Lesson 4: Approaches to Islamic Finance and The 14 Qur’anic Principles

Approaches to Islamic Finance and The 14 Qur’anic Principles

Introduction

Numerous principles in the Qur’an address fiqh muamalat (فقه المعاملات) which refers to transactions, and economic and financial matters. In lesson 3, Mufti Faraz Adam focuses on 14 Qur’anic principles to give us an understanding of what guidance the Qur’an provides for Islamic finance, and how we can engage with them. While the Qur’an provides principles that cover all aspects of life, there is also fiqh, which serves as the foundation for guidance with manners that consider the rationale of rulings. Apart from the Qur’anic principles that will be discussed, Mufti Faraz also explains the different approaches to Islamic finance in detail. This article describes the three different approaches to Islamic finance which are; (1) the Shariah Scholar method, (2) the Economist method, and (3) the Practitioner method.

Approaches in Islamic Finance

An approach in Islamic finance refers to how we engage in a certain subject matter, how the matter is analysed, how we voice out perspectives and views on those matters with the industry, and whether it can be applied to the product and development. It is important to understand the different approaches because every person has a different method or framework to handle problems.

1) Scholar’s Approach

A shariah scholar’s approach to Islamic finance is fiqh-based. In this approach, scholars refer to classical writings on Islamic law to analyse contemporary issues. They rely on a particular set of principles derived from the Qur’an and Sunnah which is used as a guide to help identify and engage with problems in Islamic finance. Overall, this approach is fiqh-based and Qur’an and hadith based.

2) Economist’s Approach

The economist’s approach is driven by the Maqasid Al-Shariah. This method focuses on the objectives (Maqasid) of Shariah, which refer to goals that lead to human welfare. The five objectives of Maqasid include the protection of faith, life, intellect, lineage, and wealth.

3) Practitioner’s Approach:

A practitioner’s approach is based on experiences and individual learning. They rely on their personal experiences and insights to implement Islamic principles in financial scenarios. This approach may be seen as adaptive, as it evolves and reflects the changes in the financial market.

Introduction to Maqasid Al-Shariah

Every action made by mankind has an impact. The outcome of an action can either be negative or positive, which is why it is important to have Maqasid Al-Shariah to protect an outcome from bringing harm. In Arabic, ‘Maqasid’ refers to the objectives or goals of Shariah law, which consist of the deeper meanings and exploration of the wisdoms of Shariah that is considered by the lawgiver (Allah). The concept of Maqasid has been discussed by scholars whereby the oldest book that had the term of ‘Maqasid Shariah’ is the book “Al-Burhaan fi Usul al-Fiqh” (The Evidence of Usul Fiqh) by Imam al-Juwaini. It has since then been elaborated by Imam al-Ghazali, al-Razi and al-Amidi, followed by al-Shahtibi and Imam Izz ad-Din bin as-Salaam who contributed to the evolution of Maqasid Al-Shariah. The objectives of Maqasid are best described into three levels of necessities:

1) Daruriyyat (Essentials)

Daruriyyat refers to essentials and requirements that are needed in life for survival and spiritual well-being. They are the five fundamental objectives which are protection of faith, life, intellect, lineage, and wealth. The Shariah prioritises the protection of these essentials as the collapse of it would lead to harm. For instance, consuming alcohol is prohibited as it leads to harm and does not comply with the fundamental objectives. However, trading and doing permissible work is encouraged to enable an individual to earn a living and bring benefits for themselves.

2) Hajiyyat (Needs)

Hajiyyat are complementary needs and benefits that remove hardship without threatening an individual’s survival. They are needs that are less essential such as marriage and transportation. Islam encourages hajiyyat in an individual’s life and regulates them.

3) Tahsiniyyat (Embellishments)

The final necessity is tahsiniyyat which refer to luxuries or embellishment that enhance the quality of life. For instance, cleanliness, nice clothes and beautiful homes are a tahsiniyyat (embellishment). It is therefore encouraged to maintain cleanliness of the body and attire for prayers, such as wearing perfume when attending the Friday prayers. It shows generosity and mannerism when praying to Allah.

The Middle Path

As expressed by Mufti Faraz, the middle path is about combining fiqh with every aspect of life. Fiqh should be the driving force and should be the base and methodology of analysis, regardless of which Islamic finance approach is used. This is because the law of Allah determines whether a matter is a benefit or a harm. To summarise, as long as a matter is backed by fiqh, and the intentions intended will not bring any harm, then any approach can be applied. In addition, Mufti Faraz included an opinion from Mufti Taqi Uthmani where he stated that “Using Maqasid Al-Shariah without Fiqh is inaccurate”.

Fundamental Financial Principles in the Qur’an

Engaging with the Qur’an

The Qur’an is the book of guidance for humanity. It is continuously a dialogue that speaks to us, and is a companion. It is a journey, and a form of time travel where it talks about the past and the future that brings lessons and guidance to us. Every single verse in the Qur’an is connected to each other and is perfectly structured. The Qur’an is an amazing blessing and while the world changes, the Qur’an stays the same and is always applicable to the changes. The Qur’an will be there till the end of time. There are many principles outlined in the Qur’an and several of them are guiding principles that shape Islamic financial practices. Several of them are:

Permissibility of Trade and Prohibition of Riba (Interest)

Trade is permitted in Islam. However, Riba (interest) is strictly prohibited due to its exploitative nature that can bring more harm than benefits. The Qur’an states,

ٱلَّذِينَ يَأْكُلُونَ ٱلرِّبَوٰا۟ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيْطَـٰنُ مِنَ ٱلْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوٓا۟ إِنَّمَا ٱلْبَيْعُ مِثْلُ ٱلرِّبَوٰا۟ ۗ وَأَحَلَّ ٱللَّهُ ٱلْبَيْعَ وَحَرَّمَ ٱلرِّبَوٰا۟ ۚ

“But Allah has permitted trade and has forbidden interest”. (Qur’an 2:275)

Trade of Actual Existing Assets

Transactions should involve existing tangible assets and can be delivered immediately. It is to ensure fairness between each party and transparency in trade. The Qur’an states,

لَّآ أَن تَكُونَ تِجَـٰرَةً حَاضِرَةًۭ تُدِيرُونَهَا بَيْنَكُمْ فَلَيْسَ عَلَيْكُمْ جُنَاحٌ أَلَّا تَكْتُبُوهَا ۗ

“Except when it is an immediate transaction which you conduct among yourselves. For [then] there is no blame upon you if you do not write it”. (Qur’an 2:282)

Wealth Seeking Permitted with Conditions

Seeking wealth is permissible and is encouraged. However, when doing so, it should not come at the expense of fulfilling Islamic obligations to Allah. The Qur’an states,

فَإِذَا قُضِيَتِ ٱلصَّلَوٰةُ فَٱنتَشِرُوا۟ فِى ٱلْأَرْضِ وَٱبْتَغُوا۟ مِن فَضْلِ ٱللَّهِ وَٱذْكُرُوا۟ ٱللَّهَ كَثِيرًۭا لَّعَلَّكُمْ تُفْلِحُونَ (١٠) وَإِذَا رَأَوْا۟ تِجَـٰرَةً أَوْ لَهْوًا ٱنفَضُّوٓا۟ إِلَيْهَا وَتَرَكُوكَ قَآئِمًۭا ۚ قُلْ مَا عِندَ ٱللَّهِ خَيْرٌۭ مِّنَ ٱللَّهْوِ وَمِنَ ٱلتِّجَـٰرَةِ ۚ وَٱللَّهُ خَيْرُ ٱلرَّٰزِقِينَ (١١)

“And when the prayer has been concluded, disperse within the land and seek from the bounty of Allah, and remember Allah often that you may succeed. But [on one occasion] when they saw a transaction or a diversion, [O Muhammad], they rushed to it and left you standing. Say, “What is with Allah is better than diversion and than a transaction, and Allah is the best of providers.” (Qur’an 62:10-11)

Mutual Consent in Transactions

Transactions must be conducted with mutual consent, whereby both parties willingly go through a transaction without being forced. The Qur’an states,

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ لَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ إِلَّآ أَن تَكُونَ تِجَـٰرَةً عَن تَرَاضٍۢ مِّنكُمْ ۚ وَلَا تَقْتُلُوٓا۟ أَنفُسَكُمْ ۚ إِنَّ ٱللَّهَ كَانَ بِكُمْ رَحِيمًۭا (٢٩)

“O believers! Do not devour one another’s wealth illegally, but rather trade by mutual consent. And do not kill ˹each other or’ yourselves. Surely Allah is ever Merciful to you.” (Qur’an 4:29)

Prohibition of Corruption and Governance

Consumption of wealth and bribery are unjust and are prohibited to prevent economic corruption and market force manipulation. The Qur’an states,

وَلَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ وَتُدْلُوا۟ بِهَآ إِلَى ٱلْحُكَّامِ لِتَأْكُلُوا۟ فَرِيقًۭا مِّنْ أَمْوَٰلِ ٱلنَّاسِ بِٱلْإِثْمِ وَأَنتُمْ تَعْلَمُونَ (١٨٨)

“Do not consume one another’s wealth unjustly, nor deliberately bribe authorities to devour a portion of others’ property, knowing that it is a sin.” (Qur’an 2:188)

Documenting Transactions

The Qur’an emphasizes the importance of documenting financial transactions to ensure transparency and clarity.

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ إِذَا تَدَايَنتُم بِدَيْنٍ إِلَىٰٓ أَجَلٍۢ مُّسَمًّۭى فَٱكْتُبُوهُ ۚ

“O ye who believe! When you deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing” (Qur’an 2:282)

Honouring Contracts

There are both legal and moral levels of governance that are contractual obligations and must be adhered to. The Qur’an supports this and states,

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ أَوْفُوا۟ بِٱلْعُقُودِ

“O Believers! Honour your contractual obligations & agreements.” (Qur’an 5:1)

Leniency and Consideration:

The Shariah encourages leniency and compassion towards debtors in difficulty, promoting charitable behavior and empathy.

وَإِن كَانَ ذُو عُسْرَةٍۢ فَنَظِرَةٌ إِلَىٰ مَيْسَرَةٍۢ ۚ وَأَن تَصَدَّقُوا۟ خَيْرٌۭ لَّكُمْ ۖ إِن كُنتُمْ تَعْلَمُونَ(٢٨٠)

“If it is difficult for someone to repay a debt, postpone it until a time of ease. And if you waive it as an act of charity, it will be better for you, if only you knew.” (Qur’an 2:280)

Sound Monetary System

It is crucial to maintain a healthy monetary system for economic stability. Wealth should be managed responsibly to support the overall system. The Qur’an states,

وَلَا تُؤْتُوا۟ ٱلسُّفَهَآءَ أَمْوَٰلَكُمُ ٱلَّتِى جَعَلَ ٱللَّهُ لَكُمْ قِيَـٰمًۭا

“And do not bring the foolish ones your wealth that Allah has made for keeping you up, [i.e., as a means of support]” (Qur’an 4:5)

Welfare and Distribution of Resources

Resources should always be shared and support those who are struggling. The distribution of wealth should promote welfare and access to resources to ensure balance and justice in society. The Qur’an states,

مَّآ أَفَآءَ ٱللَّهُ عَلَىٰ رَسُولِهِۦ مِنْ أَهْلِ ٱلْقُرَىٰ فَلِلَّهِ وَلِلرَّسُولِ وَلِذِى ٱلْقُرْبَىٰ وَٱلْيَتَـٰمَىٰ وَٱلْمَسَـٰكِينِ وَٱبْنِ ٱلسَّبِيلِ كَىْ لَا يَكُونَ دُولَةًۢ بَيْنَ ٱلْأَغْنِيَآءِ مِنكُمْ ۚ وَمَآ ءَاتَىٰكُمُ ٱلرَّسُولُ فَخُذُوهُ وَمَا نَهَىٰكُمْ عَنْهُ فَٱنتَهُوا۟ ۚ وَٱتَّقُوا۟ ٱللَّهَ ۖ إِنَّ ٱللَّهَ شَدِيدُ ٱلْعِقَابِ (٧)

“As for gains granted by Allah to His Messenger from the people of ˹other˺ lands, they are for Allah and the Messenger, his close relatives, orphans, the poor, and ˹needy˺ travellers so that wealth may not merely circulate among your rich. Whatever the Messenger gives you, take it. And whatever he forbids you from, leave it. And fear Allah. Surely Allah is severe in punishment.” (Qur’an 59:7)

Fraud

Fraud is prohibited because it leads to deception, cheating, and lying. Fraudulent behaviour is stated in the Qur’an,

وَيْلٌۭ لِّلْمُطَفِّفِينَ(١) ٱلَّذِينَ إِذَا ٱكْتَالُوا۟ عَلَى ٱلنَّاسِ يَسْتَوْفُونَ(٢) وَإِذَا كَالُوهُمْ أَو وَّزَنُوهُمْ يُخْسِرُونَ (٣) أَلَا يَظُنُّ أُو۟لَـٰٓئِكَ أَنَّهُم مَّبْعُوثُونَ (٤)

“Woe to those that deal in fraud, those who, when they have to receive by measure from men, exact full measure, but, when they have to give by measure or weight to men, give less than due. Do they not think that they will be called to account?” (Qur’an 83:1-4).

Assets have Intrinsic Benefits

Money is not an asset as it only brings benefits when it leaves you or once it is used for buying an asset. All assets have benefits whilst using them. The Qur’an states,

ٱللَّهُ ٱلَّذِى جَعَلَ لَكُمُ ٱلْأَنْعَـٰمَ لِتَرْكَبُوا۟ مِنْهَا وَمِنْهَا تَأْكُلُونَ (٧٩) وَلَكُمْ فِيهَا مَنَـٰفِعُ وَلِتَبْلُغُوا۟ عَلَيْهَا حَاجَةًۭ فِى صُدُورِكُمْ وَعَلَيْهَا وَعَلَى ٱلْفُلْكِ تُحْمَلُونَ (٨٠) وَيُرِيكُمْ ءَايَـٰتِهِۦ فَأَىَّ ءَايَـٰتِ ٱللَّهِ تُنكِرُونَ (٨١)

“It is God who provides livestock for you, some for riding and some for your food: you have other benefits in them too. You can reach any destination you wish on them: they carry you by land, as ships carry you on the sea. He shows you His signs; which then of the signs of God will you deny?” (Qur’an 40:79-81)

Some Assets are Prohibited

Assets that are harmful spiritually, physically, economically, mentally, physiologically, or societally are all prohibited. The Qur’an states,

إِنَّمَا حَرَّمَ عَلَيْكُمُ ٱلْمَيْتَةَ وَٱلدَّمَ وَلَحْمَ ٱلْخِنزِيرِ وَمَآ أُهِلَّ بِهِۦ لِغَيْرِ ٱللَّهِ ۖ فَمَنِ ٱضْطُرَّ غَيْرَ بَاغٍۢ وَلَا عَادٍۢ فَلَآ إِثْمَ عَلَيْهِ ۚ إِنَّ ٱللَّهَ غَفُورٌۭ رَّحِيمٌ ١٧٣

“He has only forbidden you: carrion, blood, the flesh of swine and that upon which a name other than ‘Allah’ has been invoked” (Qur’an 2:173)

Debt is a Burden

Debt can be permissible when it is well-managed. Islam discourages unmanageable debt. It is a burden and something that should be limited.

أَمْ تَسْـَٔلُهُمْ أَجْرًۭا فَهُم مِّن مَّغْرَمٍۢ مُّثْقَلُونَ( ٤٦)

“Or is it that you do ask them for a reward so that they are burdened with a load of debt?” (Qur’an 68:46)

Conclusion

This lesson covered 3 approaches to Islamic finance which are the Shariah Scholar method, the Economist method, and the Practitioner method. It can be summarised that all approaches can be used with fiqh as the driving force. It was also mentioned during the lesson that using all 3 approaches at once would be the most beneficial although it is difficult to do so. In addition to that, it is summarised that fiqh is the foundation of formulating guidance in a manner that takes into consideration the rationale of rulings. Lastly, 14 principles were shared in the lesson that can be guiding principles that cover various aspects of life.

Notes taken by Nafisah Yusra Abdul Rahim from Messenger Money Morals: Lesson 3 – Approaches to Islamic Finance and The 14 Qur’anic Principles.