Developing Islamic financein the framework of maqasid

al-Shari’ahUnderstanding the ends (maqasid)

and the means (wasa’il)

Mohamad Akram Laldin and Hafas FurqaniInternational Shari’ah Research Academy for Islamic Finance (ISRA),

Kuala Lumpur, Malaysia

Abstract

Purpose – The paper aims to investigate the dimensions of maqasid al-Shari’ah in Islamic finance byexploring the ends (maqasid ) and the means (wasa’il ). Those would clarify the nature and goals ofIslamic finance as well as its directional development.

Design/methodology/approach – Using literature in English and Arabic sources in the area ofmaqasid al-Shari’ah, as well as from the reading of the primary sources (the Qur’anic texts/nusus), thepaper attempts to delineate the dimensions that would constitute the ends (maqasid ) and the means(wasa’il ) in Islamic finance.

Findings – The paper explicates three specific ends (maqasid ) in Islamic finance, namely wealthcirculation, fair and transparent financial practices and justice at the micro- and macro-level. Toachieve those ends, the Shari’ah provides means (wasa’il ) such as facilitating financial contracts,establishing values and standards and instituting social responsibility.

Research limitations/implications – The paper is a conceptual paper that explores thedimensions of maqasid al-Shari’ah in Islamic finance.

Practical implications – The findings of this paper will give insights on the ends (maqasid ) andthe means (wasa’il ) in Islamic finance based on the maqasid al-Shari’ah discourse. It could be used as areference in understanding the nature of Islamic finance and in developing a sound and solid Islamicfinance based on the Shari’ah.

Originality/value – The paper proposes the ends-and-means criteria in Islamic finance, developedon the basis of the maqasid al-Shari’ah discourse as well as from direct reading of the texts (nusus),which is lacking in the Islamic finance literature.

Keywords Ends (maqasid ), Islamic finance, Maqasid al-Shari’ah, Means (wasa’il )

Paper type Conceptual paper

1. IntroductionThe development of Islamic finance is widely considered phenomenal. Islamic financeis not only being used by Muslims but also non-Muslims. While still developingrapidly in Muslim countries, it is now noticeably penetrating the Western world aswell. Islamic finance’s emergence as a practical financial system is viewed as timely inthe midst of a world financial crisis for which the remedial solutions have so far beenineffective, postponing some problems and making others worse. Although thephenomenon might be seen by some as part of the global Islamic resurgence toreconstruct Islam’s legacy in modern times, the interest in its practice is actuallytriggered by the philosophy and system of values it offers. The interest in Islamic

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International Journal of Islamic andMiddle Eastern Finance andManagementVol. 6 No. 4, 2013pp. 278-289q Emerald Group Publishing Limited1753-8394DOI 10.1108/IMEFM-05-2013-0057

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finance is basically pushed by the expectation that Islamic finance could elegantlyoffer a coherent perspective for understanding real economic problems as well as agenuine alternative to the very foundations for the management of economics andfinance to achieve human prosperity.

This expectation is very much in line with the concept of maqasid al-Shari’ah(objectives of the Shari’ah), which provides the philosophical foundations for theoverall direction of Islamic finance, the guidelines for its operations, and its very raisond’etre in contemporary times. Commerce and finance are viewed as an important partof the Shari’ah. Adherence to maqasid al-Shari’ah is essential for developing Islamicfinance as a system that realizes human wellbeing (maslahah).

Recognition of this reality is driving the increasing interest in applying the maqasidto the development of Islamic finance. It is generally acknowledged now that meetinglegal requirements through comprehensive and systematic technical procedures is notsufficient. Attention should also be paid to the objectives of the Shari’ah.

This paper attempts to discuss the goals of the Shari’ah, which signify thephilosophy that underpins an Islamic financial system. The discussion investigates themeaning and dimensions of maqasid al-Shari’ah and the means (wasa’il ) to apply torealize the goals in real life, especially in Islamic finance.

2. Maqasid al-Shari’ah: meaning and dimensionMaqasid al-Shari’ah is translated as the goals and objectives of the Shari’ah. The wordmaqasid is the plural of maqsad, which denotes the straightness of a path(istiqamat al-tariq), balance and justice (al-‘adl ), and directive destination (al-i’timad )(Al-Kaylani, 2009, p. 53). Maqasid al-Shari’ah in this perspective comprises the goalsupon which the Shari’ah is established and to which all actions of human being aredirected.

Shari’ah literally denotes a source of water or a path to it. The Shari’ah constitutesrulings (ahkam) that encompass all aspects of the belief system (‘aqidah), therelationship between individuals and God (‘ibadah), and relationships between people(mu’amalah), as well as a system of ethics and morality (akhlaq). It represents a body ofIslamic teachings that constitute a set of norms, values and laws that govern all aspectsof life (Qur’an, 42: 13, 21, 45: 18). To reiterate and make explicit what has been impliedabove, the aspects of life include political, cultural and civilizational matters that concernnot only the Muslim community but all of humanity (Abdul Rauf, 2002, p. 3; Berghout,2006, p. 55).

Shari’ah in this regard is an all-embracing framework that exists to support humanexistence by providing the necessary principles and means to establish and enhancehuman wellbeing (maslahah). All the Shari’ah’s teachings, injunctions and prohibitionsare related to the grand wisdom (hikmah) of securing human interests in the worldlylife and the hereafter. All the Shari’ah rules that contain obligations and duties bringbenefit and prosperity, and all its prohibitions prevent them from harm and hardship(Qur’an, 2: 30; 3: 191; 6: 165; 38: 27; 44: 38-39; 67: 1-2).

Maqasid al-Shari’ah therefore comprise all the goals and objectives of the Shari’ah.They are standards and criteria, values and guidance rooted in divine revelation (wahy)to be applied in solving the problems that confront mankind and in guiding thedirection of life. From a more limited perspective, maqasid al-Shari’ah are the aims orunderlying purposes of the rules of the Shari’ah.

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The discussion of maqasid al-Shari’ah in Islamic finance should therefore be seen inthis broader perspective. It should not be only about the Islamic objectives inlegislation related to financial activities; instead, it is related to the whole purpose ofIslam in financial activities.

This understanding of the Shari’ah has implications for the approach to be taken indeveloping Islamic finance and setting its direction. It extends the understanding ofShari’ah compliance from fulfillment of the legal requirements for financial products in amechanical and procedural sense to include commitment to values and goals outlined bythe Islamic vision of life. Furthermore, in deriving legal rulings, comprehension of theoverall objectives of the Shari’ah provides a theoretical framework by which particulartexts and technical procedures are understood. The understanding of maqasid prior tolaying down guidelines or setting up practical rules is important in order to get correctoutput from the ijtihad process (Al-Qaradawi, 2007, p. 137).

In practice, such a process would lead us to a balanced approach in deriving lawsfrom the texts (nusus) and produce a moderate and just result (Qur’an, 55: 8-9). Moreover,it avoids two extremes: the extreme literal approach, which ignores and thwarts themaqasid at the expense of rigid textual understanding, and the extreme liberal approach,which ignores and thwarts the maqasid by loosely interpreting the texts using unbridledintellectual reasoning.

Therefore, maqasid opens up the avenues of ijtihad in tandem with the technicalprocedures of usul al-fiqh for deriving laws to make sure that the spirit of the law is reflectedin the practical legal rulings (Kamali, 2000, p. 22). In this approach, the understanding oftexts should be done in relation to the context of practical realities. This would create unityin deriving Shari’ah rulings in which the detailed rules are to be read within the parametersof the general framework and detailed actions are set in line with the bigger goals.

Discussion of maqasid would ensure applicability of Shari’ah principles and objectivesto all situations and ensure suitability of human circumstances in all places and times withthe grand framework of the Shari’ah. Aspects of this process have been identified in theliterature as taqrir al-maslahah (confirming benefits), sadd al-dhari’ah (blocking lawfulmeans that lead to harmful results), raf’ al-harj (removing hardship), and repelling harm(daf’ al-mafsadah) or changing it (taghyiruhaa) (El-Mesawi, 2006, p. 92).

This should be done continuously until we arrive at the result Al-Jawziyyah (1991,pp. 3 and 14-15) mentions in I’lam al-muwaqqi’in:

The Shari’ah edifice and foundations [embody] wisdom and benefits for humanity in theirworldly life and afterlife. All of it is justice, all of it is benefits, and all of it is wisdom. Anyissue [in which the ruling] departs from justice to injustice, from mercy to its opposite, frombenefit to harm, and from wisdom to arbitrariness is not, in fact, part of the Shari’ah, even if ithas been attributed to it by a process of interpretation.

3. The ends (maqasid ) in Islamic financeAs the Shari’ah is designed on the basis of, and for the purpose of, human wellbeing(i.e. maslahah), maqasid al-Shari’ah take into consideration the various dimensions ofhuman needs. Their fulfillment will create balanced satisfaction in human life at themicro-level of individuals and the macro-level of societies and thus help realize humanwell-being. With regard to Islamic finance in particular, maqasid al-Shari’ah refer tothe overall goals and meanings that the Shari’ah aims to achieve from its principlesand rulings related to financial activities and transactions (Laldin, 2008, p. 77).

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The literature on maqasid al-Shari’ah in Islamic finance classifies the issue as fallingunder the rubric of protection of wealth (hifz al-mal ) as per al-Ghazali’s classification oftypes of maslahah (Al-Khelaifi, 2004; Laldin, 2010; Dusuki and Bouheraoua, 2011;Ahmed, 2011)[1]. That approach is justified as finance’s subject matter is basically howto allocate resources from surplus sectors (capital providers) to deficit sectors (capitalusers) so that wealth is smoothly circulated and human welfare is realized. As financedeals with wealth allocation and appropriation (from mobilization until utilization), themaqasid in hifz al-mal should therefore be understood and discussed by looking at thenature, function and role of wealth in relation to the primary objective of realizing humanwellbeing, individually and collectively, by acquiring benefit (maslahah) and preventingharm (mafsadah) (Qur’an, 5: 6).

Reflecting upon a range of texts of the Qur’an and the Sunnah on financialactivities, it can be stated that the Shari’ah has given consideration to specificobjectives in the enactment of financial laws and principles. The overall goal of theseobjectives – which include facilitating the circulation of wealth in the society,advocating fair and transparent financial practices and promoting socio-economicjustice – is to serve the financial needs of human beings.

3.1 Wealth circulationWealth circulation includes all the processes related to wealth creation, consumptionand distribution. This objective is derived from the Qur’anic explanation of the reasonbehind a rule regarding distribution: “[. . .] so that wealth is not circulated among the richin the society only” (Qur’an, 59: 7). Islam intends that resources run smoothlythroughout the economy in the pursuit of human well-being and intergenerationalcontinuity.

This perspective embarks from the concept that wealth is considered as a bountyfrom God ( fadl Allah) and a trust (amanah) which He temporarily entrusts people with.As God’s bounty, wealth itself reflects God’s blessings on humanity (Qur’an, 62: 10)and it is therefore naturally good (khayr) (Qur’an, 2: 215, 272-3). Working to acquirewealth is therefore not only legitimated but highly praised (Qur’an, 4: 32); however,creating and augmenting wealth must be done using only the broad range of legitimatemeans (Qur’an, 4: 29). Since wealth is God’s trust (amanah), it is to be spent in the rightends (Qur’an, 3: 92). The most favoured ends are those that conform to the higherobjectives associated with the human mission of stewardship (khilafah) (Qur’an, 23:51).

Commercial and financial activities are viewed positively as mechanisms tocirculate wealth among all the sections of society and all sectors of economy so that it isnot concentrated in the hands of the few but, rather, promotes overall humanwellbeing. Islam encourages wealth to be employed in productive activities. Fundsshould not be wasted (Qur’an, 6: 141; 25: 67), left idle (Qur’an, 9: 34) or misused andmanaged unprofessionally (Qur’an, 4: 5). In fact, any funds which are not employedwill be “penalized” through zakat, which will gradually reduce the volume of idlewealth and put it back into circulation. Zakat is an institutional mechanism thatnecessarily keeps wealth in continuous circulation.

The Islamic economic system as a general framework would ensure fair andequitable mobilization and distribution of resources. Islamic finance in particular hasdeveloped in line with Islam’s objective of wealth circulation by observing Islamic

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rules (ahkam shar’iyyah), which identify right and wrong behaviour in the spirit ofprotecting wealth (hifz al-mal ). Islamic finance institutions, including Islamic banks,takaful companies, mutual funds and other companies, play a role in resourcecirculation in society and increasing human wellbeing.

3.2 Fair and transparent financial practicesPermissibility (ibahah) is the overarching principle governing commercial andfinancial transactions. This ibahah principle is aimed to facilitate the realization ofmaslahah and to remove hardship and harm in financial transactions. Freedom ofcontract is therefore not only recognized as part of the system but is also guaranteedand treated as an essential element of any valid contract. Nevertheless, this freedom isto be exercised within the atmosphere of fairness, equity, justice and high morality.Any contract stipulated and agreed by both parties should be respected and enforced(Qur’an, 5: 1) as long as it involves no terms clearly prohibited by the Shari’ah.

Transparency means that all financial transactions must be conducted in such amanner that all the parties are clear about all important facts of the transactionsnecessary for the avoidance of disputes, clashes or damages to any party. The Qur’anhas stressed that all agreements and contracts should be as transparent and clear aspossible (Qur’an, 2: 282, 11:84, 17:35, 26:181-182, 55:9, 83: 1-3).

Fairness means equity and honesty between the transacting parties as well asefficiency in transactions. Fraud, deception and manipulation of any kind are thereforecondemned. Islam’s insistence on the mutual consent of the parties as a condition forthe validity of any contract means that pressure, fraud, or misleading statements byany party render it invalid or voidable. Likewise, Islam disapproves all commercialpractices which involve explicit or implicit harm and injustice to the contractingparties or to the public at large and which restrict the freedom of trade or stand inviolation of the Qur’anic injunctions or approved business conduct (Balala, 2011, p. 6).

In addition, this objective also seeks to rid Islamic finance of misuse andsquandering of resources, to prevent disputes and grudges among the community, andprevent one party gaining from another’s loss. Kamali (2008, p. 22), in this regard,firmly notes that justice and fairness are the hallmark values in commercial contracts.If a contract proves to be an instrument of injustice, it must be set aside, and justice,which is the goal) of the Lawgiver, must be given priority over considerations ofconformity to an untenable contract.

3.3 Justice in the macro- and micro-dimensionsThe maqsad of wealth circulation is related to the macro-goal of the Shari’ah while themaqsad of fair and transparent financial practices is related to the micro-goal of theShari’ah in transactional instruments and mechanisms. The maqsad of justice embracesboth the micro- and macro-dimensions. This maqsad is related to the desire of having ajust social order as well as just dealings among individuals in financial transactions.

This objective is characterized in the Qur’an with the concepts of right, fairness,putting things in their proper place, equality, harmony, balance, and moderation.It includes the rights (huquq) to equal opportunity, to not be exploited and to receive truevaluation of one’s labor. This objective underlies the substantive and regulative rules ofthe Shari’ah, the formation of communities and individual behavior (Iqbal andMirakhor, 2007).

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At the macro-level, the goal is to realize social justice. The Islamic financial systemattempts to realize economic justice through wealth circulation, efficiency inresource utilization, fulfilling society’s basic needs, elimination of poverty andimproving human wellbeing. The main purpose of resource circulation (distribution)is to achieve justice, maximum efficiency and improvement of human wellbeing ingeneral.

At the micro-level, the principle of justice embraces individual dealings. Economictransactions demand equal rights and opportunities and are not allowed to be enforcedwithout the mutual consent of both parties (taradi ). Likewise, unfair dealings orunjustified actions that lead to economic injustice or exploitation are condemned, forexample: bribery (rashwah), fraud (ghish), cheating (tadlis), uncertainty and lack ofclarity (gharar) and unjustified increase in wealth (riba).

4. The means (wasa’il ) in Islamic financeAs the objective of the Shari’ah is nothing other than human wellbeing, it provides thenecessary means (wasa’il ) to establish and preserve it in the real-world human context.Based on our previous discussion on the nature of maqasid, which aim at establishingmaslahah and preventing or removing mafsadah, wasa’il can be classified, inaccordance with the nature of the maqasid they serve, into those that realize maslahah(in this case promoting the circulation of wealth, fair and transparent financial dealingsand justice) and those that prevent mafsadah (i.e. factors that prevent wealth fromsmooth circulation, lead to unfair financial dealings or thwart justice).

There are important differences between maqasid and wasa’il in certain aspects.While principles and objectives (maqasid ) are fixed, established and permanent, means(wasa’il ) are subject to change as they must be tailored to effectively realize those fixedgoals in the context of ever-changing circumstances. Creativity is required to find orcreate the appropriate wasa’il for that end. The following discussion will try toinvestigate some of these directives and mechanisms.

4.1 Facilitating financial contractsTo institute the smooth circulation of wealth in society, the Shari’ah facilitates varioustypes of transactions and strongly encourages Muslims to undertake and participate innecessary types of financial activities (Laldin, 2008). In commercial activities, theunderlying principle is that of permissibility (ibahah). The transactions validated in theQur’an and Sunnah are not exhaustive, and new transactions can be introduced aslong as they are not contradictory to the principles of the Shari’ah. Therefore, freedomof contract is guaranteed so long it does not annihilate fairness as propagated by themaqasid al-Shari’ah (Kamali, 2000, pp. 69-70).

In general, Islamic nominate contracts related to economic transactions are classifiedinto three main categories: exchange (mu’awadat), partnership (ishtirak), and gratuitous(tabarru’at). Exchange contracts include simple spot sales (buyu’); sales that create debt,such as deferred payment sales, salam, istisna’, ijarah, and reward for successfulcompletion of a job ( ju’alah). Ishtirak contracts are ones in which one party assignswork/capital/obligation to another party (or parties). These contracts include agency(wakalah), partnerships (sharikah) contracts in the forms of mudarabah andmusharakah, assignment (hawalah), and pledge or mortgage (rahn). In gratuitouscontracts, ownership or possession (right of use) is transferred without consideration or

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compensation. Gratuitous contracts include loans (‘ariyah and qard ), deposits (wadi’ah),gifts (hibah) and guarantee/security (daman or kafalah).

The contracts are designed to serve their particular purposes. Therefore, eachcontract should be respected and fulfilled not only in order to protect the interests ofthe parties to it, but also to serve the purpose for which the contract was legislated(Qur’an, 5: 1).

If a contract is irregular due to some of its conditions (shurut), it would have to befixed. If it is defective in its pillars (arkan), it would be considered void (batil ) and isirreparable. Dissolution (inhilal ) of a contract after it has become valid (sahih) andenforceable (nafidh), but before or during its execution, is possible through:

. mutual agreement (iqalah); or

. revocation and termination due to special reasons ( faskh) such as impossibility(istihalah) of contractual performance or automatic dissolution by death,destruction of the subject matter, expiry of the period, achievement of purpose,etc. (Islam, 1998, p. 339).

This is because the Shari’ah firmly stands for cooperation and fair treatment amongthe contractual parties. Therefore, it does not allow a loophole to exist so that unfair orunjust treatment could happen.

This spirit marks the Islamic approach in commercial (financial) dealings as notonly formal but also substantial. While certain formalities and substantive elements areessential for a transaction to become legally binding on the parties, this should be donethrough mutual agreement that brings about mutual consent and satisfaction (rida)(Qur’an, 2:282). Therefore, along with approval of various contractual facilities andemphasising fulfilment of contractual obligations, Islamic law also provides variousways to remove contractual obligation in situations of unavoidable difficulties andnecessities.

4.2 Establishing values and standardsTransparent and fair dealings are considered among the main objectives of the Shari’ahin financial transactions and activities. In this regard, it aims at creating an equal andfair transactional atmosphere and at protecting the parties against exploitation orimbalance between their reciprocal rights and obligations. Such imbalances tend toresult from a lack of fair and objective criteria by which their rights and obligations canbe determined with an acceptable degree of exactitude and certainty (Omar, 1998, p. 44).

The application of the Shari’ah in the financial and commercial sphere shouldtherefore not result in injury, harm or difficulties to either individuals or the public atlarge as the Shari’ah intends to create a positive atmosphere in commercialtransactions whereby exchanges are done on the basis of brotherhood, cooperation andmutual benefit to both parties. Therefore, the Shari’ah has identified certain values,measures and standards to be upheld in transactions and certain negative elements tobe avoided, as they would nullify the objective. Those values and standards wouldrelate to both the macro-maqasid dimension of having wealth circulate smoothly insociety and the micro-maqasid aspect of having fair and transparent financial dealings.

Economic exchange in Islam is inseparable from Islamic values, which must betranslated into practical rulings that prevent fasad (corrupt acts) such as unfairdealing, abusiveness, greed, unbridled individualism and exploitation of others. At the

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same time, truth and honesty, responsibility, trust, generosity, justice, friendship andcooperation are highly encouraged and must be preserved in financial dealings.These values would not only protect customers, stakeholders and the public, theywould also promote smooth allocation of resources and fair dealings in transactions.According to Abtani (2007):

Islamic law cannot be separated from its moral, ethical and religious principles; otherwise, itsrules will be useless. In other words, the Islamic system cannot be secular. This is because allIslamic rules, including economic and political, are connected with the faith, beliefs andworship of Islam.

Beyond the realm of values, the Islamic economic system has instituted various waysto spend for the sake of Allah such as zakah, infaq, sadaqah, hibah and qard. Thesewould cultivate the spirit of brotherhood and mutual cooperation in society, assist thecirculation of wealth, activate the economy and increase productivity. Conversely,destructive tendencies have been prohibited, for example, israf (unnecessaryspending), itraf (self-indulgence), tabdhir (spending on unlawful activities), and bukhl(stinginess). Ihtikar (hoarding) is also prohibited as it prevents wealth from circulationby halting supplies. Likewise, illegal means of acquiring wealth or causing harm toothers in wealth creation are also prohibited (Qur’an, 5:33, 38).

From the micro-perspective of transactions, in the effort to achieve justice, Islamputs in place measures to “level the playing field” among the parties to a contract. Thatincludes the removal of factors that would distort equality or allow one party to gain atthe expense of others. Among the main negative elements are riba and gharar.

Riba is banned because it allows unjustified increase in wealth in transactions,whether in loans (qurud ) or sales (buyu’) (Qur’an, 2: 275-277). An essential feature of ribais that it transfers risk onto one party and shields the other from it, guaranteeing it afixed return. In a loan, riba transfers risk to the debtor, by requiring him to pay back themoney lent with increment. Certain sales, especially those involving delayed payment,can also be structured to transfer all risk to the buyer without the seller assuming risk(ghurm) or liability (daman) or effort (kasb). Riba could also arise due to unequalexchange in a sale.

Riba is very much related to injustice. It is prohibited not simply with regard tointerest on loans or banking interest. Instead, it is a comprehensive concept whichencompasses all factors of production and distribution, such as capital, land and laborwhereby one party attempts to gain benefit at the expense of the other party withoutproviding an equal counter value (‘iwad ) (Abu Sulayman, 1998, p. 99). Riba is forbiddenon the ground that it fosters the unjust acquisition of wealth at the expense of socialjustice, the equitable distribution of wealth and the wellbeing of the community(Choudhury, 2012). The abolition of riba also implies that Islam promotes cooperativeand participatory financing for resource mobilization and circulation in society as meansto general productivity and wellbeing.

Gharar is also prohibited and is considered a major negative element that wouldprevent a fair financial transaction. Gharar is defined as a characteristic that rendersthe consequences and future outcome of a transaction unknown or uncertain (majhul ).It is a transaction done on the basis of pure speculation in a state of ignorance ( jahalah)due to uncertainty about the existence of the contract’s subject matter or failure toproperly identify it, e.g. its genus, type or quantity, or uncertainty about the ability todeliver it, time of delivery, time of payment, etc. Transactions containing gharar

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usually lead to dissatisfaction on the part of the parties involved and cause harmand/or conflicts between them due to the attendant ambiguity.

In the maqasidic approach, law and ethics, values and practices, form and substanceshould integrate and not contradict one another. Shari’ah prohibitions and parametersshould not, therefore, be understood in a merely legalistic or formalistic manner.Instead, attention should be focused on the core and substance of values and principles.In banking and finance activities, for example, the Shari’ah injunctions should beintegrated in the operational activities with genuine concern for fair and transparentpractices that contribute to the development of society and human wellbeing (Dusukiand Abozaid, 2007, p. 161).

4.3 Instituting social responsibilityIn the spirit of social justice, Islam balances individuals’ rights with their duties andresponsibilities towards others. The concept of fard kifayah (social obligation) placesresponsibility on those who are capable or better off to assist those who are not capableor who are worse off. As it is an obligation ( fard ), social responsibility is therefore notan option. This framework of mutual cooperation and assistance should become thesocial context of an Islamic economy, whereby society will grow without disparity,indifference or exploitation (Rahman, 1969, p. 1).

As wealth is a trust, the Qur’an indicates that a person may consume according tohis need. The rest of income or wealth should be spent in charity or the cause of Allah( fi sabilillah), or be reinvested in a business where it may produce more wealth andcontribute to employment and income for others. Zakah and sadaqah are formalinstitutions of social responsibility instituted by Islam that ought to bring society closeto the ideal of distributive justice (Al-Faruqi, 1983, p. 221).

While it is preferred that this responsibility be undertaken from moralconsciousness that it is right to take care of and assist fellow human beings, anIslamic economy is also realistic in acknowledging the responsibility of the state. It is afactual reality that people, left to themselves and to market forces, would most likelynot reach the desired goals and objectives spelled out above due to weaknesses inindividuals (Qur’an, 96:6). Some other mechanisms are therefore needed. This calls forstate involvement by setting up regulations, laws and policies, as well as institutions ofcivil society to help, along with government, to provide a social safety net for thedisadvantaged. The constraints imposed, and incentives offered, by the norms, valuesand culture adopted in a society are also important.

The emergence of Islamic finance should be viewed in this context. Islamic finance isa part of Islamic economics that has the potential to contribute richly to the achievementof the major socioeconomic goals of Islam such as socioeconomic justice and equitabledistribution of income and wealth (Chapra, 1985, p. 34). The establishment of Islamicbanking and financial institutions is not an attempt to merely fulfil Muslim society’sdesire to have a “legal” (halal ) form of financial services in a strict legalistic (formalistic)sense by cleansing economic and financial practices from interest (riba), gambling(maysir), uncertainty (gharar) and other prohibited (haram) elements commonly foundin conventional financial services. Muslim society has a right to expect a high level ofcorporate social responsibility from Islamic financial institutions since they carry the“Islamic” name, which implies that they should promote Islamic ideals and objectives inhuman life (Dusuki and Abdullah, 2007; Sairaly, 2011).

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Islamic banks and financial institutions should take maqasid into account in settingtheir corporate objectives and policies and also use them to verify compliance with trueIslamic principles; Islamic finance’s progress will be monitored by how well it realizesthe maqasid in producing a good economy marked by the spirit of brotherhood(ukhuwwah) and cooperation (ta’awun), social equality and justice (‘adalah), justand fair allocation of resources, elimination of poverty, protection of the environmentand achievement of general wellbeing (maslahah).

5. ConclusionMaqasid al-Shari’ah is a comprehensive concept that explicates the ideals/objectives ofthe Shari’ah related to human life. As the Shari’ah is an all-embracing concept that isconcerned with human life and human wellbeing, maqasid should not be reduced toobjectives in the legal dimension. The maqasid discussion in the financial sphereshould always refer to the general objective of the Shari’ah, which provides a grandframework and direction for how financial transactions should be arranged in anIslamic economic system. Our perspective should not be limited to fulfilling theminimum legal requirements and calling that Shari’ah compliant.

In the framework of maqasid, Islamic finance and banking activities lead to theactualization of Shari’ah objectives by realizing maslahah (benefit) and preventing orrepelling mafsadah (harm). In this endeavour, the discussion would embrace the micro-and macro-dimensions of individuals and society in general. The maqasid (objectives)would include smooth circulation of wealth, fair and transparent financial practices,and justice and equity at both the micro- and macro-levels. In order to realize thoseobjectives, the means instituted by the Shari’ah include facilitating financial contracts,establishing values and standards as well as inculcating a sense of socialresponsibility. The future trend in the development of Islamic banking and financeis the expectation that it adopt maqasid al-Shari’ah as the indispensable framework forstructuring Islamic financial contracts and as the directional guideline for furtherdevelopment of the industry. Fulfilling minimal Shari’ah legal compliance in productstructuring is viewed as insufficient. Instead, movement towards realizing maqasidal-Shari’ah is highly valued as the means to give Islamic banking and finance ameaningful presence. This would have an impact of economic substance in the form ofjust and fair allocation of resources, real economic sector development, and fair andtransparent financial dealings with all the ethical hallmarks of brotherhood,cooperation and risk sharing.

Note

1. Al-Ghazali (1993, Vol. 1, p. 287), in his book al-Mustasfa, classified maqasid al-Shari’ah asprotection of five essentials: the religion (al-din), life (al-nafs), intellect (al-‘aql ), progeny(al-nasl ) and property (al-mal ). Since then, scholarly discussion of the theory of maqasidal-Shari’ah has explained, broadened and applied this framework in practical life.

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Further reading

Sharif, M. (2005), “The feasibility of an Islamic economic system in a modern world”, inAhmad, M.B., Ahsani, S.A. and Siddiqui, D.A. (Eds), Muslim Contributions to WorldCivilization, IIIT, Herndon, VA, pp. 91-108.

About the authorsDr Mohamad Akram Laldin is an Associate Professor and is currently the Executive Director ofInternational Shari’ah Research Academy for Islamic Finance (ISRA). Prior to joining ISRA hewas an Assistant Professor at the Kulliyah of Islamic Revealed Knowledge and Human Sciences,International Islamic University Malaysia (IIUM). He is a member of Bank Negara Malaysia’sShari’ah Advisory Council and member of HSBC Amanah Global Shari’ah Advisory Board.Akram holds a BA honours degree in Islamic Jurisprudence and Legislation from the Universityof Jordan and a PhD in principles of Islamic jurisprudence (usul al-fiqh) from the University ofEdinburgh, Scotland, UK. He is a prolific author of academic work, specifically in the areas ofIslamic banking and finance. He has published books Fundamentals and Practices in IslamicFinance (2008), Introduction to Shari’ah and Islamic Jurisprudence (2011, 3rd ed.), and A MiniGuide to Shari’ah and Legal Maxims (2010).

Dr Hafas Furqani is currently a Researcher at International Shari’ah Research Academyfor Islamic Finance (ISRA). He received PhD of economics (2012) as well as Master of economics(2006) from the Department of Economics, International Islamic University Malaysia. HisBachelor degree is in Shari’ah Mu’amalah from the State Islamic University Syarif HidayatullahJakarta (2002). Hafas has extensively written and published articles in the areas of Islamiceconomics, banking and finance in academic journals as well as newspapers and magazines.His paper “Challenges in the Construction of Islamic Economics Discipline” has awarded 1stprize winner at KLIFF Essay Competition (2011). His PhD thesis “The foundations of Islamiceconomics: a philosophical exploration of the discipline” has been awarded Gold Medal at the2012 International Islamic University Malaysia Research, Invention and InnovationExhibition (IRIIE 2012). Hafas Furqani is the corresponding author and can be contacted at:hafas@isra.my

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