Islamic Finance and the Issue of Unauthorised Agency

Abstract

The notion of tasarruf fudhuli (disposition of unauthorised agency, hereafter referred to as unauthorised agency) in Islamic financial institutions (IFIs) has invoked an ongoing debate among Shariah scholars and Muslim economists alike. Some perceive its application in IFIs as a violation of the general axiom of wealth protection that prohibits the encroachment of another’s property as an important aspect of the protection of lawfully-owned property. On the other hand, many assert that the ratification feature under the concept attracts product innovation and offers flexibility to IFIs to rectify transactions involving the issue of unauthorised agent.