Understanding the Concept of Maslabah and Its Parameters When Used in Financial Transactions" Mohamad Akram Laldin* Abstract The consideration of public interest represents one of the promising bases of the Shart‘ah for addressing the needs of Muslim society at large. The Shari ‘ah has given consideration to maslahah as a source of law in order to accommodate natural development and social changes and needs. However, maslahah should be addressed in ijtihad within particular Shari’ah standards and parameters to ensure that the exercise of ijtihad is conducted in a sound manner without contradicting the norms and principles of the Shari‘ah. As is known, maslahah is one of the secondary sources of the Shariah that is widely recognized by scholars in issuing fatawa and resolutions. It represents one of the essential sources for dealing with issues and matters for which there is no explicit indication in the Qur’an or Sunnah. The ultimate objective in issuing fatwa and resolutions based on maslahah is preserving the interests of the public. The objective of enacting Shari‘ah rules based on maslahah is to achieve fairness and justice by achieving benefits and removing hardships. In the context of Islamic finance, ijtihad based on maslahah is very essential, especially for regulators and corporate governance organs, which refer to them to provide standards, parameters, regulations and policy for the benefit of the Ummah. This study is an attempt to examine the parameters within which maslahah should be used, for utilising it without proper guidelines may lead to its abuse. The study " The paper was published in the ISRA International Journal of Islamic Finance; Vol. 2, Issue 1; 2010. We are grateful to the management of ISRA for granting permission to re- publish the paper in RCIB’s JIBM for the purpose of disseminating knowledge on the crucial subject of maslahah and its parameters in the context of Islamic finance. * Dr. Mohammad Akram Laldin is the Executive Director of ISRA. He can be contacted at akram@isra.my.152 Journal of Islamic Business and Management Vol.3 No.2, 2013 begins by defining maslahah and examining the relationship between maslahah and maqasid. It then looks at the basis for consideration of maslahah in the Qur’an and Sunnah and examines jurists’ views on it. This is followed by a discussion of the parameters of maslahah and contemporary applications of maslahah in financial transactions, and, finally, the conclusion. Key words: maslahah, Islamic finance, parameters. I. INTRODUCTION Maslahah and its attendant principles are very relevant to Islamic finance due to their dynamic nature and reliability in solving issues and addressing the challenges faced by the Islamic finance industry. The rapid growth of Islamic finance and accompanying expansion of financial transactions globally by Islamic financial institutions are factors that make maslahah particularly relevant to Islamic finance, for these transactions may place capital and investment at high ris Another factor is the size of Islamic finance assets, which comprise less than 1% of the total global conventional finance assets. This disproportion in size of assets places the Islamic finance industry in a very challenging environment. In this current situation, conventional finance dominates global finance; it imposes rules, regulations, parameters and standards that serve its own interests and objectives. This places the Islamic finance industry in a very constricted position and exposes the Shari‘ah-compliant aspects in Islamic finance to some serious challenges. One of the most promising concepts of the Shari‘ah for dealing with this problem is maslahah, which creates ease and gives Islamic finance space for flexibility in order to survive, coexist and carry out its mission and functions for the benefit of the Ummah. However, the use and implementation of maslahah should be governed by parameters and conditions put in place by the Shari‘ah. This study is an attempt to discuss the parameters of mas/ahah in financial transactions. The study begins by defining mas/ahah and examining the relationship between maslahah and magasid. It then looks at the basis for the consideration of maslahah in the Qur’an and Sunnah and examinesJournal of Islamic Business and Management Vol.3 No.2, 2013 153 the jurists’ views of maslahah. This is followed by a discussion of the parameters of maslahah and its contemporary application in financial transactions and then by the conclusion. IL. DEFINITION OF MASLAHAH Linguistically, maslahah is the antonym of mafsadah (evil) (Al- Fayruzabadi, 2007, p. 225) and of ‘harmful’ (Al Rafi, 1985, p. 153). In positive terms, it encompasses benefit (manfa‘ah) and interest. The associated verb is used to indicate when a thing becomes good or a person becomes just and honest. In the rational sense, maslahah means a cause or a goal which is good and brings benefit and prosperity. As a technical term, jurists have discussed and defined the concept of maslahah in a broader sense. Al-Khawarizmi defines maslahah as the preservation of the objectives of Islamic law by removing evil from creation, by which he means humanity (Al-Shawkani, 1992, p. 403). Al-Ghazili states that mas/ahah is the consideration which secures a benefit or prevents harm and is, at the same time, harmonious with the aims and objectives of the Shari‘ah. These objectives consist of protecting the five essential values, namely religion, life, intellect, lineage and property. According to him, any measure which secures these values falls within the scope of mas/ahah and anything which contravenes them is mafsadah (evil), and preventing the latter is also maslahah (Al-Ghazali, 1997, p. 217). Al-Shatibt defines maslahah as a principle that concerns the subsistence of human life, the completion of livelihood, and the acquisition of what a person’s emotional and intellectual qualities require of him/her in an absolute sense (Al-Shatibi, 1997, vol. 1, p. classifies maslahah into three categories: dartriyat (essentials), hajiyyat (needs), and tahsiniyyat (embellishments) (al- Shatibi, 1997, vol. 2, p. 17). Ibn ‘Ashir claims that mas/ahah means utmost righteousness and goodness (Ibn ‘Ashir, 2006, p. 92). He further states that it is an attribute of an act realizing righteousness and goodness; i.e., utility and benefit are always or usually realized for the public or individuals. Conversely, mafsadah is an attribute of an act which always or usually184 Journal of Islamic Business and Management Vol.3 No.2, 2013 results in corruption or harm to the public or individuals (Ibn ‘Asha, 2006, p. 93). Dr. Yiisuf Hamid al-‘Alim (1991, pp. 147-149) states that the definitions of maslahah by Muslim jurists indicate the following: 1. Maslahah has to be in line with the Shari‘ah, with the interest of religion taking precedence. 2. Determining the goodness or evil of an act is based upon both the nature of the act and its outcome, which highlights the need for consistency between the process and the end. It also calls for comprehensive historic scrutiny of human acts and the consequences they had for human welfare. 3. Identifying a maslahah, whether public or private, requires cooperative effort between experts in specific fields and Muslim jurists, for thorough research must be performed in both aspects in order to conclude that something is a valid maslahah in line with the Shari‘ah. Furthermore, all the definitions affirm that prevention of evil is part of maslahah and that maslahah refers to the interest which conforms to the intent of the Lawgiver, not the intent of individuals. The above definitions convey the absolute meaning of maslahah; however, there is another aspect of maslahah that needs to be taken into account: the fact that maslahah concerns interests both of this world and the hereafter. These masalih (pl. of maslahah) can be seen as a system, belonging to different grades and with a definable relationship with one another (Masud, 1995, p. 151). III. THE RELATIONSHIP BETWEEN MAQASID AND MASLAHAH Maslahah represents one of the core subject matters of Maqasid al-Shari‘ah, and it must always be discussed and understood within that framework and its parameters. Comprehension of the meaning of good and evil requires addressing the issue within the ambit and framework of the purposes of Shari‘ah law. The purposes of Shari‘ah law govern the use of legitimate interests in making ijtihadJournal of Islamic Business and Management Vol.3 No.2, 2013 155 to issue a Shari‘ah opinion. This relationship is clearly observed in Shatibi’s analysis; according to him, the primary objective of the Lawgiver is the maslahah of the people. As mentioned by Khalid Masud, obligations in the Shari'ah concern the protection of the people. Thus magdsid and maslahah become interchangeable terms in reference to obligation in Shatibi’s discussion of maslahah (Masud, 1995, p. 151). IV. LEGITIMACY OF MASLAHAH There are a number of texts from the Qur’an and Sunnah to indicate the legitimacy of maslahah; they are also relevant to the legitimacy of maqasid. The evidence from the Qur’an is as follows: 1. “We have not sent you but as a mercy for all creatures” (21:107). 2. “Verily, this is My way, leading straight, so follow it, and do not follow (other) paths for they will scatter you about from His (great) path. Thus does He command you that you may be righteous” (6:153). 3. “And He has imposed no difficulties in your religion” (22:78). 4, “Allah does not wish to place any burden upon you; He only wishes to cleanse you and perfect His favor upon you so that you may be grateful” (5:6). The evidence from the Sunnah is as follows: 1. “Whenever the Prophet (pbuh) had a choice between two alternatives, he would always choose the easier of the two, as long as it did not amount to a sin” (Al-Bukhari, 1987, p. 1306). 2. “Allah loves to see His concessions (rukhsah) being observed, just as He loves to see. His strict laws (‘aza’im) being observed” (AL-Albani, n.d., p. 259). The above provisions from the Qur’an and Sunnah indicate that the Shari‘ah is mercy for all creatures, including mankind. The Shari‘ah rules which contain obligations and duties bring benefit, prosperity and benefit to the Ummah and prevent them from harm and hardship. They also indicate that the norm of Shari‘ah obligations is that they are always free from any undue difficulties and that they were enacted156 Journal of Islamic Business and Management Vol.3 No.2, 2013 by the Lawgiver within the capacity of human beings to undertake them. The Prophet (pbuh) demonstrated the mercy and benefits of the Shari‘ah obligations in his daily actions by always choosing the casy way to do things as long as it did not contradict a Shari‘ah law. The other point highlighted above is the permissibility of concessions (rukhsah) in the Shari'ah when they are applicable. The purpose for allowing rukhsah is to remove hardship and facilitate human life when difficult circumstances arise. In addition, the provisions sanction adjustment of rules in consideration of necessity, which confirms the comprehensiveness of the Shari‘ah and its flexibility, which affirms its suitability for all situations, events, times and places. Thus, its true objectives and role are to provide mercy and facility to humankind by safeguarding their best interests and protecting them from all forms of evil or harm. This is evidenced in the wide variety of conditions that the Shari‘ah has acknowledged as likely to give rise to a state of necessity. V. THE CLASSIFICATION OF MASLAHAH Reference to books on usiil al-figh demonstrates that various methods of classifying maslahah have been utilised. Among the classifications are the following: A. The First Approach: Based on Its Legitimacy 1. Accredited maslahah: This is the maslahah which the Qur’an or Sunnah has expressly upheld, having enacted a law for its realisation, It is called maslahah mu‘tabarah. This type of maslahah cannot be rejected and must be upheld. For instance, Islam has ordered its followers to protect their wealth; thus, any methods that lead to the destruction of wealth are inexcusable. The validity of maslahah in this case is definite and shall not be questioned. The scholars are in agreement that promoting and protecting this and similar values constitute a proper ground for legislation, The fact that Allah has upheld them is equivalent to His permission for all measures, including legislation, that aim at their realisation (Badran, n.d., pp. 209-210). 2. Invalidated maslahah: This is also called maslahah mulghah. ItJournal of Islamic Business and Management Vol.3 No.2, 2013 157 is a maslahah which the Qur’an or Sunnah has nullified, either clearly or by indications that can be found in the Shari‘ah. The scholars are in agreement that legislation based on such an interest is invalid and that no judicial ruling may be enacted in its favour, Thus, any practice of the people based on this type of interest is unacceptable. For instance, the practice of usury in transactions, even though common among the people, is invalid because the maslahah in this case is clearly nullified (mulghah). 3. The third mas/ahah is the type that has been validated after the divine revelation came to an end, namely the mas/ahah mursalah. It is also called the silent maslahah, for there is no clear text that indicates it. For this type of maslahah, there is neither a specific text that validates it nor any that invalidates it. There has been much legislation enacted in the past and in the present based on maslahah mursalah. Among the examples from the past are Sayyidina ‘Ali’s imposing a product warranty on a manufacturer if there was a defect in the product due to the negligence of his workers (Abu Zuhrah, 19587, p. 262). Contemporary examples can be found in different enactments of law which bring benefit to people and prevent harm to them, such as traffic regulations, regulations related to financial management, to family matters, and the like. For instance, the requirement for documentary evidence of property ownership is considered part of maslahah. B. The Second Approach: Classification Based on Its Weight In this context, the scholars have classified masdalih into the following: 1. Al-Masdlih al-Dartriyyah (Essentials): These are the interests that are necessary for the proper functioning of a person’s religious and everyday affairs. The whole Ummah is in need of their realisation or the system will not be in balance. They include securing and preserving the five essentials, namely religion, life, intellect, property and linage. Ibn ‘Ashir defined the darariyat as: “...things whose realization is essential for the community both collectively and individually; the social element of the community will not function properly if there is any defect in these things” (Ibn ‘Ashir, 2006, p. 300). These dardriyat must158 Journal of Islamic Business and Management Vol.3 No.2, 2013 be protected because they are considered the fundamental needs in the life of mankind. An example of an “essential” is having a non-ribawi financial system for the Ummah, which indicates the necessity of establishing sound and strong Islamic financial frameworks and institutions. Al-Masalih al-Hajiyyah (Needs): They are important interests that supplement the essentials and, if neglected, would lead to hardship and distress in human life. Ibn ‘Ashir defined hajiyyah as what is needed by the community for the achievement of its interests and the proper functioning of its affairs. If it is neglected, the social order will not actually collapse but will not function well, so it is a level down from what is indispensable (dariiri) (Ibn ‘Ashar, 2006, p. 306). Examples of hdjiyyat are the permissible activities in business transactions, such as the exemption of the advance payment in the business transaction salam (an Islamic forward sale). Although it is not in compliance with the attributes of a normal sale, this type of contract has been allowed by the Shari‘ah in order to facilitate transactions because prohibiting it would lead to hardship in trade. Al-Masdlih — al-Tahsiniyyah (Complementaries): These embellishments refer to those interests that, if realised, would lead to refinement and perfection in the customs and conduct of people at all levels of achievement. For example, the Shari‘ah encourages charity (beyond the level of zakdh) to those in need. Al-Ghazilli defined “complementaries” by saying: “They function as embellishing elements facilitating the achievement of virtues and fine ways in manners and dealings” (Al-Ghazali, 1997, p. 217). According to Ibn ‘Ashir, “complementaries” comprise “things that lead to the perfection of the community’s condition and social order so that it leads a peaceful life and realizes the splendor and beauty of human society in the sight of other nations” (Ibn ‘Ashirr, 2006, p. 307). C. The Third Approach: Classification Based on Its Coverage Public Maslahah (Maslahah ‘Ammah): This is a benefit to the whole Ummah or to the majority; for instance, saving propertyJournal of Islamic Business and Management Vol.3 No.2, 2013 159 from any form of harm or transgression, including floods, theft or unfair contracts, is considered a valid public interest. Private Maslahah (Maslahah Khassah): This consists of anything that benefits individuals, such that the benefit of such acts will bring about benefits to the society they belong to. The Shari‘ah gives recognition to both types of maslahah: public and private. This is one of the outstanding features of the Islamic economy. Compared to capitalism, which emphasizes private interest, and socialism, which emphasizes public interest, the Shari‘ah is concerned with both, based on the principle of checks and balances. D. The Fourth Approach: Classification Based on Its Strength Maslahah Zanniyyah: This is called a presumed maslahah. It is a maslahah identified by human intellect, and it is subject to Shariah inspection prior to its validation and acceptance. It may also refer to a maslahah derived from an inexplicit (ganni) text or from a presumptive category of evidence. Maslahah Qat iyyah: This is also called the legitimate maslahah It is the maslahah that has been approved by the Shari‘ah and supported by clear evidence from its primary sources. E. The Fifth Approach: Classification Based on Change and Permanence Maslahah that changes due to changes in time, people, place and custom. Therefore, if the maslahah changes, the Islamic ruling based on that particular maslahah may change as well. This is also one of the features of the Shari‘ah that shows flexibility, for it consistently reflects the development of the market and community. . Maslahah that is fixed for all time. This type of maslahah is not based on custom, but on provisions of the Qur’an and Sunnah and some definitive norms and principles of the Shari‘ah. This type of maslahah does not accommodate changes (Al-‘Alim, 1991, p. 145).160 Journal of Islamic Business and Management Vol.3 No.2, 2013 Islamic rulings may change if they are derived from ‘urf or maslahah, because both may vary from one place to another. Some have opposed this classification, declaring that it indicates that the Shari‘ah is not firm but can be changed at any time. However, this objection was countered by pointing out that not all Shari‘ah rulings are subject to change and that change due to maslahah does not amount to abrogation (naskh) of a rule of the Shari‘ah. As a matter of fact, application of maslahah demonstrates the flexibility of the Shari‘ah in dealing with all issues, people, times and places. It is evidenced in some of the rulings of the Rightly-Guided Caliphs, which were based on the situation in their time, and it can be observed from the differences in Imam al-Shafi‘l’s rulings to the people of Iraq and Egypt (Al-‘Alim, 1991, p. 182). VI. SURISTIC OPINIONS ON MASLAHAH The discussions of mas/ahah by the jurists have taken three dimensions (see Hassan, 1993). First, maslahah as a basis for the Shari‘ah. This is due to the agreement that there are inherent objectives behind all Islamic laws and that they were not ordained in vain, regardless of human ability to comprehend them or not. It must be noted that the main objective of the Shari‘ah is to secure the benefit of human beings and protect them from all forms of evil. However, the determinant of the interests and benefits of humankind lies in the knowledge of Allah, as He is the Creator. Secondly, maslahah as a consideration for interpretation of the texts. As the texts form a consistent framework of guidance for all humankind, it is not enough to apprehend the linguistic meaning of a given text in isolation. Every text must also be interpreted in the light of the objectives of the Shari‘ah, which aim at securing human benefit. This will assist in interpretation of a text, with reference to the framework in which it was intended to be understood. Thirdly, maslahah mursalah as a basis for deriving legal rules or legislation in the Shari‘ah. Some jurists have challenged this matter in its entirety (at least theoretically), while others have restricted its application. However, in practice, all the major schools of thoughtJournal of Islamic Business and Management Vol.3 No.2, 2013 161 have used it to some degree as a juristic device to promote public good and prevent evil and corruption. The earlier jurists accepted the concept of maslahah darirriyyah, hdjiyyah and tahsiniyyah and recognised the categories of maslahah mu‘tabarah and mulghdh. They have, however, disputed the application of maslahah mursalah. The Maliki School considered maslahah as a legitimate basis for legal reasoning. While Imam Malik was the leading proponent of maslahah mursalah, a similar stand was held by the Hanbali School. However, it is disputed whether the Shafi‘i and Hanafi schools accept the concept. Observation of the ijtihad of various schools indicates that maslahah mursalah is recognised and applied in various situations, although they may differ in their theoretical characterisations of it (Al-Qarafi, 2001, p. 446). This was acknowledged by the later jurists of those schools. However, it must be stated that jurists did not apply maslahah without any restriction; rather, they imposed several conditions for its proper use. For instance, the Maliki school prescribed that the concept of maslahah only applies in the matter of mu ‘dmalat (dealings among human beings) and not to (‘ibadah) worship; also, it must not be contrary to a clear text of the Qur’an or the Sunnah, and its application shall not thwart other interests that are superior or of similar degree to it. Jurists have agreed that maslahah derived solely by the exercise of human intellect without the support of the Shari‘ah is invalid; it is considered a manifestation of human whims and caprice (hawd). The last point was the main cause that gave jurists reservations about applying maslahah. Maslahah has been applied since the time of the Prophet; this can be seen in some of his ijtihdd, such as the distribution of ghanimah among the Muslims in the aftermath of the battle of Hunayn. The practice was also followed by his companions; for instance, compiling the written text of the Qur’an which was started by Abi Bakr based. on the maslahah. In addition, the issuance of currency, establishment of prisons and imposition of khardj (agricultural land tax) were all done on the basis of maslahah.162 Journal of Islamic Business and Management Vol.3 No.2, 2013 VII. CONDITIONS FOR THE ACCEPTANCE OF MASLAHAH The discussion of jurists led to the stipulation of conditions for identifying a valid maslahah prior to its application to the Ummah. They are intended to ensure that mas/ahah does not become an instrument of arbitrary desire or individual bias in legislation. These conditions are as follows: 1. The maslahah must be genuine (haqigiyyah), as opposed to an imaginary maslahah (maslahah wahmiyyah), whichis nota proper ground for legislation. There must be a reasonable probability that the benefits of issuing a rule in pursuit of a maslahah outweigh the harm that might ensue from it. An example of an imaginary maslahah, according to some scholars, is to abolish the husband’s right of falaq by vesting it entirely in a court of law (Khalaf, 1986, p. 86). 2. The maslahah must be general (kulliyyah), which means it prevents harm to or secures benefit for the people as a whole and not to a particular person or group of persons. This indicates that issuing a rule on the grounds of maslahah must aim at securing a benefit for the largest possible number of people. This is because the whole concept of maslahah is meant to secure the welfare of the people at large. 3. The maslahah must not be in conflict with the provisions of the Qur’an, the Sunnah and ijma‘. This means that the maslahah should be in line with the principles and general rules of the Shari‘ah and values which are upheld by the Qur’an, Sunnah or ima" (consensus of opinion of the scholars). It means that the new principle formulated does not clash with the text or alter the implications of a text. RS FOR MASLAHAH IN FINANCIAL TRANSACTIONS Jurists’ discussions of the concept of maslahah evolved over time from disputing the validity of the concept to outlining its conditions and characteristics and the parameters for its application.Journal of Islamic Business and Management Vol.3 No.2, 2013 163 According to al-Ghazali, any new views and principles formulated based on the principle of maslahah should meet the following conditions: 1. ‘The new principle formulated does not clash with a text (nass) or attempt to alter the implication of a text. ‘The new principle does not clash with the existing principles and propositions of Islamic law. The new principle should be within the objectives recognised by the Shari'ah (Al-Ghazali, 1997, p. 222). Shatibi, in his book al-I'tisdm, highlighted the relevant conditions for considering maslahah as the basis for formulating new principles: 1. Tbn Maslahah should concur with the objectives of the Shari‘ah and not contradict any Shari‘ah evidence. Al-Ghazali also highlighted the importance of this condition by saying that every maslahah refers to the objectives of the Shariah as recognised by the Shari‘ah (Al-Ghazdlli, 1997, p. 222). The maslahah can be rationalised, ic. be made subject to reasoning. This requirement is needed in order to exclude the section of ‘ibadat, the details of which are not within the purview of human reason. Maslahah should refer to preservation of essentials (dariiriyat) or removal of hardship (Al-Shatibi, 1991, pp. 364 - 367). ‘Ashir has summarised them into five parameters: The benefit or harm must be definite and occur regularly; The harm or benefit must be so prevalent and evident that rational and wise people would readily acknowledge it; it would not be challenged with the opposite appraisal upon careful consideration. No substitute can be found for the act in its realization of benefit or incurring harm; for instance, the harm of drinking alcohol is irremediable, while its benefits can be achieved by other means. The benefit or harm, if it is matched by its opposite in a given situation, must be corroborated by something of its genus that makes it outweigh the opposite; for instance, making a vandal pay compensation to the owner of the damaged property will be of benefit to the property owner and harmful to the vandal;164 Journal of Islamic Business and Management Vol.3 No.2, 2013 but the benefit to the owner is weightier than the harm to the vandal because it is corroborated by the principles of justice and fairness. 5. One of the two aspects of benefit and harm must be definite and certain, whereas the other is indefinite and uncertain (Ibn ‘Ashir, 2006, pp. 96-98). Dr. SaTd Ramadan al-Bati has written a specialised book on parameters of maslahah. In his opinion, the parameters of maslahah are: It should be in conformity with Maqasid al-Shari‘ah; It should not be contradictory to the Qur’: It should not be contradictory to the Sunnah; It should not be contradictory to giyds; and It should not thwart a mas/ahah superior to it nor a maslahah of equal degree (Al-Bati, 1982, pp. 115-272). vReNS The International Islamic Figh Academy, in its 15" session, placed certain parameters for maslahah, which can be summarised as follows: 1. The maslahah should be genuine and not imaginary; 2. The maslahah should be holistic and not partial; 3. The maslahah should be public and not private or special; 4, The maslahah should not thwart a superior maslahah or one of similar degree; and 5. It should be in harmony with Magasid al-Shari‘ah. Considerable similarities may be observed between these various parameters but there are also some differences among them. Ibn ‘Ashir seems to concentrate on parameters for application of maslahah, while Dr. Sa‘id Ramadan al-Bati concentrates on the general conditions ofa valid mas/ahah. The International Islamic Figh ‘Academy provides specific parameters to ascertain valid maslahah as well as their application; however, jurists may dispute their second and third parameters, for some may argue that partial and specific maslahah should be acknowledged so long as they are not contrary to the Shari‘ah. Following the discussion on the principles of maslahah, its characteristics and the jurists’ discussion of its general parameters,Journal of Islamic Business and Management Vol.3 No.2, 2013 the following are derived as parameters of maslahah in financial transactions. 1. Application of maslahah should conform to Maqasid al-Shari‘ah The application of maslahah has to be in line with the general Magisid al-Shari‘ah as well as the specific magdsid of the Shari‘ah related to the particular transactions. Among the specific Mag§sid al-Shari‘ah in financial transactions are: a) Maintaining the circulation of wealth b) Continuity of investment of wealth c) Achieving comprehensive communal prosperity d) Financial transparency e) Valid ownership of wealth. All the above magasid need to be taken into consideration in financial transactions. Thus, financial transactions are not meant to concentrate on the legality of contracts between parties but on how they could be geared towards achieving the Maqisid al- Shari‘ah. Maslahah that aims at serving all the above magdsid should be recognised. 2. Maslahah should not contradict a clear text of the Qur’an or Sunnah or the principles upheld by the Qur’an and Sunnah. The maslahah which is to be taken into consideration in making any legal rulings must conform to the injunctions of the Qur’an and Sunnah. In addition, it has to be in line with the general principles enacted by the texts, such as the principles of justice, equality, etc. The clear guidelines from the texts need to be observed; no tricks or legal devices should be used to bypass them. If there is any conflict between a maslahah and a clear text, the provisions of the text will always prevail. 3. Maslahah shall not violate a maslahah more significant than or equal to it. Most jurists have agreed to this parameter. Weighting of different interests has been applied from the time of the Prophet and mentioned in the Qur'an, Itcan be seen in the Prophet’s distribution of ghanimah after the battle of Hunayn. Some parties have claimed166 Journal of Islamic Business and Management Vol.3 No.2, 2013 that Islamic finance has experienced situations in which a specific maslahah conflicts with a public or general mas/ahah. In such situations, which of the two maslahah should be given priority? No doubt, it is important to observe the general maslahah; however, if negligence of the specific maslahah might lead to a situation where the objective of that transaction is compromised, the specific maslahah must be taken into consideration. For instance, in a mushdrakah structure, the specific purpose of such a contract is for the parties involved to share the risk of the said contract. If inserting devices such as wa‘d (unilateral promise) leads to shifting the entire risk of the transaction to one party, such a device shall be avoided, as it will compromise the basic purpose of the contract, which is risk sharing. Indeed, the AAOIFI pronouncement on mudarabah and musharakah sukuk propagates the message for Shari‘ah scholars to move on from concentrating on specific maslahah towards observation and realisation of the public maslahah and Magisid al-Shari‘ah. Some have cited the experience of legalising transactions based on bay’ al-‘inah and tawarruq. These may assist the development of the industry in the short term, but legalizing them fails to take into consideration the conflict posed by these types of contracts in circumventing the specific purposes of financial transactions in Islamic law, which encourage real economic activities for the benefit of the society at large. The maslahah has to be founded on guidance from the Shari‘ah and cannot merely be the outcome of social studies or the deduction of an individual intellect. Maslahah refers to human benefit and interest in both the worldly life and the hereafter. Therefore, generally, itis beyond the capacity of human intellect to deduce without guidance from the Shari‘ah. Although human intellect may be able to deduce certain masalih, they will not be accepted unless they conform to the Shari‘ah. It is also feared that maslahah might be misused to satisfy human desires only. The Qur’an states: “...and who is more astray than one who follows his own whims, devoid of guidance from Allah? Allah guides not people given to wrongdoing” (28:50).Journal of Islamic Business and Management Vol.3 No.2, 2013 167 5. The maslahah should not be limited to the benefits and interests of worldly life but also of the hereafter. Both ends must be considered. For this reason, jurists have construed that all acts comprise elements of worship. Acts are divided between those which involve the rights of humans and those which involve the rights of Allah. Rights of Allah are obligations upon human beings which they can never abandon. However, even acts that involve rights of human beings have Shari‘ah parameters that regulate them. This is because they have not only a worldly outcome but also entail accountability in hereafter. In determining the mas/ahah in financial transactions, both worldly interests and those of the hereafter must be taken into account. The maslahah is not confined to serving material interests only but has to serve the development of the human soul. Acorollary of the previous point is that acts of worship, purification of the soul and observation of faith are parts of the =maslahah that cannot be ignored, for they guarantee human interest in the worldly life and in the hereafter. The interests of the religion form the most important interests that need to be upheld and safeguarded, while other interests are secondary to that. Thus, in the event of conflict between interests, the interests of religion shall prevail, while other interests will be sacrificed to them. This can be seen in the event of war to defend Islam; although the interests of life and wealth shall be jeopardised, losses in them must be borne, for they are subordinate to the preservation of the religion as a whole. Observation of the order and sequence of the priority in the level of maslahah must be observed. Serving the daririyyah shall be given the highest priority, followed by fulfilling the Adjiyyah, and then the tahsiniyyah. The latter two categories cannot be promoted at the expense of the daririyyah. Furthermore, exemption from Shari‘ah rules can only refer to the first and second categories. The tahsiniyyah does168 Journal of Islamic Business and Management Vol.3 No.2, 2013 not have the privilege to create an exemption or depart from a strict analogy. 9. Rulings based on maslahah shall cease when the maslahah is not relevant or nonexistent. Any ruling founded on maslahah must be reviewed and reassessed if the maslahah on which it was founded has ceased to exist. This is to prevent the misuse of mas/ahah in a situation where it is no longer relevant. IX. APPLICATION OF MASLAHAH IN ISLAMIC FINANCE Some of the contemporary rulings related to Islamic finance were based on the principle of maslahah. The following are examples of that: A) Capital Market Rulings 1. Dallah al-Baraka, Fatwa no. 10/19 (4) “The committee supports your initiative to realize the general public interest (mas/ahah) of the Muslims; thus, it recommends that investments should not be expanded in stocks or international commodities or similar investments, the benefit of which is limited to profit-making and does not contribute to the strengthening of the Islamic economy” (Abu Ghuddah, 2007, p. 380). 2. Dallah al-Baraka, Fatwa no. 19/8 Relates to investment in the stock of companies that capitalise by means of loans from conventional banks: If the stock price goes up and creates profit for the investor, how shall the return be dealt with? The committee stated: The opinion that we believe will realize both maslahah and justice (‘adl), is to view the return as the result of both the loan and the effort expended by the company; therefore, the company is to dispose of half (50%) of the return realized out of the loan. The company is entitled to benefit from the work done, which constitutes half of the total return, and it is obliged to dispose ofJournal of Islamic Business and Management Vol.3 No.2, 2013 169 the other half due to the illegitimacy of the loan transaction, even if the loan is considered part of a guarantee (Abu Ghuddah, 2007, p.377). Dallah al-Baraka, Fatwa no. 19/4 (1) (8) - 371 “It is permissible for the appropriate official authority to regulate the stock exchange so that [transactions] shall not be conducted by other than specialized brokers who possess a license to perform such work, in order to realize masalih mashra‘ah (legitimate interests)” (Abu Ghuddah, 2007, p. 371). Fatwa in relation to the IDB Hybrid Corporate Sukik issued in 2003 This sukuk granted its certificate holder the right to receive payments arising from the Trust Assets, which included ij@rah (leasing) contracts, murdbahah (conditional sale) contracts, and istisna‘ (conditional sale of item to be manufactured) contracts. In endorsement of the swkik, the Shari‘ah Board stated that: Each member of the Shariah Board is of the view that, given the prevailing circumstances, the structure and mechanism as set out above is acceptable within the principles of Shariah, the different jurisdictions under which IDB operates and in which obligors are located and the international markets into which the Trust Certificates will be issued, and that the above documentation reflects the above structure and mechanism, and each member hereby approves the proposed issue of Trust Certificates. Each member also took into consideration (i) the legal constraints under which this product is being developed; (ii) the need to further develop the emerging Islamic finance industry as an alternative and viable financing system; (iii) the need to facilitate and bring ease to the Islamic financial institutions and others that are determined to raise financing according to Shariah principles; (iv) the various existing constraints and restrictions imposed under the various conventional financing techniques available in many Muslim countries; and (v) the prevailing conditions and affairs of the Ummah and the need to remove them from the shackles of riba. (Islamic Development Bank, 2003, p. 12).170 Journal of Islamic Business and Management Vol.3 No.2, 2013 Fatwa in Relation to Characterising Shari‘ah-Compliant Financing as a “Loan” The fatwa was issued in relation to the endorsement of East Cameroon Investment Sukuk. Bemo Securitization SAL and Merrill Lynch are the other parties involved in this deal, as East Cameroon mandated them to structure the swkik. Sheikh Yusuf Talal DeLorenzo, Shari‘ah Advisor for Bemo Securitization SAL, stated the following and signed the fatwa: The undersigned Shari‘ah Advisor to Bemo Securitization SALunderstands and recognizes that the state and federal agencies which govern the commercial transactions that underlie the issuance of Sukwk require that this transaction be characterized as a loan for purposes of taxation. As such, the Funding Agreement document related to this transaction characterizes the financing advanced by this transaction as a loan, and contains references to lending, and to a rate of interest, in order to complete this characterization and thereby to allow investors exemption from certain income-related taxes. All such references in the document have been made in order to satisfy these regulatory requirements and are not reflective of the true nature of the actual transactions, in which neither interest nor riba are present. Therefore, the undersigned Shari‘ah Advisor has no objection to the Company providing such documents to the regulatory authorities. In short, the Shari‘ah Advisor does not find that such references to interest corrupt or invalidate the Shari‘ah-compliant transaction on which the issuance of Sukiik is based. All such references are extraneous to the actual transaction and in no way affect its Shari‘ah- compliant nature. The Shari‘ah Advisor certifies that the Sukiik issued by Bemo Securitization SAL and Merrill Lynch are based on Shari‘ah- compliant transactions and will yield returns, Allah willing, that are lawful and wholesome. And Allah, Whose knowledge is perfect, knows best (East Cameron Gas Company, June 2006, p. A-4),Journal of Islamic Business and Management Vol.3 No.2, 2013 B) Banking rulings 1. Dallah al-Baraka, Fatwa no. 11/5 The committee is of the view that: As the entrepreneur has been granted decision-making powers and he has decided that it is of benefit (maslahah) to retrieve part of the capital, there is no ban on doing so, but in the event of tasfiyah (winding up) of the mudarabah venture, it is crucial to make sure the capital and the profits remain intact; thus, the retrieval is subject to this consideration. Article Two of the appendix to the contract contains this Shari‘ah requirement. There is also no objection to variance of the period [stipulated] in renewal of the mudérabah (Abu Ghuddah, 2007, p. 217). 2. Fatwa on the Tbr’ clause in financing agreement In the beginning, ibra’ was practised in Islamic banking institutions based on the financier’s discretion to grant it to a customer who settles his debt earlier than the stipulated period. However, since the practice of giving a rebate is solely discretionary on the part of an Islamic banking institution, the customers may have doubts about whether they are eligible to receive ibra’ should they make an early settlement. Furthermore, they are also in the dark about the formula for computation of the ibrda’ by the bank. As a result, customers may shift to conventional financing instead. To overcome this confusion in granting and computing the ibrd’’by Islamic banking institutions, it was proposed that a clause promising to provide ibra’ to customers who settle their debts earlier than the stipulated period be introduced. Therefore, it is important to resolve the issue of whether it is permitted by the Shari‘ah to incorporate such a clause promising to give ibra’ to customers in an Islamic financing agreement. Resolution The Council, in its 24th meeting held on 24th April 2002/11th Safar 1423, resolved that Islamic banking institutions may incorporate the clause on undertaking to provide ibra’ to customers who172 Journal of Islamic Business and Management Vol.3 No.2, 2013 make carly settlement in Islamic financing agreements, on the basis of public interest (maslahah). This clause shall be stipulated under the method of payment. With the inclusion of the ibra’ clause in the financing agreement, the bank is bound to honour that promise. This approach mirrors the concept of giving a discount on price or reducing the debt of the customers who make early settlement, based on the concept of da‘ wa ta‘ajjal, which is acceptable in the Shari'ah. The confusion on the issue of uncertainty in price (gharar) does not arise if the clause on the promise to give ibra’ is stated clearly in the financing agreement (Central Bank of Malaysia, 2007, pp. 40 - 41). ©) Takaful The permissibility of the takaful operation is based on the maslahah for the community because it helps to secure financial and nonfinancial benefits. The legal SharT‘ah framework for takéful is based on “aqilah as practiced in Madinah by early Muslims, where a certain fund was set up to help members who faced hardship due to the death of their breadwinner. The takafil operation promoted the value of cooperating in good deeds and piety (al-ta‘awun ‘ald al-birr wa al-taqwa). And this realised great maslahah to the Ummah. The concept of takafial is based on the coming together of a group of individuals so that each of them may be protected by the others from the loss caused by unforeseen events such as natural disasters; therefore, takdfiul is considered to be a type of cooperation in goodness and piety. X. CONCLUSION The above discussion on the concept of mas/ahah and its parameters leads to several conclusions. Firstly, it is very relevant to address maslahah in modern Islamic finance, as many resolutions and verdicts have been issued based on it. Secondly, maslahah has been addressed by scholars through Islamic legislation, both to realize benefits to the Ummah and to remove the expected hardships that may result by enforcing strict laws. Thirdly, the Shariah recognises maslahah as a basis for issuing fatwas, and there are many provisions whichJournal of Islamic Business and Management Vol.3 No.2, 2013 173 support their legitimacy and validity. Fourthly, maslahah is governed by Shari‘ah rules; therefore, the scholars who refer to it for issuing resolutions must take into account the conditions stipulated by the Shari‘ah for its application. More specifically, the scholars involved in issuing fatwas for Islamic financial institutions should observe those parameters in order to issue sound and accurate resolutions on Islamic financial matters. Next, it should be noted that it is only the scholars who are involved in the evaluation of the case under examination in Islamic finance who are able to measure and assess maslahah and issue relevant fatwa respectively. Lastly, maslahah is a very appropriate source for regulators and policy makers to rely upon, when necessary, in setting up standards, parameters, regulations and guidelines. References AAOIFI (2010). Shariah Standards. Bahrain: AAOTFI. Abii Ghuddah, Abdul Sattar (2007). Al-Fatawd al-Shar‘iyyah li Majmit'at al-Barakah al-Masrifiyyah, Jeddah: Majmi‘at Dallah al-Barakah al-Masrifiyyah, ‘Abu Zuhrah, Muhammad (n.d.). Usiil al-Figh, Cairo: Dar al Fikr al-‘Arabi. Al-Albani. (n.d.). Sahih al-Targhib wa al-Tarhib 1. Riyadh: Maktabat al-Ma‘arif. Al-Bakati, Mufti Muhammad Amin. (2007). Al-Ta'rifat al-Fighiyyat. Beirut: Dar al-Kutub al-‘Ilmiyyah. Al-Bukhari. (1987). Sahih al-Bukhdri. 3. Beirut: Dar Ibn Kathir. ALBiti, Muhammad Said Ramadan, (1982). Dawdbit al-Maslahah. Beirut: Mu’ assasat al-Risdlah, Al-Fayruzabadi. (2007) al-Qamis al-Muhit (2° ed.). Beirut; Dar al-Kutub al-‘IImiyyah, Al-Ghazali. (1997). Al-Mustasfa. Beirut: Dar Ihya’ al-Turath al-' Arabi, Qal‘ahji, Muhammad Rawwas. (2006). Mu‘jam Lughat al-Fugaha’ (2 ed.). Beirut; Dar al-Nafa’is. Al-Qarafi (2001). al-Furdg. Cairo: Dar al-Salam. AI-Rafi'T, (1985). Al-Misbah al-Munir. Egypt: al-Maktabah al-Khayriyyah, Al-Shatibi. (1991). Al-Itisdm (3" ed.). Beirut: Dar al-Kutub al-‘Ilmiyyah. Al-Shatibi. (1997). A/-Muwdfaqat (3" ed.). Beirut: Dar al-Ma ‘rifah.174 Journal of Islamic Business and Management Vol.3 No.2, 2013 Al-Shawkani (1995) Irshad al-fuliil (7° ed.). Beirut: Mu’assasat al-Kutub al-Thagafiyyah. Badran, Abul Aynain (n.d.). Usill al-Figh al-Islami. Cairo: Mu’assasat Shabbab al-Jami‘ah. Central Bank of Malaysia (2007). Shari'ah Resolutions in Islamic Finance. Kuala Lumpur: Central Bank of Malaysia. Hassan, Husain Hamid (1993). Figh al-Maslahah wa Tatbigdtuhu al-Mu'dsirah. Jeddah: IRTI. Ibn ‘Ashiir (2006). Treaties on Magasid al-Shariah. Virginia; International Institute of Islamic Thought. Khallaf, ‘Abd al-Wahhab (1986). Usiil al-Figh. Kuwait: Dar al-Qalam. Masud, Muhamad Khalid (1995). Shatibis Philosophy of Islamic Law. Kuala Lumpur: Islamic Book Trust. Yusuf Hamid al-‘Alim (1991), A/-Magdsid al-‘dmmah li al-Shari‘ah. Virginia; International Institute of Islamic Thought. East Cameron Gas Company. (2006, June). US$/75 million Sukik Musharakah Retrieved August, 2009, from IFIS Sukuk Database: www.ifis Islamic Development Bank. (August, 2003). U.S.$400 n Offering Circular. Jeddah, ccurities.com sukiik al-Istithmar Jobcecbobecccicectbces