Critical Review of the Tools of Ijtihad Used in Islamic Finance

Abstract

Fiqh, indicating Islamic law and the means to produce it, covers all aspects of human dealings, including Islamic financial law and its Shariah nominated contracts, which represent the bases for all Islamic banking and finance transactions. These contracts are either readily found in the classic books of Islamic law or modified versions adopted to suit the modern transactions of Islamic finance. In some cases they are a combination of more than one contract designed to serve a particular financing purpose, like the contract of Ijarah Muntahia Bittamlik where the transaction starts with lease and ends with sale. This paper comes to discuss the most important Ijtihad instruments that can be used by the Faqih to evaluate and endorse products in Islamic finance. It then elaborates on the instruments that are in use in the modern Islamic finance and which reflect a departure from Shariah rules and tools for Ijtihad. The objective of this paper is to shed light on the contemporary Ijtihad in Fiqh of Finance in light of the guidelines provided by the Shariah in an attempt to draw the outlines of what constitutes a proper use of proper Ijtihad instruments in Islamic finance.