Maqasid al-Shari’ah in Islamic finance: Harmonizing theory and reality

Muhammad Shahrul Ifwat Ishak,Nur Syahirah Mohammad Nasir

doi:10.33102/jmifr.v18i1.334

Muhammad Shahrul Ifwat Ishak, Nur Syahirah Mohammad Nasir

Open Access

https://doi.org/10.33102/jmifr.v18i1.334

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Abstract

This paper aims to clarify how maqaṣid al-Shari’ah (objective of Shariah law) plays its role in Islamic finance, particularly in creating a harmony between Shariah rulings in theory and their application in current circumstances. Based on library research, this study applies inductive approach and descriptive method in analysing various literatures. The finding reveals that the roles of maqasid al-Shari’ah are identified as the following: harmonizing between the text of revelation and the actual situation; considering unusual circumstances and overcoming current issues. All of them reflect how maqasid al-Shariah could pragmatically adapt Shariah rulings into the real operation of Islamic finance. Since this paper comes up with two cases: replicating conventional products to be Islamic ones and implementing floating rate in Islamic prices, it provides a practical discussion on this topic.

Highlights

The year 1963 has witnessed a remarkable achievement in modern Islamic history, after two Islamic financial institutions were successfully established
Mit Ghamr Bank in Egypt and Tabung Haji (Pilgrims Fund) in Malaysia have been widely considered as pioneers in Islamic finance (ISRA, 2010)
Through the concept of maqasid al-Shari’ah, it is vital for scholars to analyse issues in Islamic finance by considering both Islamic sources and the current circumstances

Summary

Introduction

The year 1963 has witnessed a remarkable achievement in modern Islamic history, after two Islamic financial institutions were successfully established. A few decades later, Islamic finance industry has moved a step forward, transforming its institutions from socio-economic entities into a form of commercial institutions, which enables them to offer a variety of services to various background of their customers. These include banking services, investment instruments and Takaful products. Islamic institutions are actively engaging with business transactions and economy activities including resource allocation, investment, and financing (Iqbal & Mirakhor, 2007) They must ensure that their activities are compliant with Shariah rulings and principles. Among them are bay’ (sale), wakalah (agency), ijarah (lease), and musharakah (partnership)

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Conclusion