institut kewangan di malaysia

1. SHARI’AH FRAMEWORK
FOR ISLAMIC FINANCE
CHAPTER 5

2. Definition of Shari’ah
 Shari’ah literally means, “the road to the watering place” or “the straight path
to be followed”
 As a technical term, the word shari’ah was defined by Al-Qurtubi as the canon
law of Islam, all the different commandments of Allah to mankind.
 Some scholars defined this word as the injunctions revealed to the Prophets of
Allah related to law or belief.
 Some scholars confined Shari’ah to its linguistic meaning by saying that this
word means, “Following strictly the injunctions of Allah (s.w.t.) or the way of
Islam (din)
 Comprehensive definition: It is the sum of the Islamic teachings and system,
which was revealed to Prophet Muhammad, recorded in the Qur’an as well
as deducible from the Prophet divinely-guided lifestyle called the sunnah.

3. Components of Shari’ah
al-ahkam al-
i’tiqadiyyah
al-ahkam al-
akhlaqiyyah
al-ahkam
al-’amaliyyah

4. Primary Sources of Islamic Law
Qur’an
Ijma’ Qiyas
Sunnah

5. Secondary Sources of Islamic Law
Istihsan
Maslahah
Mursalah
Sadd al-
Dhara’i
Istishab
Urf

6. Maqasid Al-Shari’ah VS Islamic Finance
1. Religious or spiritual (dini) objective pertaining to the Hereafter
2. Worldly objectives (dunyawi) pertaining to mundae affairs of this world

7. Legal Maxims Pertinent to Islamic
Finance
 Matters are determined according to intentions (Al-’umur bi maqasidiha)
 Hardship begets facility (Al-mashaqqatu tujlab at-Taysir)
 Harm should not be inflicted nor reciprocated (La darara wa la dirar)
 What is certain cannot be removed by doubt (Al-yaginu la yuzalu bi ash-
shakk)
 Customary practices as a basis of judgements (Al-’adatu muhakkamatun)

8. Differences (Ikhtilaf) of Opinion Among
Scholars
 Variation in understanding the meaning of a word in the texts
 Differences over the narrations of the Sunnah
 Divergence in the method od Qiyas

9. Role of Ijtihad and Mujtahid in Islamic
Banking and Finance
 Ijtihad literally means expending of maximum eff ort in the performance of an
act. Technically, it is an eff ort made by the mujtahid in seeking knowledge of
the legal rules of Shari’ah through interpretation.
 The methods of ijtihad by reference to the functions of the mujtahids:
i. Ijtihad to discover the laws directly from the text whether it is explicitly or impliedly
mentioned by the text. This involves direct interpretations by the mujtahid on the
specific meaning of the available texts.
ii. Ijtihad to extend the law to new cases that might be similar to cases
mentioned in the texts by way of qiyas. Here, the function of the mujtahid
in this method is to apply qiyas by looking at the ‘illah, or underlying
rationale, of both cases and to determine whether qiyas is applicable.
iii. Ijtihad to extend the law to new cases that are not covered by the
previous two methods by extending the general principles of law or
maqasid al-shari’ah as laid down by the texts.

10. Fundamental Prohibited Elements in
Islamic Finance
 Prohibition of riba - Riba literally means excess, expansion, increase,
addition or growth.
 Prohibition of gharar - Gharar is another important element which could
render a transaction void. Literally, the word gharar implies risk, uncertainty
and hazard.
 Type of gharar –
i. Gharar due to the nonexistence of the exchanged counter values or
the control of the parties over the subject matter to be exchanged.
ii. Gharar due to inadequacy or inaccuracy of information. This type of
gharar might arise due to the non disclosure of material information on
the subject matter.
iii. Gharar due to the undue complexity of the contract such as
combining two sales in one or two or more interdependent contracts.

11.  Prohibition of gambling (Maysir) - Gambling or maysir, also known as qimar,
is defined as any activity which involves betting whereby the winner will
take the entire bet and the loser will lose his bet. It means games of pure
chance where any party might gain at the expense of the loss of the other
party.

12. Mutuality of Risk-sharing
 Risks can be divided into three types, which carry different rulings from the
Shari’ah’s point of view in terms of permissibility or otherwise:
i. Enterpreneurial risk; risk that might occur as part of avnormal course in economic
activities.
ii. Risks that occur due to natural disasters and calamities.
iii. Unnecessary risks that occur due to games of chance (gambling).

13. Issues and Challenges in Empowering
Shari’ah in Islamic Finance
 Maximum utilisation of Shari’ah principles in developing Islamic financial
products.
 Harmonisation of the Shari’ah interpretations across jurisdictions.
 Ensuring a high quality and standard of Shari’ah services.
 Realisation of maqasid al-shari’ah in the product development or the
general framework of Islamic finance.