign or government-related
entities.142 The sukuk market is no longer confined to countries in the
Muslim world or Islamic financial institutions. Increasingly, sukuk cover
assets based in the UK, continental Europe, Asia, and the USA.143
Soft Law
Before proceeding with a discussion of specific contemporary
environmental-financial standards, it is worthwhile to briefly introduce the
proliferation of private regulatory frameworks.144 These new frameworks
“embed systems of governance in broader global frameworks of social
capacity and agency that did not previously exist.”145 Soft-law frameworks,
sometimes termed new governance or civil regulation, have been inno-
vated by the financial sector, public authorities, and non-governmental
organizations (NGOs). There are now over 300 such initiatives “attempt-
ing to introduce governance into nearly every major global economic
sector including energy, extractive industries, forestry, chemicals, textiles,
apparel, footwear, sporting goods, coffee, and cocoa.”146 Parties choose
to adhere to these; that is to say, adherence is not governmentally man-
dated. Though a financier may voluntarily elect to opt into a particular
code, that does not imply the absence of legal ramifications of a failure to
comply therewith depending on the framework and its intersection with
the prevailing state laws.
The increasing ineffectiveness of government regulation and multilat-
eral treaties appears to have created a gap into which financial institu-
tions, NGOs, and other civil society actors have stepped to demand better
regulation with respect to matters such as workers and human rights.147
“With the decline in power and function of states, the world’s diverse net-
work of communities have increasingly concluded that for their interests
to be served they must deal directly with corporations and international
institutions.”148 Self-regulatory frameworks tend to operate alongside of
state-centric instruments, forming a single greater regulatory framework
sometimes overlapping, blending, and at times opposing the state.149
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 99
sector or environmental groups, on the other hand, are more likely to raise
the bar of environmental performance. But more stringent requirements
deter financial institution participants, thus limiting their impact. Codes
designed and controlled by a multi-stakeholder approach take more of
a middle-ground approach.158 Their standards may be “less,” but their
impact, due to broader support, is greater.
A pure process-based standard lacks specific performance targets, but
addresses one or more of certification, verification and audit, performance
disclosure, and grievances. Performance-based standards set substantive
behavioral benchmarks articulated in varying degrees of clarity. Those
that are more precise prescribe environmental management systems to
enable participants to manage and minimize their environmental and
social impact. An example of this type is the European Community Eco-
Management and Audit Scheme as well as the International Organization
for Standards 14001.159 Of these two, only the former addresses the finan-
cial services sector.
The Equator Principles (EP) exemplifies a process-based framework
designed by the financial sector. Although pressure from environmental
NGOs triggered their establishment, the initial preparation timeline pre-
vented their “meaningful input.”160 In developing the EP, banks consulted
closely with the International Finance Corporation (IFC), whose “perfor-
mance standards are used to inform the assessment process mandated” by
them.161 A study by Freshfields titled “Banking on Responsibility” indi-
cates that the success of the EP has been greater than predicted, having
significantly altered the practice of project finance.162
For many, the most exacting performance-focused standards are con-
tained in the Collevecchio Declaration on Financial Institutions and
Sustainability.163 Drafted by NGOs and civil society actors, it has largely
been shunned by mainstream investors, probably because of its rigorous
requirements. Its ambitious commitment to sustainability obliges finan-
ciers, for instance, “to fully integrate the consideration of ecological lim-
its, social equity and economic justice into corporate strategies and core
business areas.”164 Adherents must “put sustainability objectives on an
equal footing to shareholder maximization and client satisfaction.”165 The
Declaration’s “do no harm principle” is another example of a benchmark
set too uncompromisingly, most likely leading to the negligible support it
has received of mostly NGO signatories.166
Frameworks can also be classified by enforcement mechanisms. A strong
system mandates third-party monitoring and transparent public disclo-
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 101
Environmental issues are best handled with the participation of all con-
cerned citizens at the relevant level. At the national level each individual
shall have appropriate access to information concerning the environment
that is held by public authorities, including information on hazardous
materials and activities in their communities, and the opportunity to par-
ticipate in decision-making processes. States shall facilitate and encourage
public awareness and participation by making information widely available.
Effective access to judicial and administrative proceedings, including redress
and remedy, shall be provided.
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 103
Sketching a Framework
In November 2011, the Climate Bonds Initiative (CBI), an investor-focused
non-profit organization dedicated to addressing ways in which bond mar-
kets can mitigate or prevent climate change, launched the Climate Bond
Standards and Certification Scheme.191 This initiative is particularly inter-
esting because of its certification and enforcement apparatus. By ensuring
that proceeds flow to eligible projects and are backed by eligible assets,
the Scheme intends to provide confidence that funds further a low-carbon
and climate-resilient economy.192 Projects must fit within a working defini-
tion of a low-carbon economy, which includes “[d]eveloping low-carbon
industries, technologies and practices that achieve resource efficiency con-
sistent with avoiding dangerous climate change.”193 Its technical standards
cover wind and solar energy initiatives as well as low-carbon buildings,
104 U.F. MOGHUL
Finding Congruence
The IFC’s broader policy goals of environmental care and consciousness as
well as those of CBI and the EP parallel those of Islam. Though Islam may
very well be more detailed in its ethical coverage of natural resources and
ecosystems than these soft-law frameworks, its teachings require further
study to be applied to contemporary contexts. Nevertheless, the frame-
works together constitute processes, substantive content, and detailed
implementing guidance by which financiers in the Muslim world can sup-
port environmentally responsible businesses and projects, and the realiza-
tion of Islam’s environmental legal-ethics.217
The GB Principles establish a broad and flexible set of guidelines for
institutions seeking to support “green” projects. The CBI framework
provides for a means of verification, audit, certification, and redress of
stakeholder grievances.218 The EP urges financial institutions and busi-
nesses toward a common goal, requiring diligence, reporting, and inde-
pendent review and assessment. The EP framework seems robust because
it is process based and incorporates detailed substantive IFC Performance
Standards and the EHS Guidelines. While the EP places regulation in the
financier’s hands,219 the CBI provides for a stronger method: indepen-
dent third-party certification through its Certification Mark. The require-
ments of review, disclosure, and grievance proceedings may be utilized
to implement Islamic principles by formalizing ethical commitments in
a legal manner that encourages transparent disclosure, self-assessment,
and engenders accountability.220 EP requirements effectively design and
sustain compliance with norms aimed at supporting foundational texts
of the Shari’ah. Furthermore, the EP requires stakeholder consideration,
engagement, and, in some cases, consent that track Islam’s guiding prin-
ciples of empathy, compassion, consultation, and justice and magnanimity.
city ruler; the body parts as subjects; the nafs as the enemy within the for-
tress (ribat) of the body; and the soul garrisoned.237 “The spiritual warfare
envisioned here is that of the greater jihad. The lesser jihad, fighting to
safeguard the faith against military attack, is regarded in the scheme as
necessary, but inferior, to the greater jihad in accordance with the saying
attributed to the ProphetP upon returning from the field of battle, ‘We
have returned from the lesser struggle [jihad] to face the greater strug-
gle.’”238 The seeker is to support, and be supported in, his and her spiritual
efforts through social orders, including built environments, so as to pro-
duce favorable outcomes of that struggle.
Hakim’s seminal study demonstrates how Muslim scholars translated
Islam’s spiritual underpinnings into a “prime factor” in urban design and
development, shaping traditional Arab-Islamic cities.239 Traditional built
environments are thought to embody sustainability, as they are “made
of locally available materials, employ local, mainly renewable sources for
energy and adapt construction practices that favor recycling and respect for
nature.”240 Far from functioning like many contemporary zoning regimes,
Muslim jurists did not impose prescriptive standards. Instead, their
approach, “based on elucidating intent and indicating criteria for perfor-
mance for various problems and conditions,” occasioned the occurrence
of “diversity and complexity within the urban environment.”241 By the
respect and authority it granted to prevalent local customs, the Islamic
ethical–legal system enabled feedback mechanisms responsive to particular
conditions occurring at the neighborhood level, in effect functioning as a
guide for participation in decision-making.242
Briefly, classical Muslim jurists incorporated local custom (‘urf) into
the purview of Islamic law. Custom is defined as “recurring practices that
are acceptable to people of sound nature.”243 It refers to collective, wide-
spread, and consistent practice in a given community. Based on Qur’anic
and Sunnaic texts, jurists articulate legal maxims, such as “‘Urf among
the merchants is like a stipulated condition between them”244 and “What
is proven by ‘urf is like that which is proven by a shar’i [legal] proof.”245
Custom that does not contradict a proof or principle from the Shari’ah
is “valid and authoritative” so long as it meets specified conditions.246
As such, custom constitutes an important basis for rulings based on the
knowledge and understanding of the locality. In the realm of built envi-
ronments, for instance, curved outer building corners persisted as a cus-
tom to facilitate the primary transport mode then, camels, until other
modes spread.247 In traditional built environments, the street was owned
110 U.F. MOGHUL
1. Avoiding harm, such that one may exercise one’s rights fully but
without harming others, under the rubric of the legal maxim:
“There shall be no harm, nor the reciprocation of harm.”260 This
principle is one of the most frequently quoted and used by Muslim
scholars in building matters with ranging relevance and impact.
Per this maxim, a blacksmith, for instance, had to erect a screen
between his smith and the street to prevent sparks from flying
onto the street, for “[r]ed-hot splinters of iron may kill, blind,
burn clothing, cause a death of a riding animal, and so on. Should
any of these things happen, the blacksmith is liable for dam-
ages.”261 Based on this maxim, “built environments must be sus-
tainable, that is, that they do not generate any harm to either
people or their natural surroundings.”262 Presumably, this would
include harm to future generations.
2. Appreciating the interdependence of built environment elements
which “reinforces our contemporary knowledge of ecology…
[and is] crucial generating building solutions.”263
3. Respecting privacy in its various manifestations.
4. Granting primacy to original or earlier property usage.
5. Enabling one to build higher within one’s air space, even to the
exclusion of sun and air from others, so long as there is no evi-
dence of intentional harm.
6. Respecting the property of others.
7. Granting a right of pre-emption pursuant to which a neighbor
has the first right of purchasing adjacent property when offered
for sale.
8. Assuring the minimum width of thoroughfares is maintained.
9. Removing obstructions, temporary and permanent, from public
ways, such as waste or downspouts emptying into public areas.
10. Sharing excess water.
11. Maintaining the exclusive use of exterior fina (the exterior space
immediately adjacent to the exterior wall of a home) for the
owner of the property to which it abuts.
12. Distancing sources of unpleasant odors and acoustics from
mosques.
13. Encouraging cleanliness of interior and exterior fina as well as
public awareness and responsibility in this regard.
14. Designing beauty without arrogance.
15. Building trust, respect, and peace amongst neighbors.
16. Disclosing property defects in sales.264
112 U.F. MOGHUL
The foregoing were connected with custom (ʿurf) and the law’s pur-
poses to produce rules balancing individual and collective property rights
in preventing harm and engendering benefit. Such rules, as set forth in the
historically significant Ottoman Code (Majallah), for instance, included
preventing the construction of a forge, mill, or rubbish heap adjacent to
residential property, “for homes may be weakened by hammering at the
forge”, and olfactory265 as well as acoustic nuisances.266 Jurists were also
concerned about the well-being of residents “by reason of the great quan-
tity of smoke given off by a furnace or a linseed oil factory, erected in
close proximity thereto. These acts amount to great injury, which must
be removed.”267
As with matters relating to the natural environment, the institution
of hisbah served to enforce these rules. It “paid special heed to various
municipal services especially [hygienic] conditions in the town … [and]
look[ed] into the entire municipal administration such as street lighting,
removal of garbage, architectural designs of buildings, water supply and
antipollution sanctions.”268 Certain limits on private real property rights
were also enforced by a muhtasib. For instance, neither businesses nor
individuals were permitted to build extensions encroaching on public
roads and walkways.269 But one should be careful not to assume that this
authority was executed by a centralized authority as it is today. Inhabitants
worked together to preferably resolve by dialogue and consensus.
“Traditional Muslim environments changed gradually and harmoniously
because the party in control of convention was comprised of members that
were subject to it.”270
The following instance is representative of the rules and decisions made
by Muslim jurists, demonstrating the detail they derived from broad ethi-
cal principles, usually provided in hadith.271 The Qur’an teaches the vir-
tues and importance of modesty, shyness, and privacy. Various statements in
this regard are also attributed to the Messenger MuhammadP, such as (1)
“Indeed every religion has a distinctive character, and the distinctive char-
acter of Islam is haya’.”272 and (2) “Haya’ (modesty and shyness) and iman
(faith) are two that go together. If one is lifted, the other is also lifted.”273
This is a moral principle, a branch of faith, that jurists sought to extend to,
and embed in, built environment forms to support its realization in social
interactions. When discussing the proper height of windows, Muslim schol-
ars considered the average height of men and added to it the height of a
bed (0.8 to 1.25 meters based on then custom), such that if a man were to
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 113
stand on one, he would look through it. That would also prevent a passerby
with no malintent from seeing inside. However, if the interior ground floor
was lower than that of the exterior, jurists ruled the window height may
be lowered accordingly. Openings, whether windows or doors, that over-
look neighbors present additional considerations. An “old” opening may be
retained by its owner, unless its harm outweighs the benefit accruing to its
owner. Similarly an “old” opening overlooking an empty plot “provides its
owner with rights of first usage.”274 A developer of that plot must account
for the opening to protect the privacy of what it builds, exemplifying the
importance given to development sequence in building decisions. Similarly,
if a window existed in a shared wall, its location had to be respected (due to
the right of earlier usage) in constructing the layout of a new home, so as
to avoid creating a direct visual corridor.275 A “recent” opening, in contrast,
must be permanently shut if it overlooks a residential courtyard. Further,
stairway exits should be positioned so that a person utilizing them does not
have a line of sight into another’s residence.276 Doorways were required
to be positioned to disallow visual penetration into others’ homes. When
opposite one another, the street width and traffic may serve as an adequate
barrier between doors. Otherwise, the doorways would likely need to be
moved, again to preserve modesty and faith. Form plays an important role,
but it is subservient to function, which, in turn, serves spiritual goals and
ethical precepts.
Cities
Positioning the city as a foundational grid of society “in which the mul-
tifarious aspects of human interaction and creativity are encapsulated”
the relationship between belief and physical structure is evidenced.277
Demonstrating this relationship of theirs, many traditional Muslim cit-
ies tracked the precedent of the Prophet MuhammadP in establishing
Madina (in present-day Sa’udi Arabia). His efforts began with establishing
a mosque the primary function of which was worship, and yet it played a
role in education, government, welfare and charity, and rehabilitation.278
“The impact of the mosque complex on the development of Madina was
such that the core of the city eventually grew to be almost ring-shaped,
centreing around the complex.”279 “If one examines most Islamic cities,
the mosque is usually the starting point of the planning of these cities. The
process of urbanisation radiates from the mosque to the military, political,
economic, legal and educational institutions of the city.”280 For example,
114 U.F. MOGHUL
Baghdad “was a perfectly circular city, enclosed in a double wall, with the
residential quarters laid out in the form of a ring and the strees fanning
out from the center.”281
Accordingly, many traditional Muslim cities begin with a centrally posi-
tioned mosque and additional proportionally distributed mosques, some-
times within fixed distances of one another.282 Following specific Prophetic
instruction, mosques are to be positioned within walking distance, so that
their critical spiritual and social function can be regularly accessed with
relative ease. In Tunis, for instance, the pedestrian is always approximately
150 meters from any designated prayer space.283 Educational facilities
were also constructed to provide equal and proportional access.284 Some
scholars also require the construction of public baths in cities, emphasiz-
ing the importance of cleanliness.285
Nearby the central mosque, a bazaar or market (suq) was placed, some-
times above mosques. “Traditionally locating marketplaces in the city cen-
tre or around the Friday mosque was socially and functionally ideal as
the centre was the place where there was optimum opportunity for social
exchange.”286 The relationship between the sequential and spatial location
of the mosque and market-place demonstrates the centrality and primacy
accorded to faith, the application of its precepts in trade and commerce to
limit profit motive, and the promotion of the social and communal char-
acter of markets, rather than simply their economic value. Markets, in fact,
played a significant role in supporting mosques’ continuity and sustain-
ability, as merchants established waqfs, or endowments, directing income
from designated assets to support them as well as centers of research and
development, animals, and the natural environment to name a few.
Following the placement of markets, the Messenger MuhammadP dis-
tributed residential quarters “for tribes with different though homoge-
neous ethnic backgrounds without consideration of wealth or property.”
Inhabitants were permitted to subdivide according to their needs while
sharing mosques, fountains, public baths, and markets.287 Mortada asserts
that the ProphetP did not “enforce any rules for the internal spatial orga-
nization or subdivision of the [residential quarter]. It was understood that
such a spatial organisation or subdivision would be formed by both the
Islamic values and the needs of inhabitants.”288 This precedent of a cen-
trally located mosque and market surrounded by residential quarters was
followed later in history in Baghdad and Kufa, for instance.289 It may be
noted that other forward-looking components were also built into cit-
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 115
ies, such as defense constructs, sewer lines, water storage facilities, and
cemeteries.290
Within the souk, shops were organized in terms of symbolic value.
Bookshops and perfumes were placed closest to the mosque given their
significance in texts of the Shari’ah. Furthest away were those generating
offensive noise and odors. The final category was comprised of unharmful
goods and services that were neutral in their spiritual or ethical signifi-
cance, such as clothes and jewelry.291 Surrounding merchants with oth-
ers selling similar goods “reinforces the importance of the products, their
display, and the individual vendor’s manners – visual and personal bits
of information which collectively act as the advertising medium.”292 This
structure functions effectively by virtue of a commonly understood moral
code and helps build more positive vendor-customer relationships. It also
manifests contentment as a consequence of the spiritual value of depen-
dency on God (tawakkul).293
Connecting Islamic principles to present concerns of environmental
and social impact, Hakim recommends a number of goals. First, a city
should strive to learn from the efficiency and resiliency of nature by rely-
ing on cyclical rather than linear systems. The latter consume and pollute
at a higher rate whereas circular metabolism cities minimize new inputs
and maximize recycling. Second, neighborhoods where people can live,
worship, work, and shop within a small radius are preferable for purposes
of sustainability, which should always be “one of the most recognizable
features of Islamic architecture.”294 For comparison, to support equitable
development, the Bay Area Trust-Oriented Affordable Housing Fund
provides capital for the development of child care centers, charter schools,
and health care facilities near transit centers. The public sector provided
$10 million of funding, essentially a grant, which took the most risk as cat-
alytic capital, and thereby decreased risk for other funders.295 Integration
of housing, energy, food, work, and recreation is possible by proximity.
The city plan should enable residents’ easy access to surrounding real and
natural areas, and should support a vibrant city center with convenient
public transportation as well as walking and bicycle routes.296
Homes
Many of the foregoing principles, from design to materials and methods,
are relevant to the planning of homes. Indeed, much of the jurisprudence
relating to the built environment concerns itself with neighbor and com-
116 U.F. MOGHUL
can learn from their errors, and better self-regulate and organize. The
optimal built environment frameworks should, therefore, be minimally
prescriptive (limited to technological elements like cars) and predomi-
nantly proscriptive, created and implemented from the bottom up so that
qualities of form may be unique to each locality reflected in how homes
cluster and the character of public roads, for example.314 Resulting habitats
are expected to be dynamic. This appears consistent with historic Islamic
legal practice.
If Islamic finance and Muslim communities are to develop, or sign on,
to private codes to produce the types of sustainable built environments
called for by their faith, they ought to look to a form and substance that
balances prescriptive and proscriptive approaches, mirroring methodolo-
gies of Islamic law. It will be critical that the principles of the Shari’ah and
those rules developed thereby constitute the foundation of the framework
to which real estate development sponsors and urban planners adhere.
These must rely on locally sourced cultural customs and norms—and
should endeavor to employ local materials and resources, the benefits
of which should extend widely to the communities from which they
are sourced.315 Avoiding harm is an overarching, highly relevant norm
requiring translation and specification, so that it can be precisely applied
in many contexts, while its broad articulation remains useful in property
dispute resolution. It is important to establish a system of management
that will be guided by this maxim and other Shari’ah principles in letter
and spirit, aimed at equitably balancing private and public rights. Such a
system should have legitimacy to the local population and provide con-
sultative spaces for them. Borrowing from foreign sources is to be done
thoughtfully, mindful of the many contributions by Muslim communities
to humanity of architectural beauty and technology, such as passive cool-
ing and ventilation techniques,316 and wind towers to direct breezes within
buildings.317
Proper planning and design depends on the intimate involvement of
people possessing deep knowledge of Islamic spiritual norms, and Islamic
law and jurisprudence as well as, at least, a broad understanding of archi-
tecture and city planning so as to work closely with those having more
direct expertise of urban design, environmental science, architecture, and
construction. The scholar’s role “is not restricted to the provision of legal
rules, but moreover to discuss and elaborate legal and ethical implica-
tions of principles derived from revelation, and then to apply the derived
norms for human acts in society. The so-called legal scholars (fuqaha’) are
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 121
not, therefore, the juridical and pharisaical figures the orientalists depict
but rather those who address the innermost conscience of the Muslim
believer.”318 Here, they do so with other expertise guiding investors and
other stakeholders to design and manage spaces where people live, work,
and socialize.
Fatwa Criteria
Contemporary Islamic finance must respond to the myriad of constitu-
tional texts of the Shari’ah that communicate the intent of God to protect
the environment and support human and non-human life. Al-Qaradawi
“identifies conservation of the natural environment (hifz al-bay’ah) as one
of the higher objectives (maqasid) of Shariah, side by side with the protec-
tion of life (hifz al-nafs) and the protection of property (hifz al-mal).”319
Applying the principles and rules found in texts requires not only an abil-
ity to read and interpret them but understanding the subject contexts.
Describing the present ecocrisis, Kamali writes:
One Report
In 1975, Robert Ackerman of the Harvard Business School predicted
that the practice of reporting only on financial performance would
someday be modified to include harder-to-quantify outcomes, such as
labor and other stakeholder relations.331 That prediction is becoming
124 U.F. MOGHUL
impact the institution has affected. Such transparent and detailed periodic
reviews would likely have a number of positive long-term consequences,
particularly when made widely available through spaces enabling dialogue.
Analysis and Recommendations
Notes
1. Stephen Gardner, “A Perfect Moral Storm: Climate Change,
Intergenerational Ethics and the Problem of Moral Corruption,”
Environmental Values 15 (2006): 398.
2. Donella Meadows, Jorgen Randers, & Dennismeadows, Limits
To Growth: The 30-Year Update (White River Junction: Chelsea
Green Publishing, 2004), 240.
3. Roger Gottlieb, A Greener Faith: Religious Environmentalism
and our Planet’s Future (Oxford: Oxford University Press, 2006).
4. See Ibrahim Abdul-Matin, Green Deen: What Islam Teaches
About Protecting the Planet (2010), 70; Sophie Gilliat-Ray &
Mark Bryant, “Are British Muslims ‘Green’? An Overview of
Environmental Activism among Muslims in Britain,” J. for the
Study of Religion, Nature & Culture 5(3) (2011): 284; Europe’s
First Eco-Mosque, Cambridge Mosque Project, http://www.
cambridgemosquepr oject.org/about-2/eco-mosque/;
Ahmed Shaaban, Dh20-Million Green Mosque Opens in Dubai
(July 19, 2014), http://www.khaleejtimes.com/kt-article-dis-
play-1.asp?xfile=data/ramadannews/2014/july/ramadannews_
july130.xml§ion=ramadannews; Dr. Abou Bakr Ahmed
Ba Kader, et al., Basic Paper on the Islamic Principles for the
Conservation of the Natural Environment, Int’l Union for
Conservation of Nature Envtl. Pol’y & L. Paper 20 (1983),
https://portals.iucn.org/library/efiles/documents/EPLP-
020.pdf.
5. Large-scale renewable energy projects span the wider Middle East
and North Africa, particularly Morocco, Egypt, and Jordan.
Saadallah Al Fathi, “Morocco Turns Up the Heat on Renewable
Energy,” Gulfnews.com (Oct. 13, 2013), http://gulfnews.com/
business/opinion/morocco-turns-up-the-heat-on-renewable-
energy-1.1242632; Christopher Coats, “Egypt Moves to Kick-
Start Renewable Revolution, Forbes” (Oct. 22, 2012), http://
www.forbes.com/sites/christophercoats/2012/10/22/egypt-
moves-to-kick-start-renewable-revolution/; Jordan’s Future
Energy, Greenpeace (2013), available at http://www.green-
peace.org/arabic/PageFiles/481146/Jordan_Report2013.pdf.
In 2010, Saudi Arabia established the King Abdullah City for
Atomic and Renewable Energy and in February 2013 released a
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 129
Phase One of the London Array, one of the largest offshore wind
farms in the world – planned to generate up to one gigawatt of
electricity. Sally Bakewell, Masdar Secures $424 Million for Largest
Offshore Wind Farm, Bloomberg, Oct. 10, 2013, http://www.
bloomberg.com/news/2013-10-10/masdar-obtains-266-
million-pound-loan-for-london-wind-farm.html. This link between
the U.A.E. and the U.K. may be a platform for potential U.K.-
listed green sukuk, especially considering that the U.K. govern-
ment launched £ 200 million (approximately $332 million)
sovereign sukuk in June 2014.
Formed by the Dubai Supreme Energy Council, the Dubai
Integrated Energy 2030 Strategy (DIES) plans for solar energy to
account for 5% and clean coal for 12% of Dubai’s total energy mix
by 2030. United Nations Dev. Programme, State of Energy
Report: Dubai 2014 (2014), 35, http://www.undp.org/con-
tent/dam/rbas/doc/Energy%20and%20Environment/The%20
State%20of%20Dubai’s%20Energy%20and%20Its%20Path%20
to%20Green%20Economy.pdf; see Sajila Saseendran, “Shaikh
Mohammed Inaugurates Solar Power Park Phase-1” Khaleej
Times, Oct. 23, 2013, http://www.khaleejtimes.com/kt-article-
display-1.asp?xfile=data/nationgeneral/2013/October/nation-
general_October299.xml§ion=nationgeneral. In addition to
these plans, the Demand Side Management Strategy will retrofit
30,000 buildings to meet the highest energy efficiency standards.
The Centre plans a green investment program in partnership with
the World Bank as part of the DIES strategy. Plans for clean coal
have gone ahead, including an announcement by the Dubai
Electricity and Water Authority for a 1200-megawatt clean coal
power station. Andy Sambidge, “Dubai’s DEWA Shortlists 8 for
Clean- Coal Power Project,” ArabianBusiness.com (Sept. 6,
2014), http://www.arabianbusiness.com/dubai-s-dewa-shortlists-
8-for-clean-coal-power-project-563639.html#.VAtcuF6H2Dk;
EBR Staff Writer, “DEWA Awards Hassyan Plant Phase 1 IPP
Advisory Service Contract,” Energy Bus. Review (Feb. 10, 2014),
http://www.energy-business-review.com/news/dewa-awards-
hassyan-plant-phase-1-ipp-advisory-service-contract-100214-
4174410. Like The Abu Dhabi Vision 2030, these projects could
be financed by sukuk – or green sukuk. In Southeast Asia,
Malaysian Amanah Raya Investment Bank worked in 2007 with
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 131
the Asian Finance Bank to launch an Islamic green fund for the
development of environmentally friendly projects in Asia and the
Middle East. “Islamic and ‘Green’ Fund to Be Issued in Malaysia,”
The Brunei Times, Oct. 4, 2007, http://www.bt.com.bn/busi-
ness/2007/10/04/islamic_and_green_fund_to_be_issued_in_
malaysia. RAM Rating Services Berhad, a leading credit rating
services for the Malaysian capital market, has announced that it
perceives great potential for the green sukuk concept in both
Shari’ah-compliant and ethical investment. “RAM Ratings Sees
More Upside for Green Sukuk,” The Star Online (Sept. 3, 2014),
http://www.thestar.com.my/Business/Business-News/
2014/09/03/Green-Sukuk-key-to-fund-low-carbon-renewable-
energy-economies/.
6. Hallaq, “Groundwork,” 261 (citing Qur’an 18:47; 19:90;
20:105; 27:88; 52:10; 2:50; 20:77; 41:13–17; 51:41; and 89.6).
7. Millenium Ecosystem Assessment – Living Beyond Our Means,
Natural Assets and Human Well-Being, Statement from the
Board, available at http://www.millenniumassessment.org/en/
BoardStatement.html.
8. Robert A Monks and Nell Minow, Corporate Governance (John
Wiley, 2011), 9.
9. Patrick Dunn, “The Green Sukuk Market: Opportunities and
Hurdles,” in Thomson Reuters-RFI, 45.
10. Roof, K; Oleru N., “Public Health: Seattle and King County’s
Push for the Built Environment,” Journal of Environmental
Health 71 (2008): 24–27.
11.
Geoffrey Roughton, “The Ancient and the Modern:
Environmental Law and Governance in Islam,” Colum. J. Envtl.
L. 99, 103 (2007).
12. Al-Husayni, Sending Prayers, 186.
13. Sarra Tlili, Animals in the Qur’an (Cambridge: Cambridge
University Press, 2012), 97.
14. S. Nomanul Haq, “Islam,” in A Companion to Environmental
Philosophy, ed., Dale Jamieson (2001), 114.
15. Qur’an 7:172.
16. Qur’an 13:15.
17. Qur’an 40:57.
18. S. Nomanul Haq, “Islam and Ecology: Toward Retrieval and
Reconstruction” Daedalus 130 (2001): 151.
132 U.F. MOGHUL
36. ʿAli ibn Al-Ā thı̄r al-Jazarı̄, Al-Kamil fi al-Tarikh (The Complete
History) (Dar Sader; Beirut, 1995), Vol. 3, 227.
37. Ahmad, Cosmopolitan, 82.
38. Ahmad, Cosmopolitan, 83.
39. Ahmad, Cosmopolitan, 84.
40. “Today, people may inflict incurable harm to others or unleash
irreversible injury on the environment without the victims know-
ing this for a number of years. Both the vastness of areas and
potential victims as well as the intensity of damage make the
requirement of notice as a condition for liability, as reasoned by
majority of [classical] jurists, completely inappropriate or inap-
plicable as a basis of liability for modern environmental regula-
tion.” Ahmad, Cosmopolitan, 85–86.
41. Ahmad, Cosmopolitan, 87–88.
42. The Hidaya manual of Hanafi law also presents systematic discus-
sions of water rights and resources and their maintenance. Haq,
Ecology, 168.
43. Other than the well of Zamzam. See Nour al-Zahiri and Rita
Khounganian, “A Comparative Study between the Chemical
Composition of Potable Water and Zamzam Water in Saudi
Arabia,” http://faculty.ksu.edu.sa/khounganian/Interns%20
Seminar/Zamzam-waterpublicationarticle.pdf.
44. Ahmad, Cosmopolitan, 89. For an overview of water rights under
Islamic law, see Dante A. Caponera, “Ownership and transfer of
water and land in Islam,” in Water Management in Islam, eds.,
Naser I. Faruqi, Asit K. Biswas, & Murad J. Bino (United Nations
Univ. Press 2001), 94–102.
45. Ahmad, Cosmopolitan, 89.
46. See Qur’an 25:48; Abū ʿIsa ̄ al-Tirmidhı̄, Sunan at-Tirmidhı̄
(Jāmiʾ at-Tirmidhı̄) in English Translation of Jāmiʾ At-Tirmidhi,
Vol. 1 (Abu Khaliyl trans., 2007); Chapter 1, “Kitāb at-Ṭ ahārah
ʿan Rasūl-illāh, salAllāhu ʿalayi wassallam.”
47. Ahmad, Cosmopolitan, 89 (citing the hadith in Ibn Majah, Sunan,
Vol. 1, 180–82: “The Prophet [MuhammadP] observed some
extravagance in water use and this led him to say, ‘What is this
wastage, Sa’d?’ Sa’ad replied, ‘Is there wastage even in washing
for prayer?’ ‘Yes, even if you are by a flowing river!’ the Prophet
replied.”).
134 U.F. MOGHUL
166. The only significant listed endorsement from the financial sector
is the pension fund, California Public Employees for The
Responsible Retirement. Richardson, “Voluntary,” 405.
167. Meyerstein, “Transnational,” 535.
168. Nicole Darnall and Stephen Sides, “Assessing The Perormance of
Environmental Programs: Does Certification Matter?” Policy
Studies Journal 36 (2008): 95.
169. Meyerstein, “Transnational,” 543.
170. Meyerstein, “Protectors,” 18.
171. Meyerstein, “Transnational,” 523.
172. Such changes have included lowering from $50 to $10 million
the financial threshold triggering the principles’ application,
inclusion of certain project upgrades and expansions and.
Meyerstein, “Protectors,” 18.
173. Meyerstein, “Transnational,” 522.
174. Douglas Sarro, “Do Lenders Make Effective Regulators? An
Assessment Of The Equator Principles On Project Finance,”
German Law Journal (Dec. 2012): 1535 (quoting Suellen
Lazarus and Alan Feldbaum, Equator Principles Strategic Review
Final Report (Feb. 17, 2011): iii).
175. Sarro, “Lenders,” 1550.
176. Sarro, “Lenders,” 1550, n. 131.
177. Meyerstein, “Protectors,” 19.
178. Meyerstein, “Transnational,” 558.
179. Meyerstein, “Transnational,” 557–58.
180. Meyerstein, “Transnational,” 554.
181. Richardson, “Voluntary,” 400.
182. Richardson, Polluters, 257.
183. Kirsten Mikadze, “Public Participation in Global Environmental
Governance and the Equator Principles: Potential and Pitfalls,”
German Law Journal 13 (Dec. 2012): 1388–91.
184. Mikadze, “Public,” 1390.
185. IFC Performance Standards on Environmental and Social
Sustainability, Paragraphs 13–17 (Jan 1, 2012).
186. IFC Performance Standards, 8 (Principle 6).
187. IFC Performance Standards, 15. (Exhibit I).
188. IFC Performance Standards, 7 (Principle 5). For Category A and
Category B projects, EPs require that the EPFI satisfy itself that
the borrower has consulted in a meaningful way with affected
142 U.F. MOGHUL
295. Cathy Clark, Jed Emerson, Ben Thornley, The Impact Investor
(San Franciso: Jossey-Bass, 2015), 214.
296. Besim Hakim, “Eco-Cities Embedded Locally: Learning From
Tradition and Innovating Now, Heritage Globalization and the
Built Environment and International Conference Sponsored By
The Ministry of Municipality and Agricultural Affairs, Bahrain
Society of Engineers and University of Bahrain, Kingdom of
Bahrain (6–8 Dec. 2004).
297. Mortada, Traditional, 95.
298. Qur’an 24:27–28.
299. Muslim, Sahih, Book 45, Hadith 41.
300. Hakim, Cities, 95.
301. Hakim, Cities, 96
302. ‘Abd al-Qadir al-Jilani, The Sublime Revelation (Al-Fath Al-
Rabbani) (Houston, Al-Baz, 1992), 11.
303. Hakim, Cities, 95.
304. Al-Bukhari, Sahih, Book 78, Hadith 45 (6014).
305. Abū Bakr Muḥammad b. Jaʿfar b. Muḥammad b. Sahl al-Sāmarrı̄,
al-Kharāʾit ̣ı̄, Makārim al-akhlāq wa-maʿālı̄hā wa-maḥmūd
t ̣arāʾiqihā wa-marḍıh̄ ā (Beirut: Dār al-Fikr, n.d.), 59
306. Sherman A. Jackson, Islamic Law and the State: The Constitutional
Jurisprudence of Shihab al-Din al-Qarafi (Leiden: E.J. Brill,
1996), 185–224.
307. Omer, “Lessons,” 136.
308. Int’l Fin. Corp., Green Bonds (2014), available at http://www.
ifc.org/wps/wcm/connect/70affa804325e550a46eec384c61
d9f7/Green+Bonds+March+2014+final.pdf?MOD=AJPERES.
There are certainly others we could discuss as well, such as the
Carbon Disclosure Project and World Bank’s Green Bond pro-
gram. The Project is an organization backed by several hundred
institutions representing an excess of $92 trillion in assets com-
mitted to the disclosure and reduction of greenhouse gas emis-
sions. See CDP Signatories and Members, Carbon Disclosure
Project, https://www.cdp.net/en-US/Programmes/Pages/
Members-List.aspx (last visited Jan. 6, 2015). The World Bank’s
Green Bond enables investors to support World Bank lending for
energy-efficient real property, waste management, mass transit,
food security, and flood protection systems. See Implementation
Guidelines – Five Key Elements of the World Bank Green Bond
150 U.F. MOGHUL
330. “100 percent of the academic studies agree that companies with
high ratings for CSR and ESG factors have a lower ost of capital
in terms of debt (loans and bonds) and equity. In effect, the
market recognizes that these companies are lower risk than
other companies and rewards them accordingly. This finding
alone should earn the issue of sustainability a prominent plae in
the office of the chief financial officer, if not the boardroom, of
every company. Eighty-nine percent of the studies we examined
show that companies with high ratings for ESG factors exhib-
ited market- based outperformance, while 85 percent of the
studies show these types of companies exhibit accounting-based
performance. Here again, the market is showing correlation
between financial performance of companies and what it per-
ceives as advantageous ESG strategies, at least over the medium
(three to five years) to long term (five to ten years).” Clark,
et al., Impact, 34.
331. Eccles and Krzus, One Report, 124.
332. Eccles and Krzus, One Report, 98.
333. Marta Maretich, Jed Emerson, and Alex Nicholls, “Governing for
Impact: Managing Mission Driven Organizations Through Stages
of Growth and Investment,” Said Business School Research Papers
(Spring 2016): 28.
334. Kamla and Rammal, “Social Reporting,” 8.
335. Kamla and Rammal, “Social Reporting,” 8.
336. Eccles and Krzus, One Report, 10.
337. Eccles and Krzus, One Report, 23.
338. Eccles and Krzus, One Report, 32.
339. Eccles and Krzus, One Report, 134.
340. Eccles and Krzus, One Report, 24–25
341. Sairally, “Evaluating,” 302.
342. Islamic Financial Services Board, Guiding Principles On Corporate
Governance for Institutions Offering Only Islamic Financial
Services (Excluding Islamic Insurance (Takaful) Institutions and
Islamic Mutual Funds) (Dec. 2006), 5.
343. See generally Eccles and Krzus, One Report.
344. Rania Kamla, “Critically Appreciating Social Accounting and
Reporting in the Arab Middle East: A Postcolonial Perspective,
Advances,” International Accounting 20 (Dec. 2013): 126.
SKETCHING CONSCIOUSNESS: NATURAL AND BUILT ENVIRONMENTS 153
Fatwas
Then and Now
Islamic legal determinations fall into two types: (1) qada’—litigated bind-
ing judgments by courts of law and enforceable by political authorities;
and (2) fatwa—advisory legal opinions issued by legal scholars as muf-
tis. Earlier in history, there was “no distinction between a mufti and a
qadi.”2 Over time, as the jurisdiction of qadis narrowed, reliance upon
muftis widened.3 Many muftis came to operate privately, with limited, if
any, ties to the state4 so that politics was, and remains, not the only means
to producing law. Islamic legal literature places the origin of fatwa in the
Qur’an, particularly verses 4:127 and 4:176, regarding inquiries made as
to the rights of orphans and inheritance, respectively. Several additional
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 157
verses present the Qur’an’s dialogical approach with regard to the fatwas;
these include 2:189, 2:217, 2:219, 2:220, 2:222, 4:127, 4:176, 5:4, and
8:1.5 Such verses, as well as others, construct a question-answer context, a
precedent fatwas would soon take on.6 Unlike Qur’anic fatwa, Prophetic
fatwa tends to include the underlying legal reasoning. Awass concludes
that this is probably “for pedagogic purposes.”7 Some Prophetic fatwa
were amended by Qur’anic revelation, providing precedent from Islam’s
primary “scriptural” sources for “cross examination” of fatwas by other
legal authorities.8
Scholars responding to questions regulated themselves by establish-
ing an ethical and professional criterion in written manuals that set forth
various matters and minutae, including the required qualities of technical
knowledge and expertise and rules and instructions about the petition
itself, covering both form and content, as well as the answer thereto.9
These manuals also provide spiritual guidance, reminding muftis of their
duty to their Lord, the weightiness of opining as to God’s intent and/
or ruling in a particular manner, the probabilistic nature of rulings, and
eschatological consequences. In issuing legal opinions, the mufti serves as
a “jurist of the nafs.”10 The term nafs, readers are reminded, refers to that
aspect of the human, often translated as ego or self, which must be trained
and disciplined to build good character.11 An understanding of the nafs’
role in articulating and interpreting petitions for fatwas, creating decision
biases, and deciding outcomes is critical as the nafs may undermine legal
expertise. Studies outside of the Islamic legal domain, for instance, show
that feeling accountable helps reduce overconfidence, as does humility.12
Both accountability and humility are values gifted by God, often attained
through the exertion of spiritual exercises, which have bearing on inter-
preting reality and deciding outcomes.
A mufti provides advice by responding to a wide range of questions
posed privately or by judges and political rulers.13 It is the petition or ques-
tion (istiftaʾ), necessitating knowledge of the applicable Shari’ah principle,
which triggers the fatwa.14 Thus, the istiftaʾ largely controls the fatwa.
This is not to say that all fatwas are—or should be—in response to an
inquiry. A mufti may certainly compose a fatwa, giving his or her consid-
ered opinion on an issue of choice.15 The petitioner is recommended to
seek out those muftis who have or are known to have a good reputation
for knowledge and piety.16 “Divinely inspired thoughts come from God,
which means that they must be correct, while the mufti may err. The heart
[qalb], on the other hand, is not susceptible to error. This applies, how-
158 U.F. MOGHUL
ever, exclusively to pure hearts. (Otherwise) one should only seek fatwas
from knowledgeable people.”17
According to some scholars, petitioners were not to ask for support-
ing evidence. If the fatwa was based on definitive evidence, the mufti may
mention his sources; if not, the sources should not be stated to avoid con-
fusion or controversy, presumably among laypersons. This is, for instance,
the opinion of the esteemed jurist Imam al-Nawawi (d. 1277/676).18 One
key distinction between the institutions of fatwa and qada’ is that a mufti
provides determinations of law assuming a given set of facts, while qada’
includes determinations of fact under a set of laws.19 In other words, the
facts presented by a fatwa petitioner (mustafti) are taken as true.20 Given
this, the requirement for some jurists that the petition be written becomes
better appreciated.21 The mufti is not expected to have the opportunity
to ascertain facts presented in inquiries, nor to examine them with certain
exceptions.22 For that, and other reasons, the mufti was advised to be
careful for the istifta’ may be articulated in a manner that could influence,
or be intended to influence, the mufti. Facts can after all be selected and
presented in such a way so as to attempt to lead to the petitioner’s desired
answer. An understanding of the “questioner’s intent or purpose (maqa-
sid) in asking” may help to “forestall its [the fatwa’s] misuse.”23 A mufti
should “study the question thoroughly, to understand the context of the
question, to consider its implications, and only then to offer an answer.”24
Keeping in mind that “the impact of information on the human mind
is only imperfectly related to its true value as evidence” a mufti should
be trained to keep in mind the potential for being influenced by the peti-
tioner’s own identification and judgment.25 Petitioners, for example, are
often not legal specialists and thus may, for example, mischaracterize the
type of contract at issue. Muftis should not take things at face value26
nor allow themselves “to be anchored by the petitioners assessment.”27
In some instances, as mentioned earlier, muftis were asked to take on a
certain degree of investigation—even if by simply following up to seek
clarification or further information. “It was a different matter, however
if a mufti happened to know, or had reason to suspect, that the legal case
as described by the petitioner (surat al-fatwa) did not conform to the
actual case (surat al-hal). In such an event, the manuals [regulating fatwa]
instruct the mufti not only to answer the petitioner’s question but also to
cite and provide the solution for what is suspected to be the actual case.”28
Upon receipt of a petition, the mufti enters what Furber terms the
adaptation stage of the fatwa process. Here, the mufti “matches the rel-
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 159
evant features of the case to the known legal issues that corresponds best
to the described case. In receiving the petition, muftis should be aware
of the so-called ‘primacy effect,’ whereby information first acquired has a
greater impact than information subsequently gained, and be cognizant
of ‘confirmation bias’ whereby information can be interpreted in a man-
ner consistent with previously held suppositions.”29 The mufti must assess
“whether the preconditions [shurut], essential elements [arkan] and asso-
ciated conditions for the identified issue have been met in the petition-
er’s specific case, and its ensuing legal consequences.”30 Finally, the mufti
examines the circumstances to ensure that applying the ruling arrived at
thus far will “realize the petitioner’s interests without violating the overall
objectives of the Shari’ah, and with an eye on avoiding unintended con-
sequences.”31 The mufti’s decision must find moderation and balance lest
he neglect the maqsad [objective] of the Lawgiver” and “invite criticism
from the leading ulama.”32
“Technical literature on the subject of decision-making defines deci-
sion biases as irrational errors that decision-makers commit in spite of
their best attempts to make rational decisions.”33 The presence of a bias
does not necessarily mean that it has been, or will be, acted upon. Among
these is “cognitive bias”: a deviation in proper judgment resulting from
inferences made about other people and situations. Cognitive biases are
understood to sometimes lead to inaccurate judgments and illogical inter-
pretations.34 Such bias is especially found in instances in which heuristics
are employed. Heuristics, a tool with which Islamic disciplines are familiar,
is an approach that employs a practical methodology, not necessarily opti-
mal, but sufficient for an immediate goal.35 In law, heuristics are typically
used when a case-by-case analysis would be impractical, such as selecting
a particular numerical age for maturity.36 An individual’s construction of
social reality, such as his or her perception of the input and not the objec-
tive input, dictates behavior or a given decision. Interestingly, Islam has
much to say about the positive and negative consequences of spiritual
states upon perceptions, interpretations, and discernment of both reality
and textual reasoning, highlighting again the role of spirituality in law and
thought. Muslim scholars at this stage should also be careful of “overcon-
fidence bias”—an overconfidence in an initial decision. In the language
of Islamic spirituality, obstinacy in one’s own opinion and a refusal of
advice is arrogance (takabbur) a sign of a darkened heart.37 Once aware of
potential biases, decision makers should, in principle, be more willing to
question their earlier decisions and assumptions.38 It is important to note
160 U.F. MOGHUL
that each of the aforementioned stages provides the premises for the next,
even if the process is not purely linear. Mistakes unchecked in an earlier
stage necessarily lead to later mistakes.39 Since the final stage focuses on
searching for consequences and the likelihood of their occurrence, muftis
should take note of probability-related biases. “For example, they should
be aware that the ease in which a consequence is imagined is not related
to the likelihood of its occurrence, but rather tends to be influenced by
other things.”40
Modern muftis often issue fatwas by committee41 and respond in an
environment of significant societal changes (from the pre-modern era),
including greater literacy, newer specialized expertise, the internet, and
social media. Pre-modern fatwas are often encouraged to be, and were
in fact usually, concise, except if the question was of particular social
concern or controversial.42 Such a rule “impl[ies] a context where the
social encounter between the mufti and mustafti [the questioner] echoes a
wider distinction between the literate and the illiterate classes.” But some
prominent classical legal thinkers did urge explanation. Modern fatwas, on
the other hand, are generally more detailed than their pre-modern coun-
terparts.43 These fatwas often cite supporting textual proofs and employ
knowledge and examples from other disciplines.44
Ibn al-Salah al-Shahrazuri (d. 1245 CE/643 AH) “carefully explains”
in his manual “that the [questioner] must not be seen as contesting the
authority of the mufti even if he is compelled to ask for the reasoning
underlying the fatwa.”45 Ibn al-Salah further contends that a fatwa directed
at a layperson should generally be brief, including but a brief citation of
its underlying evidence.46 The esteemed Maliki jurist al-Qarafi echoes
what many jurists hold: that the mufti should not mention supporting
proofs and arguments for fear of confusing the questioner.47 Furthermore,
the mufti should keep in mind that someone other than the petitioner
may read and employ the fatwa.48 Therefore, according to both Ibn al-
Salah and al-Nawawi, muftis should undertake precautionary measures to
ensure that their fatwas would stand as “autonomous and self-explanatory
texts.”49
The famous Shafi’i jurist and scholar, al-Nawawi contends that it is not
reprehensible for the underlying proofs to be quoted if done briefly. He
also states that “scholars have recommended that one provide more in
one’s answer than what is on the paper [in which the petition is posed]
if it is related to what the questioner needs.”50 In his work al-Majmu’, al-
Nawawi quotes Al-Saymari (d. 893/280) as stating that while the mufti
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 161
does not provide proofs when delivering the fatwa to a layperson, “he does
mention it if he is giving fatwa to a jurist.”51 Similarly, al-Qarafi (accord-
ing to Jackson) holds that if the mufti “senses that some of the fuqaha
[jurists] might object to his response and possibly condemn it, the mufti
should clarify his position fully; he should back it up with all the requisite
proofs, so that other jurists are able to recognize its soundness, and so
that he may protect his reputation.”52 Al-Saymari continues in his semi-
nal work al-Hawi, “It is not a customary habit for one to mention the
method of ijtihad in his fatwa, the direction of his analogy or the influence
(al-istidlal) unless the fatwa is connected to the paying back of a loan
in which case he indicates the method of ijtihad and makes it brilliantly
incisive. The same applies if someone else gives a fatwa and there is an
error in it, in which case he does so in order to draw attention to what
he is going with, even if there is some obscurity in that which he is giving
fatwa about. Thus it is good to make it shine with proofs.”53 Al-Saymari
also comments, “[The mufti] does not mention the proof so that there
can be a difference between a fatwa and writing books. If one accepts to
overstep a little bit one will accept to overstep a great deal, and the mufti
will become a teacher.”54 Al-Nawawi then adds, “The details that we have
mentioned take precedence over the absolute restraint of the author of
al-Hawi. In certain circumstances the mufti may need to intensify and go
to greater lengths, and thus say, ‘This is the consensus of the Muslims,’ or
‘I don’t know of any difference of opinion regarding this,’ or ‘Whoever
goes against has gone against what is obligatory, and deviated from the
correct position,’ or ‘He has sinned and committed iniquity,’ or ‘The ruler
must adopt this and not neglect the matter,’ and other similar expressions
depending on what benefit requires and what the situation necessitates.”55
Further, Jackson reads al-Qarafi to have determined “whenever there is at
stake a matter that affects the religion as a whole or the general welfare of
the Muslims at large (particularly, matters involving the holders of official
power) the mufti should come out clearly with his point, providing all
the requisite proofs and needed exhortations.”56 The Shafi’i jurist Taqi
al-Din al-Subki (d. 1355/756) responds in detail to a dispute concern-
ing a manufacturing contract (istisna’) even though the petitioner was a
layman and experts would have readily understood (the conclusion of)
his fatwa given the dispute did not concern a particularly novel question
of law. Analyzing this fatwa, Haram suspects that al-Subki did so to ben-
efit the petitioner and “other potential readers who might be in a posi-
tion to influence or decide the outcome of the case.”57 Ibn al-Qayyim (d.
162 U.F. MOGHUL
1350/751) writes “[With regard to] Qur’anic rulings Allah guides and
points to their specific proofs [madarik] and their effective causes [‘ilal]
such as His words, ‘And they ask you [O ProphetP] about menstruation.
Say: ‘It is a [cause for] harm. So, withhold yourselves [from sexual inter-
course] with women during menstruation.’’58 So He, Glory be to Him,
commanded His ProphetP that he explain to them the effective cause of
the rule before ruling.” Ibn Qayyim also writes, “Some scholars have criti-
cized mentioning proofs in fatwa. It is this criticism that deserves critique.
Rather the beauty of fatwa and its essence is the proof. How can it be
that the mention of the speech of Allah, His Messenger, the consensus of
the Muslims, and statements of the Companions, may Allah be pleased
with them, and valid analogy be shameful? Is the mention of the words of
God and His Messenger anything except the design [tiraaz] of fatwa? The
word of a mufti is not incumbent to take by itself. But when the proof is
mentioned it becomes prohibited for the petitioner to differ from it. He
[the mufti] is [by mentioning proofs] freed of any liability [before Allah]
relating to the covenant of fatwa without knowledge (bi la ‘ilm).”59
Interestingly, in the realm of banking, then mufti of Egypt, Tantawi (d.
2010 CE/1431 AH) issued a detailed legal opinion of 12 pages, express-
ing his evidences and rationale, citing both classical and modern jurists.
What distinguishes his fatwa is his method of posing his questions to the
petitioner, a bank manager, and the responses he received. Thus, Tantawi
himself “assumes the role of the mustafti [petitioner] by addressing a
question to a lay expert.”60 Tantawi explicitly shares the information on
which his fatwa relies. This is an important, and not rare, example of a
mufti relying on the expertise of non-jurists, thereby “strength[ening] the
moral authority of the mufti.”61 Tantawi’s opinion is not the only fatwa
covering banking and finance in such detail. Muhammad Baqir al-Sadr
issued a lengthier fatwa in reply to the Kuwait Ministry of Awqaf.62
Al-Qaradawi argues for the reconstruction of scholars’ authority and
relevance. He writes, “Our contemporary language demands that the
mufti pay attention to a number of considerations…The mufti must
accompany his fatwa by its [rationale] (hikma) and effective cause (‘illa),
linking it to the general philosophy of Islam…This is because of two
reasons: it is the way of the Qur’an and the Sunna[h]…and secondly, it
is (necessary) because the sceptics and those who encourage scepticism
are very numerous today. Most people no longer accept the judgment
without knowing the source and [wisdom], especially if it is not related to
the field of ‘ibadat [i.e., worship].”63 Further, he contends that extending
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 163
the presentation of arguments is needed “so that the ignorant may learn,
the neglectful may be informed, the doubter may gain confidence, the
rejecter may be convinced, the arrogant may be defeated, the apprentice
scholar may increase his knowledge, and the believer his faith.”64 Another
notable modern scholar, Muhammad Al-Shawkani (d. 1839 CE/1250
AH) asserts that, as a matter of regular course, it is preferable for the mufti
to present the evidence and arguments underlying his or her fatwa, “and
not” utilize “brief statements.”65
Musa Furber has conducted a highly interesting and relevant survey
investigating (1) what fatwa petitioners consider when determining the
validity of a fatwa and (2) the confidence level consumers place in a fatwa.
The survey found the following to be the most important elements of a
fatwa: (1) coming from a known, reputable scholar or institute, 94.4%, (2)
stating the supporting textual evidence, 85.7%, (3) explaining its support-
ing textual evidence, 82.2%, (4) referencing earlier works of law, 66.7%,
and (5), including signatures or an official stamp, 51%.66 The survey evi-
dence indicates “that petitioners place an almost equal emphasis on under-
standing how the evidence relates to the ruling.”67 His study corroborates
the thesis of this chapter and is consistent with the author’s observations
and interactions with Islamic finance industry stakeholders. In deciding
whether to rely on a fatwa, (these) contemporary petitioners place a heavy
emphasis on transparency of what evidences are being employed by a mufti
whom they deem reputable, how those evidences are being interpreted
and employed to construct the conclusion, and what other assumptions,
perceptions, and arguments are being relied upon. Petitioners, it seems,
are looking for detail, seeking to be educated, perhaps convinced, and to
act with understanding. They seek to play a part in determining the valid-
ity, in a sense, of the fatwa without relying on reputation and expertise
alone by exercising their choice to obey a fatwa in a manner that places
greater authority and discretion in themselves. Hence they in fact play a
role in the practical validity of fatwas insofar as we may measure validity by
effectiveness and implementation.
been privy in the course of our legal practices, and the sources stated
herein. Practitioners, particularly lawyers, involved in a given matter may
have greater knowledge of the course of the Islamic legal process for a
given matter than is set forth in the related fatwa given their function
and their regular discussions with the involved Shari’ah advisors (and
others) throughout the design process. Many of these matters, at least in
the possession of the lawyer, are privileged and confidential. Readers of
a fatwa, comprised of many stakeholders are usually unable to ascertain
this fatwa decision-making process and its underlying rationale in mean-
ingful detail unless they have been made privy to confidential matters.
That process is often unknown to the outsider, who observes only its
uncontextualized conclusion. If that conclusion is a negotiated compro-
mise, the effort and rationale in reaching it and even that it was in some
respects negotiated is often unknown to the market. It should also be
noted that the conclusions reached by many fatwas exemplify the prac-
ticality of Islamic finance law and Shari’ah advisors’ methods—some-
times more so than applicable national or “secular” law and methods.81
Furthermore, these fatwas showcase the ability of Islamic law to adapt
and innovate, even if the conclusions reached are intended as temporary
allowances.82
permitted under the Shari’ah, but its authors did not set forth the com-
plete textual and jurisprudential basis of their ruling, the facts and assump-
tions on which it relies, and the objections sought to be realized.85
As a preliminary matter, the equity security structure must be permis-
sible under Islamic laws regardless of the subject company business.86
Thus, for instance, preferred stock with a liquidation preference would
be disallowed.87 The analysis then considers the business of the company
in question. If the core business is prohibited by the Shari’ah, the DJIMI
Fatwa prohibits investment in its equity securities. The DJIMI Fatwa
does, however, tolerate certain non-permissible business activities so long
as they are not “primary” or “basic” to the business of the company.88
The terms “basic” and “primary” are left undefined. So it is not clear
to the author (and in the author’s experience, other readers) whether an
Islamically “disapproved” (makruh) business would be carved out. Next,
the receipt and/or payment of riba is tolerated provided certain ratios
with respect to the subject company do not exceed 33%.89 The ratios
assess (1) interest-bearing debt; (2) cash and marketable securities; and (3)
accounts receivable90 – each against a company’s market capitalization.91
Companies failing to meet these criteria are filtered out. The DJIMI Fatwa
calls for a periodic application of its screens to assess ongoing compli-
ance, and “emphasize[s] that more precise tests [to calculate elements of
the ratios] must be adopted to if they become available.”92 The fatwa’s
authors do “emphatically” caution “that [the above-mentioned] formula
is one that applies to investors interested in companies offering shares on
the international market over which Muslims have no control. It should
not be understood as an endorsement of the practice, by Muslim-owned
businesses, of interest-based borrowing.”93
By setting such conditions and screens, the DJIMI Fatwa softens a com-
mand and creates a dispensation (limiting it carefully) – and perhaps does
more. It is worth pausing here to briefly explain the foregoing statement. A
law, in Islamic jurisprudence, may be altered by reference to “attenuating
circumstances … that may soften it or even entirely suspend it.”94 When so
altered, it is referred to as a legal dispensation or concession (rukhsah) of
an unabated command (ʿazimah). The latter is the “original, established
intention behind a given action commanded by the Law; it embodies The
Lawgiver’s (i.e. God’s) primary intention. The former is a type of allow-
ance granted in connection with certain actions commanded by the Law
for the purpose of alleviating hardship; it embodies a secondary intention
168 U.F. MOGHUL
spiritual states, ethics, and goals, and cultural business norms in the forms
of expectations and customs, and other “pressures” (such as favorable tax
treatment of debt over equity). Only some of these business norms are
legal in nature and probably fewer are legally required.
The so-called bifurcated structure and tawarruq finance mechanisms
are perhaps the most noteworthy symbols of controversial structures. For
some, this compromise is the best outcome achievable under the circum-
stances—of law and customary practice, socioeconomic realities, and ethi-
cal–spiritual values. Others may additionally assert in defense that these
structures are a necessary stepping stone in the form of an “evil” tolerated
to eventually achieve a greater good. Rarely, however, is this explanation
offered explicitly and with detail. For others, particularly those who might
be described as proponents of the critique of authenticity, compromise is
generally true of much of contemporary Islamic banking and finance, not
the exception, and is improper (whether unlawful or disliked, depending
on the instance). That there is a range of critiques and critics must be kept
in mind.
Contemporary Islamic finance structures have created a perception
among many that transactions and products are not Islamic, at least not
authentically or sufficiently so, depending on whose perception and to
which definition of Islamic we refer. These structures probably raise
doubts because of the perception of their complexity—a complexity itself
probably due to fitting classical structures and forms into the prevailing
‘spiritual-ethical-legal framework’ – and the perception of their similarity
with impermissible debt-based products. Structures come about as a result
of the prevailing spiritual-ethical-legal framework which impacts thought
processes, perceptions of reality, of possibility and impossibility, willing-
ness, and what is understood as ‘right’ and ‘good.’ Perceptions depend on
inter alia spiritual states and knowledge of business and finance, of Islam,
and social, economic, and cultural background, and personal experience.
Negative perceptions are constructed and built upon as a result of what we
term “structural continuity.” By that we mean, as “doubt-raising” struc-
tures continue and others are created, the critique of authenticity not only
continues but is strengthened.
Other industry practices that fuel these negative perceptions, within
industry jurisdiction so to speak, are marketing efforts that stamp and
advertise products as “Shari’ah compliant” without a corresponding
substantive explanation, dismissals of the critique of authenticity (and
others) and their respective proponents, and the slowness of Islamic
finance as an industry to transparently and comprehensively explain its
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 177
Consultation
Seemingly unrelated perhaps to the subject of fatwa is the Islamic ethic
of consultation, termed in Arabic shura. Ibn al-‘Arabi (d. 1240 CE/638
AH) defines the term as “the act of bringing people together for the pur-
pose of mutually discussing a certain issue in order to draw (benefit) from
each other.”138 What interests us in learning about this practical ethic, its
basis, importance, and consequences, is its applicability in addressing the
“critique of authenticity” for Islamic finance as well as its broader implica-
tions for the governance in other Muslim markets and communities. The
principle of consultation informs as to the importance of a critical com-
ponent of good governance, namely inclusive decision-making in which
stakeholders are consulted before decisions are rendered. Good gover-
nance produces decisions that are more likely to be broadly valued and
intelligent. Consultation could also imply transparency, accountability,
and responsibility.139 In the case of fatwa, an enhanced opinion “consults”
stakeholders by informing and educating so as to engage and engender
dialogue.
When discussing consultation Muslim scholars have tended to focus on
to particular Qur’an verses: 42:38 and 3:159 as evidence.140 These read,
respectively:
Those who furthermore answer [the call] of their Lord [to faith] and [duly]
establish the Prayer – and [conduct] their affairs by consultation among them-
selves and spend [charitably] out of what We have provided them.
And so [O Muhammad] it was by the sheer mercy of God that you were lenient
with them after their disobedience at Uhud. For had you been harsh and
hard-hearted, then they would have disbanded from around you. So pardon
them. And seek forgiveness for them. And take counsel with them concerning
the [community’s] affairs. Thereafter, if you become resolved on a matter O
Muhammad, then rely upon God alone. Indeed, God loves those who rely only
on Him.
The scholar Ibn Ashur, however, begins his evidentiary discussion earlier
in time with the exchange that takes place between God and His angels
in which God informs the Angels of the creation of human beings. Ibn
Ashur describes the conversation as “the first social practice for which God
established a precedent.”141 These verses read:
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 179
Now behold! Your Lord said to the Angels: I am placing upon the earth a
[human] successor [to steward it]. They said: Will You place thereupon one who
will spread corruption therein and who [moreover] will shed blood, while we
ever exalt You with all praise and hallow You? He said: Indeed, I know what
you do not know. Thus He taught Adam the names [of created beings] all of
them. Thereafter, He arrayed them before the Angels. Then He said: Tell me the
names of these, if you are truthful [in saying that man is underserving of this
stewardship]. They said: Highly exalted be You! We have no knowledge other
than what You, Yourself, have taught us. Indeed it is You alone who are the All-
Knowing, All-Wise. He said, O Adam! Tell them the names of these [beings].
So when he had informed them of all their names, God said to the angels: Did
I not say to you that I know all the realms of the unseen of the heavens and the
earth, and I know what you reveal and what you conceal?142
Al-Raysuni also cites the conversation between Abraham and his son
regarding the command the former received from God to sacrifice the
latter. Thereby, al-Raysuni comments, God establishes that if consulta-
tion is a commendable practice in matters that are decided and settled
(as in the creation of humans and the decision of Abraham to sacrifice
his son then it is all the more so in undecided cases.143 We would add
that it is possible that God intended to educate about the importance of
consultation and communication within the parent-child relationship, and
perhaps particularly between fathers and sons, to delineate good manners
within that relationship, and to demonstrate the spirituality of the son.)
Dialogue is thus an Islamic perspective so that groups and nations among
humankind may know one another (Qur’an 49:13) and cooperate with
one another (Qur’an 5:2). The point here we wish to emphasize is that if
God consults anyone, if his chosen messengers consult others, and that if
consultations take place in settled matters and clear-cut obligations, con-
sultation is therefore all the more important among humans with multi-
faceted, complex, and undecided issues. In addition, the Qur’an specifies
that this dialogue take place in the “best and most courteous manner.”144
From a spiritual and ethical standpoint, consultation teaches humility,
the limits of individual knowledge and experience, and the importance
of cooperating with others. Consultation works to extinguish authori-
tarian tendencies that may be exhibited by those with decision-making
responsibility, whether they may be corporate officers, muftis, or national
leaders.145 It, furthermore, develops intellectual capacities, practical expe-
180 U.F. MOGHUL
can take a variety of forms, from the relatively informal village and tribal
councils, to the more organized elected assemblies and parliaments, all of
which are acceptable provided they are genuinely representative and their
participants enjoy the freedom to voice their views.”154 Private decisions,
such as those within a business, organizational department, or family,
may be restricted so that consultation does not take place widely but only
of specified, relevant people. Generally, otherwise, consultation should
encompass the broadest spectrum of individuals. Consultative bodies may
be set up in virtually any sphere, and with particular scopes of jurisdiction.
Contemporary bodies that engage in shura with respect to Islamic legal–
ethical issues include the Academy of Islamic jurisprudence, a branch of
the Islamic Conference Organization, the Juristic Academy, associated
with the Islamic World League, the European Council for Research and
Fatwas, and The Juristic Academy of North America.155
Consultation was the hallmark of the Messenger Muhammad’sP private
life as a husband and father as well as his public role as spiritual and tem-
poral leader. Abu Hurayarah, a prominent Companion of the Messenger
MuhammadP said: “Never have I seen anyone more prone to seeking his
companions’ counsel then was the messenger of God.” Ali b. Abi Talib (d.
661 CE/40 AH) is reported to have asked “O Messenger of God, what
are we to do in situations concerning which nothing has been revealed in
the Qur’an and in which we have no example from you to follow?” The
ProphetP is reported to have replied, “Gather together believers who are
knowledgeable (or he said, given to worship). Then consult among your-
selves concerning the situation, and do not base your conclusions on the
opinion of just one person.”156 Al-Raysuni notes that the Messenger of
GodP and his Companions entered into consultations marked by a great
deal of spontaneity, open-mindedness, and trust, and by very little in the
way of detailed regulations and organizational formalities.157 Although
light in administrative type detail, “[their consultation] was laden with
seriousness of purpose and moral gravity.”158
Muslim scholars “must work to ensure that their legal and juristic inter-
pretations and the stances they take on various issues and problems grow
to the greatest extent possible out of dialogue, deliberation and mutual
agreement.”159 Alongside general bodies of scholars aiding rulers, judges,
and the general populous of the Muslims, for instance, there may be more
specialized bodies focused on aiding scholars with other areas of expertise.
Al-Raysuni reminds his fellow scholars, stating, “Even our senior scholars,
if they fail to acquire increasing knowledge of life and reality, including
182 U.F. MOGHUL
an awareness of events, real life situations and newly arising issues, will
tend to remain largely naïve, unaware and weak, both intellectually and
academically. If such individuals are to benefit and be of benefit to oth-
ers with their stores of knowledge, they need to take part in discussions
of contemporary issues of relevance to their communities and societies.
Moreover, involvement in consultative bodies – of whatever type they
happen to be, and on whatever level – is the best entry point for those
who wish to achieve the aforementioned aims. And the same is true for
everyone of us depending on his or her position, circumstances and area
of specialization.”160 It is worth noting that Muslim scholars have set forth
various criteria for such advisors summarized as knowledge, integrity, and
experience.161
Al-Raysuni laments that the consultation practiced in early Islamic his-
tory was not continued, let alone advanced, despite the development of
plans and systems in other aspects of public life.162 There were, however,
important historical exceptions in which consultation was formally insti-
tutionalized with administrative detail. In Andalusia and Morocco, for
instance, consultation was integrated into court systems such that judges
and rulers sought counsel from jurist-advisors.163 Muhammad ibn Abdul-
Wahhab Khallaf (d. 1956 CE/c. 1375 AH) writes about this mechanism:
“This system was found nowhere in the Islamic world at that time but in
Morocco and Andalusia. In Andulusia it completed the structure of the
judiciary and was viewed as a necessary, inseparable part thereof. Those
appointed to serve [as advisors in the system] were chosen from among
those jurists who are known to have well-founded opinions and a breadth
of knowledge. They were appointed by the ruler or the caliph based on a
nomination but made by the group judge (qadi al-jama’ah).”164
To the institution of shura was sometimes added the Islamic juris-
tic principle of sadd al-dhariah, namely the prohibition of that which is
otherwise permissible but leads, not necessarily intentionally, to the pro-
hibited, such as corruption, and so is itself prohibited. Too few Muslim
societies, according to al-Raysuni, apply this notion to political systems.
The Almohad dynasty did, however, consistent with the instructions of
the Caliph Umar b. al-Khattab. It employed a policy whereby no judge
was allowed to remain on the bench for more than two years “as an exces-
sively long tenure” most probably leads to corruption.165 They contended
that if a judge remained in his position “for a long period of time, he
would gather a circle of friends and supporters around him, whereas if he
expected to be removed from his post [after the set time of service] he
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 183
and discussion. Underlying it are ethical values and spiritual states, such as
humility and respect for the dignity of others, with implications for private
and public life that may be implemented in fatwas relating to business,
organizational systems, and social and community affairs by appreciating
fatwa as a platform for consultation and dialogue. Muftis that consult their
constituencies, listen to them, and understand their realities, spiritual and
material, build trust. They are more likely to articulate and facilitate mod-
erate, balanced, and inclusive responses and governance, bringing hope
and optimism and shunning harshness and hardship.
Analysis and Recommendations
Evolving Fatwas
Classical Islamic thought prefers that fatwas be brief, conclusory state-
ments, and classical practice appears consistent with this. Jurists of this
foundational era of Islamic intellectual history articulated exceptional
instances in which a mufti should elaborate upon his or her view. Such
instances relate to the needs and welfare of the questioner and of the
religion as well as preserving the integrity and reputation of the mufti
al-Qarafi contends that the mufti should provide “all the requisite proofs
and needed exhortations” if at stake is a matter that affects the religion
as a whole or the general welfare of the Muslims.170 In writing their fat-
was, muftis, according to Ibn al-Salah and al-Nawawi, should be mind-
ful of probable readers aside from the petitioner, how the fatwas may be
understood and (mis)applied, as well as with explaining their opinions to
their peers on matters known or expected to be controversial or other-
wise deserving of thoughtful explanation. More recently there have been
a number of voices calling for the regulation of fatwa.171
Though not generally the case in modern Islamic banking and finance,
modern fatwa practice tends to exhibit more detailed, explanatory state-
ments. This might seem to be a break from classical practice, but perhaps
modern muftis have found exceptional circumstances to be more preva-
lent and now respond to different expectations of a more literate audience.
Indeed, both Shawkani and al-Qaradawi appear to argue that due to socio-
religious circumstances and the weakened authority of the jurist, enhanced
fatwas are preferable, perhaps as a new “normal.” Muftis Tantawi and Sadr
might agree with this notion and/or observed in contemporary bank-
ing and finance a need and an opportunity for explanation and education
when they issued the longer fatwas discussed earlier. Modern muftis might
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 185
very well be less concerned with the confusion that their predecessors
thought arose by way of detail than with the consequences of a less rel-
evant religious expression and a less informed religious community.
Mufti manuals, often at the outset, establish the authority of the mufti
as a grant by God. These manuals often quote narratives to help engender
sincerity and humility and to remind the mufti of the very serious long-
term, eschatological consequences of answering both with and without
due consideration, let alone for some inappropriate motive, such as pride,
fame, or monetary gain. They emphasize that the mufti searches for God’s
intent and law and as such, the authority of the Muslim jurist may be
described as declaratory.172 The mufti identifies the relevant texts from
Islam’s foundational sources of the Qur’an, Sunnah, and prior precedent,
faithfully interprets and applies them, and declares, on behalf of God, his
or her understanding of Divine intent as applied to a given context. As
such, the mufti exercises a “legislative” authority.173
So as to understand its relevancy and potential, authority should be
contextualized. Its nature is generally relational which means that it exists
“only in relation to others – claimants as well as constituencies.”174 God
(and God is, in Islamic theology, exalted above analogy or comparison)
and His creation are in a sense both claimant and constituency. The ques-
tioner and mufti exist in a relationship, where each is simultaneously a
claimant and a constituency of the other. That the mufti should explain
his expert view for the benefit of the questioner and society more broadly,
demonstrating the relevance and strength of the religion, is a matter of
great moral responsibility. That explanation is made, spiritually speaking,
with humility and, intellectually speaking, with the knowledge that the
opinion is in many, if not most, cases, probabilistically correct. There is
thus an allowance—spiritual and intellectual—made for a discussion to
take place, between the petitioner and mufti, first and foremost, and sec-
ondarily among other stakeholders broadly, among whom may be “silent
petitioners” to the fatwa.
To varying extents conditional on circumstantial factors, the author-
ity of the mufti has weakened and is “increasingly contested by the ‘new
religious intellectuals.’”175 “[A]uthority is not a stable endowment but
one that is always exposed to implicit or explicit challenge and that waxes
and wanes in response to the pressures bearing upon it.”176 It is impor-
tant for Muslim jurists to recognize this—and this is not to say that they
have not—and for them and other stakeholders to respond construc-
tively to one another, as claimants and constituencies of one another,
and all as subjects of the Divine.177 As much as we have discussed the
186 U.F. MOGHUL
Consultative Fatwas
The Islamic practice of shura is both an authoritative principle and a
method that, when properly instituted can proactively and inclusively
address issues of social concern to generate positive impact. It is a prin-
ciple that encourages humility and respect by consulting others who have
an interest in the matter at hand. As a method, shura values conversations
in which varying perspectives, information, and experiences are shared
to arrive at more thoughtful and responsible—and correct—outcomes.
These conversations will sometimes take place within an organization and,
in other instances, widely across society.
Good governance is both a tool for, and consequence of, the positive
impact sought by Islam, its spiritual, educational, and legal institutions,
and those businesses and financiers seeking principled, responsible profit.
Governance is good when it, among other things, demonstrates thought-
ful concern for the stakeholders identified by the Shari’ah by dialoguing
respectfully with them, learning together, and duly respecting their rights
and interests. One way, certainly alongside others, to institutionalize
shura is an enhanced fatwa, setting forth the factual bases and assump-
tions, textual evidences and arguments, and goals underlying its conclu-
sion. As mentioned earlier, Islamic finance fatwas are often the product
of a conversation between sponsor-petitioner and Shari’ah advisor-mufti.
Building on the precedent of Tantawi, we additionally recommend the
inclusion of that conversation in the fatwa attached in the form of min-
utes, for example. The role of these petitioners in shaping the fatwa should
be disclosed to build a more complete understanding of the fatwa and
more complete accountability. This suggestion is made in light of Islamic
ethics to generate dialogue and discussion, creating idea and experiential
knowledge exchange within and among interrelated and interdependent
communities to improve governance, broadly understood, of the religion
and its applications.
Working with experts of other disciplines is recognized by many ulema
as a “matter of great urgency.”181 The mandate to consult stakeholders
raises the importance of diversity and implicitly recognized by the prin-
ciple of shura.182 “To the extent that board members have a mix of educa-
188 U.F. MOGHUL
tional, cultural, functional, and industry backgrounds, they are more likely
to exhibit useful differences in the ways that they perceive, process, and
respond to issues.”183 Diversity is important because, among other things,
“it can produce what social psychologists call “cognitive conflict”—task-
oriented differences in judgment among group members that emerge
when they are faced with interdependent and complex decision-making.
It is the clash of differing perspectives and the expression of dissenting
views that help uncover underlying assumptions, change outlooks, and
stimulate conversations around topics. Since cognitive conflict involves
the use of “critical and investigative interaction processes,” it can enhance
a board’s performance in dealing with complex and ambiguous matters.
These differences can broaden a strategic perspective by forcing more dis-
cussion, explanation, justification, and possibly modification of positions
on important issues and encouraging consideration of alternative views
and courses of action.”184
Though not usually considered in this light, the institution of fatwa
is a mechanism of governance as it guides to and governs what is, both
individually and collectively, desirable and worthy ethically and legally in
Islam. It guides petitioners, as individuals and as communities, seeking
counsel and more proactively when muftis choose themselves to address
issues, all from perspectives that continue to carry weight and respect
in Muslim societies, even if that authority unfortunately has waned and
competes with new claimants. For muftis, preparing enhanced fatwas may
assist in evaluating their own thought processes and reducing the prob-
ability of the decision-making biases noted earlier. Enhanced fatwas may
also help continue peer review and consultations among muftis—espe-
cially of how particular fatwas fit into broader policy goals of Muslim com-
munities and economies—together with other stakeholders in hopes of
producing collective and transformative wisdom. Peer review of fatwas is
of special importance in areas where there appears to be little information
sharing and a good bit of scholarly debate. The resulting fatwa is likely to
carry greater respect, trust, and weight in the eyes of those it is intended
to benefit.
The previously discussed DJIMI Fatwa is an excellent example of a
fatwa that goes beyond conclusory statements. It engages stakehold-
ers to an extent and it begins to enable learning, dialogue, and debate.
But it is a fatwa from which Islamic finance and its stakeholders could,
in particular, benefit tremendously were its assumptions, evidences, and
arguments, more fully elaborated. Ibn al-Salah and Imam Nawawi, as we
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 189
sider surprisingly high? Other points raised include the process of redress
if companies subsequently violate the screens of the fatwa, whether there
might be a probationary type period for remediation, and what the rul-
ing is regarding borrowing by a business owned up to 50% by a Muslim.
These questions speak to major conclusions of the DJIMI Fatwa.
An understanding of how texts are interpreted and applied to the
context, together with assumptions (of fact) and statement of objectives
would be immensely helpful in answering questions and overcoming
objections. Moreover, a critical component of the DJIMI Fatwa, based
on what is expressly stated, is the importance of wealth creation, but why
that is important and to what positive and evidently very important con-
sequences wealth is thought to lead is left unsaid. This may be the most
important subject raised by audiences of the fatwa, in the author’s obser-
vation, for reasons set out below. Stakeholders engage in conversations
without this information, without an understanding of how their faith
fully applies to a given context, and why, how, and to what extent wealth
creation is important. These latter points are ones to which stakehold-
ers could have contributed had they been “consulted.” But nevertheless,
the DJIMI Fatwa does point to the relevance of wealth creation so that
goal can be somewhat considered—perhaps in consultation with other
explanatory sources. Of course, this is not to say that all disagreement
regarding the DJIMI Fatwa (or any other fatwa) should or will thereby
be eliminated.
Many inquire as to whether this fatwa’s rationale applies in the pri-
vate company context (or the acquisition of a home),185 given its apparent
rationale and purposes of tolerating impermissible to enable wealth cre-
ation and management. The fatwa is careful to state that it is not license
to Muslims to borrow at interest. Stakeholder inquiries proceed along the
lines of: Why is public investing and wealth creation so important as to
render the impermissible permissible? What about public equities is seem-
ingly so much more important that private borrowing at interest cannot
be tolerated? Why can, for instance, an individual Muslim professional not
borrow to acquire his or her own office, or can an entrepreneur not seek
conventional financing to launch a new technology or acquire a franchise
given the DJIMI Fatwa’s emphasis on allowing the prohibited to create
wealth?
Perhaps these are questions which the DJIMI Fatwa does not purport
to answer, but that is not expressly stated though it could be reasonably
assumed. Separate fatwas should probably be required and provided, with
sufficient detailed explanation, for these other important questions. Yet it
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 191
is also not unreasonable to predict that persons other than Dow Jones per-
sonnel will read the DJIMI Fatwa, seek to understand its basis with a view
toward implementing it in its target context and ones that are somewhat
analogous, and ask questions such as the foregoing. Many times answers
and explanations in business matters with many scholars expectedly opin-
ing that borrowing at interest in the private context is disallowed. Where
matters may become more confusing is sometimes these muftis may also
find merit in the DJIMI Fatwa (and/or certain Islamic finance structures
in which interest-based borrowing is explicitly present). Readers are not
given enough of an education by the DJIMI Fatwa so that most are per-
suaded by, or even understand, its evidences and rationale and, in particu-
lar, the socioeconomic goals it seeks to achieve for its Muslim constituency.
It is necessary for the scholar to take into account the intellectual capac-
ity of the one posing the question and answer accordingly.186 While the
mufti bears responsibility before God (and possibly before earthly bodies
as well), it is the petitioner who undertakes (or omits) the subject action
for which he or she is held responsible before God (and possibly in this
life). And understanding why one must do a certain something generally
helps enforcing the action itself. Were the DJIMI Fatwa enhanced as
such, or a follow up explanation provided, readers would probably under-
stand its content and be able to act intelligently and thoughtfully, in
accordance with it. Such a fatwa would teach Muslims about their faith
tremendously, particularly how it countenances money together with eth-
ics, social responsibility, and justice. Furthermore, such a fatwa would
generate informed conversations in which stakeholders would be able to
participate in discussions about their faith, their welfare, their shared con-
cerns and priorities, and how Islamic teachings could best be implemented
contextually by them.
Mitigating Risk
Enhancing fatwas raises the subject of disclosure and transparency in
governance. “While the notion of corporate governance could be con-
sidered as a modern creation, the norms and values that are attached to
this notion are already synonymous with Islam.”187 “[I]f we can agree
on a broad definition of ‘corporate governance’ as a set of organizational
arrangements whereby the actions of the management of a corporation
are aligned as far as possible with the interests of its stakeholders, then
we would find that there are more similarities than differences between
conventional and Islamic approaches to good governance—especially in
192 U.F. MOGHUL
the Islamic finance market. Toward that end, we recommend the construc-
tion of platforms in which dialogue can take place, through which leaders
and stakeholders engage, consult, inform, and educate one another. One
such platform may be provided for by enhanced fatwas—and by no means
can or should this be the only such space.
Certainly fatwas stated in short, conclusory form could generate—and
have generated–public discussions. There are, in fact, already discussions
taking place about contemporary Islamic finance, but in which Islamic
finance is, for the most part, providing reinforcing feedback, amplify-
ing criticisms. An enhanced fatwa that engages produces an opportunity
for informed, multilateral consultations and discussions by “consulting”
experts of other disciplines and affected stakeholder communities in
decision-making. Such fatwas allow the industry an opportunity to trans-
parently explain its rationale, its concerns, and its aspirations to its critics
as well as its participants thereby providing venues for the industry to self-
evaluate and hold itself accountable—not unlike the spiritual practice of
muhasabah. Such transparency and disclosure will of course also mean the
industry is holding itself responsible to its stakeholders. Islamic financial
institutions may find themselves well-served by, at the very least, affording
the respect of engagement and consultation and welcoming feedback and
more so if its consumers and critics more fully understood the challenges
it faces and how those impact Shari’ah compliance.
Enhanced fatwas introduce a balancing feedback to the Islamic finance
market-system, increasing the industry’s stocks of education and knowl-
edge, dialogue and discussion, reputation, and market share. This should
slow the reinforcing feedback and result in greater credibility at the very
least by affording stakeholders the respect of engagement and consulta-
tion. Engaging in discussion and dialogue should begin to enable mutual
understanding and the incorporation of concerns and ideas that, in turn,
will positively influence product development and enhance compliance with
the Shari’ah, as interpreted by a larger number of scholars, other experts,
and various stakeholder communities. The system of Islamic finance will
become resilient having created this, and hopefully other, much needed
spaces, such as “town hall” forums for education, transparent information
sharing and decision-making, and the inclusion of affected communities.
The feedback loop of enhanced fatwas will also result in additional, new
loops and restorative structures enabling the Islamic finance industry to
better learn, design, and adapt to the various challenges and crises that will
almost undoubtedly arise.
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 195
Notes
1. This is, of course, not a complete solution to the challenges facing
Islamic finance today, for there are other interrelated challenges
and reforms to be addressed in conjunction; some fall within the
purview of Islamic finance and others do not. But such fatwas will
better enable conversations enabling other positive changes.
2. Muhammad Khalid Mas’ud, “The Significant of Istiftaʾ in the
Fatwa Discourse,” Islamic Studies 48:3 (2009), 362.
3. Mas’ud, “Istiftaʾ,” 363.
4. Nissreen Haram, “Use and Abuse of the Law: A Mufti’s Response,”
in Islamic Legal Interpretation: Muftis and Their Fatwas, eds.,
Muhammad Khalid Masud, B. Messick, & D.S. Powers (Harvard
University Press, 2005), 80.
5. Awass, “Fatwa,” 214.
6. Masud, “Istiftaʾ,” 342.
7. Awass, “Fatwa,” 77.
8. Awass, “Fatwa,” 79–80.
196 U.F. MOGHUL
9. On such manuals, see Mahdi Lock, “The Adab of the Muftı Being
a Translation From the Introduction to Al-Nawawı’s Al-Majmu”,
Islamic Sciences 11(2) (2013): 132; Alexandre Cairo, “The
Shifting Moral Universes of the Islamic Tradition of Ifta’: A
Diachronic Study of Four Adab al-Fatwa Manuals,” The Muslim
World 96 (2006): 665; Sherman Jackson, “The Second Education
of the Mufti: Notes on Shihab al-Din al-Qarafi’s Tips to the
Jurisconsult,” 82 The Muslim World 82 (July-Oct 1992): 203–04.
10. Lock, “Adab,” 123.
11. Masud, “Istiftaʾ,” 344–45 (listing a number of such manuals).
12. Musa Furber, “Reducing The Role Of Decision-Making Biases In
Muslim Responsa,” Tabah Analytic Brief, Number 12 (Abu
Dhabi, Tabah Foundation, 2012), 8, https://pmr.uchicago.
e d u / s i t e s / p m r. u c h i c a g o . e d u / f i l e s / u p l o a d s / F u r b e r _
ReducingtheRoleofDecision-MakingBiasesinMuslimResponsa.
pdf.
13. Muhammad Khalid Masud, Brinkley Messick, and David Powers,
“Muftis, Fatwas, and Islamic Legal Interpretations,” in Masud,
et al., Muftis, 8.
14. “If a layperson asks about something that hasn’t happened, then
it is not obligatory to respond.” Lock, “Adab,” 132.
15. Masud, “Istiftaʾ,” 345.
16. Musa Furber, “Elements of a Fatwa and Their Contribution to
Confidence in its Validity,” Tabah Analytic Brief, Number 14,
(Abu Dhabi: Tabah Foundation, 2013), 2.
17. Ibn Ata Allah, Taj, 90.
18. Mas’ud, “Istiftaʾ,” 347.
19. Masud, et al., “Interpretations,” 18.
20. Masud, et al., “Interpretations,” 8.
21. Masud, “Istiftaʾ,” 345.
22. Masud, “Istiftaʾ,” 349.
23. Muhammad Qasim Zaman, Modern Islamic Thought in a Radical
Age (Cambridge: Cambridge University Press, 2012), 291.
24. M. Khalid Masud, “Adab al-Mufti: The Muslim Understanding
of Values, Characteristics, and Role of a Mufti,” in Moral Conduct
and Authority, ed., Barbara Daly Metcalf (Berkeley: University of
California Press, 1984), 137.
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 197
185. Consider the fatwa of the European Council for Fatwa and
Research (ECFR) on the purchase of a home using an interest
bearing mortgage, particularly that of the scholar al-Arabi
al-
Bichri, consisting of some 1000 words. Riba can only be
removed by necessity (darurah) or need (hajah), depending on
which type of riba is at hand. Al-Bichri contends that the “darura
in terms of housing relates to the protection of life and honor;
haja is connected to stability and peace; and the rest is luxury.”
Alexandre Caeiro, “The Social Construction of Shari’a: Bank
Interest, Home Purchase, and Islamic Norms in the West,” Die
Welt des Islams, New Series, 44:3 (2004), 357. Safeguarding the
religion is also a relevant concern, for, according to al-Bichri, in
non-Muslim societies “the home becomes the privileged place for
the protection of the Islamic identity.” Id. A home’s exterior fea-
tures, namely location in a good neighborhood and proximity to
mosques and school, as well as its interior ones, such as space
enough to allow comfort and security “per norms of the country”
are relevant because such conditions impact the educational
achievement of children, their moral qualities, delinquency rates,
neighborhood relations, and family conflicts. Id., 358. He con-
cludes that conventional home mortgages are permitted on the
basis of collective necessity, the objectives of the Shari’ah, the
generalization of evil (‘umum al-balwa), and maslahah (the com-
mon good). Id., 358–59.
186. Ibn Ata’llah, Wisdoms, 295.
187. IFSB, Guiding Principles on Corporate Governance for
Institutions Offering Only Islamic Financial Services (Excluding
Takaful) (December 2006), 15 [hereinafter IFSB-3].
188. IFSB-3, 16.
189. IFSB-10, 2.
190. Abdou Karim Diaw and Irawan Febianto, “Shari’ah Report: A
Potential Tool for Shari’ah Non-Compliant Risk Management,”
in Crisis, 174.
191. Wafik Grais and Matteo Pellegrini, “Corporate Governance in
Institutions Offering Islamic Financial Services: Issues and
Option,” World Bank Policy Research Working Paper No. 4052
(November 2006): 21.
192. Ginena and Hamid, Foundations, 88.
193. Ginena and Hamid, Foundations, 97.
FATWAS AS FEEDBACK LOOPS: AUTHENTICITY, EDUCATION, AND DIALOGUE 207
Contracts evidence and regulate the exchange of ideas, risk, property, and
services. Whether written or not, contracts proceed from individual and
collective cultures, values, and goals manifested in how they are designed,
articulated, performed, and enforced. As such, contracts are a component
of governance. Companies committed to good corporate governance have
“solid control environment and processes, high levels of disclosure and
transparency, and protected and well-defined shareholder rights.”1 Good
governance is critical to protect the interests of stakeholders which go
beyond “the purely financial to the stakeholders’ ethical, religious, or other
beliefs.”2 According to the Organization For Economic Cooperation and
Development (OECD), “corporate governance involves a set of relation-
ships between a company’s management, its board, its shareholders, and
other stakeholders.”3 Quoting the OECD, the IFSB writes that corporate
governance is the means by “(i) the objectives of the company are set; and
(ii) the means of attaining those objectives and monitoring performance
are determined” so that business is aligned with stakeholders’ interests
in light of the Shari’ah.4 The role of corporate governance is to promote
fairness, transparency, and accountability.5 The IFSB comments, “Sharı̄’ah
compliance is critical to [Islamic financiers’] operations and such compli-
ance requirements must permeate throughout the organization and their
products and activities.”6 Together with AAOIFI, the IFSB has released
standards that speak to the governance distinctions of Islamic financial
institutions.
Vigilance
The spiritual practice of muraqabah, an awareness of God’s vigilance, is
a primary spiritual practice and key component of governance in general
and of business transactions and contracts in particular. The Qur’an com-
mands, “O you who believe, fulfill contracts.”17 and describes the believers
as “Those who faithfully observe their trusts and their covenants.”18 God is
Al-Raqib, The Ever-Watchful, “the One who looks after something to
the point of never forgetting it in the first place and who observes it with
a constant and persistent gaze – so that if one to whom it was forbidden
knew about the surveillance he would not approach it.”19 The Qur’an
informs:
On a day when God shall raise them all to inform them of all they have done.
God has enumerated what they have done and they have forgotten, for God is
witness over all things.20
The book will be laid down and you shall see the evildoers dreading what is in it,
saying: Woe to us! What a book this is! It leaves out nothing small or great, but
enumerates it.’ They shall find all they have done. Nor shall your Lord wrong
anyone.21
These passages describe the impact of realizing, on the Last Day, God’s
witness of literally everything – thoughts, feelings, words, and deeds.
God causes to be gathered comprehensive, impenetrable evidence for
purposes of accountability and judgment. Every act, small or great, takes
place within a reality of witness and record. “Each of you is a guardian
and each guardian is accountable to everything under his care,” says the
MessengerP. “God does command you to render back your trust to those
whom they are due.”22 Al-Ghazali suggests that the believer learn from
the course of commercial transactions to properly prepare for imminent
accountability when each person shall stand before God presented with
prosecutorial or acquitting proof. As one’s counterparty “can be adver-
sarial, disputing and rivaling him for profit, first, [one] needs to agree
on the conditions; second, to be vigilant with him; third, to call him to
account; and forth, to punish or censure him.”23 Readers may recall that
these four parallel our discussion in Chap. 1 of stipulating conditions
(musharatah), vigilance (muraqaba), self-assessment (muhasabah), and
reprimand and constructive consequences (mu’atabah and mu’aqabah,
respectively).
DESIGNING MINDFUL CONTRACTS 213
exalted.”33 With each and every decision, one must recall, or continue to
be mindful, of God’s vigilance and ask three questions: why, how, and for
whom. This is vigilance before and throughout action.
The first question, why, asks whether the act will be (and when evalu-
ating subsequently, was) performed with sincerity (ikhlas), solely for the
sake of God’s countenance. Al-Ghazali cites the following passages of the
Qur’an, “Verily, those whom you call upon besides God as servants are ser-
vants like you.”34 “The things you worship besides God have no provisions to
give thee; seek then sustenance from God, worship him and be grateful to
Him.”35 He comments, “Woe to you! Have you not heard [God] say, ‘Is
it to God that sincere devotion is done?’”36 Bringing both muraqaba and
muhasabah together, al-Ghazali cautions, “So do you feel shame in front
of people but not God? Is He less important than those gawking at you?”37
Highlighting the importance of knowledge, how acts must be performed
in accordance with Islamic law, fulfilling their requirements and condi-
tions, Muslim scholars encourage each to learn and practice mindfulness
of God and of His awareness to help maintain sound intent and ethically
performed acts. Business transactions are no different. Honesty and dis-
closure must be individual character traits, principles of organizational and
societal governance, and features of contracts, arising from an awareness
of Divine Presence and Watchfulness. What transacting parties agree upon
and set out as their terms and conditions and objectives must be evidenced
transparently and consistently in what they articulate to all audiences.
Transparency
Market and social forces appear to be converging to push businesses as
well as communities to reevaluate their principles and engage stakeholders.
“Whether they like it or not” perceptions of firms’ values are shared widely
and subject to “direct scrutiny from all manner of interests, employees,
customers, shoulders, business partners, community members and interest
groups.”38 Moreover, people are gaining perhaps unprecedented access to
information about corporate values, behavior, and operations. In addi-
tion, components of civil foundation and some legal and ethical frame-
works, “such as shareholder disclosure, environmental care, intellectual
property rights, and consumer protection – include rules and norms that
force companies to be more transparent.”39 Organizations are scrutinized
in a manner and to an extent not previously thought possible. “Evidence
is mounting that there is a positive relationship between corporate val-
DESIGNING MINDFUL CONTRACTS 215
ues and profits.”40 For stakeholders that have little direct influence, their
approach is to discover, inform, and organize to gain the support of those
with power, such as customers, employees, and shareholders.41
Transparency may be defined as the “accessibility of information to
stakeholders of institutions regarding matters that affect their interests.”42
There are, according to Tapscott and Ticoll, two primary forms of trans-
parency: forced and active. The former takes place without an organiza-
tion’s willing participation; it is done to the organization by stakeholders.
The latter is a proactive choice by the organization.43 Major business con-
sequences of active transparency include deeper, more loyal relationships
founded on honesty, empathy, trust, and accountability demonstrated
through constructive feedback channels with stakeholder webs. “Without
transparency, market discipline cannot be effective.”44 From a business
case perspective, active transparency may also be built on the realization
that “[o]pacity combined with corruption and self-dealing can cause deep
and sustained economic crises…hurts businesses and increases their trans-
action costs.”45 As a result, “[i]nvestors lose trust, withdraw from capital
markets, and increase the price they exact from companies for loans and
investments.”46
Markets and communities have what Tapscott and Ticoll refer to as
“stakeholder webs”; others refer to them as “transparency networks, cor-
porate responsibility clusters, network armies and smart mobs.”47 These
networks, or self-organizing systems, of stakeholders scrutinize and exert
influence in line with their values and interests. Marked by disclosure and
the use of technology, they are often subversive of traditional hierarchical
organization, demonstrating an “intentional emergence whereby strong
patterns emerge from complex, initially random systems.”48 “Unlike most
naturally occurring emergent systems, humans apply intentionality” by
“deliberate choices, on the basis of their ideas, goals, and desires.”49 The
result is self-organized, not orchestrated.50
Some organizations and communities identify and actively engage their
stakeholder webs. Dynamic processes enabling dialogue are ethically supe-
rior and more effective than passive traditional advertising, public relations,
or (perceived) dismissal. “Open communications, listening, consideration
of participants’ interests, admission of wrongdoing if a ppropriate, consul-
tation, commitment to change, abiding by commitments, accountability,
and transparency – all have the effect of reducing crisis activity and restor-
ing trust.”51 Trust is built to the extent of engagement resulting in “new
feedback loops which constrain or help correct unacceptable behaviors that
216 U.F. MOGHUL
O ye who believe! Guard your duty to Allah, and speak words straight to the
point.60
Oh ye who believe! Eat not up each other’s property by unfair and dishonest
means.62
If ye be on a journey and cannot find a scribe, then a pledge in hand (shall suf-
fice). And if one of you entrusteth to another let him who is trusted deliver up
that which is entrusted to him (according to the pact between them) and let him
observe his duty to Allah. Hide not testimony. He who hideth it, verily his heart
is sinful. Allah is Aware of what ye do.63
Woe to the defrauders: Those who when they take a measure [in commerce] from
people take it in full; but when they give a measure [in commerce] to them, or
give a weight [in trade] to them, they diminish it. Do they not think that they
themselves shall be raised up [in the Hereafter] on an Awesome Day, a Day
when [all] people will stand [for Judgment] before the Lord of the Worlds?64
O you who believe! Be most upright in [upholding] justice, bearing [true] wit-
ness for [the sake of] God alone – even if it is against your own selves, or your
parents or your nearest relatives – regardless of which is rich and is poor, for God
is most regardful of what is good for them both.65
ment, and strategic thinking to discipline the human soul and adorn the
heart (qalb) with the values necessary for good governance. This work
extends his thought by proposing that Islamic financial organizations
and Muslim markets and communities devote themselves to embedding
muraqaba and other core practices of Islamic spirituality, such as self-
assessment and accountability, into governance generally and financing
structures and contracts, specifically. Such applications of transparency will
provide favorable grounds for Islamic finance to address stakeholder con-
cerns, compete with conventional finance, build more sustainable mod-
els with greater impact and responsibility, and demonstrate the relevance
of Islam to global concerns. Having considered an Islamic spiritual basis
for transparency, and the operation of transparency in markets today, we
briefly consider Islamic contract law to evaluate it as a component of gov-
ernance improved by transparency.
Legal Overview
Islamic contract law bears significant resemblance to Anglo-American
common laws of contract. This is important because many Muslim com-
munities live under common law and many of today’s Islamic financial
transactions and markets take place within common law frameworks.68
Islamic jurisprudence assesses contracts, among other actions, from two
primary perspectives: technical legal validity and ethical–legal value.
Methods of determining the latter clearly involve integration of contextual
factors but so do the former, when considering the parties’ faculties and
capacities (ahliyyah), for instance. Jurists’ discussions also evidence a study
of circumstantial factors by anticipating the use of legal fictions, whether
to achieve lawful or unlawful ends.
In light of a presumption of permissibility, Islamic law entitles parties
to stipulate terms and conditions, so long as they are not inconsistent with
the Shari’ah. “The Shari’ah seeks to ensure propriety and fairness and to
protect the integrity of mutual assent and the rights of contracting par-
ties.”69 Definitions of a contract vary, but generally emphasize the will of
each party. Some Muslim jurists define it as an agreement between two
willing parties to establish, shift, or terminate a right.70 Others state it is
“the connection of an offer with an acceptance in a lawful fashion, the
effect of which occurs definitely upon the object of the agreement.”71
DESIGNING MINDFUL CONTRACTS 219
Contracts are “formed at the time agreed upon by the parties by their
mutual assent” and not simply when “memorialized in the form of a writ-
ten agreement.”72 A contract requires clear and precise expression [jala
al-ma’na] of the will of both offeror and offeree. But a contract need
not be written to be valid; although in certain cases, given the nature and
subject matter of the contract, a written instrument may be required or
recommended under Islamic law. The written form, or other manner of
expression, is an admission [iqrar] of the fact that the parties have already
agreed. Accordingly, jurists often call for parties to employ the past tense
when expressing contracts.73 Thus, the “written document itself neither
creates nor modifies contractual rights or responsibilities…but merely
expresses such.”74
There are four elements (sing., rukn; pl., arkan) required for a valid
and enforceable sales contract, according to the majority of Muslim
jurists.75 A rukn is that which is internal [juz min haqiqah] to the reality
of a contract (or other act) which, if left absent or unfulfilled, renders the
contract invalid such that all its legal consequences do not follow.76 The
four generally accepted arkan of a sales contract are a seller, a buyer, an
object of contract, and proper expression of the agreement, that is, mutual
assent.77 In addition, a contract must meet certain conditions (sing., shart;
pl., shurut) to be valid. Unlike a rukn, a shart is external to the essence
of [kharij ‘an haqiqah] the contract.78 Such conditions include sanity and
discernment of the contracting parties, unity of contract session (majlis),
and sufficient knowledge and description of the object of sale.79
For the majority of jurists, if a required element (rukn) or a condition
(shart) is missing, the contract is invalid. In either case, legal consequences
that would otherwise follow do not.80 But for the Hanafis if a rukn is
missing the contract is batil, or invalid, and cannot be enforced. If a shart
is missing, they deem the contract fasid; certain, but not all, legal conse-
quences may follow.81 The fasid may be repaired by supplying the absent
condition in view of the Hanafis. A transaction that fulfills its elements
(arkan) and conditions (shurut), and to which there are no legal impedi-
ments (mawani), is sahih (valid). It is not necessarily assessed as ethically–
legally permissible, however.82 A commonly cited example in this regard
is a contract executed at the time of Friday Prayer, during which business
must not be conducted. Such a contract may very well be valid but is pro-
hibited given the timing of its execution. Another relevant example is bay’
al-‘inah, a transaction “resorted to for the purpose of circumventing the
prohibition of riba by selling a commodity on credit then instantly buying
220 U.F. MOGHUL
1. The usage of the hiyal must confirm to the objectives of the Lawgiver
(qasd al-Shari’) based on the Shari’ah hierarchy of priorities…
2. The motive of the individual (qasd al-mukallaf) must comply with
the objective of the Lawgiver (qasd al-Shari) without any
contradiction…
3. The wasilah (means) employed in hiyal must not lead to negation of
qasd al-Shari’ [the objective of the Lawgiver]…
4. The maslahah intended from the exercise of hiyal must be actual,
prevalent, and accredited by the Shari’ah…
5. A hilah that has a time limit must not be exercised continuously,
while a hilah without a time limit can be prolonged.88
Abdul Khir summarizes, “Impermissible hiyal are legal strategies that are
exercised with the clear intention of an illegal end such as the negation of
DESIGNING MINDFUL CONTRACTS 221
We should judge things on the basis of their form, and Allah takes care
of the unseen (purposes and intentions). One who judges peoples’ con-
ducts [sic] according to his own assessment of their intentions, he will have
legalised for himself what Allah and Muhammad[P] have prohibited, for it is
only Allah who knows the peoples’ real intentions…and He will punish or
reward them accordingly. Allah has commanded people to rely on form in
judging each other’s conducts [sic]. If there existed a person with author-
ity to judge people’s conducts [sic] on the basis of his own assessments of
their intentions based on certain clues, then he would solely be the Prophet
[MuhammadP]. This is not to say that jurists opining as such held all techni-
cally valid contracts to be ethically-legally permissible. Nor is it to say that
jurists did not employ intent in questions of enforcement.93 “Rather, the
basis of contract permissibility is always and unanimously its purpose and
objective.94
Smoothing Returns
Returns on Islamic deposit-investment accounts are to be variable,
according to contemporary Islamic financial–legal requirements.103
Returns may not be articulated as an absolute amount, for investors
must hold an asset or market risk (daman).104 Where returns do not
meet expectations, Islamic banks perceive a risk that investors may
withdraw, or never deposit their funds in the first place. Indeed stud-
ies show “considerable outflows of deposits from the Islamic to the
conventional” upon “a relatively lower rate of return declared by the
Islamic banks.”105 But another study shows that “the investment deci-
sion was completely inelastic to changes in interest rates in the sample
Muslim countries…unlike in the selected non-Muslim countries.”106
To mitigate this risk, Islamic institutions established reserves. When
returns are high (or higher than advertised or than described in con-
tracts or written offering materials as “expected”), the excess is placed
into these reserves. If and when performance does not meet expecta-
tions, amounts from reserves are used to supplement returns. Similar
arrangements are used in various other contemporary Islamic transac-
tions where the principal is “protected.” The consequence of using
debt-based structures and guaranteed principal deposit accounts is to
remove the flexibility that would otherwise be built into the Islamic
banking system through profit and loss sharing on both sides of the
balance sheet.107 Grais and Pellegrini assert, moreover, that the use
of such reserves “raises issues pertaining to the governance of these
funds and the protection of [investment account holder] rights”108
because it conveys “an inaccurate view on the actual performance of
the financial institution, compounding the asymmetry of informa-
tion.”109 Such investment accounts, like “deposit insurance or lender of
last resort arrangements,” serve to “reduce the effectiveness of market
discipline.”110 In the case of investment accounts, descriptive trans-
parency would call for disclosure, in the context of an institution’s
investment objectives and risk-sharing policies, of the mechanisms by
which smoothing occurs, its Shari’ah rationale, and the extent of actual
reserve use to provide accurate performance disclosures. We are not
the first to suggest so, as such disclosures are called for by AAOIFI
FAS 11. Transparency thereby serves as an aid to ameliorate informa-
tion asymmetry and the lack of confidence and trust that results when
disclosure is deficient.
DESIGNING MINDFUL CONTRACTS 225
Tawarruq
Tawarruq is a contemporary method to provide financings for acquisi-
tions, refinancing, and working capital. Some have termed it a reverse
murabahah and a type of bay’ al-inah. Tawarruq transactions are generally
comprised of the following steps: (1) A financier acquires a commodity,
often aluminum, on a spot basis. Sometimes the financier takes the form
of a special purpose vehicle (SPV) solely established for the purpose of the
financing. It borrows money at interest from a lender; (2) the party seek-
ing financing (a borrower in conventional terms) purchases the same com-
modity on a deferred sale111 basis from the financier (or SPV) for a price
greater than that paid by the financier; and (3) the party seeking financing
sells that commodity on a spot basis. In practice, the commodity supplier
in step 1 and the buyer in step 3 have been, but are not always, commodity
brokers. They may be one and the same sometimes in the author’s experi-
ence. Upon completion of these steps, which take place within moments
of one another, the party seeking financing is left owing the price for the
commodity together with profit (calculated as interest would be on a loan)
payable over a time period. It would be highly unusual for the subject
commodity to actually be delivered, though some Shari’ah advisors, in the
author’s experience documenting such transactions, contractually require
the possibility should a party so request.
Tawarruq transactions are well known in the industry. They are quite
controversial, having been prohibited in their present form by no less than
the OIC Fiqh Academy112 as well as the Shari’ah boards of Dubai Islamic
Bank and Emirates Islamic Bank.113 Some define tawarruq as a transaction
in which the first seller (which sold to the financier) and the second buyer
(the financed party) are not the same or lack a connection, such as a previ-
ous agreement to return the item. The party needing the cash would on
its own sell the goods in the markets.114 It is perhaps on this latter basis,
namely the absence of pre-arranged circulation of the goods, that many
classical jurists permit this transaction. Consistent with this rule, the OIC
Fiqh Academy declared any tawarruq with pre-planned orchestration as
an unlawful hilah (stratagem).115 Based on the author’s experience as legal
counsel in such financings, there is always a well-planned prior agreement
among the parties, including the brokerage firms effectively implement-
ing the rationale for which jurists prohibit bay’ al-inah.116 In view of the
Malikis and Hanbalis, this type of sale is prohibited because it leads to the
corrupting practice of riba.117 In other words there is a stipulated condi-
226 U.F. MOGHUL
Bifurcated Structure
Another common contemporary Islamic financing mechanism is a loan-
lease bifurcated structure. It is used for acquisition financings in real estate
and private equity, for example. Such transactions begin with an Islamic
sponsor intending to make an acquisition and seeking leverage to do so –
often to increase its internal rate of return. After negotiating and agree-
ing upon terms of an interest-bearing loan with a conventional lender
(in commitment letter or term sheet form), the sponsor arranges, at its
cost and expense, for the establishment of a special purpose entity (SPE)
and the transactions in which the SPE borrows from the aforementioned
lender and serves as lessor of the asset to the operator. The SPE is owned
and operated by a third party itself devoted to the business of creating
special purpose vehicles. Its directors and officers, provided by the service
company, practically take instruction exclusively from the Islamic sponsor.
This third party simply will not engage the SPE in any business without
direction from the Islamic sponsor, absent illegality and the like. To do so
would be adverse to its business interests. Furthermore, control measures
are contractually set in place to ensure that the sponsor can acquire owner-
ship of the SPE at any time for a nominal sum, subject to the conventional
lender’s consent.
A lender lends (at interest) to the SPE. Using borrowed funds, the lat-
ter purchases the asset sought by the sponsor – and instantly leases it back.
Neither the SPE, nor its owner, nor their respective directors or officers
negotiate this loan or the related lease between the SPE, as lessor, and the
operator (or “true” borrower for credit assessment and local law purposes,
such as banking, tax, and sometimes environmental liability). The lessee is
to operate the target assets/business and make rental payments to the SPE
as well as fulfill its other obligations under the lease contracts. Pricing in
contemporary Islamic financings, not only of this type, is often determined
as in conventional loans. The time value of money is recognized in Islam;
it is disallowed as part of loan repayment, but may be part of a sale or real
transaction. Thus, in a trade transaction, if the payment is deferred the
time value of money can be included in the price determination. Similarly
in a lease, time value can be factored into the rent.118 This is based on the
DESIGNING MINDFUL CONTRACTS 227
Islamic legal maxim “time has a share in price.”119 The profit element in a
lease is permissible under classical Islamic law, despite similarities to inter-
est so long as the lessor takes an ownership risk for which compensation
and profit is possible. In the bifurcated structure, rent is priced and paid
to enable the SPE to make its debt service payments under the loan. The
lease side of the transaction, through complex, artful, and opaque con-
tract drafting, is tied to the interest-bearing loan, such that representations
and warranties, covenants, and defaults flow from one side of the special
purpose vehicle to the other, between the lease and loan. The loan docu-
mentation is explicitly tied to the lease documentation but not vice versa.
The absence of explicit conditioning of the lease documentation to the
loan, taken alone, might be dispositive of an absence of motive or purpose
to borrow at interest particularly if one is looking only at the lease. But
with a comprehensive view, one readily understands that neither the lease
nor the loan would be concluded but for the other. The lease transaction,
indeed the acquisition itself, depends on the interest-bearing loan. All are
arranged by the Islamic sponsor.
The instances of tawarruq and the loan-lease bifurcated structure call
for both descriptive and prescriptive disclosure. Descriptive disclosures
include public discussions of their Shari’ah rationale and implications for
Islamic economies and Muslim communities, so that stakeholders are
shown due appreciation by Islamic institutions and markets and by which
they may learn. In return, their feedback in the form of questions, sugges-
tions, and criticisms should be used to self-assess and further improve – and
gain legitimacy and confidence. Prescriptive disclosure brings a mindful-
ness of the perpetual watchfulness of the Divine to bear on contracts as
well as stakeholder engagement and reporting. God is of course already
aware of the inconsistencies presented by tawarruq and bifurcated struc-
tures, namely between motive and objective, on the one hand, and the
explicit terms of contractual documentation, on the other hand. In both,
the commodity specified contractually has no link to the substance of the
transaction, nor the intent of the parties, which is a financing of money.
The impetus to create products and transactions that meet Islamic ethi-
cal–legal principles, as they intersect with cultural-ethical realities of both
the relevant individuals and communities, results in an effort to produce
debt and equity simultaneously.
It is thus for the relevant human actors, in awareness of God’s awareness
of them, to ask difficult questions in a process of self-assessment, reflective
of the practice of muhasabah: Is my intent and objective proper? If both an
228 U.F. MOGHUL
which the assessment of the contract(s) by the Shari’ah review body is one
of permissibility (or the absence of prohibition), yet when the selected gov-
erning law is integrated into that analysis a problematic outcome almost
definitely results. This latter outcome may be known and even sought by
the parties. We look at these instances in the context of US home finance.
The assessed permissibility (or absence of prohibition) of a home
mortgage product under Islamic law relies on an Islamic ethical–legal
evaluation of the product’s underlying contracts and instruments. In
this context, the parties rarely, if ever, have any viable choice but to
select a local law as governing given the absence of Islamic courts and
the practical difficulty of embedding voluminous Islamic jurisprudence
into product documentation. This is the case in the USA where the law
of the jurisdiction in which the real property is located governs. The
customer probably has no say in the matter given the typical power
dynamic. Contracts of one available product in the USA reviewed by
the author explicitly state that the parties intend an equitable mortgage.
For about a century, state case laws have held equitable mortgages to
be no more than interest-bearing loans secured by deed to the property
given to, and held by, the lender not to evidence its ownership, which
actually lies with the borrower. The deed is the functional equivalent of
a mortgage, a means of security for the loan. For those subject to bank-
ing regulations, such as the financier of this product, it is highly doubt-
ful it could be otherwise. Though the term “equitable mortgage” is
explicitly disclosed, it is unexplained by the financier, at least in publicly
available marketing materials. The author is unaware of whether custom-
ers appreciate its meaning and implications. Similarly, in a partnership-
based home finance product in the USA, partnership principles are relied
upon to label the product Shari’ah compliant, but the partnership is not
implemented through local governing laws (and some might contend
under Islamic norms). “This is because the perception under Sharia has
generally no legal effect unless it is substantiated in the contract not by
mere reference to Sharia but by virtue of material inclusion.”125 Local
governing law is used to support an outcome desired by the Islamic
financier (and sometimes other parties) under local law: that the transac-
tion be deemed a secured, interest-bearing financing. The author makes
this statement based on his experience structuring mortgage products,
both residential and commercial, and modifying existing products to
comply with certain US laws. Customers looking for Islamic products
may be seeking this outcome–knowingly or unknowingly–as they com-
230 U.F. MOGHUL
pare Islamic products with conventional ones and expect many similari-
ties, such as interest payment tax deductions. Ahmed notes the dilemma,
“On the one hand the mind-set of many clients is still conventional and
they compare and expect the features of products offered by Islamic
banks to be similar or better than those of conventional banks. On the
other hand, there appears to be a reputation risk as many Muslim clients
question the authenticity of Islamic products.”126
An interpretation permitting such products under the Shari’ah is used
to design the product and market. A differing, often contradictory local
law based interpretation is relied upon for other purposes, which impacts
the product’s terms and conditions; these include desired judicial and reg-
ulatory outcomes and investor demand (e.g., conventional mortgage debt
purchasers). Islamic investors and consumers play a role in this tension. As
they compare Islamic with conventional institutions and products, buyers
generally have been found to seek certain features of the latter. For exam-
ple, in lectures and discussions led by the author regarding Islamic finance
and home finance specifically he has observed many expecting interest tax
deductions and the ability to build equity over the financing term. The
author has also observed Muslims seeking to share downside risk with
financiers, but not upside risk, in contravention of Islamic norms. They
seek thereby–knowingly or unknowingly—results difficult to obtain unless
the legal structure can be deemed to constitute a secured interest-bearing
financing, which has its own formal and substantive requirements while
also retaining certain Islamic features. All this highlights the “growing
divergence between the normative assumptions and the actual behavior of
homo Islamicus as reflected by the consumers of Islamic finance” – a diver-
gence reflected elsewhere as well.127 While a conclusion as to a contract or
product under one legal system is not per se dispositive of its interpreta-
tion under Islamic law, the purposeful use of different legal frameworks
to produce opposing but desired outcomes, results in opacity and skepti-
cism among various stakeholder groups, not only consumers. It is not as
if one of the systems is employing criteria that are entirely alien to the
other. Nor is this to undermine the enormity of the task to create a viable
home finance (and other mortgage) product in the USA while adhering to
Islamic precepts with sufficient liquidity and reach, given the ethical and
sometimes legal parameters set by investors, consumers, and regulators
demanding (1) fulfillment of Islamic norms, (2) sometimes other features
that create tensions if not contradictions with those norms, and (3) com-
petitive pricing with conventional products.
DESIGNING MINDFUL CONTRACTS 231
Four Corners
A number of commentators criticize the prevalence of debt arrangements
in contemporary Islamic finance. They contend that Islamic legal analyses
focus on “the four corners” of each contract, without integrating what are
in fact related contracts as well as the Shari’ah’s notions of social impact and
responsibility. Resulting transactions are deemed inappropriately legalistic.
This approach is said to create a heavily formalistic distinction between
sales and loans. On a number of occasions, the author has observed a
sense among industry practitioners that this formalism creates a flexibility
without which many products could not be structured. Contracts may be
combined to shift risk so that the transactions can reproduce credit and
not asset risk. In some such instances contracts are combined with uni-
lateral promises to mandate repayment of what is functionally, and prob-
ably legally, the principal.130 Another example of the formalism is the split
of asset ownership into legal and beneficial, a “fundamental concept” in
sukuk today, whereby an issuer transfers only the latter to investors.131 The
author has personally observed Shari’ah advisors express concerns regard-
ing the combination of contracts and contracts and promises.
Sometimes the solution arrived at is to break out a certain aspect of
the agreement into a separate written instrument. When the instruments
mention one another, it is done in a manner that walks a fine line between
integration and description, so as to achieve Shari’ah board compliance
and the desired economic and financial consequences. The solution to
232 U.F. MOGHUL
Gatherings
Transaction parties today customarily engage in discussions and negotia-
tions in a single, or series of, physical and or virtual interactions spanning
days, weeks, or months. Islamic jurisprudence ascribes to this gathering
or meeting (majlis) a role in determining the conclusion of a contract. A
majlis is the “period during which contracting parties devote themselves
to the business in hand and is terminated by any event, such as a physical
departure from the place of business, which indicates that negotiations are
concluded or suspended.”139 Certain rights of contract repudiation exist
under Islamic principles so long as the contract session is still continu-
ing.140 “Islamic contract law is at great pains to ensure that contracts are
based on equality. That is why the rules relating to the various options
available to the contracting parties are so technical and so central to the
validity of the contract.”141 When an agreement on a complex transac-
tion is reached, it will likely be comprised of several components, each
understood by the parties (and, when applicable, Anglo-American com-
mon law) as an interrelated, interdependent part of the entirety. Separate
written instruments, whether contracts or promises, are not understood
by the parties to mean there are independent, unrelated agreements. The
parties do not customarily consider matters final unless and until the clos-
ing—whether physical or virtual—takes place at which time outstanding
details are finalized, definitive documentation representing their mutual
assent is completed and signed, and signature pages and counter values
are exchanged.
234 U.F. MOGHUL
Mindful Contracts
The question of why debt arrangements persist is not easily answered.
Outside banking, laws do not require interest-bearing lending, though tax
regulations often afford it favorable treatment. But the urge for leverage
and its effects on internal rates of return continues, even absent such tax
treatment. Debt is said to proliferate by the usage of tawarruq. According
to Siddiqui, “Financing facilitated by tawarruq, like its counterpart lend-
ing in the conventional system, is free and unhinged from the real sector of
the economy.”144 This is because the commodities identified in tawarruq
arrangements are not truly the subject of its sales contracts. Echoing this
notion, the Malaysian Governor of Bank Negara Malaysia advises Islamic
banks to curb the use of fixed return transactions.145 Unless one limits
sight to the four corners of the contracts and views each sale as indepen-
dent of the other, the interposition of commodities in a series of transac-
tions, each dependent on the other by the parties’ agreement, constitutes
in fact a method to replicate an interest-bearing (ribawi) financing. One
DESIGNING MINDFUL CONTRACTS 235
Ownership
The example given earlier of bifurcated structures as well as the discus-
sion of sukuk in light of the critique of authenticity highlight the central
importance ownership plays in structuring financings. Islamic commercial
law, as mentioned earlier, requires an asset or market risk, the holding of
which lawfully entitles one to profit. One definition of ownership reads,
“The correct definition of ownership is that it is man’s capacity whether
by himself or by delegating to someone else to make use of a thing (‘ayn)
or benefit (manfa’ah) and to take the substitute of a thing (‘ayn) or ben-
efit (manfa’ah).”159 Contemporary Islamic finance continues to develop
a proper jurisprudential framework for defining and identifying owner-
ship and enabling performance to define the return. Such questions are
probably straightforward to answer in most instances, but today’s financ-
ing transactions can be quite complex, sometimes even opaque. To clarify
ownership, this section identifies certain factors from conventional finance
which are suitable for consideration as an element of contemporary
Islamic legal–financial jurisprudence. Factors must themselves be viewed
in light of the broader spiritual environment outlined earlier and in view
of the importance of muraqaba, transparency, and disclosure.160 This will
be essential to building ethical and responsible structures and contracts.
Looking at the legal ownership of an asset or entity may very well be
taken as a presumption of the owner’s identity. Before reaching a con-
clusion, however, broader contextual considerations must be examined
to include purposes of entities, their formation and business logic (e.g.,
whether dependent or independent of the transaction at hand), the iden-
tity of shareholders, directors, and officers (e.g., the presence of rules and
arrangements as to their appointment, removal, and compensation), and
control mechanisms, (e.g., whether a lien or subordination of rights exists),
direction of business judgments (e.g., voting agreements), and funds flow
(e.g., commingling arrangements), and limits and controls over asset pos-
238 U.F. MOGHUL
Designing Forbearance
Because of various competing constraints, structuring an Islamic finan-
cial product is a challenging process. If modern Islamic finance pres-
ents so-called wicked problems, the approach of design thinking may
be helpful. Wicked problems are not malicious but difficult to define
and seemingly impossible to solve, especially with traditional linear
approaches, due to incomplete and or contradictory requirements of dif-
ferent stakeholders as well as complex interdependencies.162 “The willing
and even enthusiastic acceptance of competing constraints is the foun-
dation of design thinking,”163 a solution focused method to create out-
comes that benefit end users. Tim Brown, CEO of IDEO, a well-known
design consultancy, defines design thinking as “a discipline that uses the
designer’s sensibility and methods to match people’s needs with what is
technologically feasible and what a viable business strategy can convert
into customer value and market opportunity.”164 Otherwise stated to
capture its broader relevance: “Design thinking is a mindset, method,
approach and/or set of tools applied in order to achieve human centered
innovation, which will add sustainable and meaningful value within the
contexts of business and society at large.”165 “Businesses are embracing
design thinking because it helps them be more innovative, better dif-
ferentiate their brands, and bring their products and services to market
faster. Nonprofits are beginning to use design thinking as well to develop
better solutions to social problems.”166 Design thinkers are distinguished
by their ability to find the right problem.167 Their approach is iterative,
collaborative, and human-centered. It aims to keep the end user in mind
throughout its phases of empathy, problem definition and reframing,
ideation, prototyping, and test.168 This section briefly explores how
design thinking might create spiritually mindful, responsible, and par-
ticipatory contracts, and thus positive social impact by exploring the
integration of forbearance and forgiveness, cherished Islamic values, in
240 U.F. MOGHUL
Stakeholder Responsibilities
We would be remiss if we did not briefly touch upon stakeholder responses
to business organizations and financial products. Stakeholders are also
244 U.F. MOGHUL
Improving Governance
Islamic financial institutions aim to embed the Shari’ah in their business
transactions, and look to extend its relevance to every other aspect of
their culture, including relationships with internal and external stake-
holders, product development processes, and contract design. Honesty,
trust, and transparency are internal character values, gifted by the Divine,
that must be cultivated through Islamic spiritual practices, and institu-
tionalized into the design of organizational and community governance
frameworks.
Zulkifl’s extensive study finds significant potential for improvement
in commitment to, and mechanisms of, good governance on the part of
Islamic financial institutions. The IFSB has also found transparency lack-
ing and disclosures insufficient.204 Overall, only 8.8% of financial organiza-
tions studied, for example, indicate they have guidelines or a charter on
Shari’ah governance, and their disclosures as to Shari’ah governance, as
shown by several other factors, is relatively low.205 Interestingly, strong
governmental regulation and supervision is not the sole factor in influ-
encing Shari’ah governance. In the absence of external regulations and
directives, for example, and with limited governmental interference where
financial organizations can construct their own governance frameworks,
UK-based Islamic financial institutions “have proactively developed their
own Shari’ah governance system.”206 Zulkifl thus demonstrates “internal
factors” are “far more important than external factors in influencing the
level of transparency of Shari’ah governance.”207 A transparent institu-
tion discloses its Shari’ah compliance performance.208 This includes the
decision-making process of, and fatwas issued in enhanced form by, its
Shari’ah advisory, thereby strengthening stakeholder confidence. Public
disclosure of such information, moreover, provides a forum for stake-
holder education and consultation, thus paving the way for a larger role
for spiritual and market discipline. Given that “[b]lind trust is disappear-
ing,”209 Islamic financial organizations must build visible constructs in
DESIGNING MINDFUL CONTRACTS 245
Notes
1. Ginena and Hamid, Foundations, 59.
2. Grais and Pellegrini, “Corporate Governance and Stakeholders
Financial Interests in The Institutions Offering Islamic Financial
Services,” World Bank Policy Research Working Paper, No. 4053
(Nov. 2006): 2.
3. Organization for Economic Cooperation and Development
(OECD), Principles of Corporate Governance (Paris: OECD
Publication Service, 2004), 11.
4. IFSB-3, 27.
5. Hasan, Shari’ah Governance, 25; Abdussalaam Mahmoud Abu
Tapanjeh, “Corporate Governance from the Islamic Perspective:
246 U.F. MOGHUL
107. Islamic banks have to account for this so-called displaced com-
mercial risk by holding additional capital they would otherwise
not hold if the account owners bore the risk from the assets their
deposits are financing. Thomson Reuters-RFI, Convergence,
43–44.
108. Grais and Pellegrini, Number 4052, 23.
109. Grais and Pellegrini, Number 4052, 23.
110. IFSB, Disclosures To Promote Transparency Market Discipline
For Institutions Offering Islamic Financial Services (Excluding
Islamic Insurance Institutions and Islamic Mutual Funds) (Dec.
2007), 33–34.
111. Ibn Ashur, Maqasid, 206.
112. International Council of Fiqh Academy, Resolution 179 (19/5)
April 26–30, 2009.
113. Ahmed, Product, 190.
114. Amir Yusuf, “Classical Tawarruq: A Potential Alternative to Bay’
al-Inah in the Malaysian Banking and Finance Industries.” On file
with the author.
115. AAOIFI, al-Ma’ayir al-Shar’iyyah 412 (2010).
116. See e.g., The Saudi Council of Senior Scholars, Res. No. 3/11,
30 (Sep. 1997); Dar al-Ifta al-Misriyyah, Mawsu’at Fatawa Dar
al-Ifta al-Misriyyah (Cairo: Al-Majlis al-‘Ala li al-Su’un al-
Islamiyah, No. 1324 (1997)); OIC Fiqh Academy, Resolution
No. 157 (June 24–28, 2006).
117. Al-Raysuni, Objectives, 60.
118. Zafar Iqbal and Mervyn K. Lewis, An Islamic Perspective of
Governance (Edward Elgar, 2009), 230.
119. Volker Nienhaus, “Islamic Finance Ethics and Shari’ah Law in the
Aftermath of the Crisis: Concept and Practice of Shari’ah
Compliant Finance,” in Islam and the Challenges of Western
Capitalism, ed., Murat Cizakca (Edward Elgar, 2014), 284.
120. Umar Moghul, “The Challenge of Islamic Spirituality to Islamic
Finance,” Al-Madina Institute Blog, http://almadinainstitute.
org/blog/the-challenge-of-spirituality-to-islamic-finance/.
121. Al-Qushayri, Epistle, 223.
122. Tapscott and Ticoll, Transparency, 72.
123. Tapscott and Ticoll, Transparency, 72.
124. We say perceived in the foregoing sentence so as to note the par-
ties’ views and not to comment on objective reality since that is
beyond this study’s purview.
DESIGNING MINDFUL CONTRACTS 251
Perspective,” http://www.apsc.gov.au/publications-and-media/
archive/publications-archive/tackling-wicked-problems. See also
C. West Churchman, “Wicked Problems,” Management Science,
14:4 (Dec. 1967).
163. Brown, Change by Design (HarperBusiness, 2009), 18.
164. Tim Brown, “Definitions of Design Thinking,” September 7,
2008, http://designthinking.ideo.com/?p=49.
165. Nur Ahmad Furlong, April 26, 2014, comment on Tim Brown,
“Definitions of Design Thinking,” Design Thinking Thoughts by
Tim Brown, September 7, 2008, http://designthinking.ideo.
com/?p=49.
166. Brown and Wyatt, “Design Thinking for Social Innovation,”
Stanford Social Innovation Review (Winter 2010), http://ssir.
org/articles/entry/design_thinking_for_social_innovation.
167. Nigel Cross, Design Thinking (London: Bloomsbury Academic,
2011), 15.
168. Nadia Roumani and Michael Slind, “Design Thinking to Solve
Social Problems,” http://ssir.org/webinar/design_thinking_
social_problems (Oct. 2015).
169. By forbearance we refer to a deferral, and by forgiveness a perma-
nent reduction of what is owed (in part). This study does not
purport to have extensively studied Islamic customer preferences
on home finance terms and conditions in the US, though the
author is familiar having designed some such legal structures and
underlying documentation and in that process directly engaged
the expectations Islamic consumers place on mortgage providers.
There is various relevant legislation in the US to this subject:
Home Affordable Modification Program (HAMP) is designed to
lower mortgage payments, making them more affordable and
sustainable in the long-term for those having difficulty refinanc-
ing. Home Affordable Foreclosure Alternatives Program (HAFA)
provides homeowners the opportunity to exit their homes and be
relieved of their remaining mortgage debt through a short sale or
a deed-in-lieu of foreclosure while also providing homeowners
with relocation funding. The Home Affordable Unemployment
Program (UP) reduces or suspends monthly mortgage payments
while job searches are underway. The Federal Housing
Administration Short Refinance for Borrower with Negative
Equity (FHA Short Refinance) is available to offer a more afford-
DESIGNING MINDFUL CONTRACTS 255
the Middle East and parts of Africa. When asked about impact opportuni-
ties in different regions, however, 77% of respondents said none or a few
in the Middle East and Africa.8 Impact investing actors include large and
local community banks, family offices, private equity and venture funds,
private foundations, and various intermediaries targeting small businesses,
social enterprises, and real estate and infrastructure projects.9 It is worth
noting that family offices’ involvement in impact investing is motivated
by intergenerational wealth transfer, a desire to contribute to sustainable
economies and communities, risk management, and succession plan-
ning.10 For those similarly motivated, tremendous opportunity for growth
remains. UNESCO estimates, for instance, that by 2030 the world will
require 30% more water, 40% more energy, and 50% more food; the cost
of climate-change-related impacts on the environment, health, and food
security could exceed $4 trillion; and climate change policy could con-
tribute up to 10% to overall portfolio risk.11 To fulfill these requirements,
significant collaborative contributions from financial markets, charity and
philanthropy, and public policy makers will be required.
The solutions offered by social enterprises are important to authori-
ties as well as the communities they govern.12 Many governments have
recognized that impact investing has an inherent value and a potential
for scaling social innovations.13 In turn, businesses and investors appre-
ciate the opportunities afforded through impact investments to engage
policy makers and the risks to their values and communities of failing to
do so.14 Common themes bringing private and public actors together
include “small business finance, health and wellness, education, sustain-
able consumer products and fair trade, natural resources and conserva-
tion, renewable energy, climate change, and sustainable agriculture and
development.”15 Private equity is the most common investment vehicle
used by impact investors.16 Cash and cash equivalents may also be used
to engender impact by depositing into institutions, such as community
banks, that support organizations producing positive social and or envi-
ronmental impact.17 Fixed-income instruments may direct capital into
enterprises and projects addressing social or environmental challenges.
Real estate is another important class in which impact investors may sup-
port the development of properties “in regeneration areas or among low-
income populations, and in which social and environmental objectives
are intentionally sought, such as smart growth, green buildings, urban
regeneration and affordable housing.”18 Investments in the built environ-
ment aim to provide elements for a vibrant community life, such as clean
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 261
Mission Risk
In the early stages, founders’ good intentions keep the mission of respon-
sibility intact. However, as additional shareholders enter, management
changes, or business develops, the original purpose of responsibility is
262 U.F. MOGHUL
Exiting Responsibly
What is particularly interesting for our purposes is the terms and condi-
tions under which Ben & Jerry’s was finally sold. Unilever made perhaps
unique concessions in agreeing to continue Ben & Jerry’s social and envi-
ronmental endeavors, much, if not all, of which continued even 11 years
after the sale.50 Ben & Jerry’s retained ownership of the trademark for a
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 265
Catalytic Capital
Impact investing may involve sophisticated capital designs because parties
with somewhat disparate motivations come together to arrive at shared
objectives. There is a beneficial advantage to the mix of strategic inter-
ests, for risks can be spread to match.57 Thoughtfully structured capital,
whether in the form of a public grant, equity, or subordinated debt, has
been found to catalyze additional capital.58 Grants, whether by govern-
ment or private philanthropists, can be used to develop transactions that
will thus be deemed investable by others. Providers of catalytic capital are
“strongly aligned with the Investee’s social or environmental goals and
theory of change.”59 Catalytic capital may help seed an organization, mark
its credibility, and reduce risk “to unlock capital from later stage impact
266 U.F. MOGHUL
investors if the grants are made with explicit cooperation of impact inves-
tors and evaluation metrics and performance requirements are effectively
incorporated.”60 The expectation is catalytic capital providers will bear the
risk of first losses. Additional capital may be—and has been—creatively
stacked in various combinations of debt, equity, and philanthropic gifts.
RSF Finance, for instance, employs an “integrated approach…tapping
philanthropic capital to both reduce risk and increase community engage-
ment, making borrowers more eligible for RSF financing.”61
Measurement
As impact investing has grown, the ability to measure and demonstrate its
impact has become increasingly important.62 Over two-thirds state that
metrics are important to the growth of impact investing.63 But impact
is often difficult to quantify, given the fluid meaning of impact itself, the
required “integration of social and environmental factors into deeply
rooted market dynamics and investment management processes,” and col-
laboration among various parties.64 A Global Impact Information Network
(GIIN) and JP Morgan survey found that 95% of respondents reported
using metrics to measure the social and or environmental impact.65 Impact
Reporting and Investment Standards (IRIS), operated by GIIN, provides
a “taxonomy and common set of definitions for describing social and
environmental performance.”66 B Lab has developed the Global Impact
Investing Rating System (GIIRS), a ratings method for assessing busi-
nesses’ social and environmental impact which examines governance,
labor relations, community involvement, and environmental footprint.
Transparent measurement and reporting metrics and findings help build
trust, confidence, standards, and accountability. They are, however, in
early stages of development.67
Two Examples
In addition to the important precedents discussed above, this chapter
provides two further examples of impact-investing vehicles to further
elucidate how investment and finance can be tied to social and envi-
ronmental impact. First, a recent innovation, termed a social bond or
pay for success bond, is based on the concept of paying social ser-
vice agencies for performance. The process may begin with a govern-
ment authority identifying a societal gap, such as homelessness or poor
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 267
A History of Giving
Charity is one of the fundamental values of Islam with direct spiritual, ethi-
cal, and historical implications for the distribution of wealth. Its discharge
serves as a proof of faith and an accountability metric by which the self and
its attachments to the material are subdued. Muslims are encouraged to
“spend” as part of ethical conduct: “Believe in Allah and His Messenger,
and spend [anfiqu] of that which with regard to he made you deputies.”74
Spending on one’s families, relatives, and the poor constituted care for
the community and fulfillment of the “rights of God.”75 As is well known,
one of the five pillars of the religion of Islam is zakat, an obligatory giv-
ing, with enormous potential implications itself in poverty reduction and
growth stimulation.76 These principles have driven a history of giving and
its institutionalization across the Muslim world, even if some institutions
later weakened.77 Charity in Islam and among Muslims has been studied in
significant detail from the perspectives of various disciplines. Our purpose
is to convey the spiritual and ethical significance of charity in Islam, while
briefly focusing on trusts and endowments in Islamic law and history.78
Giving (sadaqah) is mentioned numerous times in the Qur’an, often
placed side by side with prayer (salat), indicating its tremendous central
importance to the practice of the faithful.79 The Qur’an states:
So fear God as much as you can; listen and obey and spend in charity for the
benefit of your own soul and those saved from the covetousness of their own souls,
they are the ones that achieve prosperity.80
Only he shall inhabit God’s places of worship who believes in God and the Last
Day, and performs the prayer, and pays the alms [zakat], and fears none but
God alone.81
And whatever good you send forth for your soul you shall find it in God’s pres-
ence, indeed a better and greater reward.82
Never shall you attain true piety unless you spend on others out of what you
cherish yourselves; and whatever you spend – verily, God has full knowledge
thereof.83
With the Qur’an having established its importance and having articu-
lated the absolute generosity of God toward His creation as an ideal to
which believers aspire, the hadith further elaborate upon sadaqah.84 The
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 269
ProphetP has said, “Every Muslim has to give in charity.” The people
asked, “O Allah’s Prophet! If someone has nothing to give, what will he
do?” He said, “He should work with his hands and benefit himself and
also give in charity (from what he earns).” The people further asked, “If he
cannot do even that?” He replied, “He should help the needy who appeal
for help.” Then the people asked, “If he cannot do that?” He replied,
“Then he should perform good and keep away from evil and this will be
regarded as charitable.”85 Another hadith informs, “When a human dies
his works come to an end, except three: knowledge that others benefitted
from, recurring charity, and a pious child who prays for him.”86 Charity is
so important that certain mandatory acts of worship, if missed, such as a
required fast in Ramadan or a certain element of Hajj, may be expiated
by an act of charity, such as feeding the poor.87 The Shari’ah countenances
a wide range of behavior as charitable, from materially supporting family,
giving to the poor, kind words, smiling, alleviating hardship, and planting
trees,88 as well as saying prayers upon the Messenger MuhammadP,89 so
that those quantitatively or materially unable to may also actively partici-
pate. Sadaqah is thus understood as “a powerful means for prayers to be
accepted, for good health, for continued prosperity, for re-educating the
nafs in generosity, and for facilitating everything one wants in this world
and the next.”90 Its rewards continue even after death.
A number of institutions based in the Shari’ah are meant to ensure the
just and equitable circulation and distribution of wealth in Islamic soci-
ety.91 As a pillar of the faith, zakat is perhaps the most conspicuous of these.
Muslims who meet a certain threshold must annually distribute a percent-
age of their wealth, varying from 2.5% to 10% depending on the nature
of the property on which it is being paid.92 Literally meaning purification,
zakat shares its etymology with the term tazkiyyah, or self-development,
in what is more than symbolic coincidence. Zakat signifies an indispens-
able socioeconomic commitment of Muslims to relinquish something of
theirs for the well-being of others, and thus theirs, “without putting the
entire burden on the public exchequer.”93 Distributees are specified by
the Qur’an as “(1) the poor, (2) the needy, (3) those who collect zakat,
(4) those whose hearts are to be reconciled, (5) freeing captives, (6) eas-
ing the burden of debtors, (7) the cause of Allah, and (8) the wayfarer.”94
Definitions of these categories almost always included a combination of
relative and absolute factors.95 In addition to zakat, there are other forms
of giving, some obligatory and others recommended under Islamic eth-
ics. There are, furthermore, voluntary arrangements, some contractual in
270 U.F. MOGHUL
You find poor people who have nothing to give who understand that offer-
ing help to people consists not only of food and drink, but all kinds of needs:
some spend their lifetime repairing bad roads by bringing stones, wood, fill-
ing holes and improving their surfaces; others arrange the course of streams
and water sources, bringing water to the roads and some dig wells, or bring
water to the road in a shed of some sort, and there invite [the passersby] to
drink with such enthusiasm that I was certain they drank wine that was to be
found flowing from streams. In North Africa, because water is scarce close by
the cities, you find foundations for water built at the tombs of some Muslims,
and there is some sufi who is maintained by the foundation to keep the
cisterns full of water, and to encourage passersby to pray for the soul of the
departed and the living family. Such foundations for water on the roads are a
common project of poor people. There are rich people more in Anatolia than
any other part of Turkey, who, when they see travelers coming on the roads,
they invite them to eat, drink and sleep in their homes, for the sake of their
[own] souls, and take nothing for it from anyone; neither rich nor poor pays
anything, and the next day one thanks them heartily, invoking God’s blessing
on them in recompense. And these kind of people are most respected among
the Muslims because they send their charity to Paradise ahead of them.97
Institutionalizing Giving
Trusts and endowments have provided significant positive social and
economic benefit throughout much of Muslim history, beginning with
precedents established by the Prophet MuhammadP, such as the well of
Rumah.99 So much so that some contend that waqfs have historically
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 271
played a more significant role than most of the obligatory forms of giv-
ing in the Shari’ah, though their establishment is a voluntary act. That
may be because of their visibility, both in terms of the projects and causes
they supported, and extant documentation.100 Waqfs have been studied
extensively from various perspectives—scriptural, legal, and sociohistori-
cal, among others. This study only highlights salient points.101
Founding a waqf is a charitable deed and legal act under the Shari’ah.102
Its spiritual virtue is significant because it is an ongoing charity (sadaqah
jariyah) rewards for which endure after the donor’s death.103 Legalities
vary to some extent among the different Sunni schools of jurisprudence,
but generally the founder’s intent is defining. Broadly speaking, one or
more founders (men and women) identify and contribute particular assets
owned by them to be held in trust and managed by designated persons,
whether the founders themselves or others. Trustees may earn a salary.
Founders also designate beneficiaries of the income derived from the trust
corpus. Terms and conditions, including the succession of managers and
beneficiaries, are set forth in writing and quite often registered before a
judge or other office.104 Once established, a trust is generally irrevocable
and unalterable, except as set forth in trust documentation or determined
by a judge.105 An important supporting hadith in this regard reads:
As with the nature of permitted assets, the founders of trusts, not all
of whom were Muslim,107 were afforded broad latitude by the Shari’ah
and Muslim jurists in articulating beneficiaries and purposes, so long as
they were lawful under the Shari’ah. The objective might be a private
good, relating to a family or certain individuals or for society at large.
Historically, public purposes included relief to the needy and poor; health
facilities ranging from hospitals to homes for the disabled; research and
development; education, whether the establishment of an institution,
tuition, or teachers’ salaries; the construction and maintenance of drinking
272 U.F. MOGHUL
Many enjoyed direct personal benefits from them [waqfs], like students
or poor people who were immediate recipients of stipends or assistance,
Others enjoyed impersonal if direct benefits, such as the people who prayed
in a local mosque or drank from a fountain. Numerous merchants rented
their shops from waqfs, since bazaars were often endowed for the benefit
of a local institution, and the same could be true for the tenants of rented
dwellings. Thus the physical infrastructure of a city could result from its
endowments.113
Analysis and Recommendations
The Qur’an interestingly juxtaposes its prohibition of interest (riba) with
that of charitable giving (sadaqah) as if the two are opposites not only
ethically but consequentially.118 Given their charge to eliminate riba, what
relationship should contemporary Islamic financial organizations and
Muslim businesses and communities have with charity and philanthropy?
A Paradigm Shift
Muslim countries have some of the highest poverty rates in the world.119
Many of their specific needs, such as agriculture, education, small and
medium enterprise finance, healthcare, energy, and sanitation are among
the most difficult for which to attract capital.120 Whether contemporary
Islamic markets and business communities undertake intentional and for-
malized efforts to address these needs and the host of other development
requirements of many Muslim majority and minority countries remains
to be seen. The will to do so depends upon the character development of
these organizations and communities and the individuals of whom they
are comprised as well as a greater realization by stakeholders of the impe-
tus within the Shari’ah to do so.
The direction of capital for purposes of social and environmental
impact is not only consistent with, but called for by, Islamic spirituality,
ethics, and law. In numerous instances, the Shari’ah specifically presents
ethics in business and trade contexts, such as the verse calling for respite
and forgiveness to straitened debtors (Qur’an 2:280). It thereby “evinces
that religion and ethics are bound together and an attempt to separate
them is an attempt to deviate from the main objectives of Islam.”121
Dusuki’s study reveals that stakeholders view Islamic finance by the ethi-
cal and social goals they believe are intended by its underlying principles
and that should be directed toward staff, clients, and the general p ublic,
“promoting sustainable development, equitable distribution of wealth,
and poverty alleviation.”122 Stakeholders expect that Islamic finance is, or
will become, much more than refraining from riba and conforming to
what they seem to perceive as formalities and technicalities.123 From an
Islamic ethical–legal standpoint, these are responsibilities that sometimes
fall on individuals (‘ayn) and often times fall on communities as a whole
(kifayah). Preserving and protecting the well-being and wealth of com-
munity, as we have argued, is a key purpose of business. The pervasive
role and influence of business and finance in many societies makes this
274 U.F. MOGHUL
especially important.124 This is not to say that business bears these respon-
sibilities exclusively.
Despite Islamic principles strongly supporting social impact, environ-
mental concern, and inclusive governance models, the Islamic finance
industry’s contribution to these has been below its potential. Several stud-
ies have found its role in addressing such goals to be either small or non-
existent. Kamla and Rammal’s study of Islamic banks’ social reporting
did not find evidence of meaningful contribution to, or any organized
approach to, poverty elimination.125 In a study of 48 Islamic financial
institutions from 19 countries, Sairally finds some corporate philanthropy,
but not as an integral part of organizational governance or policy.126 It
appears few, if any, banks report environmental impact, but we have ear-
lier identified certain equities and asset managers adopting UNPRI crite-
ria. Eighteen senior executives of various Islamic financial organizations
in the GCC commented in interviews that social responsibility is simply
not a major concern for Islamic banks.127 Another study concluded that
Islamic banks perform well toward employees and debtors, but poorly
with regard to the general community.128 Another found charitable activi-
ties and employee-related matters among 29 Islamic banks to be “moder-
ately good.”129 In a sample of 13 Islamic banks, the majority were found
to provide interest-free loans to economically disadvantaged groups and
three were involved in charitable activities; all were involved in the distri-
bution of zakat.130 The foregoing has led to the conclusion that “[i]ssues
such as employment rights, human rights, and environmentally friendly
production” are not included in the contemporary Islamic investment
decision-making process.131 Current practices rarely utilize positive screen-
ing or business practices that affirmatively and materially support ESG
goals. It is, however, not clear whether those activities of responsibility
that are undertaken were discretionary and ad hoc in nature or part of an
institutionalized program. Evidence of the latter is at best scarce, however,
based on the literature reviewed and the author’s work in, and observa-
tions of, the industry.
The recent emergence of Islamic financial institutions, trusts, and char-
ity foundations in various quarters of the Muslim world offering to con-
tribute to welfare activities is a hopeful sign. Islamic finance can play a role
in supporting development and welfare as it must, by the guidance of the
Shari’ah, support outcomes with positive social impact, improve financial
inclusion, and enhance the resilience of communities and market systems.
Scholars and academics have suggested the use of interest-free loans made
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 275
Assume that a person wishes to establish a cash waqf with his savings. Assume
further that the purpose of this waqf is to help finance entrepreneurs who
wish to establish their own businesses. The founder approaches an Islamic
bank and informs them of his intention. Then he deposits his savings in a
special account and establishes a waqf attached to the bank. The bank would
thus become the trustee (or mudarib) of the waqf. Next, the bank would
transfer the endowment capital to various specialized mudarabah [invest-
ment] companies. The bank may have provided equity finance to some of
these companies or they may be completely independent. In any case, by
transferring the waqf capital to a multitude of such companies, the bank
actually creates a portfolio.138
drift upon a change in control. For this purpose, we focus on private equity
sponsors from within the Islamic finance industry that invest in businesses.
But our thesis is more generally applicable. To the author’s knowledge,
most Islamic private equity transactions have been acquisitions of control-
ling stakes, while few have been minority stake investments. Islamic private
equity owners, again to the author’s knowledge, have neither incorpo-
rated nor attempted to incorporate precepts of the Shari’ah when exiting
investments so that their mission endures. In this regard, they parallel only
a small minority (16%) of impact investors in not considering the mitiga-
tion of mission risk while exiting as part of their mandate.139 They have
begun, in convergence with conventional impact markets, to embed mis-
sion into legal entity forms.
Private equity has been an important tool in impact markets.140 The
performance of impact-focused private equity funds has been superior
to, or comparable to, their unengaged counterparts.141 If private equity
investors are to truly collaborate and generate inclusive markets, they
may learn, as noted earlier, from Islamic approaches to liquidation pref-
erence and mandatory redemption, where Islamic principles have been
interpreted to align investor and company interests, placing them on a
more equal footing. Limiting the indebtedness used to acquire as well
as grow portfolio companies is also an important ethical practice arising
from the notion of remaining with one’s own means. Ongoing research
indicates convergence between impact and investing, and Islamic pre-
cepts is already underway. Impact markets utilize mandatory redemption
as an exit mechanism, whereby pricing is stated as a percentage of rev-
enue or based on fair market value of the company rather than a multiple
of invested capital. The latter is a method the author has himself utilized
in an Islamic growth equity transaction, which also set out rights of the
Islamic investor to limit future transactions in the event they be in dis-
sonance with the Shari’ah.142 The latter is a point impact investments
have addressed with preferred stock granting holders thereof a control
right over decisions that implicate mission.143 Impact transactions are
also linking debt repayments to a percentage of revenues or cash flow,
making repayment contingent on performance rather than fixed.144 Debt
terms also include no prepayment penalties and prepayment discounts
as well as payment grace periods of 18–24 months and beyond.145 Such
terms bring debt closer to equity and to Islamic principles that have
been discussed earlier, and that should be conceptually integrated into
contemporary Islamic structures.
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 277
enact legislation that calls for broad stakeholder consideration and spe-
cifically encourage “mission” continuity upon sales and other changes of
control. Such rules may create duties upon directors and officers to non-
shareholder stakeholders as additional tools of accountability and enforce-
ment. For the industry to respond to the Shari’ah, address stakeholder
demand, and more fully realize its potential, it will not be enough to rely
on discretionary action of individuals and organizations. Such principles
must be institutionalized.
for the contribution and dedication of assets and income to waqfs in part-
nership with the public sector to address socioeconomic and environmen-
tal gaps provides the requisite infrastructure. This mandate must be part
of business models as well. Such challenges require solutions that are long
term and structural in nature.
For Islamic finance, impact investing expands Shari’ah compliance
and responds to stakeholder concerns. The industry might, for instance,
identify the goals of the Millennium Declaration, a holistic framework of
human development, as outcomes it not only aspires to but also practi-
cally targets.156 There is a spiritual and ethical case for doing so, and “a
large percentage of assets of endowments have huge potential for revenue
generation but remain undeveloped” offering a business case for doing
so.157 Contemporary Islamic finance can then educate audiences as to its
distinctions, not by the heavy financial design and structuring by which
it is often perceived and identified, but by concerns and measurable out-
comes of responsibility and welfare. Persistent skepticism158 thus loosens
its hold over the industry and its underlying religious foundations. These
ancillary benefits, namely, trust, reputation, and goodwill (and greater
market share), could help address many structural deficiencies, particularly
as Islamic finance and Muslims seek recognition for themselves and their
faith as valuable contributors.
In addition to signing on to soft-law frameworks of the sort discussed
earlier, Islamic finance (and Muslim businesses more broadly) may enact
ones of its own, whereby Islamic banks and investors agree to partner
with philanthropy and giving. To further such a collaboration, certain
structural additions are proposed, integrating relevant sustainability and
social and environmental responsibility expertise with that of Islamic disci-
plines. An independent body comprised of the foregoing expertise should
be constituted to understand and evaluate impact goals and performance
assessments. Spaces and channels should be designed to enable it to liaise
with the relevant Shari’ah advisory functions of a given institution and
with the board of directors. This body could be one that oversees a waqf if
one is sponsored anew by an Islamic financial institution for purposes of its
now-mandatory charitable partnership, liaising regularly with the financial
institution’s directors and management, but with as few strings as possible
to ensure the independence of the waqf as a civil society organization. In
either case, this advisory body should be part of the overall governance
framework. It will be important this body’s feedback and findings be
incorporated into Islamic financial–legal analytics and fatwa issuance pro-
cesses, and be publicly disclosed, particularly in regular reporting efforts.
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 281
Notes
1. Clark, et al., Impact, 8.
2. Clark, et al., Impact, 2–3 (2015) (quoting Deloitte, The Millenial
Survey, 5 (2013), http://www2.deloitte.com/content/dam/
Deloitte/global/Documents/About-Deloitte/dttl-crs-millenial-
innovation-survey-2013.pdf).
3. “Microfinance is broadly advanced as an anti-poverty tool.” Todd
Arena, “Social Corporate Governance and the Problem of Mission
Drift in Socially-Oriented Microfinance Institutions,” Columbia
Journal of Law & Social Problems 41 (Spring 2008): 270. But
others contend “[w]hat is worrisome is that using microfinance as
a paradigmatic example of the kind of preferred social change
intervention encourages a bias toward business-like initiative that
favor competition, efficiency, and individualism.” Garry
W. Jenkins, “Who’s Afraid of Philanthrocapitalism? Case Western
Law Review 61:3 (2011): 803.
4. Judith Rodin and Margot Brandenburg, The Power of Impact
Investing (Philadelphia: Wharton Digital Press, 2014), 3.
5. In a survey by Deloitte of 5000 millennials in 18 countries, 71%
of respondents saw the desire to improve society as a top priority
of business. Rodin, Power, 31 n23.
284 U.F. MOGHUL
66. https://iris.thegiin.org.
67. Ebrahim, et al., “Governing for Impact,” 87.
68. Rodin and Brandenburg, Power, 47. This first social bond failed
to achieve its social welfare targets, as have others, yet despite this
method continues to grow in popularity. Saadiah Mohamad,
Bond, n.p., available at http://papers.ssrn.com/sol3/papers.
cfm?abstract_id=2702507.
69. For an overview of social bonds since their inception, see Social
Finance, “Social Impact Bonds: The Early Years” (July 2016),
available at http://socialfinance.org/content/uploads/2016/
07/SIBs-Early-Years_Social-Finance_2016_Final.pdf.
70. New York became the first state in the USA to lead its own social
impact bond focused on recidivism.
71. Rodin and Brandenburg, Power, 47–49.
72. Rodin and Brandenburg, Power, 106.
73. Rodin and Brandenburg, Power, 106
74. Qur’an 57:7.
75. Wael Hallaq, Shari’a: Theory, Practice, Transformations
(Cambridge: Cambridge University Press, 2009), 296–297.
76. See, for example, Nasim Shirazi, “Integrating Zakat and Waqf
into the Poverty Reduction Strategy of IDB Member Countries,”
Islamic Economic Studies 22:1 (May 2014): 79–108. Shirazi esti-
mates that the maximum that can be collected of zakat ranges
between an average of 1.8% to 4.3% of GDP annually.
77. Murat Cicakza, A History of Philanthropic Foundations: the
Islamic World from the Seventh Century to the Present (Istanbul:
Bogazici University Press, 2000), 71–231.
78. This study uses an anglicized plural of the word waqf and uses the
word “trust” and “endowment” interchangeably to refer to a waqf.
79. Charity may be seen more as “acts of mercy” while philanthropy as
“acts of community to enhance the quality of life and to insure a
better future.” Amy Singer, Charity in Islamic Societies (2008), 6.
80. Qur’an 64:16.
81. Qur’an 9:18.
82. Qur’an 73:20.
83. Qur’an 3:92.
84. Describing the charitable believers: “And feed with food the
needy wretch, the orphan and the prisoner, for love of Him,
(Saying): We feed you, for the sake of Allah only. We wish for no
reward nor thanks from you.” Qur’an 76:8.
288 U.F. MOGHUL
118. These verses read: “Allah hath blighted usury and made almsgiv-
ing fruitful. Allah loveth not the impious and guilty. Lo! those
who believe and do good works and establish worship and pay the
poor-due, their reward is with their Lord and there shall no fear
come upon them neither shall they grieve. O ye who believe!
Observe your duty to Allah, and give up what remaineth (due to
you) from usury, if ye are (in truth) believers. And if ye do not,
then be warned of war (against you) from Allah and His messen-
ger. And if ye repent, then ye have your principal (without inter-
est). Wrong not, and ye shall not be wronged. And if the debtor
is in straitened circumstances, then (let there be) postponement
to (the time of) ease; and that ye remit the debt as almsgiving
would be better for you if ye did but know. Qur’an 2:276–280.
119. Ahmed, et al., “Sustainable,” 17.
120. JPMorgan and Social Finance, “Eyes,” 12.
121.
Luqman Zakariyah, “Ethical Considerations in ‘Islamic’
Marketing and Promotion: Spotlight on The Islamic Bank of
Britain,” in Handbook Of Islamic Business Ethics (Edward Elgar,
2015), 173.
122. Dusuki, “Understanding,” 142.
123. Dusuki, “Understanding,” 134. This is not to say that such for-
malities are unimportant, but that a focus on their outer form
without fulfilling their “inner dimension”, that is, rational and
purpose, will not bear (as much) fruit.
124. Toseef Zaid, Mehmet Asutay, and Umar Burki, “Theory of the
Firm, Management and Stakeholders: An Islamic Perspective,”
Islamic Economic Studies 15:1 (July 2007): 6.
125. Rania Kamla and Hussain Rammal, “Social Reporting by Islamic
Banks: Does Social Justice Matter?,” Accounting, Auditing and
Accountability Journal 26:6 (2013): 933.
126. Salma Sairally, Evaluating the ‘Social Responsibility’ of Islamic
finance: Learning From the Experience of Socially Responsible
Investment Funds, available at http://www.iefpedia.com/eng-
lish/wp-content/uploads/2009/08/Evaluating-the-‘social-
Responsibility’-of-Islamic.pdf.
127. Ahmed, et al., “Sustainable,” 25. See also Zakaria Ali Aribi and
Thankom Gopinath Arun, “Corporate Social Responsibility in
Islamic Financial Institutions (IFI): A Management Insight”
(May 6, 2012), http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=2052635.
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 291
128. Ahmed, Sustainable, 24. See also R. Haniffa and M. Hudaib,
“Exploring the Ethical Identity of Islamic Banks Via
Communications in Annual Reports,” Journal of Business Ethics
76 (2007): 97–116.
129. Ahmed, “Sustainable,” 25. See also Bassam Maali, Peter Casson,
and Christopher Napier, Social Reporting by Islamic Banks,
ABACUS 42:2 (2006), 266–289.
130. Ahmed, Product, 191. See also Grais and Pellegrini, Paper No.
4053.
131. Ahmed, et al., “Sustainable,” 25. See also G. Forte and F. Miglietta,
“A Comparison of Socially Responsible and Islamic Equity
Investments,” Journal of Money, Investment and Banking 21 (2007).
132. Ahmed, Product, 207. The suggestion cited is that of Mohammed
Elgari, a well-known industry Shariah scholar. Mohammed Elgari,
The Qard Hasan Bank, paper presented at the International
Seminary on Nonbank Financial Institutions: Islamic Alternatives:
Kuala Lampur, 1–3 March 2004.
133. Kamla and Rammal, “Social Reporting,” 7.
134. Alim, Global, 42 (noting that the low-income residents were
removed in 2004–05 for redevelopment by DIB).
135. Cizakca, Foundations, 44.
136. Ahmed, “Sustainable,” 22. See also Habib Ahmed, “Financing
Microenterprises: An Analytical Study of Islamic Microfinance
Institutions,” Islamic Economic Studies 9:2 (March 2002): 27–64;
Habib Ahmed, “Financial Inclusion and Islamic Finance:
Organizational Formats, Products, Outreach, and Sustainability,”
in Zamir Iqbal and Abbad Mirakhor, eds., Economic Development
and Islamic Finance (Washington DC: World Bank Publications,
2013): 203–229; and Monzer Kahf, “Shari’ah and historical
Aspects of Zakat and Awqaf,” Islamic Research and Training
Institutie (2004).
137. Ahmed, “Sustainable,” 26–27.
138. Cizakca, Foundations, 62.
139. JPMorgan, “Eyes,” 46. None of this is to say that eschatological
liability for an act by a business or asset owner is borne by its prior
owner.
140. Susan Balloch, “How Private Equity is Heeding the Call of
Impact Investing,” Institutional Investor (March 8, 2016),
http://www.institutionalinvestor.com/blogarticle/3535673/
292 U.F. MOGHUL
blog/how-private-equity-is-heeding-the-call-of-impact-
investing.html#/.Vt73TpwrLIU.
141. GIIN< “Introducing the Impact Investing Benchmark” (May
2015) https://thegiin.org/assets/documents/pub/Introducing_
the_Impact_Investing_Benchmark.pdf.
142. Moghul, “No Pain.”
143. Maretich, “Governing for Impact,” 14–15.
144. Diana Propper de Callejo and Bruce Campbell, Innovating Deal
Structures for Impact Investments (April 2015), 3, http://www.
b l u e d o t l a w. c o m / w p - c o n t e n t / u p l o a d s / 2 0 1 5 / 0 8 /
ProjectSummaryApril2015.pdf.
145. De Callejo and Campbell, “Deal Structures,” 3.
146. Model Benefit Corporation Legislation, 6 (June 13, 2006),
http://benefitcorp.net/sites/default/files/Model%20
Benefit%20Corp%20Legislation_2016.pdf. Of course, the very
success of the responsible business may lie in the tie between its
mission and product and the reputation that it has built thereby.
Indeed, most indicate that impact is embedded in the business
“hence providing a natural protection for the impact mission.”
JPMorgan, “Eyes,” 36.
147. Ginena, Foundations, 272. Saudi Arabia, on the other hand lacks
this requirement though institutions have them as a matter of
customary practice. Id.
148. This is not to say that there are no other mechanisms that could
serve to dilute Shari’ah compliance. A more “friendly” Shari’ah
advisory body might be chosen, but such action would likely not
be without market consequences.
149. Maretich, “Governing for Impact,” 10.
150. AAOIFI, Governance Standard for Islamic Financial Institutions
No. 7, Corporate Social Responsibility Conduct and Disclosure
for Islamic Financial Institutions, 4.
151. A financial institution must have a policy for employee welfare,
according to AAOIFI Standard 5/2/4. This Standard lists a
number of important policy elements, but its English language
translation states that the policy “may” rather than “shall” or
“must” cover these elements, which include equal opportunity
and maternity leave.
152. Clark, et al., Impact, 47.
STRUCTURING PHILANTHROPIC PARTNERSHIPS, MISSION LOCK, AND IMPACT... 293
find his way to profitable trading activity and the person who can
find his way to such activity may not have the capital. And profit
cannot be attained except by means of both of these, that is, capi-
tal and trading activity. By permitting this contract, the goal of
both parties is attained.” Ayub, Understanding, 322.
168. Approximately 60 verses in the Qur’an “extol charity and social
justice compared to seven that prohibit interest [riba]. It stands
to reason, therefore, that Islamic finance needs to focus much
more on issues of reduction of inequality and achievement of
social welfare than it is currently set up to do”. Raza Mir and
Muqtedar Khan, “Islamic Finance and Social Justice: A
Reappraisal,” in Handbook, 239.
CHAPTER 7
Returning
without benefit or merit, and yet many contend it “has also produced
a measurable decline in our emotional well-being, ‘crippling personal
agency despite the avowals of individual choice’ and producing a range
of ‘social poisons,’ including rising greed and envy, rampant fraud and
dishonesty, falling trust, and a crisis of ethics in nearly every area of life.”2
To what extent does the Islamic finance industry differ? How does it con-
tribute to its actors’ spiritual and ethical development? Such questions
deserve focused study. This book has endeavored to consider contem-
porary Islamic finance’s ethical dilemmas by recommending applications
of Islamic spiritual norms, individually and collectively, to bring about
greater transparency, improved governance, and social and environmental
responsibility. Evidence gathered thus far indicates that practitioners and
consumers of Islamic finance, among whom the author counts himself,
have significant room for qualititative growth in these areas and, thus, so
too does the industry. Concurrently, industry stakeholders are increasingly
challenging Islamic finance to create the social and environmental impact
they expect from those adhering to Islamic guidance. Even then, Islamic
finance has much to offer in principle, in effort, and in accomplishment
to global socially responsible markets. So too does the latter, reminding
Islamic finance and Muslim communities of the propriety and viability of
a broader return to the Shari’ah.
An absolutely critical principle and method in Islamic spirituality is taw-
bah. Usually translated as repentance, the word literally means to turn
back and refers to a return to the Divine which, hopefully, grows in scope
and depth.3 Muslim scholars articulate that without the freedom tawbah
affords, hearts and character are not fashioned in submission to Divine
principles and objectives. It is those individuals who so return that design
organizational policies, draft contracts, and create products and transac-
tions in consideration of stakeholder rights, reflective of the ever persistent
Divine gaze and the maganimity, excellence, humility, transparency, and
selflessness that God asks of His seekers in service to the common good.
Notes
1. Edwards, Small Change, 24.
2. Edwards, Small Change, 62.
3. E.W. Lane, Arabic-English Lexicon (New Delhi: Kitab Bhavan,
2010), Vol. 2, 321.
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SELECT BIBLIOGRAPHY 303
impact investors, 242, 260, 265, 266, 227, 229, 230, 235, 243,
276 248n68, 261, 268, 277, 282,
inclusive, 57, 68, 127, 155, 156, 178, 288n101
183, 184, 187, 195, 274, 276, istifta, 157, 158, 164
282, 283 istihsan, 54
index(es), 58–9, 123, 166, 201n88 istisna, 26, 46, 161
insects, 8, 86, 92, 108
intent, 5, 15–17, 23–5, 37n216, 41,
60, 88, 89, 99, 109, 121, 157, J
158, 183, 185, 193, 214, 221, jihad, 12, 109
227, 228, 236, 237, 249n93, ju’alah, 282
271, 277 jurists, 3, 25, 26, 36n201, 37n211,
interest, 1n212, 3, 11, 26, 28n7, 40–6, 55, 56, 62, 68, 71n42,
42–5, 47, 64, 67, 97, 127, 71n45, 73n70, 79n188, 84, 88,
129n5, 138n117, 138n130, 89, 93, 109, 110, 112, 113, 118,
153n347, 154n366, 165, 167, 123, 133n40, 154n366, 156,
170, 173, 174, 187, 190, 191, 158, 160–2, 166, 171, 174, 182,
194, 206n185, 210, 214, 223–7, 184, 185, 218–21, 225, 232,
229, 230, 234–6, 245, 263, 270, 240, 251n130, 252n134,
272–5, 281, 290n118, 294n168. 256–7n193, 271, 277, 282,
See also riba; usury 289n105
International Finance Corporation justice, xi, 1, 18, 21–3, 40, 42, 48, 52,
(IFC), 100, 103, 105, 106, 119, 54, 57, 61, 62, 100, 102, 106,
141n185, 150n310, 150n312 108, 156, 174, 177, 191, 211,
iradah, 11 217, 220, 235, 239, 270, 283,
Islamic Development Bank, 275 294n168. See also ‘adl
Islamic economics, 28n7, 40
Islamic ethics, xii, 40, 46, 53–6, 58,
85, 88, 125, 166, 171, 175, 187, K
227, 295 khalifah, 86
Islamic financial service Board (IFSB), Khallaf, Muhammad b. Abdul
124, 186, 192, 209, 244, Wahhab, 182
249n102, 250n110, 257n208 khuluq, 9, 12
Islamic jurisprudence, 40, 41, 59, 108,
117, 118, 155, 167, 181, 218,
221, 229, 233 L
Islamic law, 2, 11, 41–7, 54, 55, late fee(s), 242
58–60, 63, 69n12, 85, 88–91, Lawgiver, 4, 20, 41–3, 71n42, 88,
93, 94, 97, 109, 110, 117, 119, 122, 123, 159, 167, 169, 217,
120, 122, 123, 133n44, 220
145n217, 155, 165–8, 172, 173, LEED, 262
180, 210, 211, 214, 218, 219, legalism, 232
INDEX 311
lender, 45, 101, 141n174, 224–6, modesty, 110, 112, 113, 116. See also
229, 238 haya’
liability, 88, 89, 94–5, 119, 121, 122, moral hazard, 235
133n40, 134n34, 140n155, 162, Morgan, J. P., 259, 266
211, 226, 236, 238, 263, 264, mortgages, 206n185, 211, 229. See
291n139 also home finance
Limits to Growth, 83 mu’amalat, 3, 6, 25, 94, 117
liquidation preference, 68, 167, 276, mu’aqabah, 15, 212
281 mu’atabah, 15, 212
loan(s), 11, 22, 44, 45, 66, 152n330, mudarabah, 199n72, 239, 275, 282,
161, 215, 220, 225–9, 231, 235, 293n167–8
238, 267, 270, 272, 274, 275, muftis, 156–60, 179, 184–8, 191,
278 197n43
low profit limited liability companies muhasabah, 13–15, 25, 94, 125, 194,
(L3Cs), 263 212, 214, 227
mujahadah, 11, 12
murabahah, 211, 225
M muraqabah, xii, 14, 15, 25, 125, 212,
madhhab, 41, 90 213, 236
Madinah, 134n72, 234 musharakah, 199n72, 211, 239,
magnanimity, 6, 22, 42, 106, 211 246n15, 282
Majallah, 89, 112 musharatah, 13, 212, 213
mal, 25, 26 Muslim communities, xi, xii, 24, 57,
Marginani, 93 65, 68, 69, 83–5, 95, 96, 108,
maslahah, 41, 206n185, 220, 261 117, 118, 120, 123, 127, 186,
maslahah al-mursalah, 42 188, 195, 218, 227, 245, 261,
maysir, 44, 72n60 270, 279, 282, 283, 296
McKinsey, 67, 124 mustafti, 158, 160, 162
Mecca, 5, 90, 275
messenger, 4, 5, 7, 12, 14, 18, 21,
28n12, 37n216, 47, 85, 93, 112, N
114, 116, 126, 162, 179, 181, nafs, 7–9, 12, 13, 15, 16, 32n85, 109,
212, 213, 241, 268, 269, 121, 157, 204n169, 236, 269
290n118. See also Emissary; necessity, 26, 43, 91, 168, 206n
Prophet 185
mission, xiii, 64, 259–94 need, 2, 12, 17, 43, 46, 47, 52, 56,
mission drift, 262, 265, 277, 283n3, 62, 83, 90, 105, 113, 148n268,
284n24 161, 165, 168, 171, 180, 182,
mission risk, xiii, 261–4, 276 184, 186, 195, 199n74,
Model Benefit Corporation 206n185, 219, 220, 261, 262,
Legislation, 262 282, 293n167
moderation, xi, 18, 48, 57, 159, 174, New York, xii, 228, 287n70
183, 211, 239, 245 niyyah, 5. See also intent
312 INDEX
P
particpatory social contract, 240 Q
pay for success bond, 266 qada, 156, 158
penalty, 242 qalb, 6–9, 11, 12, 14, 94, 116, 157,
perception(s), 6, 61, 127, 159, 163, 213, 218
170, 176, 177, 193, 210, 214, Qayyim, Ibn, 10, 29n19, 30n53,
216, 223, 229, 245, 293n158 30n54, 31n72, 31n81, 32n89,
philanthropy, xiii, 6, 28, 260, 261, 46, 161, 162, 198n58, 236
265, 273–5, 279, 280, 287n79 qimār, 44, 72n60
plants, 88, 91–4, 104, 136n95 qist, 49. See also balance
poverty, xi, 9, 12, 17, 40, 51–3, 57, Qur’an, 3, 4, 7, 8, 12–18, 21, 22,
121, 233, 268, 272–4, 279, 32n85, 44, 47, 54, 65, 66,
293n156 70n15, 74n96, 85–8, 91–3, 108,
prescriptive disclosure, 227 109, 112, 116, 118, 125,
price manipulation, 223 132n19, 135n74, 135n87,
private codes, 85, 99, 120 136n95, 156, 157, 162, 178,
private equity, xii, 68, 166, 168, 226, 179, 181, 185, 189, 212, 214,
260, 276, 277, 291–2n140 217, 223, 234, 241, 268, 269,
private regulatory frameworks, 84, 98, 273, 287n84, 290n118, 294n168
99, 117
profit maximization, 49–51
promise(s), 173, 231, 233, 242, R
251n130, 265 rahmah, 4
property, xi, 5, 11, 25, 26, 40, 44, 45, Ramadan, 5, 269
47, 48, 64, 89–91, 93, 106–8, real estate, xii, 60, 104, 117, 120,
110, 111n4, 111n6, 111n7, 127, 166, 168, 195, 226, 260
111n16, 112, 114–6, 117, reinforcing feedback, xii, 170, 177,
119–21, 145n221, 146n223, 193, 194, 239
INDEX 313
religious slaughter (of animals), 91–4, 104, 105, 115, 119, 123, 126,
136n91 142n188, 152n330, 171–5, 189,
remembrance, 6, 8, 13, 17 191, 192, 209–11, 222–4, 227,
renunciation, 11, 18–23. See also zuhd 230, 231, 235, 237, 239, 245,
repentance, 10, 11, 217, 223, 296 250n107, 259–67, 275, 276,
resilience, xii, 2, 62, 65, 170, 177, 278, 284n24
193, 274 risk sharing, 40, 45, 57, 61, 64, 119,
responsibility, xii, xiii, 1–37, 39–81, 224, 239
83–5, 96, 99, 100, 105, 107, Rockefeller Foundation, 259
111n13, 118, 119, 124, 125, ruh, 2, 8
127, 153n347, 152–3n355, 168, rukhsah, 167
178, 179, 185, 191, 215, 216,
218, 231, 259, 261, 262, 274,
277, 278, 280, 283, 296 S
responsible built environments, sabr, 16
106–10, 283 sadaqah, xiii, 268, 269, 271, 273,
Responsible Property Investing Code, 275. See also charity
107 sadd al-dhariah, 182
Resurrection, 86, 87, 89, 125, 217, Sahabah,. See also Companions
272 salaf, 10, 19
revenue drift, 284n24 salam, 46
reverse engineering, 235 salat, 5, 89, 251n132, 268
Revlon rule, 264 salik, 15
riba, 11, 21, 43–6, 50, 65, 67, 68, salim, 8, 11
137n110, 152–3n346, 167, 174, scholars, 1, 3, 6, 8, 20, 22–6, 48, 56,
177, 181, 183, 189, 206n185, 62, 64, 86, 90, 109, 110, 111n1,
219, 220, 225, 226, 235, 236, 112, 114, 118, 120, 139n132,
245, 273, 294n168. See also 156–60, 162, 164, 165, 171–3,
interest; usury 175, 181, 191, 194, 195,
rights, 1, 10, 11, 13, 16, 23, 25, 26, 200n75, 205n177, 207n194,
40, 42, 44–9, 56, 58, 59, 63, 64, 210, 214, 228, 241, 252n131,
74n92, 79n179, 84, 88, 91, 92, 263, 274, 281, 285n35, 296
98, 102, 103, 108, 110, 111n1, securitization(s), 64, 65, 97, 174,
112, 113, 115–17, 119–21, 125, 238
133n42, 145n217, 156, 183, self-assessment, 13, 25, 106, 121, 125,
187, 209, 214, 216, 218, 219, 212, 217, 218, 223, 227
224, 233, 237, 238, 243, self-discipline, 2, 5, 15, 55, 125
255n184, 262, 263, 268, 274, self-organization, 170
276, 296 shahwah, 8, 12
RIO Declaration, 102 shareholder maximization, 47, 50, 100
risk(s), xiii, 40, 45, 49, 50, 52, 57, Shari’ah, 1–3, 40, 84, 117–27, 157,
59–61, 64, 65, 68, 79, 99, 101, 209, 267, 295
314 INDEX
Shari’ah advisors, 44, 64, 119, 122, Sunnah, 3, 7, 13, 54, 88, 118,
166, 175, 225, 231 132n20, 164, 185, 234
Shari’ah compliance, 49, 51, 52, 62, sustainability, xii, 2, 39, 40, 53–6,
126, 164, 174, 192, 194, 210, 58–63, 67, 69, 85, 88, 100, 102,
228, 231, 235, 243, 244, 278, 104, 106, 107, 109, 114, 115,
280, 292n148 117, 118, 122, 124, 127, 169,
shura, xii, 155, 156, 178, 181–3, 187, 216, 280, 295
217. See also consultation sustenance, 16, 214
sincerity, 9, 20, 185, 214 systems, xii, 1, 12, 27, 56, 60, 85, 98,
skepticism, xi, 61, 186, 195, 210, 222, 100, 101, 106, 119, 149n308,
230, 239, 280 156, 169–71, 174, 177, 182,
social bond, 266, 281, 282, 287n68, 184, 193, 215, 230, 240, 261,
287n69 274, 295
social impact, 2, 24, 27, 57, 68, 84,
95, 100, 105, 115, 216, 231,
239, 261, 267, 274 T
social responsibility, 39–81, 96, 105, Tabah Foundation, 28n15, 31n65,
124, 127, 153n347, 168, 191, 36n201, 146n232, 196n12,
232, 262, 274 196n16
soft law, 43, 85, 95, 98, 99, 101, 102, tahali, 6
106, 107, 117–27, 140n154, takhali, 6
183, 279–81 Tantawi, 162, 184, 187
special purpose entity (SPE), 226, taqwa, 5, 11
227, 238 tasawwuf, 7, 183. See also Sufism;
special purpose vehicle (SPV), 97, 172, Tazkiyyah
225–7, 238 tawarruq, 176, 211, 225–8, 234, 235
spirituality, xi, 1–37, 40, 68, 94, 96, tawbah, 10, 11, 217, 296. See also
99, 116, 117, 121, 159, 179, repentance
217, 218, 228, 232–57, 273, tawhid, 6, 9, 12, 20, 240, 241
296. See also Spirituality; Sufism; Taymiyyah, Ibn, 30n41, 234
Tasawwuf; Tazkiyyah tazkiyyah, 7, 9–16, 24, 30n40, 55, 94,
SPV. See special purpose vehicle (SPV) 245, 269, 295
stakeholder(s), 17, 46–53, 84, 155, transparency, 9, 14, 19, 25, 26, 53,
209, 262 56, 65, 101, 103, 119, 124,
stakeholder webs, 215, 222, 245 154n358, 163, 165, 178, 191,
stock flows, 170, 193 192, 194, 209, 211, 214–18,
Sufism, 7. See also spirituality; 221–4, 228, 231, 236, 237, 244,
Tasawwuf; Tazkiyyah 245, 262, 296
sukuk, xii, 84, 96–8, 104, 119, 127, true sale, 97, 172–4
128–31n5, 136n99, 138n118, trust(s), xiii, 3, 8, 9, 11, 22, 25, 47,
155, 156, 171–5, 200n75, 211, 49, 50, 56, 58, 60, 65, 86, 88,
223, 231, 235, 237, 275, 282 97, 124, 125, 154n366, 180,
INDEX 315