INCEIF The Global University in Islamic finance

Kuala Lumpur, Malaysia CIFP

Maqasid al-Shariah is one of the very important Shariah aspects in Islamic Finance. Discuss the above statement within the Islamic context.

Semester Jan 2012

Name: Shaiful Amri bin Husain Matric No: 1200092

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Abstract This essay explains the concept of Maqasid al-Shariah and its application to the Islamic Banking sector. The principle of Maqasid al-Shariah is to protect and preserve the public interests (maslahah) by providing benefits and preventing harm. It is divided into three categories namely al-Daruriyyat (Essential), al-Hajiiyyat (Complementary) and al-Tahsiniyyat (Embellishment). With the fundamental objective of providing maslahah, the principles of equitable wealth distribution as well as honesty, trustworthy, just and fair in financial dealings, are emphasized in the Islamic Banking transactions. However, criticisms from the Islamic Banking opposition highlight that the Maqasid alShariah has little or no impact to the overall banking industry landscape. The reasons noted are the Islamic Banking is presently passing through the age of infancy, with a number of constraints impeded its progression process. Presently, the regulatory and supervisory authorities have initiated various initiatives to promote and transform the Islamic Banking sector. Hopefully, this will lead to increase the level of understanding and awareness of the Maqasid al-Shariah from the context of Islamic Banking, and would silent the critics. Thus, the Islamic Banking sector could take quantum leap to higher level and possibly, to be on par with its Conventional counterpart in the future. Objectives of the research To understand the concept of Shariah and Maqasid al-Shariah To comprehend and appreciate the application of the Maqasid al-Shariah in the Islamic Finance To gauge the effect of the Maqasid al-Shariah in the Islamic Finance to the public To explain initiatives done by the authorised bodies to promote the Islamic Finance

Key terms of the research 1. Maqasid al-Shariah 2. Islamic Finance 3. Shariah

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Table of content

1. 2.

Introduction Definition of Shariah 2.1. 2.2. 2.3. Root Word Lateral Meaning Technical Meaning

1 1 1 2 2 3 3 3 4 5 5 7 7 8 11 11 12 13 14 15 16 17 17 17 19 20 21

3.

Source of Shariah 3.1. 3.2. Primary Source Secondary Source

4.

Components of Shariah 4.1. 4.2. Main Components of Shariah Principles of al-Muamalat

5.

Objectives of Shariah (Maqasid al-Shariah) 5.1. 5.2. Definition of Maqasid al-Shariah Principles of Maqasid al-Shariah

6.

Maqasid al-Syariah from Islamic Bankings perspective 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. Justice in Financial Transactions Continuity of Circulation of Wealth Honesty and transparency Prevent harm and hardship Prohibition of major uncertainty (gharar) Prohibiton of riba

7.

Challenges of Islamic banking in Malaysia to fulfill Maqasid al-Shariah 7.1. 7.2. 7.3. Criticism on Islamic Banking Reasons of misunderstandings Moving Forward

8.

Conclusion

References

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

1.

Introduction Word of Shariah, Islamic Laws, has been around since the epoch of Prophet Muhammad (s.a.w). It is derived from the Divine and religious sources namely Holy Quran and Sunnah of the Prophet Muhammad (s.a.w), Ijma (consensus) of the community, and Qiyas (analogical reasoning). Encompassed of all aspects of man life, it provides guidance for Muslims to lead a better life in this world as well as Hefeafter. With introduction of Islamic Financial Institutions (IFI) particularly in Malaysia, the word of Shariah has been widely used especially by banking practitioners, regulators and public masses, including both Muslim and non-Muslim. However, most have vague ideas the true objectives and purposes of Shariah in Islamic Banking aspects. They assume that the Islamic Banking is no differ than the Conventional banking. This brief explanation is intended to explain the meaning and scopes of the Shariah. The next section will brief on the analogy of the Maqasid al-Shariah and its perspective from the Islamic Finance. The final section will discuss on the challenges and issues of Islamic Banking in fulfilling the Maqasid al-Shariah.

2.

Definition of Shariah 2.1. Root Word Shariah word derives from sharaa which means to open upon a street, like to open a door upon a street. From sharaa, comes mashraa which means path to a watering place.

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

2.2.

Lateral Meaning Shariah is referred as to the road to the watering place, the straight path to be followed. The following is Quranic verse related of Shariah meaning: Then we have put you (O Muhammad s.a.w) on plain way (Shariah) of (our) commandment. So follow you that (Islamic Monotheism and its laws) and follow not the desires for those who know not (Al-Jathiah: 18)

2.3.

Technical Meaning The canon law of Islam, all the different commandments of Allah to mankind (Al-Qurtubi) The injunctions revealed to the Prophets of Allah related to law or belief (Al-Zahawi) Following strictly the injunctions of Allah or the way of Islam (Ali bin Muhammad bin Al-Jurjani) As the path of religion and the various aspects of laws (al-ahkam) which Allah provides for his servants, i.e. human (Abdul Karim Zaidan) In general, Shariah consist of law, rules, regulations, commands, obligations, guidance, principles, ideology, faith and behavior, derived from Divine sources, which govern the human being in every aspect of life in this world and salvation in the next. (Shariah Aspect Coursebook)

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

3.

Source of Shariah Shariah laws are derived from two sources: 3.1. Primary Source Al-Quran and Sunnah of Prophet Muhammad (s.a.w) are the primary sources of Shariah. This is based on the following verses: O you who believe! Obey Allah SWT and obey the Prophet (Muhammad), and those charged with authority among you. Prophet (Al-Sunnah) (Al-Niza: 59) And whatever the prophet has given you take it; and what has forbidden you (from doing) refrain from it (Al-Hasyr: 7) It consists of various rules and regulations drawn from the Revelation to legislate Muslims in their daily lives. 3.2. Secondary Source Due to the fact that the rulings laid down in al-Quran and al-Sunnah are relatively few, the jurists has developed the science of Islamic jurisprudence known as ijtihad. The jurists define ijtihad as an endeavor undertaken by the mujtahid in formulating a particular rule and value of a subject matter that is not clearly explained whether by the Al-Quran or Al-Sunnah. (MIFC, Methodologist in Shariah Decision Making) Presently, the jurists have to rely on ijtihad to resolve issues that are not specifically explained in the Quran and Sunnah. This is due to the everchanging circumstances and revolving-needs of Muslims. The Ijtihad or interpretation is classified as secondary sources of Shariah. The secondary sources include ijmaq, qiyas, maslahah, ihtihsan, istishab, And if you differ over anything among yourselves, refer it to Allah SWT (Al-Quran) and the

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

sadd zariah, urf, maqasid shariyyah, siyasah shariyyah, tawil, istiqra and many more which have been accepted in Islamic jurisprudence. The basis of secondary sources is based on a hadith of Prophet (PUBH) pertaining to the appointment of Muaz as a judge in Yemen as follows: When the Prophet Muhammad (s.a.w) sent Muaz ibn Jabal (as a judge and governor), he asked him, on what basis would he judge if he was confronted with a problem. Muaz said that he would judge based on contents of the Quran. The Prophet Muhammad (s.a.w) asked him, Assuming that you do not find it in the Quran, on what basis would you judge? Muaz replied, he would judge based on the Sunnah of the Prophet Muhammad (s.a.w). The Prophet Muhammad (s.a.w) asked him, Assuming you do not find it in both the Quran and the Sunnah of the Prophet Muhammad (s.a.w), on what basis would you judge? Muaz ibn Jabal replied that he would use his individual opinion without transgressing the boundaries (set by the Quran and the Sunnah). (Shariah Aspect Coursebook)

4.

Components of Shariah

Shariah

Tawhid/ Aqidah

Fiqh (Islamic Law)

Akhlaq

AlIbadat

AlMuamalat

AlMunakahat

AlJinayat

ECONOMIC ACTIVITIES
Finance Banking Takaful Investment

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

4.1.

Main Components of Shariah Based on the above diagram, Shariah is divided into three main components namely Tawhid, Akhlaq and Fiqh. The definition of each component are as follows: Tawhid/Aqidah Belief in Oneness of Allah, in the sense that He is the One and there is no other God Akhlaq Code of conduct for an Islamic way of life Fiqh Guidelines/rules on the practice of Muslims

Under Fiqh, the jurists have divided into four disciplines as follows: Al-Munakahat Rulings related to Islamic family life Al-Jinayat Rulings related to crimes Al-Ibadat Rulings related to acts of worshipping Al-Muamalat Rulings related to economic transactions. Rules and hukm of trade and commerce in the Islamic Banking are derived from this branch of disciplines. (Zulkifli Muhammad, 2008) 4.2. Principles of al-Muamalat 4.2.1. Root Word Muamalah (or muamalat in plural form), is derived from Arabic word aamala, which literally means to interact. 4.2.2. Definition The muamalat is set of rules (fiqh) related to worldly matters such as business/trading/commerce transactions, lending and borrowing contracts. The muamalat also involves the rules regarding the social interactions between human such as marriage, inheritance (waqf, faraidh) and the other human activities. Nowadays, it is more associated with economic, banking and finance.

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

4.2.3. Roles of Contracts in al-Muamalat In Islam, trade and commercial transactions are permitted to all Muslims. Profit motive and private ownership is acceptable to a reasonable extent. Unlike the Conventional Banking which money becomes the subject-matter in acquiring wealth, the Islamic Banking utilizes the civil contracts introduced since the period of Prophet Muhammad (s.a.w) to conduct trade and commercial transactions. In general, the banking transactions must comply with the requirements of the Shariah, which broadly speaking refer to: Abstinence from prohibitions (harm matters) Every contract possesses all its necessary elements and every essential element meets the necessary conditions Practice positive values and avoid negative value There are many prohibitions, but these five will make aqads or contracts invalid: Producing and selling impure goods Producing and selling goods that are of no use therefore of no value Riba Gharar i.e. ambiguity or uncertainty Maisir (gambling) i.e. anything that involves betting (Presentation Slide, Muhammad & oth., (FSTEP))

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

5.

Objectives of Shariah (Maqasid al-Shariah) Allah (s.w.t) created things with objectives and reasoning. It is impossible for Allah (s.w.t) to create something without specific aims and objectives. Generally, creation of other creatures is for the general benefits of humankind. Humankind, the highest form of creatures, was created to be a leader and khilafa in this world. The Quran verse highlights as follows: Behold thy Lord said to the angels: I will create a vicegerent (Khilafa) on earth. They said Wilt thou place therein one who will make mischief therein and shed blood? Whilst we do celebrate Thy praises and glorify Thy holy (name)? He said: I know what ye know not (Al-Baqarah: 30) In order to assist humankind to fulfill the role of khilafa, Allah imposes upon humankind a specified injunctions and hukm to follow. Nevertheless, every revelation of injunctions and hukm has objectives and aims. Some can be understood and some are hidden from human knowledge, which only Allah (s.w.t) has the answer to the secret. The objectives of Shariah are called as Maqasid al-Shariah. In general, Maqasid al-Shariah is primarily to regulate humankind for their actions and deeds in order to bring benefits to them. 5.1. Definition of Maqasid al-Shariah Referring to every understanding which could be seen at legislation that had been provided through Revelation as a whole as parts of it (Ibnu Ashoor) The goal of Shariah and the secrets of the legislation for every judgement in Islam (Ilal as-Fasi) The goals of the Way which everyone is striving to achieve for the benefit of human nations (Ahmad al-Raysuni) Revolve around maslamah of the society (Imam Al-Shatibi)

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

From above definitions, the Maqasid al-Shariah means as realization of benefit to the people, which are concerning their affairs, both in this world and Hereafter. It is to promote the maslahah and prevent the mudharah from humankind. Nevertheless, no jurists have attempted to provide specific definition of Maqasid al-Shariah. 5.2. Principles of Maqasid al-Shariah The principles of Maqasid Al-Shariah are to preserve and protect human dignity, rights and knowledge as well as the relationships between the God, humankind and other creatures. The principles are divided into the followings: 5.2.1. The Essential (al-Daruriyyat)

Definition: The most important principle for the life of humankind. It consists of matters of religious and worldly affairs which every humankind needs to protect in order to obtain Allahs Ridha. Impact, if neglected: The world would be disastrous and no safety in this world and Hereafter. Imam Al-Gahazali categories the principle into five classes as follows: The objective of the Shariah is to promote the well-being of all mankind, which lies in safeguarding their faith (din), their human self (nafs), their intellect (aql), their posterity (nasl) and their wealth (mal). Whatever ensures the safeguard of these five serves public interest and is desirable

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Protection of Religion (Haq al-din) Definition: The foundation of the other principles. It obliges every humankind to respect the Divine source of truth to guide the human thought and action, the recognition and acceptance of Allah (s.w.t) as the One and responsibility to apply the tenets of the Holy Quran in all aspects of human life. Example: Performing obligatory al-salah, zakah, fasting during Ramadhan, hajj and protecting religious and faith. Protection of Life (Haq al-Nafs) Definition: The duty to respect others as human person. Everyone is to ensure safeguarding of human life from any harms and hazards. Examples: Punishment of Qisas (the law of equality in punishment) for killing others Protection of Posterity (Haq al-Nasl) Definition: The duty to respect human dignity and lineage. Protect someones dignity and lineage from evil acts is imperative. Islam has enacted several rules and injunctions pertaining to human relationship and behaviour to ensure the Muslim acted on respectful and responsible manners. Examples: Relationship between men and women, marriage and alzaqf punishment

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Protection of Mind (Haq al-Aql) Definition: The duty to respect knowledge and intelligence. The protection of mind requires safeguarding it from anything that might harm the ability and function of the brain. Freedom of thought and assembly are encouraged as ways of obtaining valuable knowledge for the benefit of Ummah. (Shariah Aspect Coursebook). Examples: Prohibition to consume liquor which impede brain functionality and the encouragement to practice Ijtihad Protection of Property (Haq al-Mal) Definition: The duty to respect the rights of private property. It provides the means to broaden access to the capital ownership as a universal human right and as an essential means to sustain respect from other individuals and societies i.e. right to pursue economic interests. The rights of Islamic Finance are fall under this precept. (Al-Khaliji Bank) Examples: Prohibition of riba, stealing peoples property, cheating in transactions and breaking trust 5.2.2. The Complementary (al-hajiiyyat)

Definition: This principle complements the above ones. It consists of maslahah of individual and society in order to lead convenience life and avoid hardship. Impact, if neglected: Hardship in life, but does not lead to total disruption Example: Jama and qasar of obligatory prayers for travelers, pray in a sleeping and sitting position for sick people 5.2.3. The Embellishment (al-Tahsiniyyat)

Definition: Interests whose realization leads to improvement in life and attainment of desirable wishes. (Shariah Aspect Coursebook)

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Impact, if neglected: Lack of comfort but might have no effect on normal life Example: An individual, who already owned a car, is allow to buy another one if he requires and can afford it

6.

Maqasid al-Syariah from Islamic Bankings perspective Unlike the Conventional Banking to maximize profit as the sole objective, the Islamic Banking is guided by both material and spiritual perspective. Ethic and moral values, which rigorously nurtured by Maqasid al-Shariah, are important criteria to be observed when conducting business transactions. As such, several principles are to be observed to ensure the achievement of Maqasid al-Shariah. The followings are the principles to be upheld: 6.1. Justice in Financial Transactions Introduction: Just conduct, fairness exercise of authority in maintenance of right and fair dealing between each others regardless of race or religion. Details: Aqad, rules and conditions are to be observed in order the contracts to be valid. The purpose of prescribed aqad is actually to protect the interest of all parties involved in the contract. Should aqads and rules of contracts been observed, the interests of people could be upheld and also preventing infringements of rights of the others. Example: Mudharabah contract is an agreement between two or more parties to conduct a business of partnership, with one party provides the capital (i.e. Investor) while another provides the labour/ management expertise (i.e. Management). Among others, they need to agree on the sharing ratio of profit and loss between them prior to establishment of the partnership. Supposed that the company incurred losses, the followings are to be observed: Losses not due to Managements mistakes

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Investor has to bear the whole losses. The Management is only to bear the losses in terms of waste of labour cost. Losses due to Management and Investors mistakes Both parties are to bear losses based on the agreed sharing ratio However, in capitalist world, the investor is guaranteed a fixed sum of return regardless whether the company makes profit or incurs loss. The whole risks of investor are transferred to the Management to bear. This is a prejudice to the Management. Such practice will result the rich getting richer while the poor getting poorer. (Islamic Economic coursebook) Source: (Al-Baqarah: 188): And do not eat up your property among yourselves for vanities, nor use it as bait for the judges, with intent that ye may eat up wrongfully and knowingly a little of (other) peoples property 6.2. Continuity of Circulation of Wealth Introduction: Preserving the transactional nature of the financial dealings so as to enable large sectors of the population to become a part of the monetary cycle of wealth and to avoid the concentration of wealth in a few hands. (Shariah Aspect Coursebook, pg 5:20) Details: Trials of prosperity and hardship are among the tests put upon humankind to determine the quality of faith. The poor is tested on his patience to accept the situation, be grateful and pleased with Allah (s.w.t). Meanwhile, the rich is tested on how far the extent he would be grateful and willingly assist those in needs. Thus, Allah has ordered those who can afford to pay zakah after the requirements of haul and nisab have met. Besides zakah, other voluntary contributions such as donations, infaq, sadaqah and waqf are encouraged with intention to reduce the gap and to mobilize the wealth between rich and poor.

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Example: Islamic Banking is obligatory to establish a special fund for the purpose of paying zakah if the level of its earned profits reaches the level of nisab. Banks may make the zakah payment to the institutions that manage zakah collection or directly pay to the eight (8) categories of zakah recipients. Unlike Conventional Banking to charge late payment amount on delinquent accounts, Islamic Banking is not allowed to charge such interest. Instead, the defaulter has to pay compensation charges, which will be posted into a specified account to be distributed for charitable purposes. The banks are not allowed to utilised the account as its revenue. Source: (Al-Taubah: 103): Of their goods (wealth), take alms, that so thou mightest purify and sanctify them, and pray on their behalf. Verily thy prayers are a source of security for them. And Allah is One Who heareth and knoweth (Al-Hasyr: 7) In order that it may not (merely) make a circuit between the wealth among you 6.3. Honesty and transparency Introduction: Honesty incorporates the concepts of truthfulness and reliability as well as covers all aspects of relationships in human life. Meanwhile the transparency is the state in which all relevant information is fully and freely available to other people. Details: In commercial dealings, honesty and transparency are required from all parties involved to promote harmonious situation and prevent hostility and injustice. Thus, Islam demands the sellers to explain clearly the conditions and specifications of the goods so that the customers can evaluate and make informed decision before making purchases. Any faulty and defect, either obvious or hidden, pertaining to the goods are to be clarified in order to avoid any conflict in the future. 13

Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Example: All contract documents are to clearly spell out all the information of the goods. At the same, explanations as clearly as possible about the products and its impacts on signing agreements, are to be provided. This is to avoid one of the prohibited elements in contract execution: deception (taghrir). Divided into two: deception which relates to statements (taghrir qawli) and deeds (taghrir fili), it could exhort the customer into unfair and injustice position are strictly prohibited in Islam. The consequence is the deceived may rescind the contract. Source: (Al-Anfal: 27) O ye that believe! Betray not the trust of Allah and the Messenger nor misappropriate knowingly things entrusted to you 6.4. Prevention from harm and hardship Introduction: The objectives of Shariah are to protect and preserve five principles in Islam; religion (haq al-din), life (haq al-Nafs), posterity (haq al-Nasl), mind (haq al-Aql) and property (haq al-Mal). However, inflicting harm and hardship (mafsadah) to the individual as well as society may impede the achievement of the objectives. Details: Shariah has the objective to defend the individual and society from any element of harmful and evilness. Injury and damage could be avoided beforehand if the chances of committing evil acts closed. To achieve the objectives, all Shariah rules and principle need to observed at all times. The just and fair transactions in Shariah will promote the harmonious and conducive environment for investment and development of the wealth. Such, the aim of achieving the comprehensive communal prosperity in the society could be achieved. In addition, legal maxim hardship begets facility (al-mashaqqah tajlub al-taisir) provides alternative solutions on specific matters in order to overcome the hardship and adversities and harm shall not be inflicted nor reciprocated (la darara wa la dirar) indicates the importance to take the

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

necessary measures to prevent and avoid any kind of harms from happening. Example: Various standards and acts are formulated such as IFSB and AAOIFI in order to promote good governance in all forms of Islamic Banking transactions and dealings. In additions, the prohibited elements in Shariah contracts; duress (ikrah), mistake (ghalat), inequality (ghubn), interest (riba), uncertainty (gharar) and forbidden (harm) products, are strictly to be removed from business transactions to prevent inflicting harm and hardship to the contractual parties. Source: (Al-Baqarah: 185) Allah wants ease for you and He does not want hardship for you (Al-Baqarah: 195) make not your hands contribute to (your) destruction 6.5. Prohibition of major uncertainty (gharar) Introduction: Gharar has many connotation such unknown, ambiguity, speculative, gambling (maisir), hazard, ignorance etc. Details: Islam forbids Muslims engaged in any business with element of gharar. The reason is its existence in the transactions may deny the parties of equal bargaining power (ghubn) and consequently, cannot make informed decision. In addition, this is to avoid conflict and dispute among the contractual parties in the future. Example: Islamic Banking is not allowed to offer contracts on the products such as sale of wildlife animals which the chances to capture it uncertainty. This is to avoid cases whereby the animals captured not commensurate with the price paid i.e. the catch value may be lower or higher. In worst case, the seller is unable to capture the animals at all resulted in non-delivery of contract terms.

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Source: (Al-Baqarah: 188) And do not consume one anothers wealth unjustly (batil) except it be a trade among you by mutual consent (Al-Nisa: 29) O you who believe, do not consume one anothers wealth unjustly; rather, (all transfers of property should) be trade by mutual consent. 6.6. Prohibition of Riba Introduction: Riba is every excess in return of which no reward or equivalent counter value is paid. Details: Both types of riba, riba al-nasiah (riba in debt) and riba al-fadl (riba in exchange), are strictly condemned in Islamic Banking. According to Shariah, riba causes harm to the society by oppressing the poor and needy when they are indeed in financial needs. Apart from Shariah compliance, the major distinguishable criterion between Conventional and Islamic Banking is the avoidance of any element of riba by the latter in all its business transactions. The main criterion of Islamic financing is the asset-backed financing. This could avoid the money, which no intrinsic value, becomes the subjectmatter of the trade. Every Islamic contract must rely on the illiquid assets which creates real assets and investories. Examples: All contracts in Islamic Banking, either deposit, financing, trade or investment products, are free from elements of riba.

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Source: (Al-Baqarah: 275) Allah permit trade, but forbid riba (Al-Imran: 130) O you who believe, do not eat riba

7.

Challenges of Islamic Banking in Malaysia to fulfill the Maqasid al-Shariah 7.1. Criticism on Islamic Banking Criticisms have been thrown out towards Islamic Banking on its impact to the society. The concept of distributive justice, the core principle of Maqasid al-Shariah in Islamic Banking, is claimed to be highly exaggerated. Many have compared it against the Conventional Banking and concluded that the Islamic Banking is just another branch of banking system, with no major differences. 7.2. Reasons of misunderstandings The proportion between Conventional and Islamic Banking is still huge. Especially in Malaysia, in year 2010, the total market of Islamic Banking is approximately 17.3%. (Earnst & Young, pg. 80). Therefore, the impacts of Islamic Banking are yet to reach the whole population The Islamic Banking industry is still at developing stage, which may require quite number of years before it fully matures. Various constraints are to be overcome. Such situations may result in the Islamic Banking unable to comply strictly with the Shariah requirements in their transactions. Therefore each and every transactions carried out cannot be attributed to Shariah per se. Presently, the Islamic Bankings transactions are more towards the Shariah-compliance rather than Shariah-based. (Muhammad Taqi Usmani, Pg. 23) Islam has two sets of rules: The ideal objectives of Shariah applicable under normal circumstances

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

Concession of Islamic rules under abnormal circumstances As the Islamic Banking has to overcome constraints, it mostly relies on concession rules to accommodate the contemporary banking requirements and practice in the country. As a result, the changes made by the Islamic Banking are not visibly noticed to the public. Malaysia has developed a dual financial system, whereby the Islamic financial system operates in parallel with the Conventional system. (MIFC, Primer to Islamic Finance). Eventhough the objectives are to create comprehensive system, it may create a situation whereby the Conventional Banking overshadowing its Islamic counterpart. circumstances: More focus given towards Conventional Banking. This is due to the Islamic Banking is generally a subsidiary of the Conventional Banking. Lack of understanding on the Maqasid al-Shariah in Islamic Banking. Such, no concerted effort to promote Islamic Banking as an alternative system. Due to the high level of customer saturation and the needs for pitching the same customers, the Conventional Banking may consider Islamic Banking as its direct competitor. Establishment of Conventional Banking long before the Islamic Banking resulted in the inferior status given to the latter. The followings may attribute to the

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

7.3.

Moving Forward The government is aggressively promoting the Islamic Finance which founded on Shariah principles, to meet the financial needs with principle of fair distribution. The followings are some of the initiatives: Issuance of licenses and increased limits of foreign equity ownership for Islamic financial institutions. (Earnst & Young, pg. 85) The growth of halal food industry in Malaysia has positive implications for the Islamic banking and finance industry, as the source of financing for the halal food industry should be from a Sharia-based source. (Earnst & Young, pg. 85) Development of well-defined Shariah governance framework as well as establishment of Shariah Advisory Councils at national level and Shariah Committee at individual banking level, to ensure uniformity and harmonization of Shariah interpretation which geared towards good corporate governance. (MIFC, Primer to Islamic Finance) Development of human capital with establishment of institutions such as IBFIM, ICLIF, INCEIF, ISRA and SIDC, to meet all level talent needs. (MIFC, Primer to Islamic Finance) Various packages offered to attract and retain talents including foreign expert in Islamic finance. Finance) (MIFC, Primer to Islamic

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

8.

Conclusion Shariah is sets of rules and precepts sourced from the Divine revelation to guide humankind as a way of life. Its main objectives are to protect and preserve public interests (maslahah) in all aspects and segments of life. Islamic Finance, founded on Shariah principles, has been formulated on the principles of integrity, transparency and fairness and good corporate governance in financial dealings. This is in line with the overall objectives of Shariah. However, a number of constraints have impeded the fulfillment of the Maqasid alShariah principles in dealings of financial transactions. Nevertheless, several good measures and initiatives by the government and Islamic communities, have been put in place to overcome the constraints and hopefully years to come, the Maqasid al-Shariah could be fully fulfilled and realized in Islamic Finance.

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Maqasid al-Shariah is One of the Very Important Shariah Aspects in Islamic Finance. Discuss the Above Statement Within the Islamic Context.

References A: Book Muhammad Taqi Usmani (August 2007), An introduction to Islamic Finance, Karachi, Pakistan: Quranic Studies Publishers (Maktaba Maarifatul Quran) Primer to Islamic Finance. Kuala Lumpur: Malaysia International Islamic Financial Centre (MIFC) Dr. Ahcene Lahsana (2011). SH1002: Shariah Aspect of Business and Finance Enhanced Edition of CIFP Module 2011 (Coursebook). Kuala Lumpur: International Centre for Education in Islamic Finance (INCEIF) Compilation by Dr Magda Ismail Abdel Mohsin. IE1001 Islamic Economics (Coursebook). Kuala Lumpur: International Centre for Education in Islamic Finance (INCEIF) B: Journal Earnst & Young (2011). World Islamic Banking Competitiveness report 2010 2011 - A Brave New World of Sustainable Growth. Dubai: MEGA Brands C: Data from the Net: Methodologies in Shariah Decision Making. Malaysia International Islamic Financial Centre (MIFC), Kuala Lumpur. (www.mifc.com/publication/srif/03_methodologies.pdf) Mohd Zulkifli Muhammad (2008). GT20302 Introduction to Usul Fiqh (Lecture note) (www.scribd.com/doc/22853965/Lecture_Notes_1_Usul_Fiqh) Muhammad Hadi Abdullah, Nasrudin Yaakub and Mohd Nazri Chik. Fundamentals of Shariah (Presentation Slides). Financial Sector Talent Enrichment Programme (FSTEP) (www.ibbm.org.my/pdf/FSTEP%20Fundamentals%20of%20Shariah-1ST %20DAY.pdf) Fulfilling the Maqasid al Shariah - The Purpose of the al Shariah. Qatar. AlKhaliji Bank (www.alkhaliji.com/Common/PDF/Restofinformation.pdf)

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