Intro

Topics: Islamic banking, Sharia, Riba Pages: 64 (5321 words) Published: April 13, 2015
Mohd Johan Lee
J. Lee & Associates
For Kowloon Mosque & Islamic Centre

(c) Mohd Johan Lee 2012









3/17/2012

Sources of the Shariah
Framework of Islamic Finance
Shariah, Fiqh & Mu’amalat
Necessary Requirements of Islamic
Finance
Riba, Gharar, Maysir & Others
Essential Contracts in Islamic Finance
Products and Instruments
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Primary Sources


The Holy Quran



Sunnah (the sayings, deeds and
endorsements of Prophet Muhammad
PBUH)

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Secondary Sources (mostly by the exercise of
Ijtihad (reasoning by the learned))
Ijma (Unanimous decision of the Ulama)
Qiyas (analogy)
Istishan/ Istihab (equity in Islamic law)
Maslahah (necessity of the people)
Surdul Dara’ih (Blocking the means)
U’ruf (custom)

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In general, the framework of Islamic finance is the
same framework used by the conventional finance
practices.
These frameworks are, inter alia legal and regulatory
framework, taxation framework, accounting and
auditing standards, etc.
Might have different or additional framework, such
as accounting and auditing standard, etc, due to its
peculiarity.
In certain jurisdiction, Islamic banking and finance
might be regulated by different sets of regulations,
either separate or additional, e.g. IBA 1983

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However, Islamic Finance, as the name
suggests, has another framework,
which is considered the major element
that differentiates IBF from the
conventional banking and finance.
Any violation of this framework will
definitely effect the validity of Islamic
finance itself.
Shariah Compliance Framework
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Three main interrelated terminologies:
Shariah, Fiqh & Muamalat
Shariah, when viewed from legal
perspective is the fixed elements of
Islamic law, i.e. what has been clearly
stipulated and mentioned in the text.
E.g. five time prayers, prohibition of
riba’, etc.
As such, it is revealed in nature
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Shariah, in this sense, is wide and encompassing
various branches of Islam
Normally, it comes in its generality and it
emphasizes only on the principles and not the
detailed rules (not all the time)
It is the duty of the judge (qadi), mufti and
jurisconsult (ulama’) to exert their intellectual
efforts in deriving and applying these principles
on certain given scenarios.
The result of human reasoning and understanding
to the shariah is known as fiqh
Fixed v. Flexible
Agreements v. Differences
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However, in its general usage, it is called al-syariat
al-Islamiyyah (Islamic law).
Islamic commercial law is one of the components of
Islamic law
Other components of Islamic law include:








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Islamic
Islamic
Islamic
Islamic
Islamic

law of purification and worship
family law
criminal law
law of evidence and procedure
law of inheritance, etc

The main subjects of Islamic commercial law are
commercial contracts and the rules governing them
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Original rule of permissibility:
- Initial legal ruling in commercial contract is

permissibility
- Contrary to acts of devotion (Ibadat)
- No legal injunction is needed in sanctioning new
contract
- Every contract is considered lawful and acceptable
if no principle of shari’ah is violated
- Open a very wide door for further innovations



Real Economic Activities
Transactions-oriented not loan-based.
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WHAT AMOUNTS TO
SHARI`AH COMPLIANCE?






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In Islamic jurisprudence, the main source of law is
the Shari`ah or Islamic law as contained in the
Quran...
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