Islamic law

The functions of financial intermediaries are widely recognized but subject to legal restrictions imposed by Shariah, the Islamic legal system. Economists owes much merits in reestablishing the struggle to establish an unique ethically oriented finance sector, however, the rulings behind them are driven by Islamic jurists, so-called scholars which needs to have a proper understanding of the sources. Primary sources of Shariah are the Quran and the Sunna (mostly Hadith, transmitted sayings of the prophet). Secondary sources are consensus of the scholars (Ijma), analogy (Qiyas), reasoning (Ijtihad), Public Interest (Ihtisan), legal presumption (Istishab, Istislah, Masalih Al Mursalah), local customs (urf and adat).

The objectives (Maqasid Al Shariah), are more general goals like wisdom and welfare, while the principles of the Shariah (Fiqh) is the detailed rulings and examples, based on a methodology (Usul Al Fiqh) in different branches, the rulings of worshipping (Fiqh Ibadat) and the ruling of relations (Fiqh Muamalat), comprising the contractual law which is groundlaying for the Islamic Finance industry.

Four main schools of law interpretation exists nowadays which are the Hanafi, Maliki, Hanbali and Shafii. The wide majority of rulings are the same but certain differences in interpretation can lead to substantial differences in regard to Islamic financial products. There is some geographical dominance of schools like the Hanafi which is widely spread in Turkey and Pakistan, the Maliki is very dominant in the Maghreb countries, the Hanbali very important in the Arabian Peninsula and the Shafii which is governing Islamic Finance decisions in Malaysia and Indonesia.

References

• Banking on Sharia Principles: Islamic Banking and the Financial Industry Dr. Linda Eagle, 2009