Paper Title: Common conceptual flaws in realizing Maqasid al-Shari’ah vis-à-vis Islamic Finance

Author:        Ameen Ahmed Abdullah Qasem Al-Nahari, Abu Talib Mohammad Monawer, Luqman Bin Haji Abdullah, Abdul Karim Bin Ali and Noor Naemah Binti Abdul Rahman.

Publisher:    ISRA International Journal of Islamic Finance, Vol. 14 No. 2, 2022.

This paper discusses the application of Maqasid-e-Shari’ah in Islamic finance discourses and attempts to clarify some misconceptions.

Maqasid-e-Shari’ah is sometimes used to urge action towards social finance and achieving the socio-economic goals and distributive justice in Islamic finance. Idealist scholars favouring equity based modes of financing build their argument through the need for achieving distributive justice, which is part of Maqasid-e-Shari’ah.

However, sometimes, the practitioners also defend the use of second best alternatives in Islamic finance by arguing through the same lens of Maqasid-e-Shari’ah. They argue that Islamic financial products serve an important financial need and as long as minimum conditions of compliance are fulfilled, even the second best transaction structures shall be allowed.

Authors argue that some Islamic financial institutions maintained the legality of forms, abiding by provisions according to Imam Shafai’s view. Yet, they overlooked the legality of the substance by neglecting the conditions set by Imam Shafai. As a result, Tawarruq and Bai Inah based structures have taken major focus in corporate finance and now even consumer finance. Following this line of argument, many Sukuk are now structured in asset-light forms.

The paper contends that both Maqasid and Ahkam are interconnected, and none can be achieved without the other. Authors contend that the Maqasid are derived through induction of Ahkam of Shari’ah, while Ahkam are understood in the light of Maqasid. However, it must be understood that Ahkam are principally derived from Adillah Shari’ah. Extension based on Ijtihad-bil-Qiyas still has to be directly linked with Nusus-e-Shari’ah (Qur’an and Sunnah).

Authors give a good example of how to apply Maqasid and Ahkam in product development. If a financial institution wants to develop a product based on the objective of “Taysir” (ease/facilitation), then, it should observe the Ahkam focussing on Taysir and the Ahkam concerning the contracts that develop a particular product, including all procedures to check whether the Ahkam allow it.

If the Ahkam favour the legality of this product, it will be a Maqasid-based product. However, the adoption of Maqsad or the Maqasid itself will be fallacious and alien to the Shari’ah if it proves otherwise. In addition, if any product is developed based on the fallacious Maqasid, the product will never satisfy the Maqasid al-Shari’ah nor the purpose of the product.

Authors also clarify the close connection between the terms Maqasid and Maslaha. The Maqasid (objectives) refer to underlying purposes behind the provisions of Shari’ah intended by the Lawgiver, whereas Maslaha denotes preservation of the goals. The function of Maqasid and Masalih is analogous; they are different only in perspectives; hence, they are sometimes used interchangeably.

One of the most important point in the paper is that financial products are related to the Hajiyyaat and Tahsiniyyaat not Daruriyyaat. Authors argue that Islamic financial services may fall under Hajiyyaat if they become the sole means of fulfilling one’s need, or they may fall under Tahsiniyyaat.

The critics of Islamic banking in Muslim world including in Pakistan also have this reservation that Islamic finance is using Hiyal in matters which do not fall under Daruriyyaat. In Pakistan, for instance, Islamic banking is mainly an urban phenomenon catering in large part to the corporates and well-to-do individuals whereas the share of agriculture and SMEs in total financing mix is just about 3%. This meagre share of financing too is offered at a relatively above average cost of finance and by utilizing debt based modes of financing which are priced using conventional interbank rates. In last, the paper also recommends formulating a framework of actualizing Maqasid-e-Shari’ah in Islamic finance.