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Shariah principles can best be understood from an angle it is destined for, namely the purposes and objectives of Islamic law (maqasid al-Shariah). This will prove more effective since it allows Islamic financial institutions to match their products and commercial viability more accurately to the demands of Islamic ethics and morality and hence justice (‘adl). This is because the maqasid of Shariah serves to do two essential things, namely tahsil, i.e. the securing of benefit (manfaah) and ibqa, i.e. the repelling of harm or injury (madarrah) as directed by the Lawgiver. In this respect, innovation in Islamic finance and all endeavours to test the legality of a new product must readily comply with the purpose (maqasid) of the Shariah.
As a start, it is worthy to examine what constitutes the maqasid al-Shariah. One purpose of the Shariah is the preservation and protection of the basic necessities (daruriyat) of man without which life would probably be filled with anarchy and chaos (fasad) and thus become meaningless. Basic necessities in Islamic law are Religion (Din), Life (Nafs), Family (Nasl), Intellect (‘Aql) and Property (Mal). For example, the prohibition on drinking wine (khamr) is based on two reasons. First, the intoxication effect will make one loses his senses. This prohibition therefore serves to repel the harm (ibqa) of losing one’s senses. For example, when one is drunk during solat, he will not know what he has recited in the solat, hence Allah swt has prohibited khamr. The second reason is the protection of the intellect (áql) which serves to preserve the benefits (tahsil) of rational inquiry and the pursuit of knowledge.
In relation to the protection of property (al-mal), the prohibition of riba serves to repel the harm (ibqa) from the obligation to pay interest on loans as it (i.e. riba) has been known to unjustly deplete wealth and property. By prohibiting riba, the harmful effects (madarrah) of poverty and widening of the income gap can be pre-empted. Likewise, the positive Quranic attitude towards trade and commercial activities (al-bay) serves to secure the benefits (tahsil) of mutual help and cooperation in business transactions. People engaging in business will take a natural path in dealing with risk and return as both move in a harmonious fashion. By conducting al-bay and thus deriving benefits from it, it can make the business of money lending less profitable than trading (al-bay)
The maqasid of Shariah will also assure that an Islamic financial institution will provide services that can repel the harm (madarrah) commonly found in the Western mode of financing. If the harm is still obvious in the new Islamic financing product, it must be eliminated at all cost. Otherwise, the product may fail to reflect the true ideals of Islam. For example, hedging against price volatility is an important ingredient in business today. Manufacturers usually purchase raw material as inputs at the cheapest cost possible. Some will buy forward, i.e. buy the commodity now to be delivered and paid for at a specific future date. The price is set on the spot on the day the contract is arranged. There are several disagreements among Shariah scholars on this matter. Some say this kind of forward contract is permissible as it has fulfilled the requirements of a valid contract while others say the contrary as the contract involves betting against unknown events and thus akin to gambling (maisir) which invites more harm than good’
When issue as in the above is examined from the contract (‘aqd) perspective alone, i.e. applying rules of contract in determining legality, it may overlook the very intent of the Shariah and hence unable to repel the harm it is initially intended to uphold. For example, if it can be proven that forward contract is free from harm (madarrah) either from the gambling (maysir) element or ambiguities (gharar), then it should prove beneficial to the Islamic finance industry and hence utilized by Islamic financial institutions. However, if it the contract is found valid (sahih) from the ‘aqd perspective but proven to have adversely affected counterparties taking part in the transaction, it (ie. forward contract) should be reinvestigated with more rigour in juristic terms. The main idea is that when something new has failed to repel the harm inherent in conventional finance, then it defeats the very purpose of the Shariah which to protect the interest of the general public.
Fulfilling the intent of the Law (maqasid al-Shariah) should therefore serves as the underlying principle of Islamic financial innovations as it safeguards rulings based on fiqh from moving into unwanted territory. The purpose of the Law (maqasid al Shariah) and the rulings on contracts should not come into conflict with one another. If it does, the intent of the Law shall stand above the rulings of contracts. This is because the former is based on the Divine Law while the latter is founded on human understanding (fiqh).
In this manner, the legality of a financial contract can be judged not only from the contract (‘aqd) aspect alone but equally important are the economic and social impacts (i.e. the manfaah and madarrah or benefits and disbenefits) to the general public. For example, if Islamic financial products are found to have pulled consumers into high level of indebtedness and bankruptcies, how can one explain they are a worthy alternative to conventional financing? On the contrary Islamic financial products should evident the ability to promote economic growth, eliminate poverty and improve livelihood of the people.
By Prof. Saiful Azhar Rosly