Standardization In The Islamic Banking And Financial System

Standardization In The Islamic Banking And Financial System

Introduction

Islamic banking and finance (IBF) today is making giant strides in terms of development and delivery of products and services. As reported by Global Islamic Finance Report 2018, the global size of IBF is estimated at US$2.431 trillion at the end of 2017. This success has not emerged without challenges that are diverse and multidimensional. One of the major challenges the Islamic banking and financial industry is facing today is lack of harmonized Shari’a rules and regulations, and the consequent non-uniformity in Islamic banking products and services being offered in various regions of the world. This has been a major point of discussion in the global Islamic financial service industry, with a widely held view that the validity or invalidity of certain products offered by Islamic financial institutions (IFIs) across the world is due to divergence of opinions among Muslim jurists belonging to different schools of fiqh (e.g., hanafi, maliki, shafi’i and hanbali). Regional differences in interpretation and derivation of rulings in accordance with the popular schoolof law of that region stand as the main reason for not having a standardized, harmonized, uniform and universal Islamic banking system across the world.

The resultant multiple interpretations by jurists belonging to different schools of fiqh regarding Islamic financial products result in minor and major disparities. In view of this fact, it is logical that without a universally unified and uniform Shari’a code, the acceptability of products introduced in Islamic financial industry will remain fragmented.1 It is, therefore, suggested that a prompt attention and action by Muslim scholars and Islamic finance experts is essential, as the continuation of the current state of affairs in this domain would damage the growth of the IBF industry in the years ahead. This is becoming a growing concern, given that the industry has already started slowing down. Furthermore, the critics question viability of Islamic economic and banking system asan alternative to the conventional system, if global harmony and universal standardization of Islamic banking products and services cannot be achieved even within the Muslim world. Considering the necessity and importance of the issue of standardization of products, this article focuses on this issue of immense importance to IBF.

Historical Context of the Problem

There are different national approaches to Shari’a governance around the world. For instance, Central Bank of Bahrain (CBB) requires IFIs operating in its jurisdiction to set up a Shari’a Advisory Committee atthe institutional level, while it has only recently set up a National Shari’a  Advisory Board, with a limited role to advise the central bank on Shari’a matters. In Malaysia and Indonesia, on the other hand, National Shari’a Advisory Councils attempt to standardize Shari’a opinions (fatawa) and the resultant Shari’a practices in IFIs. In the case of some other GCC countries, such as Kuwait and Qatar, the Shari’a committees at the institutional level and another independent body, i.e., the Ministry of Awqaf and Religious Affairs or the Ministry of Justice and Islamic Affairs, are given the authority to oversee Shari’a governance practices. The UAE has also recently set up a centralised Shari’a Advisory Council. The higher Shari’a authorities in the UAE, Qatar, and Kuwait only act when there are conflicts of opinion among Shari’a scholars. In Saudi Arabia, Shari’a advisory is a purely market phenomenon. It is also considered therein that the higher Shari’a authority cannot effectively supervise Shari’a compliance for IFIs, and may in fact negatively impact stability of the Islamic finance industry.

In the absence of a central Shari’a authority and abidingness of its rulings and fatawa on IFIs,

Different interpretations of Shari’a rules amongst Shari’a scholars may create confusion in the general public as well as in banking communities.

This difference of opinion applies not only to some of the products, but also to some of the operations of the Islamic banks. For example, there is no uniformity in opinions pertaining to the principle of the trust financing contract (mudaraba) in business transactions. The maliki and shafi’i schools of jurisprudence are of the view that mudaraba should be confined to trade and trade-related activities alone, and should not include the activities of manufacturing. According to them, the contract for manufacturing should be excluded from mudaraba, which is a profitloss sharing contract, but formed under a specific long term contract whereby a party undertakes to , i.e., istisna’. However, the hanafi school of law does not object to the application of mudaraba for manufacturing activities, while the hanbali school of law allows two separate agreements using mudaraba and istisna’ principles

as long as the two agreements do not impose conditions upon each other. 3Such non-uniformity of opinions amongst Islamic scholars from different schools of law generates confusion amongst bankers, customers and the general public. Customers will not really understand what are the ‘dos and don’ts’ of the Islamic banking industry, and will make their own personal interpretations. This situation is unhealthy for bankercustomer relations, as both parties may have different interpretations.

Suggested Solution The real reason behind the lack of harmonization of practices and uniformity of opinions is the strict conformity with one school of law (taqlid almadh’hab) in a particular region, and with some other school of law in another region. The solution to this problem lies in adopting a neo-juristic approach of inclusive accommodation and flexibility. This alternative approach is based on the Quranic principle of facilitation and the juristic principle of expansion. It may be named as taqlid al-madhahibor conformity with all schools of law.

The Quranic Injunctions on the Principle of Facilitation (tas’hil) and Flexibility (tawassu’)

One of the primary objectives of Shari’a is to facilitate human kind and remove burdens, difficulties and hardships from their lives. The Quran states, “Allah desires ease for you and does not desire hardship for you.”5 The entire religion of Islam is structured upon the provision of ease and the removal of difficulty. The Quran explicates this by saying, “He has chosen you, and has not laid upon you any hardship or constriction in the matter of religion.” Furthermore, it is also stated, “Allah does not want to make things hard for you.” Since Allah knows the weakness of human beings, He has lightened for them the legal responsibilities and lessened from them the obligations that they would not be able to fulfil. He said, “Allah intends to lighten your burden. And man has been created weak (and infirm).” He further explained, “Allah has, at present, lightened the burden (of His commandment) on you. He knows that there is (some degree of) weakness in you.”

Evidence from the Hadith

Jabir (may Allah be pleased with him) reported that Holy Prophet (peace be upon him) said, “Indeed, Allah did not send me to be harsh or cause harm; He sent me to teach and make things easy.”10 Aisha bint Abu Bakr (peace be upon her) said, “Never was Allah’s Messenger presented with two optionsexcept that he would choose the easier of the two, so long as it was not a sin.” According to Anas bin Malik (may Allah be pleased with him), the Prophet (peace by upon him) said, “Make things easy and do not make things difficult. Give glad tidings and do not make people feel averse.” Abu Hurayra (may Allah be pleased with him) reports that Allah’s Messenger (peace by upon him) said, “You were sent to make things easy and not to make things difficult.” Imam Ahmad bin Hanbal narrated in Musnad that the Holy Prophet said, “Verily, the best of your religion is the easier part. Verily, the best of your religion is the easier part. Verily, the best of your religion is the easier part.” That is why Allama Ibn Qudama, a great jurist of hanbali school of thought, writes in his book Rawda al-Nazir fi Usul al-Fiqh, “If a jurist is approached for an edict and his edict remains devoid of openness and flexibility because of his rigidity the edictseeker should be guided towards some other jurist who is open-minded and flexible”. Furthermore, Allama Ibn Qudama reports that Hussain bin Bashaar inquired from Imam Ahmad bin Hanbal about an issue. He said, “If he does it, he will become a perjurer.” Hussain bin Bashaar said, “If someone issues me the edict that he will not be a perjurer then (what will be the case)?” Imam Ahmad replied, “Do you know of the Medinans’ session (at Rasaafa)?” He asked, “If they issue the edict, would that be permissible?” Imam Ahmad replied in affirmative.

Here, Imam Ahmad himself is guiding the inquirer to go to Rasaafa and get the answer from the Medinan scholars because their opinion was based on openness, inclusion, flexibility and facilitation. These juristic principles are always closer to the basic spirit of Islamic teachings.

The Principle of Distinction and Option of Choice Between Different Juristic Verdicts

The intent of the wholesome of Shari’a is to create ease and facilitation for humankind. Keeping in view this principle, the jurists have promoted ease, expansion and facilitation for humans in making inferences from the sources. While describing various disputations, they have reported different verdicts and opinions that contain greater flexibility and facilitation. Mentioning these verdicts, the imams have frequently referred to statements, using descriptions like:

• This is the most correct
• This is the vastest
• This is the safest
• This is the best analogy
• That is better
• This is more evident
• This is more compatible to analogy
• This is more lenient and easier for the people

The jurists who have used such epithets do not represent any specific period, nor do they belong to any single school of law; rather they belong to all the eras and all the schools oflaw. They include Imam Abu Hanifa, Imam Malik, Imam Shafi’i, Imam Ahmad bin Hanbal, Imam Muhammad, Imam Abu Yusuf, Samarqandi, Sarakhsi, Kasani, Zayla’i, Subki, Nawawi, Shurbini, Ramli, Ibn Hazm, Ibn Muflih, Ibn Qudama, Ibn Taymiyya, Ibn Nujaym, Haakafi and Ibn Abidin, etc.

Juristic Strategy for Resolving Contemporary Issues Through the Principle of Inclusion and Expansion.

In this regard, a reasoned strategy needs to be developed, which will enable us to benefit from the juristic reservoir of all the four schools in order to sort out the complexities of life without any deferment and hindrance.

1. Pursuing this principle, Imam Wali Allah Muhaddith Dihlawi states:
2. In  most of the juristic reasoning characterized by difference of opinions, the truth spreads through all of these opinions.
3. There is no narrowness in Deen; rather it offers ease, expansion and accommodation.
4. Sticking only to one way and believing firmly that the opponent’s viewpoint is definitely wrong, is baseless.
5. Imam Izz-ud-Din bin Abd-us-Salam, expressing the same strategy, states:

“Successful is the person who acted upon things the scholars agreed upon and refrained from things that the scholars declared unlawful without any disagreement, and believed in the permissibility of matters, which the scholars and jurists decreed unanimously, also performed the acts, which the scholars unanimously regarded commendable; and abstained from the acts that the scholars unanimously agreed to disapprove.

However, the things where the scholars disagreed and could not concur on one opinion can be divided into two forms:

1. The matter wherein they have had difference of opinion on the disputations about which the command of the Lawgiver can be repealed. In this case, no chance of following that opinion remains permissible, because such a ruling will be considered a mistake in totality. It will be rejected because the mistake lies in its original legality, and this mistake has detached the ruling from the basic will of the Lawgiver and spirit of the textual law.
2. The second form is related to the matter where difference of opinion does not pertain to the issues about which the command of the Lawgiver can be repealed. There is no harm in obeying or disobeying such a ruling, with the condition that one should follow some authentic juristic opinion and not an unauthentic one. The practice in the early centuries of Muslim Umma, when the traditional schools of law were not formulated and enforced, was not to follow any specific jurisprudence; but people used to follow any legal opinion of a competent scholar, which at least enjoyed the consensus of some jurists.”

• Imam Izz-ud-Din bin Abd-us-Salam further asserted on a question:

“If the school that he is abandoning and the one that he is adopting are without much distance closer to one another in their sources and origins, then it is permissible to leave one and join the other. It is because from the period of the Companions until the formation of four juristic schools, the Muslims have been following all the schools of jurisprudence instead of oneof them. Whoever, one would consider a better scholar, superior in God consciousness, he would approach him for an edict and follow him. Nobody used to dislike this way, nor was considered disliking by anyone worth any notice. Had it been the wrong way, the scholars would have rejected it and stopped others to follow it.”

Categories of Juristic Opinions

Imam Wali Allah Dihlawi further writes that the difference of opinion is of four kinds:

1. Determined Opinion: The difference of opinion is not justified in matters wherein the truth is absolutely and certainly determined. Its compliance is mandatory and differing from this position is definitely void.

2. Preferred Opinion: The problem where the truth is determined by majority vote of the schools and the jurists and it weighs in predominant scale. Differing from this position is probably voidable.

3. Unpreferred Opinion: This is a problem where both aspects are under equal authority and none of the aspects is preferred to the other. In this matter, an open choice between the two opinions is granted definitely.

• Compatible Opinion: This is an issue where similar choice is given on both sides with a dominant opinion. Therefore, in this case also, a jurist is free to adopt either of the two authorities or opinions, based on the compatibility of the evidence and the given circumstances.  

Therefore, the scholars and jurists, leaving the first kind aside, can use their juristic discretion in adopting any viewpoint in the last three situations, following the above-mentioned principles of jurisprudence.

The Occasions to Differ

Imam Wali Allah Dihlawi describes the occasions to differ at another place in his book Iqd al-Jeed: “It is an established fact that the difference amongst the jurists or mujtahidun arose due to following reasons:

1. A mujtahid found a hadith about an incident, while the other missed it. In this case, the one who found the truth is called mujtahid mu’ayyan.

2. Every mujtahid has hadiths of the Prophet and the reports of the companions. Every one of them exercised ijtihad (deductive reasoning) in preferring or finding compatibility among hadiths and companions’ reports regarding any given legal situation. Their ijtihad took it to the status of a determined command, due to which the difference of opinion transpired to the scope of adopting any of the opinions.

2. The mujtahids differed in the following matters:

i. The connotations and interpretation of words and idioms in use and determining their meanings and implications.

ii. Pinpointing and determining the confines of usages.

iii. The true recognition of conditions and constituent elements of a legal act or its effects. Thus ijtihad of every mujtahid took him to a separate and permanent opinion in framing the legal position of that act.

iv. A different approach in formulating the juristic principles. Since the framed juristic principles or conditions were different from one another, resultantly, difference of legal opinion occurred also in peripheral issues.

That is why the Prophet said: “Difference of opinion amongst my Umma is a blessing.”21 This difference of opinion has been declared to be a blessing of Almighty Allah, because none of them is negating the command of God. All of them are trying to determine the meanings and specify the implications of a particular verse, hadith or word in question in different ways. Therefore, these juristic differences have expanded the scope of legal options for the Umma.

“Therefore, all of the mujtahids are on straight path in all the above-mentioned forms when their sources are akin to and compatible with the indicated methodology. That is why, one can easily accept anyone of them without any confusion.”  

Quranic Verdict on Shifting from one School to Another,

It can be asserted in the light of legal arguments that, apart from the Prophets, it is not legally prohibited to differ with any person of any exalted position in any issue under any circumstances. This station is only exclusive for Allah and His exalted Messenger. The four Imams too have expanded upon this matter. The Quran states:

“O believers! Obey Allah and obey the Messenger and those who hold the authority amongst you.” 23

The Quran and Sunna come under the article of:

“Obey Allah and obey the Messenger.” 24

The schools of law and their Imams fall under the article of:

“Those who hold the authority amongst you.” 25

As mentioned in this verse, the commandment of “obey’ has been repeated for the Prophet in the same way as for Allah, to declare the absolute and unconditional authority vested with the commandment of the Holy Prophet. However, in the case of the ruler, the command of obeying has not been verbally repeated. This style of linguistic composition signifies that the obedience rendered to the ruler is qualified, conditional and challengeable. That is why, Almighty Allah has further commanded:

“Then if you disagree amongst yourselves over any issue, refer it to Allah and the Messenger (for final judgment), if you believe in Allah and the Last Day.” 26

This Quranic article promulgates three basic principles:

i. The principle of the supreme and absolute juristic authority of the Quran and Sunna;

ii. The principle of subordinate and conditional authority of the juristic opinions; and

iii. The principle of permissibility of differing from one opinion and adopting the other, due to the reason of stronger supporting evidence of the Quran and Sunna.

1. Imam Wali Allah al-Dihlawi states:

“The overwhelming majority of scholars belonging to the fourschools have followed the middle course between two extremes of excess and paucity we have mentioned. All the four Imams instructed their followers of the same path of moderation. Shaykh Abd al-Wahhab al-Sharani has reported from Imam Abu Hanifa in al-Yawaqit wa al-Jawahir, saying, ‘It is unjust fora person who is not acquainted with the proof contained in my words to issue an edict just on the basis of my words.’ When he decreed his edict he would point towards himself and say,

‘As far as I know, this is the opinion of Numan Bin Thabit [Abu Hanifa], and, this is more acceptable to me. If there is a better opinion, that is more authentic and would be closer to the truth.’

Similarly, Imam Malik used to say, ‘Except for the Messenger of Allah, everyone can be seized for his words and his words can be rejected.’ Hakim and Bayhaqi have reported from Imam Shafi’i, saying, ‘When the authenticity of hadith is proved, that is my school.’”

2. Zarkashi states:

“The Companions had a common agreement on this point that there was a difference in their level of knowledge and understanding but, despite that, there was consensus among them on the permissibility of following a path of a person of lower rank in the presence of a person enjoying a higher rank in knowledge and wisdom.”

This principle reveals that, under peculiar circumstances, it is permissible to prefer another Imam’s verdict due to legal expediency, evidential strength or circumstantial necessity. The majority of jurists maintain the same standpoint. However, the juristic conditions and limits have to be observed compulsorily.

3. Ibn Taymiyya states:

“Sometimes, Allah Most High bestows upon a scholar the wisdom and insight which the other lacks.”

4. Ibn Abidin has stated with reference to al-Iqd al-Farid authored by Allama Shurunbulali:

“It is not imperative for a person to follow a particular school of law in all cases, without any exception.”

He further states:

“In certain issues, it is permissible for a person to follow another Imam’s school against the school of his own Imam, provided he cares for all the terms and conditions fixed by the other Imam.”

We learn from these proofs and statements that, about a given disputation, shifting from one juristic school to the other is permissible. However, this permissibility is dependent upon thefulfilment of certain conditions described by the jurists.

Application of Intra-School Position to Inter-School Position

In like manner, the above-mentioned intra-school principles should be applied to inter-school matters, in order to infer, extend, prefer or adopt a verdict of any of the schools of law as per requirements. This is how the truthfulness and veracity of all the four schools of law would be practically applied and enforced. Otherwise, it will negate Islam’s global immensity and vastness.

One of the main Divine objectives, and why various schools of law earned acceptance and popularity amongst the Umma, was that all the commands and teachings of the Prophet Muhammad (peace be upon him) should be protected, practiced and transmitted in their real manifestation. In this way, every single Sunna of the Holy Prophet would always remain alive. None of the Prophets’ practices, teachings and commands may be abandoned at any given time. Almighty Allah has practically protected all aspects of the holy life of the Prophet in the form of different schools of law.

Nevertheless, the protection of the whole of the Sunna of Holy Prophet would not have been possible through one school of law only, because some variations and alterations gradually took place in the Sunna from time to time, in accordance with occasional needs and circumstantial requirements. Therefore, the real purpose of the existence of different madhahib is to create a total comprehension of the Prophetic practices, and not to create a narrow and rigid vision of Islamic commands.

Guiding Principles for the Methodology of Inclusion and Flexibility

The following are the guiding principles for finding juristic solutions for modern issues, through the methodology of inclusive accommodation and flexibility (al-tawassu’).

1. As far as possible and whatever way it works, we should normally try to draw inferences from the rulings of the great Imams and must not exit from all of the four schools of jurisprudence. There is no harm in deserting one school of law and taking up the other in solving a specific complicated issue.

2. Of the followed schools, whichever offers any key or solution to any modern-day complication or complex development, should be adopted to solve the problem. Therefore, conducting a modern ijtihad does not become the only solution, nor do we open the door of ijtihad to every Tom, Dick and Harry.

3. This is so because the demand of necessity or compulsive intervention of time neither does open the door of ijtihad wide apart, nor shuts it absolutely. The right and moderate path lies between these two extremes, so that juristic reasoning is practiced under real necessity. And this juristic reasoning does not transgress or go independent of the principles and juristic procedures laid down by the schools of law. In brief, if the desired solution is found in the master books of any of the four schools, the edict can be issued from there, and so new juristic reasoning remains beyond any need.

4. The change of school of law should not be due to personal desire; it should rather be owing to religious necessity or general expediency as stated by Allama Ibn Abidin al-Shami:

“A person’s change from one juristic school to the other due to worldly desires and pursuits without a solid reason will be an extremely condemnable act, because he has followed the prohibitions of deen and degraded his School of law.”

5. Leaving one’s own Imam’s verdict and following the other’s should be based on the strength of proof, legal expediency or circumstantial necessity. It should not be for the sake of avoiding the Divine Commandments.

6. Only such a person is allowed to shift from one school to another who is sufficiently competent to distinguish between weak and strong reasons and equipped with knowledge of legal expediencies.

7. If a solution is not explicitly found, even in any of these sources, there is no harm in exercising analogical deduction for unsolved matters provided the analogy is not absolutely differential.

8. However, if all the four schools do not offer any analogical solution to a modern-day problem, then we should go for exegetical deduction. This is reinterpretation of the text, following the exegetical and juristic principles and general legal provisions of the Quran and Sunna.

9. If we do not find any clear text of the divine command that can be used as juristic basis for the above-mentioned deductions, then we should go for deductive reasoning based on public interest. This can be conducted in the forms of: juristic preference (al-istihsan), presumption of continuity (al-istishab), public good (al-istislah), common benefit (al-masalih al-mursala), ‘usage (al-urf) and convention (al-ada)’, ‘legal necessity (aldarura)’, ‘change of law by change of time (taghayyur al-ahkam bi taghayyur al-zaman)’, etc.

10. There are some juristic principles, agreed upon and practiced by all great scholars of the early Islamic generations, before the schools of law were formulated. One of these principles relates to interactions. According to this principle, wherever flexibility and facilitation is necessarily required, anyone of the four schools or anyone of the Shariah evidences will be adopted on the basis of compatibility between the spirit of Islamic teachings and the demands of the time.

Finale

In view of the current national and international complexities and changing ground realities, the jurists have followed the path of openness, flexibility and liberality (al-tawassu’) instead of tenacious adherence to a single school of law or the path of narrowness and rigidity. As the basis of the problems grows wider and expands in span and novelty, the rules to resolve the problems also demand adoption of an open-minded and a holistic approach. If the issue is related to personal matters, adherence to a particular school of law will be preferred. However, if the problem happens to be wide-spectrum and involves a broader span of activity and extensive international repercussions, the methodology to deal with it would also be all-inclusive, liberal and wide-ranging.

For a comprehensive and complete analysis, please consult Global Islamic Finance Report 2018 to which Dr. Muhammad Tahir-ul-Qadri contributed a chapter on the same issue.