- Record: found
- Abstract: found
- Article: found
Fatwa Institution and Product Development for Islamic Finance in Pakistan
Abstract
Pakistan, being an Islamic Republic, is constitutionally obliged to eliminate ribā (interest) from its economy. Thus, Islamic Finance (IF) industry was introduced as an alternate to conventional ribā-based system of financial intermediation. However, efforts towards innovative system of IF are not devoid of criticism. Thus, institutions offering IF, are denounced for excessive reliance on stratagems to legalize ribā, misuse of plurality in Islamic legal rules and gross misapplication of the principles of Islamic Law . The pivotal task of determining sharī'ah compatibility of products and services is realized through the institution of fatwa. Hence, the given scenario of industry stipulates critical appraisal of role and protocols of this very institution for product development (PD). This article argues that for consistency of Islamic financial intermediation with sharī'ah, the industry needs to standardize 'product development procedures' with greater focus on regulating its fatwa institution.
Content
Author and article information
Footnotes
Muslim Law (Constitution prescribed by Allah). Muhammad Rawās Qala'jī and Hāmid Sādiq Qanībī, eds., in Mu'jam Lughat'l-Fuqahā' [Lexicon of Islamic Juristic Terminology] s.v. “al-sharī'ah” (Beirut: Dār 'l Nafās, 1988).
For formal meaning see infra text accompanying note 11.
Muhammad Khaleequzzaman, Muhammad Tahir Mansoori and Abdul Rasheed, “Sharī'ah Legitimacy of Islamic Banking Practices in Pakistan-An Evaluation,” Journal of Islamic Business and Management 6, no. 1 (2016): 77-96 (89), https://jibm.org/wp-content/uploads/2018/05/7_-Khaleeq-Sahib-Dr_-Tahir-Mansoori-Shar__ah-Legitimacy-of-Islamic-Banking-26-7-16.pdf.
Rufaqa' Dār-al-Ifta', ed., Murawwijah Islāmi Benkāri- Tajziyāti Mutāli'ā, Shar'ī Jā'iza, Fiqhī Naqd-o-Tabsirah [Contemporary Islamic Banking: An Analytical Study, Islamic Legal Analysis and Islamic Jurisprudential Critique] (Karachi: Maktabah Bayyināt, 2008), 79; Walīd Hegazy, “Fatwas and the Fate of Islamic Finance: A Critique of the Practice of Fatwa in Contemporary Islamic Financial Markets,” in Islamic Finance: Current Legal and Regulatory Issues, ed. S. Nazim Ali (Cambridge: Harvard Law School, ILSP, Islamic Finance Project, 2005), 143.
Muhammad Taqi Usmani, Ghair Sūdī Benkāri [Interest-Free Banking] (Karachi: Maktabah Ma'arif al-Qura'n, 2009), 55.
Anam Iqbal, Shahzad Akhtar, and Rab Nawaz Lodhi, “Islamic Financial Product Development in the Pakistan: Shariah Analysis,” European Journal of Accounting Auditing and Finance Research 2, no. 10 (2014): 112-121 (113), http://www.eajournals.org/wp-content/uploads/Islamic-Financial-Product-Development-In-The-Pakistan-Shariah-Analysis.pdf.
Shaher Abbas, “Islamic Financial Engineering: A Critical Investigation into Product Development Process in the Islamic Financial Industry” (PhD Diss., Durham University, Durham, 2015), 292, http://etheses.dur.ac.uk/11358/.
Habib Ahmed, Product Development in Islamic Banks, Edinburgh Guides to Islamic Finance, ed. Rodney Wilson (Edinburgh: Edinburgh University Press, 2011), 225.
Ahcene Lahsasna, “Fatwa and Its Shariah Methodology in Islamic Finance,” Journal of Fatwa Management and Research 2, no. 1 (2011): 133-79, http://jfatwa.usim.edu.my/index.php/jfatwa/article/view/121/101.
Ronald Dworkin, “Hard Cases,” Harvard Law Review 88, no. 6 (1975): 1057, 1057-1109, http://dx.doi.org/10.2307/1340249. These are technically termed as nawāzil (pl.) in Islamic legal tradition. (Qala'jī and Qanībī, s.v. Al-Nāzilah.). In English Jurisprudence they are termed as ‘hard cases’, meaning such novel cases in which the solution is not clearly dictated by the statutes or precedents. The phrase was used by Ronald Dworkin to illuminate his assertion that there is a right answer to each case.
Literal meaning of fatwa.
Qala'jī and Qanībī, s.v. “Fatwa.”
Hāmid Muhammad ibn Muhammad Al-Ghazalī, Al-Mustsfā min 'Ilm Al-Usūl [The Fundamentals of the Discipline of Islamic Legal Theory], vol. 2 (Boulaq: Al-Maktabah al-Amīriyyāh, 1925), 350-53; Abu Ishāq Al-Shātbi, Al-Muwāfqāt Fi Usūl 'l Sharī'ah [The Harmonization of the Principles of Islamic Law] (Beirut: Dār 'l Kutub Al-Ilmiyyah, 2004), 867-68.
Al-Shātbi, Al-Muwāfqāt fi Usūl 'l Sharī'ah [The Harmonization of the Principles of Islamic Law], 867-68; and Qur'ān 4:59. 'O you who believe! Obey Allah and obey the Messenger (Muhammad SAW), and those of you (Muslims) who are in authority…'
Kamāl al-Dīn Ibn-al-Hamām, Fath al-Qadīr [Unfolding Law of the Almighty], vol. 7 (Beirut: Dār al-Kutub al-Ilmiyyah, 2003), 238.
Al-Ghazalī, Al-Mustsfā min 'Ilm Al-Usūl [The Fundamentals of the Discipline of Islamic Legal Theory], 350-53.
The Prophet Mohammad (SAW)‘s sayings, actions and tacit approvals to others’ actions are known as Sunnah.
Narrative relating to deeds, utterances and tacit approvals of the Prophet (SAW). (Qala'jī and Qanībī, s.v. al-hadīth.) The study about authenticity of reported Sunnah is termed as Hadīth Sciences.
Wael B. Hallaq, “Ifta' and Ijtihād in Sunni Legal Theory: A Developmental Account,” in Islamic Legal Interpretation: Muftis and Their Fatwas, eds. Muhammad Khalid Masud, Brinkley Messick and David S. Powers (Cambridge: Harvard University Press, 1996), 33-43 (37).
Mohammad Amīn Al-Hanafī Amīr Bādshāh, Taysīr Al-Tahrīr [Commentary of the al-Tahrīr], vol. 4 (Beirut: Dār al- Fikr, 1996), 248.
Al-Imām Ali bin Muhammad Al-Āmidi, Al-Ihkām Fi Usūl al-Ahkām [The Refinement of the Theoratical Principles of Islamic Law], vol. 4 (Beirut: Ai-Maktab al-Islami, 1984), 236.
Hallaq, “Ifta' and Ijtihād in Sunni Legal Theory: A Developmental Account,” 37.
Imran Ahsan Khan Nyazee, Nyazee on the Secrets of Usūl Al-Fiqh [Principles of Islamic Jurisprudence] Following a Madhhab [School of Thought] and Rules for Issuing Fatwās, Course Module VI (Islamabad: Advanced Legal Studies Institute, 2014), 18.
Ghazala Ghalib Khan, “Application of Talfīq in Modern Islamic Commercial Contracts,” Policy Perspectives 10, no. 2 (2013): 133-159 (154), https://www.jstor.org/stable/42909314.
Al-Ghazalī, Al-Mustsfā min 'Ilm Al-Usūl (The Fundamentals of the Discipline of Islamic Legal Theory) :253.
Mohamad Akram Laldin, Mohamed Fairooz Abdul Khir, and Nusaibah Mohd Parid, “Fatwas in Islamic Banking: A Comparative Study Between Malaysia And Gulf Cooperation Council (GCC) Countries” (paper, International Shari'ah Research Academy for Islamic Finance, Kuala Lumpur, 2012), 2.
Ahmed, Product Development in Islamic Banks, 192.
Abbas, “Islamic Financial Engineering: A Critical Investigation into Product Development Process in the Islamic Financial Industry,” iii.
Khaleequzzaman, Mansoori, and Rasheed, “Sharī'ah Legitimacy of Islamic Banking Practices in Pakistan-An Evaluation,” 89.
Muhammad Ayub, Understanding Islamic Finance (Hoboken: Wiley, 2007), 357.
Thomas R. Gainor, “A Practical Approach to Product Development,” in Islamic Finance: The Task Ahead: Proceedings of the Fourth Harvard University Forum on Islamic Finance (Cambridge: Center for Middle Eastern Studies, Harvard University, 2000), 235-41 (237).
Ahmed, Product Development in Islamic Banks, 97.
Yasmin Hanani Mohd Safian, “Shariah Scholars and Fatwa Making Process in Islamic Finance,” Journal of Fatwa Management and Research 10, no. 1 (2017): 120-135 (122).
Gainor, “A Practical Approach to Product Development,” 239; and Iqbal, Akhtar, and Lodhi, “Islamic Financial Product Development in the Pakistan: Sharī'ah Analysis,” 119.
Based on Islamic Legal Maxim, that is, the basic presumption about things is that of permissibility. Meaning thereby every kind of transactions would be deemed to be permissible unless prohibited by the express texts of sharī'ah.
It is another general principle of Islamic legal theory that laws should seek the welfare of human beings while repelling every possible harm.
The doctrine of necessity allows even prohibited acts in case of dire need.
Munawwar Iqbal, A Guide to Islamic Finance (London: Risk Books, 2007), 53.
Ibid., 19; and Ayub, Understanding Islamic Finance, 114.
Qur'ān 2:275; Qur'ān 5:90; and Qur'ān 83:1-6. See Mohammad bin Ismail al-Bukhari, “34 -The Book of Sales, (61) Chapter Al-Gharar (the Sale of What Is Not Present) and Habal-Il-Habla (i-e., the Sale of What Is in the Womb of an Animal),” in The Translation of the Meaning of Sahih Al-Bukhari, trans. Muhammad Muhsin Khan, vol. 3 (Riyadh: Darussalam, 1997), 203. Such prohibitions are expressly ordained through the texts of Qur'ān and Sunnah. Some major prohibitions include transactions involving interest; gambling as well as consuming the intoxicants or administering their business; short measuring; speculative/uncertain/vague financial deals.
Iqbal, A Guide to Islamic Finance, 52.
Dār-al-Ifta', Murawwijah Islāmi Benkāri- Tajziyāti Mutāli'ā, Shar'ī Jā'iza, Fiqhī Naqd-o-Tabsirah [Contemporary Islamic Banking: An Analytical Study, Islamic Legal Analysis, Islamic Jurisprudential Critique], 79.; Hegazy, “Fatwas and the Fate of Islamic Finance: A Critique of the Practice of Fatwa in Contemporary Islamic Financial Markets,” 143.
Imran Ahsan Khan Nyazee, Murabahah and the Credit Sale (Rawalpindi: Federal Law House, 2009), 46.
Hegazy, “Fatwas and the Fate of Islamic Finance: A Critique of the Practice of Fatwa in Contemporary Islamic Financial Markets,” 143.
Karim Ginena and Azhar Hamid, Foundations of Shari'ah Governance of Islamic Banks (Hoboken: Wiley, 2015), xvii.
AAOIFI was established as an international, independent, non-profit, nongovernment, corporate organization, with an objective to undertake the worthy task of developing and structuring Sharī'ah Standards pertaining to banking operations, accounting, auditing, good governance and ethics, for Islamic banking industry.
IFSB is a Malysian international organization involved in setting standards for regulation and supervision of IFIs.
IFSB, “Articles of Agreement” (Kuala Lumpur: Islamic Financial Services Board, 2018).
IFSB, “Guiding Principles on Sharī'ah Governance Systems for Institutions Offering Islamic Financial Services,” standard 10 (Kuala Lumpur: Islamic Financial Services Board, 2009), https://www.ifsb.org/published.php.
AAOIFI, Sharī'ah Standards for Islamic Financial Institutions (Manama: Accounting and Auditing Organization for Islamic Financial Institutions, 2015), 222.
AAOIFI, “Sharī‘ah Standard No. (29): On Stipulations and Ethics of Fatwa in the Institutional Framework,” in Sharī‘ah Standards for Islamic Financial Institutions (Manama: Accounting and Auditing Organization for Islamic Financial Institutions, 2015), 734-752 (738).
Ibid., 740.
Ibid., 741.
Ibid., 739.
Islamic Banking Department, SBP, “Sharī'ah Governance Framework for Islamic Banking Institutions -Updated till June 2018,” (Karachi: State Bank of Pakistan, 2018), http://www.sbp.org.pk/ibd/2018/C1-Annex-A.pdf.
Aurangzeb Mehmood, “Islamisation of Economy: Past, Present and Future,” Islamic Studies 41, no. 4 (2002): 675-704 (684), http://irigs.iiu.edu.pk:64447/gsdl/collect/islamics/index/assoc/HASHf2dc/66330663.dir/v41i45.pdf.
Dr. M. Aslam Khaki v. Syed Muhammad Hashim and 2 others., [2000] PLD SC 225, Shariat Appellate Jurisdiction (Pak.).
Enforcement of Shari'ah Act of 1991 4, sec. 8, (1991).
Mehmood, “Islamisation of Economy: Past, Present and Future,” 689.
“Detailed Criteria for Setting up of Scheduled Islamic Commercial Bank Based on Principles of Sharia in the Private Sector,” Annexure-I to BPD Circular No. 1 (Karachi: State Bank of Pakistan, 2003), http://www.sbp.org.pk/bpd/2003/annexC1_I.pdf.
Islamic Banking Department, SBP, “Instructions for Shariah Compliance in Islamic Banking Institutions,” Annexure 1 of IBD Circular No. 2 (Karachi: State Bank of Pakistan, 2008), http://www.sbp.org.pk/ibd/2008/Annex-c2-1.pdf.
Islamic Banking Department, SBP, “Sharī'ah Governance Framework for Islamic Banking Institutions -Updated till June 2018.
Islamic Banking Department, SBP, “Adoption of Shariah Standards Issued by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI),” IBD Circular No. 1 (Karachi: State Bank of Pakistan, 2010), http://www.sbp.org.pk/ibd/2010/C1.htm.
In the first phase four Standards i-e. 3, 8, 9 and 13 were adopted, which were related to ‘Procrastinating Debtor’, ‘Sale with Disclosed Profit Margin’, ‘Leasing’ and Semi Partnership, respectively. (Ibid.) Next the Standard 12 on Partnership and Modern Corporations, was adopted (IBD Circular No. 01 of 2013). Further, Standard No. 17 on ‘Islamic Investment Bonds’ was adopted. (IBD Circular No. 03 of 2013). Finally, five new Standards i-e, 2, 5, 14, 18, 24 and 38 are recently adopted, which relate to “Debit Card, Charge Card and Credit Card”, “Guarantees”, “Documentary Credit”, “Possession”, “Syndicated Financing” and “Online Financial Dealings” respectively. (IBD Circular No. 01 of 2019).
Islamic Banking Department, SBP, “Shariah Governance Framework for Islamic Banking Institutions,” (Karachi: State Bank of Pakistan, 2015), http://www.sbp.org.pk/ibd/2015/C1-Annex.pdf.
Islamic Banking Department, SBP, “Sharī'ah Governance Framework for Islamic Banking Institutions -Updated till June 2018.”
Islamic Banking Department, SBP, “Shariah Governance Framework for Islamic Banking Institutions,” sec. 3.
Islamic Banking Department, SBP, “Sharī'ah Governance Framework for Islamic Banking Institutions -Updated till June 2018, sec. 6.
Islamic Banking Department, SBP, “Sharī'ah Governance Framework for Islamic Banking Institutions -Updated till June 2018, Annexure-A (clause 1).
Ibid.
See Supra note 18.
See Supra note 19.
See Supra note 20.
See Supra note 23.