Shariah parameters reconsidered

Abstract

PurposeThe purpose of this paper is to explain three additional parameters, namely maqasid al‐Shariah, financial reporting, and legal documentation of contract for determining Shariah legitimacy of financial instruments in Islamic financial institutions. Currently, contract ('aqd) is the only parameter recognized by Shariah scholars at the supervisory level.Design/methodology/approachThis analysis begins with examining the pitfalls of the contract approach and proceeds to present the maqasid, financial reporting and legal documentation approaches in ascertaining absolute Shariah compliant of financial products.FindingsThe paper argues that the four approaches must be applied in package in determining Shariah compliant status to avoid costly errors that might lead to litigations and loss of competitiveness in the Islamic financing business.Originality/valueThe paper provides new insights and integrated analysis of Shariah auditing where knowledge clusters concerning the Shariah, economics, finance and accountancy, and law are algamated to ascertain wholesome Shariah viewpoint.