Developing Islamic finance in the framework of maqasid al-shari ah Understanding the ends (maqasid) and the means (wasa il)

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1 The current issue and full text archive of this journal is available at IMEFM 6,4 278 Developing Islamic finance in the framework of maqasid al-shari ah Understanding the ends (maqasid) and the means (wasa il) Mohamad Akram Laldin and Hafas Furqani International 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 by exploring the ends (maqasid ) and the means (wasa il ). Those would clarify the nature and goals of Islamic finance as well as its directional development. Design/methodology/approach Using literature in English and Arabic sources in the area of maqasid al-shari ah, as well as from the reading of the primary sources (the Qur anic texts/nusus), the paper 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 wealth circulation, fair and transparent financial practices and justice at the micro- and macro-level. To achieve 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 the dimensions of maqasid al-shari ah in Islamic finance. Practical implications The findings of this paper will give insights on the ends (maqasid ) and the means (wasa il ) in Islamic finance based on the maqasid al-shari ah discourse. It could be used as a reference in understanding the nature of Islamic finance and in developing a sound and solid Islamic finance based on the Shari ah. Originality/value The paper proposes the ends-and-means criteria in Islamic finance, developed on 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 International Journal of Islamic and Middle Eastern Finance and Management Vol. 6 No. 4, 2013 pp q Emerald Group Publishing Limited DOI /IMEFM Introduction The development of Islamic finance is widely considered phenomenal. Islamic finance is not only being used by Muslims but also non-muslims. While still developing rapidly in Muslim countries, it is now noticeably penetrating the Western world as well. Islamic finance s emergence as a practical financial system is viewed as timely in the midst of a world financial crisis for which the remedial solutions have so far been ineffective, postponing some problems and making others worse. Although the phenomenon might be seen by some as part of the global Islamic resurgence to reconstruct Islam s legacy in modern times, the interest in its practice is actually triggered by the philosophy and system of values it offers. The interest in Islamic

2 finance is basically pushed by the expectation that Islamic finance could elegantly offer a coherent perspective for understanding real economic problems as well as a genuine alternative to the very foundations for the management of economics and finance 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 the overall direction of Islamic finance, the guidelines for its operations, and its very raison d etre in contemporary times. Commerce and finance are viewed as an important part of the Shari ah. Adherence to maqasid al-shari ah is essential for developing Islamic finance as a system that realizes human wellbeing (maslahah). Recognition of this reality is driving the increasing interest in applying the maqasid to the development of Islamic finance. It is generally acknowledged now that meeting legal requirements through comprehensive and systematic technical procedures is not sufficient. 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 the philosophy that underpins an Islamic financial system. The discussion investigates the meaning and dimensions of maqasid al-shari ah and the means (wasa il ) to apply to realize the goals in real life, especially in Islamic finance. Developing Islamic finance Maqasid al-shari ah: meaning and dimension Maqasid al-shari ah is translated as the goals and objectives of the Shari ah. The word maqasid 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 goals upon which the Shari ah is established and to which all actions of human being are directed. Shari ah literally denotes a source of water or a path to it. The Shari ah constitutes rulings (ahkam) that encompass all aspects of the belief system ( aqidah), the relationship 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 of Islamic teachings that constitute a set of norms, values and laws that govern all aspects of life (Qur an, 42: 13, 21, 45: 18). To reiterate and make explicit what has been implied above, the aspects of life include political, cultural and civilizational matters that concern not 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 human existence by providing the necessary principles and means to establish and enhance human wellbeing (maslahah). All the Shari ah s teachings, injunctions and prohibitions are related to the grand wisdom (hikmah) of securing human interests in the worldly life and the hereafter. All the Shari ah rules that contain obligations and duties bring benefit 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 the direction of life. From a more limited perspective, maqasid al-shari ah are the aims or underlying purposes of the rules of the Shari ah.

3 IMEFM 6,4 280 The discussion of maqasid al-shari ah in Islamic finance should therefore be seen in this broader perspective. It should not be only about the Islamic objectives in legislation related to financial activities; instead, it is related to the whole purpose of Islam in financial activities. This understanding of the Shari ah has implications for the approach to be taken in developing Islamic finance and setting its direction. It extends the understanding of Shari ah compliance from fulfillment of the legal requirements for financial products in a mechanical and procedural sense to include commitment to values and goals outlined by the Islamic vision of life. Furthermore, in deriving legal rulings, comprehension of the overall objectives of the Shari ah provides a theoretical framework by which particular texts and technical procedures are understood. The understanding of maqasid prior to laying down guidelines or setting up practical rules is important in order to get correct output from the ijtihad process (Al-Qaradawi, 2007, p. 137). In practice, such a process would lead us to a balanced approach in deriving laws from 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 the maqasid at the expense of rigid textual understanding, and the extreme liberal approach, which ignores and thwarts the maqasid by loosely interpreting the texts using unbridled intellectual reasoning. Therefore, maqasid opens up the avenues of ijtihad in tandem with the technical procedures of usul al-fiqh for deriving laws to make sure that the spirit of the law is reflected in the practical legal rulings (Kamali, 2000, p. 22). In this approach, the understanding of texts should be done in relation to the context of practical realities. This would create unity in deriving Shari ah rulings in which the detailed rules are to be read within the parameters of 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 objectives to all situations and ensure suitability of human circumstances in all places and times with the grand framework of the Shari ah. Aspects of this process have been identified in the literature as taqrir al-maslahah (confirming benefits), sadd al-dhari ah (blocking lawful means 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 their worldly life and afterlife. All of it is justice, all of it is benefits, and all of it is wisdom. Any issue [in which the ruling] departs from justice to injustice, from mercy to its opposite, from benefit to harm, and from wisdom to arbitrariness is not, in fact, part of the Shari ah, even if it has been attributed to it by a process of interpretation. 3. The ends (maqasid ) in Islamic finance As 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 of human needs. Their fulfillment will create balanced satisfaction in human life at the micro-level of individuals and the macro-level of societies and thus help realize human well-being. With regard to Islamic finance in particular, maqasid al-shari ah refer to the overall goals and meanings that the Shari ah aims to achieve from its principles and rulings related to financial activities and transactions (Laldin, 2008, p. 77).

4 The literature on maqasid al-shari ah in Islamic finance classifies the issue as falling under the rubric of protection of wealth (hifz al-mal ) as per al-ghazali s classification of types 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 how to allocate resources from surplus sectors (capital providers) to deficit sectors (capital users) so that wealth is smoothly circulated and human welfare is realized. As finance deals with wealth allocation and appropriation (from mobilization until utilization), the maqasid in hifz al-mal should therefore be understood and discussed by looking at the nature, function and role of wealth in relation to the primary objective of realizing human wellbeing, individually and collectively, by acquiring benefit (maslahah) and preventing harm (mafsadah) (Qur an, 5: 6). Reflecting upon a range of texts of the Qur an and the Sunnah on financial activities, it can be stated that the Shari ah has given consideration to specific objectives in the enactment of financial laws and principles. The overall goal of these objectives which include facilitating the circulation of wealth in the society, advocating fair and transparent financial practices and promoting socio-economic justice is to serve the financial needs of human beings. Developing Islamic finance Wealth circulation Wealth circulation includes all the processes related to wealth creation, consumption and distribution. This objective is derived from the Qur anic explanation of the reason behind a rule regarding distribution: [...] so that wealth is not circulated among the rich in the society only (Qur an, 59: 7). Islam intends that resources run smoothly throughout the economy in the pursuit of human well-being and intergenerational continuity. This perspective embarks from the concept that wealth is considered as a bounty from 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 acquire wealth 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 legitimate means (Qur an, 4: 29). Since wealth is God s trust (amanah), it is to be spent in the right ends (Qur an, 3: 92). The most favoured ends are those that conform to the higher objectives associated with the human mission of stewardship (khilafah) (Qur an, 23: 51). Commercial and financial activities are viewed positively as mechanisms to circulate wealth among all the sections of society and all sectors of economy so that it is not concentrated in the hands of the few but, rather, promotes overall human wellbeing. Islam encourages wealth to be employed in productive activities. Funds should not be wasted (Qur an, 6: 141; 25: 67), left idle (Qur an, 9: 34) or misused and managed unprofessionally (Qur an, 4: 5). In fact, any funds which are not employed will be penalized through zakat, which will gradually reduce the volume of idle wealth and put it back into circulation. Zakat is an institutional mechanism that necessarily keeps wealth in continuous circulation. The Islamic economic system as a general framework would ensure fair and equitable mobilization and distribution of resources. Islamic finance in particular has developed in line with Islam s objective of wealth circulation by observing Islamic

5 IMEFM 6,4 282 rules (ahkam shar iyyah), which identify right and wrong behaviour in the spirit of protecting wealth (hifz al-mal ). Islamic finance institutions, including Islamic banks, takaful companies, mutual funds and other companies, play a role in resource circulation in society and increasing human wellbeing. 3.2 Fair and transparent financial practices Permissibility (ibahah) is the overarching principle governing commercial and financial transactions. This ibahah principle is aimed to facilitate the realization of maslahah and to remove hardship and harm in financial transactions. Freedom of contract is therefore not only recognized as part of the system but is also guaranteed and treated as an essential element of any valid contract. Nevertheless, this freedom is to 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 a manner that all the parties are clear about all important facts of the transactions necessary for the avoidance of disputes, clashes or damages to any party. The Qur an has stressed that all agreements and contracts should be as transparent and clear as possible (Qur an, 2: 282, 11:84, 17:35, 26: , 55:9, 83: 1-3). Fairness means equity and honesty between the transacting parties as well as efficiency in transactions. Fraud, deception and manipulation of any kind are therefore condemned. Islam s insistence on the mutual consent of the parties as a condition for the validity of any contract means that pressure, fraud, or misleading statements by any party render it invalid or voidable. Likewise, Islam disapproves all commercial practices which involve explicit or implicit harm and injustice to the contracting parties or to the public at large and which restrict the freedom of trade or stand in violation 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 and squandering of resources, to prevent disputes and grudges among the community, and prevent 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 of conformity to an untenable contract. 3.3 Justice in the macro- and micro-dimensions The maqsad of wealth circulation is related to the macro-goal of the Shari ah while the maqsad of fair and transparent financial practices is related to the micro-goal of the Shari ah in transactional instruments and mechanisms. The maqsad of justice embraces both the micro- and macro-dimensions. This maqsad is related to the desire of having a just 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 true valuation of one s labor. This objective underlies the substantive and regulative rules of the Shari ah, the formation of communities and individual behavior (Iqbal and Mirakhor, 2007).

6 At the macro-level, the goal is to realize social justice. The Islamic financial system attempts to realize economic justice through wealth circulation, efficiency in resource utilization, fulfilling society s basic needs, elimination of poverty and improving human wellbeing. The main purpose of resource circulation (distribution) is to achieve justice, maximum efficiency and improvement of human wellbeing in general. At the micro-level, the principle of justice embraces individual dealings. Economic transactions demand equal rights and opportunities and are not allowed to be enforced without the mutual consent of both parties (taradi ). Likewise, unfair dealings or unjustified actions that lead to economic injustice or exploitation are condemned, for example: bribery (rashwah), fraud (ghish), cheating (tadlis), uncertainty and lack of clarity (gharar) and unjustified increase in wealth (riba). Developing Islamic finance The means (wasa il ) in Islamic finance As the objective of the Shari ah is nothing other than human wellbeing, it provides the necessary 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 establishing maslahah and preventing or removing mafsadah, wasa il can be classified, in accordance 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 dealings and justice) and those that prevent mafsadah (i.e. factors that prevent wealth from smooth 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 fixed goals in the context of ever-changing circumstances. Creativity is required to find or create the appropriate wasa il for that end. The following discussion will try to investigate some of these directives and mechanisms. 4.1 Facilitating financial contracts To institute the smooth circulation of wealth in society, the Shari ah facilitates various types of transactions and strongly encourages Muslims to undertake and participate in necessary types of financial activities (Laldin, 2008). In commercial activities, the underlying principle is that of permissibility (ibahah). The transactions validated in the Qur an and Sunnah are not exhaustive, and new transactions can be introduced as long as they are not contradictory to the principles of the Shari ah. Therefore, freedom of contract is guaranteed so long it does not annihilate fairness as propagated by the maqasid al-shari ah (Kamali, 2000, pp ). In general, Islamic nominate contracts related to economic transactions are classified into 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 successful completion of a job ( ju alah). Ishtirak contracts are ones in which one party assigns work/capital/obligation to another party (or parties). These contracts include agency (wakalah), partnerships (sharikah) contracts in the forms of mudarabah and musharakah, assignment (hawalah), and pledge or mortgage (rahn). In gratuitous contracts, ownership or possession (right of use) is transferred without consideration or

7 IMEFM 6,4 284 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, each contract should be respected and fulfilled not only in order to protect the interests of the 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 be fixed. If it is defective in its pillars (arkan), it would be considered void (batil )andis irreparable. Dissolution (inhilal ) of a contract after it has become valid (sahih) and enforceable (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 among the contractual parties. Therefore, it does not allow a loophole to exist so that unfair or unjust treatment could happen. This spirit marks the Islamic approach in commercial (financial) dealings as not only formal but also substantial. While certain formalities and substantive elements are essential for a transaction to become legally binding on the parties, this should be done through mutual agreement that brings about mutual consent and satisfaction (rida) (Qur an, 2:282). Therefore, along with approval of various contractual facilities and emphasising fulfilment of contractual obligations, Islamic law also provides various ways to remove contractual obligation in situations of unavoidable difficulties and necessities. 4.2 Establishing values and standards Transparent and fair dealings are considered among the main objectives of the Shari ah in financial transactions and activities. In this regard, it aims at creating an equal and fair transactional atmosphere and at protecting the parties against exploitation or imbalance between their reciprocal rights and obligations. Such imbalances tend to result from a lack of fair and objective criteria by which their rights and obligations can be 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 should therefore not result in injury, harm or difficulties to either individuals or the public at large as the Shari ah intends to create a positive atmosphere in commercial transactions whereby exchanges are done on the basis of brotherhood, cooperation and mutual benefit to both parties. Therefore, the Shari ah has identified certain values, measures and standards to be upheld in transactions and certain negative elements to be avoided, as they would nullify the objective. Those values and standards would relate to both the macro-maqasid dimension of having wealth circulate smoothly in society and the micro-maqasid aspect of having fair and transparent financial dealings. Economic exchange in Islam is inseparable from Islamic values, which must be translated into practical rulings that prevent fasad (corrupt acts) such as unfair dealing, abusiveness, greed, unbridled individualism and exploitation of others. At the

8 same time, truth and honesty, responsibility, trust, generosity, justice, friendship and cooperation are highly encouraged and must be preserved in financial dealings. These values would not only protect customers, stakeholders and the public, they would 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, its rules will be useless. In other words, the Islamic system cannot be secular. This is because all Islamic rules, including economic and political, are connected with the faith, beliefs and worship of Islam. Beyond the realm of values, the Islamic economic system has instituted various ways to spend for the sake of Allah such as zakah, infaq, sadaqah, hibah and qard. These would cultivate the spirit of brotherhood and mutual cooperation in society, assist the circulation of wealth, activate the economy and increase productivity. Conversely, destructive tendencies have been prohibited, for example, israf (unnecessary spending), itraf (self-indulgence), tabdhir (spending on unlawful activities), and bukhl (stinginess). Ihtikar (hoarding) is also prohibited as it prevents wealth from circulation by halting supplies. Likewise, illegal means of acquiring wealth or causing harm to others in wealth creation are also prohibited (Qur an, 5:33, 38). From the micro-perspective of transactions, in the effort to achieve justice, Islam puts in place measures to level the playing field among the parties to a contract. That includes the removal of factors that would distort equality or allow one party to gain at the 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: ). An essential feature of riba is that it transfers risk onto one party and shields the other from it, guaranteeing it a fixed return. In a loan, riba transfers risk to the debtor, by requiring him to pay back the money 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 unequal exchange in a sale. Riba is very much related to injustice. It is prohibited not simply with regard to interest on loans or banking interest. Instead, it is a comprehensive concept which encompasses all factors of production and distribution, such as capital, land and labor whereby one party attempts to gain benefit at the expense of the other party without providing an equal counter value ( iwad ) (Abu Sulayman, 1998, p. 99). Riba is forbidden on the ground that it fosters the unjust acquisition of wealth at the expense of social justice, the equitable distribution of wealth and the wellbeing of the community (Choudhury, 2012). The abolition of riba also implies that Islam promotes cooperative and participatory financing for resource mobilization and circulation in society as means to general productivity and wellbeing. Gharar is also prohibited and is considered a major negative element that would prevent a fair financial transaction. Gharar is defined as a characteristic that renders the 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 to properly identify it, e.g. its genus, type or quantity, or uncertainty about the ability to deliver it, time of delivery, time of payment, etc. Transactions containing gharar Developing Islamic finance 285

9 IMEFM 6,4 286 usually lead to dissatisfaction on the part of the parties involved and cause harm and/or conflicts between them due to the attendant ambiguity. In the maqasidic approach, law and ethics, values and practices, form and substance should integrate and not contradict one another. Shari ah prohibitions and parameters should 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 be integrated in the operational activities with genuine concern for fair and transparent practices that contribute to the development of society and human wellbeing (Dusuki and Abozaid, 2007, p. 161). 4.3 Instituting social responsibility In the spirit of social justice, Islam balances individuals rights with their duties and responsibilities towards others. The concept of fard kifayah (social obligation) places responsibility on those who are capable or better off to assist those who are not capable or who are worse off. As it is an obligation ( fard ), social responsibility is therefore not an option. This framework of mutual cooperation and assistance should become the social 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 to his 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 and contribute to employment and income for others. Zakah and sadaqah are formal institutions of social responsibility instituted by Islam that ought to bring society close to the ideal of distributive justice (Al-Faruqi, 1983, p. 221). While it is preferred that this responsibility be undertaken from moral consciousness that it is right to take care of and assist fellow human beings, an Islamic economy is also realistic in acknowledging the responsibility of the state. It is a factual reality that people, left to themselves and to market forces, would most likely not reach the desired goals and objectives spelled out above due to weaknesses in individuals (Qur an, 96:6). Some other mechanisms are therefore needed. This calls for state involvement by setting up regulations, laws and policies, as well as institutions of civil society to help, along with government, to provide a social safety net for the disadvantaged. The constraints imposed, and incentives offered, by the norms, values and culture adopted in a society are also important. The emergence of Islamic finance should be viewed in this context. Islamic finance is a part of Islamic economics that has the potential to contribute richly to the achievement of the major socioeconomic goals of Islam such as socioeconomic justice and equitable distribution of income and wealth (Chapra, 1985, p. 34). The establishment of Islamic banking and financial institutions is not an attempt to merely fulfil Muslim society s desire 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 found in conventional financial services. Muslim society has a right to expect a high level of corporate social responsibility from Islamic financial institutions since they carry the Islamic name, which implies that they should promote Islamic ideals and objectives in human life (Dusuki and Abdullah, 2007; Sairaly, 2011).

10 Islamic banks and financial institutions should take maqasid into account in setting their corporate objectives and policies and also use them to verify compliance with true Islamic principles; Islamic finance s progress will be monitored by how well it realizes the maqasid in producing a good economy marked by the spirit of brotherhood (ukhuwwah) and cooperation (ta awun), social equality and justice ( adalah), just and fair allocation of resources, elimination of poverty, protection of the environment and achievement of general wellbeing (maslahah). Developing Islamic finance Conclusion Maqasid al-shari ah is a comprehensive concept that explicates the ideals/objectives of the Shari ah related to human life. As the Shari ah is an all-embracing concept that is concerned with human life and human wellbeing, maqasid should not be reduced to objectives in the legal dimension. The maqasid discussion in the financial sphere should always refer to the general objective of the Shari ah, which provides a grand framework and direction for how financial transactions should be arranged in an Islamic economic system. Our perspective should not be limited to fulfilling the minimum legal requirements and calling that Shari ah compliant. In the framework of maqasid, Islamic finance and banking activities lead to the actualization of Shari ah objectives by realizing maslahah (benefit) and preventing or repelling mafsadah (harm). In this endeavour, the discussion would embrace the microand 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 those objectives, the means instituted by the Shari ah include facilitating financial contracts, establishing values and standards as well as inculcating a sense of social responsibility. The future trend in the development of Islamic banking and finance is the expectation that it adopt maqasid al-shari ah as the indispensable framework for structuring Islamic financial contracts and as the directional guideline for further development of the industry. Fulfilling minimal Shari ah legal compliance in product structuring is viewed as insufficient. Instead, movement towards realizing maqasid al-shari ah is highly valued as the means to give Islamic banking and finance a meaningful presence. This would have an impact of economic substance in the form of just and fair allocation of resources, real economic sector development, and fair and transparent 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 as protection 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 maqasid al-shari ah has explained, broadened and applied this framework in practical life. References Abdul Rauf, F. (2002), Islam: A Sacred Law, Yayasan Dakwah Islamiah Malaysia, Kuala Lumpur. Abtani, F. (2007), The prevention of financial crime within an Islamic legal framework, IEA Economic Affairs, March, pp

11 IMEFM 6,4 288 Abu Sulayman, A.H. (1998), The theory of the economics of Islam (I), IIUM Journal of Economics and Management, Vol. 6 No. 1, pp Ahmed, H. (2011), Maqasid al-shari ah and Islamic financial products: a framework for assessment, ISRA International Journal of Islamic Finance, Vol. 3 No. 1, pp Al-Faruqi, I.R. (1983), Tawhid: The Principle of the Economic Order, International Islamic Federation of Student Organization, Kuwait. Al-Ghazali, A.H.M. (1993), Al-Mustasfa min ilm al-usul, edited by Abd al-salam Abd al-safi, M., Dar al-kutub al- Ilmiyyah, Beirut. Al-Jawziyyah, I.A.-Q. (1991), I lam al-muwaqqi in an Rabb al- Alamin, edited by Abd al-salam Ibrahim, M., Dar al-kutub al- Ilmiyyah, Beirut. Al-Kaylani, A.A.-R.I. (2009), Qawa id al-maqasid Inda al-imam al-shatibi, Dar al-fikr, Damascus. Al-Khelaifi, R.M. (2004), Al-Maqasid al-shari iyyah wa atsaruha fi fiqh al-mu amalat al-maliyah, Majallah al-jami ah al-mulk Abdul Aziz: al-iqtisad al-islamy, Vol. 17 No. 1, pp Al-Qaradawi, Y. (2007), Dirasah fi fiqh maqasid al-shari ah: Bayna al-maqasid al-kulliyyah wa al-nusus al-juz iyyah, Dar al-shuruq, Al-Qaherah. Balala, M.-H. (2011), Islamic Finance and Law: Theory and Practice in a Globalized World, IB Tauris, London. Berghout, A.A. (2006), Maqasid al-shari ah as an approach for intellectual reform and civilizational renewal, Proceeding of the International Conference on Islamic Jurisprudence and the Challenges of the 21st Century, Maqasid al-shari ah and Its Realization in Contemporary Societies, Vol. 3, IIUM, Kuala Lumpur, pp Chapra, M.U. (1985), Towards a Just Monetary System, The Islamic Foundation, Leicester. Choudhury, M.A. (2012), Usury in Encyclopaedia of the Qur an, available at: referenceworks.brillonline.com/entries/encyclopaedia-of-the-quran/usury-sim_00438 (accessed February 14, 2012). Dusuki, A.W. and Abdullah, N.I. (2007), Maqasid al-shari ah, Maslahah and corporate social responsibility, AJISS, Vol. 24 No. 1, pp Dusuki, A.W. and Abozaid, A. (2007), A critical appraisal on the challenges of realizing maqasid al-shari ah in Islamic banking and finance, IIUM Journal of Economics and Management, Vol. 15 No. 2, pp Dusuki, A.W. and Bouheraoua, S. (2011), The framework of maqasid al-shari ah (the objectives of Shari ah) and its implications for Islamic finance, ISRA Research Paper No. 22, ISRA, Kuala Lumpur. El-Mesawi, M.T. (2006), Maqasid al-shari ah as an usuli doctrine or independent discipline: a study of Ibn Ashur s project, Proceeding of the International Conference on Islamic Jurisprudence and the Challenges of the 21st Century: Maqasid al-shari ah and Its Realization in Contemporary Societies, Vol. 3, IIUM, Kuala Lumpur, pp Iqbal, Z. and Mirakhor, A. (2007), An Introduction to Islamic Finance, Wiley, Singapore. Islam, M.W. (1998), Dissolution of contract in Islamic law, Arab Law Quarterly, Vol. 13 No. 4, pp Kamali, M.H. (2000), Issues in the Legal Theory of Usul and Prospects for Reform, IIUM Press, Kuala Lumpur. Kamali, M.H. (2008), Maqasid al-shari ah Made Simple, IIIT, Washington, DC. Laldin, M.A. (2008), Fundamentals and Practices in Islamic Finance, ISRA, Kuala Lumpur.

12 Laldin, M.A. (2010), Understanding the concept of maslahah and its parameters when used in financial transactions, ISRA International Journal of Islamic Finance, Vol. 2 No. 1, pp Omar, M.A.-K. (1998), Reasoning in Islamic law: part three, Arab Law Quartely, Vol. 13 No. 1, pp Rahman, F. (1969), Economic principles of Islam, Islamic Studies, Vol. 18 No. 1, pp Sairaly, S. (2011), Best practices in socially responsible finance: lessons for the Islamic financial industry from leading socially responsible financial institutions in the UK, Kyoto Series of Islamic Area Studies 6, Center for Islamic Area Studies at Kyoto University (KIAS), Kyoto. Developing Islamic finance 289 Further reading Sharif, M. (2005), The feasibility of an Islamic economic system in a modern world, in Ahmad, M.B., Ahsani, S.A. and Siddiqui, D.A. (Eds), Muslim Contributions to World Civilization, IIIT, Herndon, VA, pp About the authors Dr Mohamad Akram Laldin is an Associate Professor and is currently the Executive Director of International Shari ah Research Academy for Islamic Finance (ISRA). Prior to joining ISRA he was 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 s Shari 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 University of Jordan and a PhD in principles of Islamic jurisprudence (usul al-fiqh) from the University of Edinburgh, Scotland, UK. He is a prolific author of academic work, specifically in the areas of Islamic banking and finance. He has published books Fundamentals and Practices in Islamic Finance (2008), Introduction to Shari ah and Islamic Jurisprudence (2011, 3rd ed.), and A Mini Guide to Shari ah and Legal Maxims (2010). Dr Hafas Furqani is currently a Researcher at International Shari ah Research Academy for 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. His Bachelor degree is in Shari ah Mu amalah from the State Islamic University Syarif Hidayatullah Jakarta (2002). Hafas has extensively written and published articles in the areas of Islamic economics, banking and finance in academic journals as well as newspapers and magazines. His paper Challenges in the Construction of Islamic Economics Discipline has awarded 1st prize winner at KLIFF Essay Competition (2011). His PhD thesis The foundations of Islamic economics: a philosophical exploration of the discipline has been awarded Gold Medal at the 2012 International Islamic University Malaysia Research, Invention and Innovation Exhibition (IRIIE 2012). Hafas Furqani is the corresponding author and can be contacted at: hafas@isra.my To purchase reprints of this article please reprints@emeraldinsight.com Or visit our web site for further details: