Application of Maqasid Al-Shariah and Rules of Shariah in Managing Wealth and

Financial Transactions

Mohammad Monzur E Elahi *

Department of Islamic Studies
National University
Gazipur, Bangladesh
E-mail: drmanzurelahi@gmail.com

Md. Mahmudul Alam

School of Economics, Finance & Banking (SEFB)
Universiti Utara Malaysia (UUM)
Sintok, Kedah, Malaysia
Email: rony000@gmail.com
Mobile: +60182467050

* Corresponding author

Citation Reference:

Elahi, M.M.E. & Alam, M.M. (2015). Application of Maqasid Al-Shariah and Rules of
Shariah in Managing Wealth and Financial Transactions, Journal of Law, 10(2), 249-.

This is a pre-publication copy.

The published article is copyrighted by the publisher of the journal.

1
 Application of Maqasid Al-Shariah and Rules of Shariah in Managing Wealth and
Financial Transactions

Abstract

Shariah or Islamic Law is a comprehensive set of laws that includes principles and guidelines
for every component of human living. The main objectives of Shariah are known as Maqasid
al-shariah, which are meant for humans to live a successful, enjoyable, and an easy life both
here on earth and in the hereafter compounded within certain boundaries. Shariah also has a
comprehensive set of principles and approaches according to universal objectives to manage
financial transactions and wealth accordingly. It simultaneously offers several prohibitions
and restrictions so that in the end, humans achieve a society that is fair, just, and transparent.
There are some approaches and principles of Islamic financial dealings and transactions of
wealth according to Shariah’s rules as well as Shariah’s objectives (Maqasid Al-shariah)
which work as a guideline for Muslim, and non-Muslim who are interested to work on
Islamic finance and to apply the Shariah objectives in their transactions.

Keywords: MaqasidAl-shariah; Islamic finance; Wealth; Riba; Wealth Management

1. Introduction

Islamic finance has made great strides in expanding beyond the conventional boundaries to
reach a global market. Islamic financial institutions in the present situation must make sure
that their entire transactions are Shariah compliant, both in their formalities and legalities and
most essentially in their economic consistency, which should be within the boundaries of the
objectives established through the Shariah.

The terminology Maqasid al-shariah, a possessive construct in the Arabic language,

is regarded as a distinguishable discipline. Maqasid is grammatically the plural form of the
term maqsad and originates from the root word qa-sa-da, which encompasses several
definitions. Some of these definitions include ‘to take a middle course,’ ‘to walk towards,’
and ‘to intend’. The noun, Qasd, is derived from this root word with the meaning of ‘an aim,’
‘a goal,’ or ‘an aspiration (Ibn Faris, 1971, and Aljawhary, 1980).’Shariah, which is the
second word in the terminology, is a noun which means ‘a path to a water hole,’ and a more
common meaning includes, ‘the law of Allah SAWT as revealed to Muhammad SAW’ (Ibn
Manzur, 1980). In totality, the terminology Maqasidal-shariah is defined according to its
constituent components as the ‘goals and objectives which are the reason for the legislation
of the rules of Islam’ or simply put, ‘The Objectives of Islamic Law.’(Alfasi, 1979)

Ibn‘Ashur, a well-known expert in maqasid from the 20th century, defined Maqasid
al-shariah as the wisdom and purpose underlying the establishment of all or many of the
Shariah decisions (Al-Maisawy, 1998). Based on the various other references for definitions
of Maqasid or objectives of Shariah, it can be concluded that it relates to the causes,
outcomes, wisdoms, and secrets, as set by the Shariah legislator, Allah (SWT), in the
establishment of specific or common rulings for mankind’s benefit (Alyubi, 1998).

Therefore, Maqasid al-shariah describes the wisdom underlining the rules including
the world’s development and preserving the system of maintenance and co-existence of good
on the face of the earth by the improvement of the people who are obligated to living their

2
lives in a just and virtuous manner, besides thinking and doing good on behalf of the earth
and its inhabitants.

Dr. Jasser Auda opines that the ‘why’ question is similar to the ‘what is Maqasid’
question and the ‘levels of Maqasid’ are regarded as the ‘levels of why’. He skillfully
reasoned that the levels of why and the investigation of Maqasid will provide us with a
detailed explanation of simple actions and clarified signs (e.g., stopping at a zebra crossing)
leading to the levels of regulations and laws (e.g., laws on traffic), and from this level of
regulations and laws to the levels of utility and mutual benefits (e.g., considering another
person’s safety instead one’s own safety). Finally, the explanation of the levels of utility and
benefits will lead to the understanding of the levels of basic rules, approaches, and general
principles (Auda, 2008).

Therefore, Maqasid al-Shariah represents the Islamic knowledge sub-division, which

manifests the answers to all the troubling questions on different issues and dimensions. For
instance, the following troubling questions are prevalent in the study of financial transactions:

• Why did Allah (SWT) allow trade but disallowed riba (interest)?
• Why is zakah declared as one of the principles of Islam in financial
transactions?
• Why is transparency a necessity when dealing with finances?
• Why is hoarding not permitted in Islam?
• Why is ownership of wealth approved in Shariah?

Maqasid al-Shariah delivers the answers to all these questions as well as others by relating
the causes, wisdom, and secrets underlining such rulings (Auda, 2008).

Shariah’s objectives in financial transactions represent the general aims which can be
translated as achieving the aims of Shariah from the rulings that are linked to the financial
transactions and activities. These objectives do not only reflect one kind of financial
transaction; they involve all the features of financial dealings that humans generally peruse in
life (Sano, 2004).

Even though these objectives appear to be specifically related to finances, they can be
regarded as being objectives that are integral when considering their universal objectives. The
reason is due to the fact that these objectives do not deal with particular kinds of rulings; they
can be linked to most kinds of financial dealings and include all trading activities, profit
creation, consuming, and spending. Allah proclaims that:

“There is not a moving (living) creature on earth, nor a bird that flies with its
two wings, but are communities like you. We have neglected nothing in the
Book, then to their Lord they (all) shall be gathered. We have neglected
nothing in the Book”.(Al-An`am:38).

Studying in depth the texts from some of the Quran and the Prophet’s (SAW) Sunnah
on financial dealings, it can be observed that the Shariah puts forward particular objectives in
enacting the financial principles and laws (Sano, 2004). Some of these objectives are wealth
distribution in the society, continuous wealth investment, the achievement of economic
advancement for the entire society by meeting the people’s fundamental requirements,
transparency in financial dealings to alleviate conflicts and issues of permissibility of public

3
and private wealth ownership. The key objectives of Shariah in financial dealings and
contracts are stated in the general definition of the verses of al-Quran as follows:

“Allâh does not want to place you in difficulty, but He wants to purify you,
and to complete His Favour to you that you may be thankful”.(Al-Maidah:6)

In another verse, it is proclaimed that:

“…Allâh intends for you ease and He does not want to make things difficult
for you....”(Al-Baqarah:185)

It was discovered from the Sunnah of the Prophet (SAW), that he chooses the
simplest of two matters if they are both permissible. The Prophet declares, “Make things easy
and do not make it difficult and give good news and do not make people run away from you”
(Bukhari, Hadith no. 69).

The Shariah has laid out some objectives and reasons for serving human beings’
financial needs. Thus, considering the understanding of the Hadith above, transactions and
dealings need to be made easy for the people. In truth, there is potential for the Islamic
financial industry to reach the status of being one of the most promising sectors for achieving
the highly esteemed objectives of the Shariah, since it lies within the financial path
underlining the forces of Shariah’s commands. These commands integrate Islamic financial
dealings with real concerns for a transparent, fair, and just society and prohibit the
engagement in illegal dealings that are troublesome to human wellbeing and the society at
large. This study concentrates on these principles and methods of Islamic financial
transaction and activities of wealth according to the path of the Maqasid al-Shariah.

2. Features of Maqasid Al-shariah

Prior to elaborating on the principles and approaches of the maqasidi on wealth and financial
activities, a brief description on the dimensions of maqasid al-shariah will be carried out to
enlighten the reader to the classifications of Maqasid and its priorities, even though these
classifications can be found in most books on the study of Maqasid al-Shariah.

Taking into consideration the advantages apparent to the entire humankind, Maqasid
is categorized into three stages of necessity including necessities or daruriyyat, needs or
hajiyyat, and luxuries or tahsiniyyat (Al-Shatibi, 2004). All the various commands of Shariah
are meant for the realization of one or more of the objectives mentioned above. This
classification of the objective of Shariah into three categories is not explicitly mentioned in
the text of al-Quran and the Sunnah. However, the scholars has deduced this classification
based on their reading and understanding of the general objectives of Shariah as mentioned in
the text.

a. The Necessities (Al-Daruriyyah)

The necessities relate to the issues that people’s religious and worldly affairs are dependent
upon, and negligence in this area will cause complete disorder and disruption that could result
in a disastrous outcome. Individuals and governments should safeguard themselves from
these outcomes. The five fundamental issues in life are included in these values as follows:

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 i. Protection of Al-din - The protection of al-din at the individual level is reached by
observing various types of ‘ibadah’. In a wider spectrum, protection of al-din includes
defending the Islamic faith especially if it is assaulted by the enemies of Islam (Niyazee,
2003).

ii. Protection of Life (al-Nafs) - The protection of nafs (human soul) is essential and it
is for this reason that it is positioned at the second stage of necessity (Daruriyyah). Many
verses in al-Quran emphasize on the fact that it is forbidden to kill. An example of such a
verse is provided as follows:

“And do not kill anyone whose killing Allah has forbidden, except for a just
cause. And whoever is killed wrongfully (Mazluman intentionally with hostility
and oppression and not by mistake), We have given his heir the authority [to
demand Qisas, Law of Equality in punishment – or to forgive, or to take Diyah
(blood money)]. But let him not exceed limits in the matter of taking life (i.e.
he should not kill except the killer). Verily, he is helped (by the Islamic law)”.
(Al-Isra:33)

iii. Protection of Dignity (Al-’Ird) – The protection of dignity involves protecting the
rights of individuals to privacy and not revealing or falsely accusing another of a
misbehavior. Islam regulates men and women’s relationship in order to preserve their dignity.
A manifestation of the protection of dignity in Islam is the prohibition of adultery.
Punishments for those found in carrying out false accusation and adultery are there for the
protection of dignity.

iv. Protection of Intellect or Mind (Al-‘Aql) -Al-‘aql or intellectualism is considered a

benevolent gift to mankind from Allah (SWT) and it is one of the abilities that distinguishes
humans from animals. The demonstration of protection of the intellect is apparent as Islam
provides the rights for freedom of expression, motivates Muslims to gain knowledge, and
disallows them from taking part in activities that may be damaging to the mind. Moreover,
the repercussion of being engaged in such damaging activities also emphasizes the
importance of this principle.

iv. Protection of Property (Al-Mal) - Property is a human necessity; however, it must

be acquired through legitimate means. Moreover, Allah has proclaimed harsh punishments on
those who have acquired property illegally so as to protect them. The Quran emphasizes this
issue in the verse:

“And eat up not one another's property unjustly (in any illegal way, e.g.
stealing, robbing, deceiving), nor give bribery to the rulers (judges before
presenting your cases) that you may knowingly eat up a part of the property of
others sinfully”.(Al-Baqarah:188)

b. The Needs (Al-Hajiyyah)

The needs or al-hajiyyah complements the five interests of necessity and it describes the type
of interests which if neglected would cause hardships to the community or the individual
even though it does not cause a complete disruption to daily living. An example of this type
of interest in mu’amalah involves the permission to trade and to carry out other forms of
transactions involving leasing (ijarah), mudharabah, etc. (Niyazee, 2003).

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c. The Luxuries (Al-Tahsiniyyah)

Embellishment or al-tahsiniyyah is defined as interests when realized cause an enhancement

and leads to the achievement of something that is desired. The lack of tahsiniyyah does not
cause an interruption to daily living; however, it could cause an uncomfortable living. The
example of this type of interests in mu’amalah includes being prohibited to sell materials that
have no value, or to sell public property, etc.

The classifications given above are the conventional classifications of the objectives
of Shariah, as provided by scholarly pioneers of Shariah. Nevertheless, other dimensions do
exist including those as proclaimed by Imam Ibn Ashur who categorized the objectives
generally and specifically (Ibn Ashur, 2013). The generalized objectives include all the
principles that guide the establishment of Islamic laws in their entirety. The particular
objectives are related to the objectives specifically developed to provide particular benefits to
the people in daily living, such as the significance of validating contracts. Raisouni provided
a third, more modern classification which divided the objectives into partial and integral
aspects. The objectives that are integral relate to the general objectives that Shariah intends to
achieve in all its rules. The objectives that are partial relate to particular objectives that
Shariah intends to achieve in each of its rules. However, there are several other
classifications of the Shariah objectives as revealed in the writing of Usul (Kamali, 1999).

3. Maqasid Al-shariah in Managing Financial Transactions and Wealth

The tradition of Fiqh by the predecessors of Islam is comprehensive in its investigation and
evaluation of legal rulings. It is also applicable for use in the aspect of financial transactions
and contracts. The conventional analysis give a detailed outline of all the rulings that deal
with the day-to-day activities and transactions as well as rulings associated with joint
ventures such as mudarabah and musharakah, financial contracts including murabahah and
agricultural lending, and transactions known as musaqah, as well as other contractual
associations in business management.

Even though these conventional analyses were comprehensive and detailed, they did
not pay sufficient attention to examining Shariah objectives in terms of regulating financial
dealings. The review of literature by Ibn Ashour demonstrates the lack of this aspect, which
made him announce his desire to examine the objectives of Shariah in order to redeem the
missing aspects based on the conventional deliberation of scholars.

It cannot be denied that the emphasis of the conventional legalists in the area of
prohibition (haram) and permissibility (halal) in financial dealings and their ignorance of
economic issues and financial associations in the society were far less compared to the
present-day complexities of the world in areas of commerce, financial investment, and other
business dealings. More recent examination of the Shariah objectives in the studies
demonstrates a lack of this type of examination in most of the studies. This ignorance of the
Shariah objectives has contributed to the continuous differences in the Muslim researchers’
circle on matters of understanding and classifying financial transactions and contracts.

It is understandable why early scholars did not emphasize much on the objectives of
Shariah because of the simplicity of the financial transaction in their societies. However, the
reasons for current scholars and researchers to disregard the objectives of the Shariah on

6
matters pertaining to Islamic banking and contracts cannot be viably justified. Given the rapid
changes of present times, current day scholars and researchers are obliged to concentrate
more on the objectives of the Shariah since this area is related closely to the financial
activities at present. The objectives of Shariah in financial dealings are described in the
following.

a. Continuous Wealth Circulation

The objective of continuous wealth circulation describes the significance of preserving the
transactional feature of the financial activities so that a majority of the society can become a
part of the wealth monetary cycle as well as to eliminate wealth from being focused on just
the elite few. Several verses of the Quran as well as many hadith mention this objective
which calls for the offering of zakah, generous donations, and spending money in the name of
Allah and to abstain from monopolizing and hoarding wealth. The following Hadith reveals
the warning from the Prophet (SAW) against storing one's wealth and not spending it wisely:

Narrated by Abu Hurairah, Allah's Apostle said, "Whoever is made wealthy by

Allah and does not pay the Zakat of his wealth, then on the Day of
Resurrection his wealth will be made like a bald-headed poisonous male snake
with two black spots over the eyes. The snake will encircle his neck and bite
his cheeks and say, 'I am your wealth, I am your treasure.' “Then the Prophet
recited the holy verses:- 'Let not those who withhold . . .' (to the end of the
verse). (Bukhari, Hadith no. 486).

b. Continuous Wealth Investment

Economic activities and financial transactions develop and increase as the societies grow
bigger. It is normal for the societies to increase their wealth to prosper and benefit the
members of the society. However, in order for societies to become more prosperous, wealth
investment must be carried out and it should be made available to many people for
investment and growth. several verses that support this objective, can be found in the Quran
and the Hadith by the Prophet (SAW) that refer to the issues of obligation and the necessity
of continuing wealth investment since it encourages all Muslims to start earning, striving, and
continuing to expand themselves all over the world searching for Allah’s bounty.

c. Achieving Holistic Communal Prosperity

This objective is aimed at achieving fundamental material requirements for all the members
of a society by gaining individual satisfaction, security, and social harmony. Achieving this
objective will also eliminate negative social attributes from the society such as population
stratification of privileged and non-privileged statuses, a concept which would most certainly
lead to hatred and animosity within a society. Quranic verses and Hadith urging Muslims to
make zakah payment so as to help and cooperate with each other in business dealings, and
ensuring that the objective of achieving prosperity by the whole society is achieved, are
evidences of this objective.

It is impossible to achieve this objective if the two earlier mentioned objectives of

continuous wealth circulation and continuous wealth investment are not practiced. The reason
for this is due to the fact that wealth distribution through investment is among the major
determinants in reaching holistic societal prosperity. One of the functions of the Islamic

7
Banking system in this regard is to strategize how it is able to aid in achieving societal
prosperity. This noble objective can only be reached if Islamic banks aside from thinking
about making a profit also aim at assisting the Muslim society to develop their economic
level via different activities. Islamic banks can function as institutions that facilitate and
monitor besides being partners to individuals who intend to venture into activities that can
lead to prosperity. A step such as this would surely be a stepping-stone towards bringing
prosperity to individuals as well as the society.

d. Wealth Preservation through Value Protection

The focus on the distribution of wealth encompasses the need to preserve and protect its
value. The laws of Islam reveal great concerns on wealth preservation through value
protecting and the natural commodity pricing movement.

The Quran strengthens this through the verse of Allah in which it says:

“And do not withhold from the people the things that are their due. (Al-A`raf:
85) ”.

The word bakhs (ٌ‫ )بَ ْخس‬in the verse is defined literally which carries the definition of
deceiving, undervaluing, or trickery in reducing from or adding to the measurements. In truth,
Islam regards money as a measurement medium instead of a commodity. Thus, transactions
involving money encompass their own particular rulings, as highly debated by Muslim jurists
under the Kitab al-Sarf, which reveals silver and gold exchanges (currency exchange).
However, in general the exchange of commodity is controlled by various rules and
regulations, as portrayed in the jurisprudence of Islam in the area of Kitab al-buyuor sales.

The significance of wealth preservation through value protection is accurately

explained in the following Hadith:

“The Prophet appointed a man as governor of Khaybar, who [later]

presented him with an excellent type of dates (janib). The Prophet asked, “Are
all the dates of Khaybar like this?” He replied, “[No, but] we barter one
Sa’1of this (excellent type) for two Sa’ of ours, or two Sa’ of it for three of
ours.” Allah’s Apostle said, “Do not do that [as it is a kind of usury]; rather,
sell the mixed dates (of inferior quality) for money, and then buy the excellent
dates with that money”. (Bukhari, Hadith no.2089)

The Prophet implicitly indicates in the above Hadith for the necessity of allowing the
market forces to decide the true value of the dates. Fair determination of the commodity’s
price would be ensured; otherwise, the issue could become an area of deception and
manipulation given the asymmetry of the information.

In addition, the matter of value protection also includes prohibiting any type of
commodity overpricing or devaluing. Therefore, the Prophet prohibits the people from
purchasing products from the caravans prior to reaching the markets (talaqqiar-rukban) and

1
According to Wahbah al-Zuhayli, al-Fiqh al-Islamiwaadillatuh, vol 1: p.142, one sa’ (a
measure of capacity) is equal to about 2.75 litres.

8
also prohibits najash, which is defined as bidding without a genuine intention of purchasing,
just to hike up the price.

e. Financial Transparency

The objective of financial transparency intends to prevent Islamic Finance from being
misused, squandered, and disputed, and to avoid grudges and arguments in the community
over financial issues. The Hadith verses regarding this issue focus on the necessity of having
a witness while conducting financial dealings and the necessary qualities required for those
who are involved in financial management.

An evidence of transparency can be found in the mudarabah and musharakah

contracts where both the parties involved in the contracting must agree on the profit ratio that
is to be shared. This must be carried out proportionately instead of the actual amount since
both the parties involved must share the profit or loss with the only exception in the point of
mudarabah where the provider of the capital will absorb the loss. Even though in this regard,
transparency is necessary in business transactions, secrecy is permitted in selected cases. This
can be observed in several musharakah financing aspects. The criticisms mounted against
musharakah relates to the fact that, engaging the financier as the client’s business partner
may cause the disclosure of business secrets to the financier, who in turn might reveal it to
the other traders. Nevertheless, solving this issue is quite simple if the objectives of Shariah
are clearly understood. The client may include a condition upon entry into the musharakah
agreement, such as the financier will not cause interference in the management affairs, and he
promises to not disclose information about the business to any other trader without getting the
client’s permission first. Prestigious institutions always honor these types of agreements in
maintaining the secrecy particularly the financial institutions and banks whose dealings are
made according to confidentiality (Uthmani, 2002).

Another issue of relevance to this area of Maqasid is the requirement of disclosure in

murabaha transactions. The murabaha contract requires that the original pricing and the
marked up price is disclosed to the buyer and failing to disclose this information will make
the contract invalid (AAOFI, 2004). Thus, the seller must make sure that there is
transparency in these transactions especially in terms of pricing.

f. Validating Financial Ownership

This objective of validating the financial ownership authenticates the fundamental area of
Islamic transaction on the rights of lawful financial ownership. Several Hadith and verses
emphasize this objective by underlining the rights to lawful spending and ownership. The
Quranic commands that prohibit illegal means of getting property imply the meaning
attached to this Shariah’s objective. The verse says that:

“O you who believe’ Eat not up your property among yourselves unjustly
except it be a trade amongst you, by mutual consent. And do not kill
yourselves (nor kill one another). Surely, Allâh is Most Merciful to you.” (Al-
Nisa:29)

One of the most significant Hadith on this particular objective is the Prophet’s (SAW)
quote declaring, "Do not sell what you do not possess"(Abu Daud, Hadith no. 3505;
Thirmidzi, Hadith no. 1232; Nasaee, Hadith no. 4613; and Ahmad, Hadith no. 15346).

9
 Scholars have reaffirmed the objective mentioned above when it was concluded that
only the parties with the capability of delivering the object of sale should attempt the sales
transactions. If not, this would create disputes and uncertainties between the parties involved
in the contracting. The representation of this requirement is apparent in the murabaha
contract to the purchaser.2 Financial institutions in this type of transactions are prohibited
from selling any of the items prior to acquiring them; thus, the institution cannot viably
conclude a murabaha sale with a customer prior to concluding the transaction with the item’s
supplier (AAOFI, 2004).

The legal rules dealing with financial issues are enacted in their entirety to reach the
objectives as prescribed; nevertheless, various scholars have added other objectives. Wealth
redistribution and closing the social and economic gaps in the community are among the
objectives that are considered as prominent. These two additional objectives are enclosed in
the key objectives outlined in this study. Closing the economic gap within the community can
be counted as being a part of the objective on achieving communal prosperity, while wealth
redistribution can be counted as being a part of the objective on preserving wealth
distribution.

g. Preserving Wealth through Acquisition and Growth

An aspect related to protecting the ownership is preserving wealth through acquiring and its
subsequent development. Indeed, wealth acquisition and growth are regarded as the
fundamentals of property rights and ownership in Islam, and mankind view the attempts of
achieving this as an exclusive right to the materials they own as an outcome. Moreover, the
Prophet is quoted as saying:

“If anyone revives a dead land, it belongs to him, but what is unjustly planted
has no rights.”(Malik, Hadith no.1424, Abu Daud, Hadith no.3075, Tirmidzi,
Hadith no.1378)

In addition, scholars claim that if wealth preservation is the highest objective of the
Islamic law, then the acquisition must be made prior to its preservation. Many Quranic and
Hadithtexts affirm this claim; for example:

“And when the prayer is finished, then you may disperse through the land and
seek of the bounty of Allah…” (Al-Jumu`ah:10).

In respect to the essence of this definition, the Prophet proclaimed that:

“How fine is rightly acquired wealth in the possession of an upright man.”

(Ahmad, Hadith no.17763)

The Prophet also added that:

2
Murabaha to the purchase orderer is the sale of an item by the institution to a customer (the
purchase orderer) for a pre-agreed selling price, which includes a pre-agreed profit
mark-up over its cost price, this having been specified in the customer's promise to
purchase. Normally, a murabaha to the purchase orderer transaction involves the
institution granting the customer a murabaha credit facility.

10
 “There is no Muslim who plants a seedling or sows a crop, and then an
animal or person eats from it, except that it is (recorded) for him as a
charity.” (Bukhari, Hadith no.2195)

Development or growth is another aspect related to acquisition. In truth, augmentation

and development are related to the acquisition of assets. This is especially true if one
comprehends the belief underlying the implementation of zakah, which represents Islam’s
third pillar on economic property. The need for Muslims to make zakah payments implies the
necessity to increase their wealth, through investment for example, in order to continuously
grow the asset and not deplete it. The Hadith articulating this notion says that:

“Verily, whoever has charge over an orphan with wealth, let him invest it. He should
not leave it to be consumed by zakah.” (Al-Tabarani, Hadith no. 588; Al-Baihaqi, Hadith no.
6990)

h. Preserving Wealth from Destruction

Besides giving complete rights to people to acquire, utilize, and enjoy their property and the
related benefits therein, Shariah also focuses on the necessity of preserving the property from
destruction and being exposed to any type of danger. Preserving wealth from destruction can
be viewed based on two aspects namely, to protect wealth from risks that can cause it harm
and to prevent the wealth from being damaged by using it for dangerous reasons. This is the
reason there are rules that govern contracts validation and validity and stipulations of
fulfillment as firmly stated in the Islamic law (Ibn Ashur, 2013).

The concept of protecting property and wealth from risks are described in the Quran;
for example, the Quran’s longest verse states that:

“O you who believe! When you contract a debt for a stated term, put it down
in writing. Have a scribe write it down justly between you. No scribe should
refuse to write; let him write as Allah has taught him, let the debtor dictate,
and let him fear Allah, his Lord, and not diminish what he owes.
If the debtor is feebleminded, weak, or unable himself to dictate, let his
guardian dictate justly. Call in two men as witnesses. If two men are not
available, then call a man and two women out of those you approve as
witnesses, so that if one of the two women errs, the other can remind her. The
witnesses should not refuse when they are called on for evidence. Do not
disdain to write the debt down, be it large or small, along with the time it falls
due. This way is more equitable in the sight of Allah, more reliable as
evidence, and more likely to prevent doubts arising between you. But if the
merchandise is there and you hand it over, there is no blame on you if you do
not write it down. Have witnesses present whenever you make a commercial
contract; and let no harm be done to either scribe or witness, for if you did
cause them harm, it would be a crime on your part.
Be mindful of Allah, and He will teach you. Allah has full knowledge of
everything.”(Al-Baqarah: 282)

The verse gives clear and direct advice to Muslims to document all their business
dealings, and debts and to have a witness while conducting these transactions. This stops the

11
potential scenario of one party refusing to acknowledge the transaction, which could lead to
potential capital loss. Allah permits taking collateral for a debt if the transaction is carried in
the midst of a journey and records are not kept. These suggestions are made by Allah because
He wants the debtor and the business person to be aware and take responsibility in carrying
out their duties, respectively. Therefore, it is revealed that trusting the other party alone is not
enough, so in order to prevent unreasonable losses and fraud, additional steps must be carried
out.

In addition, this notion is again reinforced in a command by Allah which clearly tells
people to:

“Spend in the cause of Allah; do not contribute to your destruction with your
own hands, but do good, for Allah loves those who do good”(Al-
Baqarah:195).

Based on the verses mentioned above, it is clear that Allah directs mankind to not expose its
wealth to the dangers of harmful behavior. This type of situation can also happen in
investment and business transactions, whereby if they are not properly managed, it would be
a major risk that can cause damaging losses that may even destroy a country’s economy and
harm the public’s lives. Thus, managing the risks and danger effectively is critical in
preventing further destruction to the society at large. The above Quranic verses emphasize
that risk management is an essential step and strategic planning must be carried out to
manage risks quickly and efficiently.

4. Shariah Rulings on Managing Financial Transactions and Wealth

The divine Islamic texts outline the overall principles and guidelines on the matters
concerning wealth. As an example, regarding the matter of riba, there are many verses that
prohibit it; however, these particular verses did not identify the specific types of riba that is
forbidden or this prohibition’s time duration. It implies that the prohibition includes all kinds
of riba and all the time. A similar argument is applicable to the legal rules that are related to
Islamic trading practice (bay’). The verses related to this issue have generalized the trading
permission to all areas of trade, and there is not any specification on the type or time frame.
Likewise, again it holds the meaning that permissibility is given to all kinds of trading, at all
times, and locations provided it adheres to the particular requirements as provided for in the
texts.

In this respect, the generalization methodology in reflecting the rules regulating

human practices is the best approach to enable the achievement of the noble Shariah
objectives. Several principles exist in Islam when it comes to dealing with financial activities.
These principles are aimed at legitimizing or illegitimating financial practices, which means,
when a financial transaction is discovered to be contradictory to any of them, then it would be
unlawful to carry out that practice. Several of these mechanisms and directives are listed in
the following.

a. Prohibition of Hoarding

Shariah, besides aiming at the achievement of obligatory wealth and pervasive happiness, has
also taken a few preventive approaches in ensuring the achievement of these intentions.

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Several of these approaches include prohibiting wealth hoarding as recorded in the Surah Al
Taubah:

“On the Day when that al-Kanz (money, gold and silver, the zakah of which
has not been paid) will be heated in the fire of hell and with it will be branded
their foreheads, their flanks, and their backs, (and it will be said to them:)
"This is the treasure which you hoarded for yourselves. Now taste of what you
used to hoard” (At-Tawbah: 35).

The Hadith of the Prophet (SAW) further reinforces this prohibition on Muslims who
are found upon their deaths that their homes have been used to hoard money. Cited by Abu
Hurairah (RadiallAhuanhu) that the messenger of Allah (SAW) says that, "Anyone whom
Allah has given wealth but he does not pay its zakah (charity); then, on the Day of
Resurrection, his wealth will be presented to him in the shape of a bald-headed poisonous
male snake with two poisonous glands in its mouth and it will encircle itself round his neck
and bite him over his cheeks and say, 'I am your wealth; I am your treasure’.” After that, the
Prophet (SAW) mentioned the following verse: "And let not those who covetously withhold of
that which Allâh has bestowed on them of His bounty."(Al-Imran:180) (Bukhari, Hadith no.
1403 & 4565).

These divine verses clearly affirm the disapproval of Islam in keeping wealth idle,
both by not investing it or by not paying its zakah. Islam dislikes this type of idleness as it is
contradictory to the fundamental objective of wealth creation and affects the society
negatively by creating unemployment and inflation, and depriving segments of the population
from the wealth cycle.

It is evident from the discussion above that in preserving the objectives of Shariah
financial dealings, Shariah encourages Muslims to take part in all kinds of financial
transactions particularly in those that are conducted based on complementation and
cooperation with each other including mudarabah and musharakah.

b. Prohibition of Riba

There are two major types of riba. The first is known as ribaal-nasiah, or the interest on
money that is lent out; the second one is known as ribaal-fadl, or keeping a product of a
superior quality of similar products and giving out more of the similar products of an inferior
quality, such as exchanging dates of a superior quality in great amounts for dates of an
inferior quality. Many verses and Hadith forbid riba. Allah declares in a verse that:

“Those who eat riba will not stand (on the Day of Resurrection) except like the
standing of a person beaten by Satan leading him to insanity. That is because they say:
"Trading is only like riba," whereas Allah has permitted trading and forbidden riba. So,
whosoever receives an admonition from his Lord and stops eating riba, shall not be punished
for the past; his case is for Allah (to judge); but whoever returns (to riba), such are the
dwellers of the fire – they will abide therein forever. Allah will destroy riba and will give
increase for Sadaqah (deeds of charity, alms). And Allah likes not the disbelievers, sinners.
Truly, those who believe, and do deeds of righteousness, and perform As-Salah (the prayers),
and give zakah (obligatory charity), they will have their reward with their Lord. On them
shall be no fear, nor shall they grieve”. (Al-Baqarah:275-277).

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 The Hadith affirms that in the riba transactions in Islam, the givers, takers, and
witnesses are cursed. In truth, Islam unambiguously forbids all kinds of riba as it hinders all
the objectives in financial transactions. As expressed by Imam Al-Dahlawi, riba destroys the
industry and agriculture, which are two of the main sources of economic activities (Dehlawi,
2005).

Riba, either imposed on credit or sales, is a key deterrent to the achievement of wealth
in the society. Since those that impose riba normally charge a high rate of interest, they
discourage the investors and decrease the opportunities for the enhancement of productivity,
which will lead to inflation and unemployment. Given these insights provided by the Islamic
scholars, riba is regarded as a major hindrance to the achievement of Shariah objectives in
financial transactions.

c. Prohibition of Extravagance, Squander, and Stinginess

Shariah is concerned regarding human actions that destruct and dispel wealth illegally and
thus forbids these actions. The three major vices related to economic activities include
extravagance, squander, and stinginess. These behaviors are harmful and a hindrance to
wealth development and must be curbed. It is for this reason that the Sunnah and the Quran
deal very strictly with this type of actions.

Extravagance is forbidden in verses 17: 26-27 and people who are extravagant are
deemed as Satan’s brothers. The verses 40:43 and 7:31 are related to the issue of the
squander, and it determines that squanderers live in Hell. Meanwhile, stinginess is also
forbidden and regarded as being the extreme opposite of extravagance, and therefore people
are called on to be neither stingy nor extravagant, but to have a balance of the two behaviors.
These behaviors are also forbidden in a few Hadith.

Even though there are many justifications for the prohibition of these behaviors, one
may differentiate the objective of wealth preservation and development as the main reason. It
is apparent that with these three vices, wealth will not be developed or saved, as economists
realize that extravagance destructs the values and virtues of humans and causes illegal and
immoral business behaviors.

In terms of economy, extravagance obstructs the availability of capital which in turn

decreases economic development in the society and the society will suffer economically as a
consequence since shortages and unemployment cause political and social disasters.
Therefore, Islam forbids these types of behaviors to protect against moral deterioration, social
impairment, and economic recklessness.

Islam prohibits squandering, both by using wealth for causes that are worthless, and
on activities and businesses that are illegal or illogical. The reason for this is because Islam
regards any activity that causes an unreasonable destruction of wealth as an illegal activity as
it prevents the society from enjoying Allah’s bounties, and deems wealth as being worthless
to the society, since it does not serve the social and economic aims of achieving happiness.

Stinginess is regarded as an elusive method of wealth hoarding and it dampens

economic development as it creates in reduction in consumption and causes an economy
crisis. Several measures of increasing profits are carried out by entrepreneurs including
lowering expenses such as salaries and wages. These types of cost cutting will ultimately

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cause a decrease in national consumption resulting in an economic downturn which in turn
would instigate a cycle of business failures, economic disasters, and unemployment.

As clearly stated, the objectives of Shariah in financial transactions are always

towards wealth preservation and increment, thus these behaviors are strictly forbidden
because they are both destructive to the individual as well as to social wealth. People who are
involved in these behaviors are regarded as decadent, wasteful, irresponsible, and irrational
and Muslims are warned about placing them in positions of power over individual or
communal wealth as documented in verse 3:4.

Shariah also sanctions lawful wealth investment and makes it an obligation. The
Messenger of Allah (SAW) advised, “It is better for anyone of you to carry a bundle of wood
on his back and sell it than to beg of someone whether he gives him or refuses” (Bukhari,
Hadith no.2074, 2374).

Shariah also regards it as obligatory for all able-bodied Muslims to pursue work since
it is the major manner in which to preserve and develop wealth for individuals and the
society. At this juncture, it is essential to note that even though the objective of preservation
and development of wealth appears to be an earthly endeavor, in truth, it is not the main aim.
In fact, Shariah’s intentions move beyond the material aspects of preservation of wealth, to a
wider aim of being a vicegerent on earth and to fulfill his obligation of developing,
populating, and toiling. Shariah’s objectives for wealth development are unlike those from
the capitalist system. Under the capitalist system, wealth development is the aim however, in
Islam this development is a way to reach a nobler end.

d. Prohibition of Monopoly

Shariah does not only sanction the activities that would cause wealth development and
preservation, it also forbids the activities that would deter or prevent achieving the objectives.
Monopoly is one of the financial activities that are forbidden as it hinders the intentions of
having a healthy investment. Islam forbids all kinds of destructive monopolies, be it in the
form of products, money, or any other forms. All monopoly is deemed as illegal if it affects
the people in a negative manner (Zarkashi, 1992).

A few Hadith have deemed monopoly as an unlawful activity since the monopolist is
regarded as a sinner and punishment is invoked on him by Allah (SWT). Islam forbids
monopoly as it is an activity that only brings benefit to a selected few at the expense of the
majority thereby allowing the chosen few to enjoy all forms of returns such as gold, silver,
money, or food. Certain ideologies tolerate monopoly since it is thought to be a method of
making profit. However, in Islam, it is not tolerated because the final intention of Islam is not
in amassing material wealth for a few monopolists.

Islam’s noble intention is happiness and prosperity for all using the system of
Ubudiyah (being a servant of Allah) to populate and develop the earth. Profit making at the
expense of the many are unacceptable and unlawful in Islam as these profits will harm both
the individuals, and the entire society leading to negative outcomes such as inflation,
unemployment, and the reduction in the community’s desire to venture into an area where a
few people monopolize and are protected by laws that uphold and condone this monopoly.

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 Islam does not allow monopoly as it hinders achieving the objectives of wealth
development and just wealth distribution in the society. In addition, having a monopoly
instigates other human vices including greed, parsimony, and selfishness.

Monopoly is regarded as a form of vice as it reduces economic freedom and it hinders

the capability of investors to be freely involved in trade and industry. Since only a few
monopolists rule in the economic area, they stop others from having a healthy engagement in
business activities, and the monopolists tend to control the dealers and the markets involved.

This type of monopolists is cursed by the Prophet (SAW) as they profit and enjoy
from the deprivation and sufferings of others, and they create their wealth by being selfish
and greedy. A few Hadiths affirm the seriousness of this monopolistic behavior and give
warning of the dreadful consequences in the hereafter for the monopolists.

Indeed, Islam is specifically wary of the social outcomes of monopolistic policies

because they cause an enlargement of the economic gap between the rich and the poor which
also gives rise to the classification of the society into economic categories.

Within the economic system of Islam, institutions are not allowed to monopolize a
business; rather, others should be provided the opportunity to take part in the industry. The
important aspect is for the regulator to make sure that there is a healthy competition among
the players in the market.

e. The Prohibition of Major Uncertainties

Shariah objectives regard transparency as one of the major aspects of financial activities and
transactions. In realizing this objective, Islam prohibits all forms of transactions that are
based on uncertainties. Therefore, uncertainties are regarded as an obstruction to the
realization of the objectives. In addition, it would create conflicts among the contractual
allies. As a result, Muslims are not permitted to take part in any financial contract or activity
that is based on uncertainties. Examples of this objective in financial transactions are
provided in the followings:

i. Short sale where a person sells a commodity prior to owning it, is not permitted in
the objectives of Shariah; the commodity must be owned by the seller at the time
of sales;
ii. Forward sales are not permitted except for the instances of ‘salam and istisna’;
iii. Shariah requires a seller to have constructive or physical possession of a
commodity that is meant for sale. Constructive possession involves any action
where the commodity’s risk is transferred to the buyer; and
iv. Commodity price must be fixed and made known to all parties involved. A price
that is uncertain or related to an uncertain event is regarded as an invalid sale.

The examples above demonstrate that the significance of making sure that all the
contracting sides are required to be transparent and clear about the details involved in their
transactions. Both parties must possess complete knowledge of the intended counter values to
be exchanged in the transactions. The justification for this demand is the intention to protect
the weak from being exploited by the strong and to stop disputes and conflicts between the
parties involved in the contracts.

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 Nevertheless, it is essential to note that Islam definitely prohibits uncertainty when it
involves a major consequence or when it would surely cause a conflict between the parties.
This means that when it is not a major consequence and does not cause a conflict, the
uncertainty can be tolerated and thus not regarded as being prohibited. This is called a minor
uncertainty. The customs and traditions of the business community are the determinant
factors and indicators used to decide on the level of uncertainties.

5. Combined Application of Maqasid Al-shariah and Shariah Rulings on Managing

Financial Transactions and Wealth

Since Shariah is of utmost importance in Islamic finance, Islamic financial institutions

assume a more critical role compared to their conventional counterparts. The comprehension
of the Maqasid al-Shariah necessitates the IFIs to adhere to Shariah by being committed to
all the contractual obligations and to conduct their operations based on high moral
consciousness and virtue as specified by the Shariah.

For instance, while a person’s right to acquire property is protected, this right is
regulated by ethical codes and rules established to protect the rights of the society (Iqbal &
Morakhor, 2003). Thus, the Islamic financial institution is expected to balance between the
responsibilities and rights of the individual and the society and not to conduct its economic,
social, and other worldly activities as a self-centered economic agent, as idealized by the
neoclassical economy (Chapra,1992). Most importantly, the philosophy of the Islamic
financial institution can be completely understood based on the context of the Islamic
economic system’s general objectives as encompassed in the Maqasid al-Shariah (Dusuki,
2008). Most well known Islamic economists, including Ahmad, Chapra, Naqvi, and Siddiqui
have reaffirmed the fact that Islamic banking is contained within the general Islamic
economic system that aims for a balanced, fair, and just society as visualized and deeply
encrypted in the Maqasid al-Shariah. Subsequently, the numerous prohibitions (e.g. interest,
gambling, excessive risks, etc.) are there to give a level playing field for the protection of the
benefits and interests of all the parties engaged in the market transactions and for the
promotion of social harmony (Dusuki, 2008).

At present, it is well understood that the outcome of the lack of an ethical approach
and low morality are not only financially damaging but it also harms the society,
environment, and the entire mankind. The recently experienced financial crisis is proof that
fraud and greed corrupt the financial markets. As a result, the crisis has provided the IFIs
with viable and possible alternatives. Islamic finance was only affected in a limited manner in
the crisis even though it was not completely unharmed. However, the IFIs need to face up to
the several challenges in response to the different expectations, and this will decide if it can
become a prominent alternative to the conventional counterparts.

Therefore, the IFIs should leverage on the robust underlying principles and sound
foundation that are deeply based on Shariah teachings and encompassed in the noble
objectives or the Maqasid al-Shariah.

Most importantly, the principles of maslaÍah (protecting public interests) and

Maqasid al-Shariah demonstrate the importance that Islam has on public interests instead of
just on individual interests. It also offers the framework for decision making and a tool for
adapting to changes, particularly for IFIs, that are bound to submit to the principles of
Shariah. It is hoped that the principles of maqasid and maslih can contribute further to the

17
delineation of the functions of the IFIs in accordance with their responsibilities. The
principles provide proper guidelines to the managers and other stakeholders in terms of moral
judgment, specifically in overcoming conflicts that are caused in the pursuance of different
operational and financial matters.

6. Conclusion

All Islamic financial transactions that cause the realization of the objectives of Shariah are
allowed by Islamic law. In addition, prosperity is demanded for all and not just for a selected
few in the society. Thus, the financial dealings that only bring prosperity to some such as the
activities including hoarding and riba are not allowed by Islam. Some of these practices are
forbidden in Islam as they oppose the fundamental Shariah objectives and maintain the
elements of selfishness, individualism, and greed. Ultimately, the principle intention is to
gain happiness by allowing the people to satisfy their desires and needs and to make them
balanced, psychologically and spiritually.

All the Shariah objectives as delivered above are created to prevent harm and to gain
benefits both on a personal level and on a community level. This will ensure that Muslims are
positioned to be excellent role models of the benefits of Islamic business dealings and
activities to the non-Muslim communities. It must be added that to achieve the objectives of
these noble principles, a few economic conventions and sub-principles must be adhered
including a sound economic and investment planning and prioritizing in the methods and
areas of implementation and investments. These principles will surely assist in achieving the
objectives of work diligence and create a profitable and successful business management,
which will consequently lead to personal and community happiness and prosperity.

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