Unit 1

Standardisation and Diversity in Islamic Finance Practices
Unit 1 | 1
Standardisation and
Diversity in Islamic Unit 1
Finance Practices
Topics in This Unit
1.1- Introduction
1.2- The concept of standardisation
1.3- The standards and the nature of the law
1.4- The implication
1.5- The standardisation in shari’ah
1.6- The consensus and the standardisation
1.7- Diversity in fiqh rulings
1.8- Effots to reconcile the views of scholars and its appropriate approach
1.9- Efforts to codify the diversity in fiqh
1.10- Recent efforts in setting rules and standards
1.11- Standardisation within the diversity
1.12- Shari’ah versus diversity and reason for disagreement
1.13- Diversity and legal maxim
1.14- Organisation of standardisation
SH5023 Shariah Issues in Islamic Finance

© INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE 2014/1435 AH
Unit 1 | 2
Unit At the end of this unit, you should be able to:

Objective
• Inquire how the diversity of Shari’ah opinions emerge
• Determine the causes of diversity in Shari’ah
• Determine the process of standardisation and its
challenges
• Assess the efforts to reconcile the views of fiqh scholars
Key Terms
Standardisation
Diversity
Shari’ah opinions
Shari’ah standards
STANDARDISATION WITHIN
DIVERSITY
Diversity in Shari’ah opinions hasexisted for

centuries; it began during the life of the Prophet
(peace be upon him (p.b.u.h.)), therefore Shariah
standardisation should be addressed within the
context of diversity. It might seem that there is
a paradox in this approach, but this will lead to
a proper understanding of the issues of Shari’ah
standardization.

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Unit 1.1 INTRODUCTION
The different practices in Islamic finance within different jurisdiction create a debate on the
definition of diversity and standardisation. Standardisation leads towards consistency and
ensures uniformity in the practice, where no double standards can be applied as it may cause
different interpretation based on different justification. On the other hand, standardisation
can be regarded as a rigid process that tightens up the industry and leads to more restriction
that limits the scope of innovation and puts the industry under strict control and supervision.
As for diversity, it can be regarded on one hand, a confusing process that may loosen up the
system and put the process of supervision and control under a serious jeopardy, while on the
other hand, it can create flexibility and open up the space for innovation.
In the context of globalisation, standardisation becomes more challenging due to different

customs, jurisdictions and environment of each country. The diversity in this sense may suit the
structure of globalisation where different standards and parameter may be set to accommodate
each jurisdiction and environment.
The issue of standardisation and diversity in the positive law might be regarded as an easy
process due the nature of the law and legislation of man-made laws. Furthermore, it deals
with the system and some practices and requirement under the inquire knowledge. However,
the issue is more challenging in the context of revealed knowledge where Shari’ah is the core
element driving the issue of standardisation and diversity. Shari’ah has its rules and principles
especially when it comes to ijtihad, where the issue of diversity in Shari’ah opinion emerges.
It should be noted that the issue of standardisation in Islamic finance should be understood
within the scope of Shari’ah, and it cannot be taken away from it, otherwise we fall into an
unresolved situation.
The present unit will address the issue of standardisation in Islamic finance from the Shari’ah
perspective and relate the issue to the concept of ijtihad and Islamic jurisprudence.

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Unit 1.2 THE CONCEPT OF STANDARDISATION
Standardisation is a process of developing parameters to be implemented in a particular

sector. It could be technical standards, Shari’ah standards, ethics code or standards, and so on
Standardisation is needed when there are different market players involved in the same business
sector. Therefore, its objective is to regulate, govern and coordinate to ensure uniformity and
consistency, where everyone will play by the same rules.
Standardisation is defined as the best technical application inclusive of processes for selection
in making appropriate choices for ratification coupled with consistent decisions for maintaining
obtained standards. Standardisation is the process of establishing a technical standard, which
could be a standard specification, standard test method, standard definition, or standard
procedure. Standardisation means that there is a standard specification, unit, instruction or
something that is understood globally. Standardisation facilitates easy communication through
the set guidelines, in order to maintain focus. In the context of social criticism and social
sciences, standardisation often means the process of establishing standards of various kinds and
improving efficiency to handle people, their interactions, cases, and so forth. Examples include
formalisation of judicial procedure in court, and establishing uniform criteria for diagnosing
mental disease. Standardisation in this sense is often discussed along with (or synonymously
to) such large scale social changes such as modernisation, bureaucratisation, homogenisation,
and centralisation of society. In the context of business information exchanges, standardisation
refers to the process of developing data exchange standards for specific business processes using
specific syntaxes. These standards are usually developed by voluntary consensus standards
bodies such as the United Nations Center for Trade Facilitation and Electronic Business,
the World Wide Web Consortium, the Telecommunications Industry Association, and the
Organization for the Advancement of Structured Information Standards. In the Islamic finance
context, they are developed by institutions such as the Accounting and Auditing Organization
for Islamic Financial Institutions (AAOIFI) and Islamic Financial Standards Board (IFSB).
No one can deny the importance and the need of standardisation in other areas of business such
as IT and manufacturing. John Gantz and Vemon Turner showed the benefits of standardization
in IT practice as follows:
1. Reduced cost of IT deployment –Standard architecture allows deployment teams to roll

out new applications faster and with fewer people.

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2. Reduced cost of interoperating with business partners – Electronic communications,

access to common databases and support for multiple partners are easier to develop
when standards are involved.
3. Improved negotiating power with vendors – Standards drive product differentiation
towards price and service and away from features and functions once basic expectations
for those features and functions are met. This benefit makes buying decisions faster and
simpler to make.
4. Simplified IT support and training – Standard platforms simply demand less training
and specialisation by IT staffs.
5. Simplified purchasing, procurement, upgrade, and disposal – the ecosystems that
evolve around standard platforms create new services and lower administrative costs
for buyers.
6. Economies of scale in software development, training, and application rollout –
Development teams no longer need to be split across multiple platforms; the need for
complex software ports or integration is reduced.
However, in the context of social science (especially when Shari’ah is the main driver), the
issue is addressed differently; whereby the features of Shari’ah and its characteristic should be
considered to ensure a proper procedure on standardization.
There are some definitions of standards as follows:
1. That which is established by authority as a rule for the measure of quantity, value or
quality.
2. That which is established as rule or model by authority, custom, or general consent,
criterion and test.
3. Something considered by an authority or by general consent as a basis of comparison;
an approved model.
4. An object that is regarded as the usual or most common size or form of its kind.
5. A rule or principle that is used as a basis for judgment.
6. Morals, ethics, habits, etc., established by authority, custom, or an individual as
acceptable.
From the above discussion, a standard can be regarded as a parameter, rule or principle
established by an authority to govern a particular sector to ensure consistency and uniformity

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in the process, compliance and monitoring aspects. Normally, the standard has a single ruling
and leads to one specific direction set by the regulator. It should be noted that standardisation
in this unit is related to Shari’ah standards in Islamic finance.
Unit 1.3 THE STANDARDS AND THE NATURE OF LAW
The issue of standardisation is related to the nature of the law that we are dealing with. There
are two types of laws, the positive law (the man-made law), and the divine law. For the positive
law, the process of standardisation is easier compared to Shari’ah. What is meant by easier
is that even where there are challenges, there is no divine law to be observed in the exercise;
whereby the regulator will establish a set of rules, regulations or parameters in order to drive
the industry towards a particular achievement according to some particular objectives and
policy without a need of incorporating any divine law in the process.
For positive law, there is no impediment towards having set of parameters or standards because
of the following factors:
1. There are no references to any particular set of provision as known in Islamic law as the
sources of Shari’ah such as the Qur’an and Sunnah. Therefore, there is no process of
interpretation of provision.
2. The process of setting the standard is based on the consensus of the regulators along
with the players in the industry.
3. The tendency of the industry and the market will be the main driver of the process of
standardisation.
4. The easy process when it comes to the adjustment, reviewing and amendment of the
existing standard.

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Unit 1.4 THE IMPLICATION
The implication of these criteria mentioned can be observed in the following results:
1. The process of standardisation can take place in the law, meaning the exercise of the
setting up of the standards can be done at the level of the law in which the process is
easier, where the regulator and the market player in the industry will review the existing
law, regulation and standards and make the necessary adjustment and amendment. The
process is governed by the consensus that can be achieved upon a series of deliberation
and discussion.
2. This is the key feature which distinguishes between the process of standardization
between the Islamic law and the positive law. The process of standardization in the
positive law cannot be applied in Islamic law; Islamic law has additional features to be
considered because it is regarded as divine law surrounded by strict requirements when
it comes to deriving meaning and interpretation.

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Unit 1.5 THE STANDARDISATION IN SHARI’AH
Shari’ah as divine law is different from positive law, therefore the treatment of addressing the
issue of standardisation is different from positive law. In Shari’ah, there are two types of rulings:
Shari’ah rules which are subject to one interpretation. This section is under the purview of ijma
(consensus) and Shari’ah rules which are subject to different interpretation under the purview
of diversity. Below is illustration on the nature of Standardisation in Shari’ah.
Standardisation
Consensus in Shari’ah Diversity in Shari’ah

opinion opinion
Possible Challenges in
standardisation standardisation
Figure 1.1 Nature of standardisation and diversity in Shari’ah
The above chart provides an indication on the nature of standardisation and diversity in Shari’ah.
In the section of consensus, there is only one single opinion derived from its sources. Therefore,
the process of standardisation is possible and relatively easy due to the consistency between the
consensus and standardisation. On the other hand, the diversity section in Shari’ah carries more
than one opinion which opens up room for dialogue and debate, the process of standardisation
here may face some challenges, because it is not just a trade-off between two opinions but
due to differences in the Islamic jurisprudence of each Shari’ah opinion, that is, if we assume
that we have four Shari’ah opinions following the four schools of law. We shall discuss first the
section of consensus followed by the diversity within the context of standardisation.

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Unit 1.6 THE CONSENSUS AND THE STANDARDISATION
Unit 1.6.1 THE MEANING OF CONSENSUS
Ijma is the consensus of all mujtahiddin (independent jurists) from the ummah of Prophet
Muhammad (p.b.u.h.) after his death. The consensus is done in a determined period upon a
rule of Islamic law (hukm shari). The consensus produces one single Shari’ah ruling, because
there is only one single interpretation, there is no second meaning provided because the
provision does not accommodate that. All the scholars agreed upon one interpretation such
as the permissibility of sale and prohibition of riba. Having said that, sometimes there is
consensus on the principle of the ruling but there different interpretation can be formed on
the application of some ruling such as in the case of sale, where there is a consensus on its
permissibility, but there are some types of sales where their permissibility are disputed among
the scholars such as bay inah and bay wafa. The definition of the consensus is referring to the
former where there is argumentation and not to the latter where there is diversity.
Unit 1.6.2 CONDITIONS FOR THE VALIDITY OF

CONSENSUS
In order for ijma to be valid, several conditions which are imposed by the majority of jurists that
must be met which are:
1. The consensus must take place among mujtahids, who have attained the status of ijtihad.
2. Unanimity is a prerequisite of ijma.
3. All the jurists participating in ijma must be from the ummah of Muhammad (p.b.u.h.).
4. The agreement must have taken place after the death of the Prophet (p.b.u.h.).
5. The agreement of the mujtahiddin must be demonstrated by their expressed opinion on
a particular issue.
6. Ijma must be upon a rule of law, the hukm shari’.

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Unit 1.6.3 CONSENSUS VERSUS STANDARDISATION
As mentioned above, the process of standardisation in the area of ijma is very smooth, where
the standard can be easily converted into a standard without any complication, it will be only a
matter of drafting the standards and what are the convenient wordings that suit the standard.
The process of standardisation in ijma is easy and flexible. The reasons for this is as follows
1. The consensus produces a single Shari’ah opinion, so there is no trade-off between

many opinions.
2. The single Shari’ah opinion is binding and enforceable by the Muslim authority,
therefore in the case that the ijma is converted into a standard and is enforced, there is
no issue arising from that enforcement.
3. There is consistency between the consensus and the standardisation, where both share
the same features and criteria.
4. The standard or the parameter can be easily derived and deduced from the consensus,
because the latter is precise and concise and drafted in an abstract format, which makes
it easier for the regulator to convert into a Shari’ah standard.
5. In the case of enforcement of the standards by the regulators, it will not create any
potential conflict between the two (standard and consensus) because both share the
same features.
6. The way that the Shari’ah opinions in the consensus is set and articulated is similar to
the way that the standard has been drafted.

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Unit 1.7 DIVERSITY IN FIQH RULINGS
Fiqh is an intellectual and technical effort to provide a sound understanding of the Qur’an
and the Sunnah and derive laws from them. Diversity in fiqh began with the start of ijtihad, on
issues where direct ruling was not expressly mentioned in the Qur’an or Sunnah. Fiqh is defined
as the knowledge of legal rules (Al-Ahkam Al-Shariyyah), pertaining to conduct that has been
derived from specific evidences. In this section of Islamic law, there is more than one opinion,
due to the different interpretations provided to the same provision (Quran or Sunnah). The
reasons that led to that difference is that the position of Shari’ah is not clearly defined because
the provision of the text in the Quran and Sunnah is open to different interpretations, and
accommodate more than one meaning.
The above issue raises the following implications:
1. There are different set of methodologies established in Islamic jurisprudence used by

scholars to provide an accurate and sound interpretation. These methodologies are well
described in Islamic jurisprudence. The differences in methodologies in each school
will accordingly, lead to differences in Islamic law, because the latter is a result of the
ijtihad process based on a specific methodology.
2. In addition to the differences in methodology, there are some other differences in the
circumstances and the facts of the case when drawing up conclusions and these may
affect the process of ijtihad and lead to diversity.

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Unit 1.8 EFFORTS TO RECONCILE THE VIEWS OF

SCHOLARS AND ITS APPROPRIATE APPROACH
Attempts to reconcile the views of scholars were made earlier in the history of the Islamic
legislation. Abd Rahman Ibn Mahdi (a well-known scholar) wrote to Imam Shafi’i to write a
book in which its contents set standards and rules governing the process of interpretations.
These rules represent the methodology used by scholars in their ijtihad. Imam Shafi’i wrote
his book Al-Risala to address the issue of diversity. It should be noted that the standardisation
has been addressed based on the principles of Islamic jurisprudence (usul al fiqh) and not
in Islamic law. It should be understood that Islamic law is just a law produced by using the
methodology of ijtihad set in Islamic jurisprudence. Islamic law represents a legal consequence
of the process of ijtihad, which is conducted based on the rules set in Islamic jurisprudence.
In trying to resolve the problem of diversity, Shafi’i did not attempt to write some selected
Shari’ah standard to be followed by people, but he looked at the issue down to its roots and
addressed the issue from its proper context, which is Islamic jurisprudence.
The Risala written by Shafi’i represents a book based on the principles of Islamic jurisprudence
and not a book based on Islamic law. It should be noted that Islamic jurisprudence has two
major different methodologies based on two different approaches. Logically speaking, the two
different sets of methodologies will eventually produce two different sets of Shari’ah ruling. In
fact, even if there is one set of methodology, diversity may still emerge (even within the same
school of thought) due to other reasons related to the circumstances of the case subject to
ijtihad.
Another attempt was made in the 2nd century of Hijrah. The Muslim caliphates of the 2nd
Hijrah approached Imam Malik to reconcile fiqh throughout the Muslim empire by enforcing
his book, Al-Muwata (a sound book on hadith and fiqh). The intention of the caliphates is to
make Al-Muwata as the only reference to Islamic law. The attempt failed, because Imam Malik
did not agree on the proposal; from his view, it was not feasible to compel the entire Muslim
population to accept one opinion or adhere to one single school of law. The diversity, therefore,
continued to exist. Imam Malik knew that standardisation could not be addressed from the
Islamic law perspective and that was why he rejected the offer. Imam Shafi’i on the other hand,
felt that the issues should be addressed from the Islamic jurisprudence perspective and this
was why Imam he accepted the offer of Abd Rahman ibn Mahdi to write a book of risala.

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Unit 1.9 EFFORTS TO CODIFY THE DIVERSITY IN FIQH
Codifying fiqh is different than the standardisation of fiqh, especially if the process of codification
of fiqh is based on the school of law and not based on Shari’ah which would then include
the different schools of law. Codifying fiqh means putting the Shari’ah ruling in the form of
code and clauses. Format-wise, it looks similar to the standards, but it is just reproducing the
existing ruling in the form of a code in ranking range and sequence order. It is a process of
transformation of the concept of the existing fiqh into a form of code without an exercise of
preference.
The best experience in the history of Islamic law was the introduction of Majallah al-Ahkam
al-‘Adliyyah (translated into English as The Mejelle) by the Ottoman Caliphate towards the end
of 19th century A.D. Majallah was meant to be the civil code of the caliphate when dealing with
commercial transactions. This was the most comprehensive “code” of Islamic commercial law
in the entire history of Islamic law. It was decided that all countries under the Ottoman rule
should comply with the provisions of the Majallah. The ruling of Majallah did not address the
issue of diversity of Shari’ah opinions but it was based on the Hanafi school of thought.
Majallah was not a Shari’ah standard enforced on the Muslim empire but a fiqh that has been
codified according to the Hanafi school of law. Therefore, the code has its own limitation.
There are other similar codes that were attempted by different institutions. One was by Al
Azhar University Research Academy in accordance with major schools of thought. The job,
however, was not completed. The General Secretariat of the Arab League countries also tried to
codify laws in accordance with Islamic law but the work was not completed either.

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Unit 1.10 RECENT EFFORTS IN SETTING RULES AND

STANDARDS
There were some recent effort to reconcile Shari’ah opinions and set rules and standards. This
was an institutional attempt by the International Islamic Academy of Fiqh, which is a body
under the Organization of Islamic Conference (OIC) based in Jeddah. The international fiqh
academy issues resolutions published in the form of rulings and recommendations. These
resolutions are greatly respected because they are the outcome of research and debate from
competent scholars that represent the OIC countries.
Another organisation involved in setting up rules and standards is the Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI), which is based in Bahrain. AAOIFI is
an organisation that issues global Shari’ah standards for Islamic financial institutions.
AAOIFI has issued different sets of standards including Shari’ah standards, accounting
standards, governance standards and code of ethics. These standards are aimed at achieving
harmonisation in the area of Islamic finance especially standards that are related to Shari’ah.
This is to avoid contradictions between the resolutions and Islamic finance practices.

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Unit 1.11 STANDARDISATION WITHIN DIVERSITY
Diversity in Shari’ah opinion has existed for centuries. The beginning of diversity in Shari’ah
opinion started during the life of the Prophet (p.b.u.h.). Shari’ah standardization should be
addressed within the context of diversity and although it might seem there is a contradiction
in this approach that is the way that leads to a proper understanding of the issues of Shari’ah
standardization. Furthermore, the issue of standardisation is not addressed in the area of
consensus.
The diversity in Shari’ah opinions put standardisation in a very challenging and critical stage,
because normally, standardisation produces one single standard (opinion), whereas diversity
produces more than one opinion.
So how do we reconcile the two approaches? Well, we should consider some criteria and steps
that can be part of the procedure and standardisation process. They are as follows:
1. The standardisation will be based upon a proper selection and preference of Shari’ah
opinions as established in Islamic jurisprudence known as qawaid al tarjih or rules of
preferences.
2. The standardisation should not be binding; otherwise it will be an enforcement of
the preferred Shari’ah opinion that overrules other Shari’ah opinions issued by other
scholars which would violate the rule of ijtihad in Shari’ah. However, the enforcement
is left to each jurisdiction to exercise the enforcement of the Shari’ah standards as they
are aware of their own needs, environment and more importantly, the official school
of law of that particular jurisdiction. This means the Shari’ah standards in the case of
enforcement would be self-enforcement by the local authority, which is included in
their body and panel of Shari’ah scholars in the specific jurisdiction.
3. The standards issued should recognise the other Shari’ah opinions because Shari’ah
recognizes the diversity of Shari’ah opinions resulting from sound and authentic ijtihad.
Therefore, the standards and the other Shari’ah opinions co-exist together. However,
since one of the Shari’ah opinion has been adopted as a standard, it gives to it some
preferences and popularity however without undermining the other position.

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Unit 1.12 SHARI’AH VERSUS DIVERSITY AND REASON FOR

DISAGREEMENT
The disagreement in Islamic law is a result of the ijtihad process where the scholars engage
in the exercise of issuing fatwa or resolution. Scholars in their ijtihad deal with the sources of
Shari’ah to be used for the purpose of issuing fatwa. There are some rules and principles that
govern each source. In addition to that, there are other different rules and technique used as
the base for interpretation. The framework that governs the ijtihad process is known as the
methodology of ijtihad.
The methodology of ijtihad includes the sources of Shari’ah and the way they should be
understood and applied. The rules of the Arabic language in the provisions of the Qur’an and
the Sunnah, and how they are applied. These are known rules of interpretation which means
deducing the law from its sources and textual implications or dalalat al alfadh, which means
the words and their usage in understanding the meaning. The above methodology is used to
provide Shari’ah ruling and therefore, any variation in the methodology will result in a variation
in the Shari’ah ruling respectively.
Having said that, it should be noted that there are three approaches in Islamic jurisprudence
which are:
1. Methodology of mutakallimin (scholastic theologians) or Jumhur (the

majority) – This methodology is based on pure theoretical approach without
consideration of the nature of consequences legal rules that result from the doctrine.
In other words, the rules and principles were established and regulated and
formulated regardless of the agreement or disagreement with the existing subsidiary
legal rules (furu’) fiqh. This approach is concerned with articulating the theoretical
principles of usul fiqh without necessarily attempting to relate these to the fiqh itself.
This methodology was adopted by Maliki, Shafi’i and Hanbali scholars.
The main characteristics of this approach are as follows:
(a) This methodology is based on the logical approach.

(b) This approach has a neutral attitude and is very objective.
(c) The rules and principles drawn by the jurists of this approach were not subservient
to the furu’ the fiqh (subsidiary law of fiqh).

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(d) The main the objective in this approach is to produce rules and principles to
regulate and govern the method of the legal reasoning and interpretation.
(e) This approach tends to establish the principles of usul fiqh as universal; it can be
applied on many fiqh issues.
2. Methodology of fuqaha (jurist) or Hanafiyyah – This approach is the opposite

of the previous one, i.e., it has practical character, this approach is very concerned
about the existing furu’. The establishment of the rules and principles started from
the details of fiqh as provided by the master Hanafi jurist, from there, the jurist
formulated the rules and the principle of usul fiqh. There is conformation between the
rules and principles and the command of Shari’ah derived by early Hanafi jurists. The
theory is formulated in light of its application to relevant issues. They try to expound
the principles of usul fiqh in conjunction with the fiqh itself. It tends to be more
pragmatic in their approach to the subject.
(a) This approach is very practical.

(b) This approach started the formation of the rules and principles from the furu’
which is the fiqh derived by early Hanafi scholars.
(c) The rules and principles in this approach are subservient; therefore there is no
conflict between the rules of interpretation and fiqh.
(d) This approach defend the existing furu’ (fiqh) derived by the early jurist Hanafi,
and builds up the rules according to the existing fiqh.
(e) The rules and principles in this approach were extracted by the Hanafi followers
from the existing fiqh of the Hanafi School of law.
3. The methodology of muta’akirin – This methodology is a combination of the two

previous methodologies. The purpose of this methodology is to establish the rules and
principles while taking into consideration and confirming the fiqh as provided by the
early jurists from the different schools of law.
(a) Adopts both methodology of the mutakallimin and the fuqaha.

(b) This approach combines the establishment of the rules and the confirmatory
principles.

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The divergence in the methodology in Islamic jurisprudence has led to different interpretations
and various Shari’ah opinions and rulings emerge as result of that.
Unit 1.12.1 THE REASON FOR DISAGREEMENT
The reason for disagreement in Shari’ah, besides the abovementioned points which represent
the major issues, are other reasons that cause the diversity in Shari’ah opinion:
1. The differences in the methodology of ijtihad – where each school of law has subscribed
to a specific methodology of ijtihad that led to implications in the Islamic law.
2. The implication of the custom on the process of ijtihad, whereby each jurisdiction has
its own prevailing rules of custom that is different from other jurisdictions. Shari’ah
has recognized urf as a source of law. The legal maxim says: Custom is the basis for
judgment, therefore when there are different urf, the Shari’ah considers that in ijtihad
and this, respectively leads to different Shari’ah rulings.
3. The provision of the Quran and Sunnah accommodate more than one meaning, which
means that the revelation is open for different interpretations. This issue is discussed
in Islamic jurisprudence under definitive (qat’i) and speculative (zanni). A ruling of the
Quran may be conveyed in a text which is either clear, or in a language that is open to
different interpretations. A definitive text is one which is clear and specific, has only
one meaning and allows no other interpretations. On the other hand, the speculative
ayat of the Quran are open to interpretation and ijtihad. This is a clear indication on
the position of Shari’ah on diversity, whereby if it is not accepted, the lawgiver will not
provide provision in the holy text whether the Quran or Sunnah accommodates more
than one meaning.
4. The Companions have differing Shari’ah opinions pertaining to Shari’ah matters that
were discussed during their time; they have engaged in debate that led to a divergence
in Shari’ah rulings.
5. Different ways of recitation of the Quran – the Quran was revealed according to seven
different languages. All are accepted and recognised by Shari’ah because each version
(qiraa’) fulfils the conditions required. The divergence in the qiraa’ of the Quran
gives an area of diversity in the case the Shari’ah opinion is based on that. One of the
requirements in accepting the Quran is the transmission and the way of reporting
that should be at the level of mutawatir. This means the Quran was transmitted with
a continuous testament (mutawatir). The Quran was transmitted from the Prophet to
the next generation by such a large number of people that they cannot be expected to

Unit 1 | 19
agree upon a lie, all of them together. If the criterion of mutawatir is not fulfilled, the
version of the Quran will be Qiraa’ Shada (ahad). The scholars debated in accepting
this version when issuing resolutions. The majority did not allow using ahad in ijtihad
whereby the Hanafi scholars allowed the version of Ibn Masoud to be used as a valid
source and evidence in ijtihad.
6. The scope of knowledge in the hadith and how much each scholar has a wider coverage
in the Sunnah.
7. The conditions required for a sound hadith, where the traditionalist have some variation
on that, also the dispute on the authenticity of the hadith, whereby some scholars accept
one hadith as authentic but other scholars rejected it
8. The different opinions on the type of hadith accepted. The scholars debated the
acceptance of the hadith Mursal, on whether it can be accepted as sound evidence in
ijtihad or not. According to the scholars of hadith Mursal apply to a tradition from the
chain of which the name of the Companion is missing. According to Hanafi, Hanbali
and Maliki, they accept hadith Mursal as valid evidence, but Shafi’i does not rely upon
it, unless its authenticity is supported by another tradition. Shafi’i only accepted those
with the following conditions:
(a) From a great scholar of tabiin.
(b) Supported by other hadith.
(c) Supported by the fatwa of jurists.
(d) Supported by the view of one Companion.
9. Divergence in the understanding of the meaning of the provision due to language,

context, ability and skills.
10. Conflict of evidences, where two or more evidences have apparent conflict, therefore
scholars apply rules or preferences to reconcile and derive the fatwa.
11. No direct provision exists related to the case under discussion and review. Therefore,
scholars seek evidences which have related implication but not directly.
We can conclude with the following points that demonstrate the position of Shari’ah
towards diversity:
(a) Shari’ah recognises the diversity of Shari’ah opinions resulting from sound and
authentic ijtihad.

Unit 1 | 20
(b) Diversity existed during the time of Prophet Muhammad (p.b.u.h.), Companions,
and successors. Therefore diversity will prevail and continue till the Day of
Judgment.
(c) The well-established schools of law that have been in existence for centuries until
now have demonstrated this fact.
(d) Diversity exists throughout sections of Islamic law, and not only in matters
concerning Islamic finance.
(e) Understanding the reason for diversity in Shari’ah makes the process easier, more
logical and reasonable.
(f) There are many Shari’ah rulings that are in the form of standards in the consensus
section in Islamic law, where the setting bodies should benefit from it, and make it
the enforcement standards throughout the different jurisdictions. This section will
represent the common areas and agreed upon platform in Islamic finance.
(g) Diversity is related to some branches and details cases, which logically accepted.
The upstream process will lead to standardization; the downstream process will
lead to diversity.
(h) Diversity may exist even when there are standards to be followed, because there
exists what is known as applied ijtihad, where the external facts, conditions and
circumstances during the implementation of the ijtihad may give different rulings
and considerations.
There are some cases that cannot be codified as standards because the interpretations are equal
and preference cannot be applied. Therefore, two standards co-exist.

Unit 1 | 21
Unit 1.13 DIVERSITY AND LEGAL MAXIM
There are some legal maxims related to the issue of standardisation and diversity:
1. One legal opinion interpretation does not destroy another, which means that a resolution
issued by one scholar cannot overrule another resolution issued by another scholar, so
both resolutions co-exist and stand together. No fatwa prevails by its self. Therefore,
the client may select one the fatwa without being under the obligation of each one.
This shows the flexibility of Shari’ah in diversity. History shows that there is no single
complaint on the diversity in Shari’ah opinion if it is an outcome of sound process and
accurate ijtihad. Shari’ah is beyond that. By rewarding the mujtahid, in the case he is
right, he will be rewarded twice, in the case he is wrong, he will be rewarded once.
2. No condemnation in the area of diversity. This legal maxim is an indication to recognise
the diversity in Shari’ah opinions. It governs the relationship between the parties who
have different opinions and disagrees among each other pertaining a Shari’ah ruling.
This legal maxim establishes the rule of respect and code of ethics regarding the diversity
of Shari’ah opinions. According to this legal maxim, to condemn a Shari’ah opinion is
allowed. Both opinions should co-exist together and no Shari’ah opinion can overrule
the other Shari’ah opinion, underestimate it or reject it, both opinions should co-exist
together and no Shari’ah opinion can overrule the other Shari’ah opinion, underestimate
it or reject it.

Unit 1 | 22
Unit 1.14 ORGANISATION OF STANDARDISATION
Unit 1.14.1 THE ACCOUNTING AND AUDITING

ORGANISATION FOR ISLAMIC FINANCIAL
INSTITUTION (AAOIFI)
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is
an Islamic international autonomous not-for-profit body based in Bahrain. AAOIFI was
established in accordance with the Agreement of Association which was signed by Islamic
financial institutions on 1 Safar, 1410H (26 February, 1990) in Algiers. It was registered on 11
Ramadan 1411 (27 March, 1991) in the State of Bahrain. AAOIFI prepares accounting, auditing,
governance, ethics and Shari’ah standards for Islamic financial institutions and the industry.
AAOIFI provides a Professional qualification programs (CIPA, the Shari’ah Adviser and Auditor
“CSAA”.
AAOIFI is supported by institutional members (155 members from 40 countries, so far) including
central banks, Islamic financial institutions, and other participants from the international
Islamic banking and finance industry worldwide.
AAOIFI has gained encouraging support for the implementation of its standards, which are now
adopted in the Kingdom of Bahrain, Dubai International Financial Centre, Jordan, Lebanon,
Qatar, Sudan and Syria. The relevant authorities in Australia, Indonesia, Malaysia, Pakistan,
Kingdom of Saudi Arabia, and South Africa have issued guidelines that are based on AAOIFI’s
standards and pronouncements.
The powers of the Standards Board in AAOIFI include, among others, the following:
1. To prepare, adopt and interpret accounting and auditing statements, standards and
guidelines for Islamic financial institutions.
2. To prepare and adopt code of ethics and educational standards related to the activities
of Islamic financial institutions.

Unit 1 | 23
3. To review with the aim of making additions, deletions or amendments to any accounting
and auditing statements, standards and guidelines.
4. To prepare and adopt the due process for the preparation of standards, as well as
regulations and by-laws of the Standards Board.
5. The Standards Board meets at least twice every year and its resolutions are adopted by
the majority of the votes of the voting members.
6. In case of a tie, the chairman of the Standards Board shall have the casting vote.
Shari’ah Board
The powers of the Shari’ah Board include, among others, the following:
1. Achieving harmonisation and convergence in the concepts and application among

the Shari’ah supervisory boards of Islamic financial institutions to avoid contradiction
or inconsistency between the fatwas and applications by these institutions, thereby
providing a pro-active role for the Shari’ah supervisory boards of Islamic financial
institutions and central banks.
2. Helping in the development of Shari’ah approved instruments, thereby enabling Islamic
financial institutions to cope with the developments taking place in instruments and
formulae in the fields of finance, investment and other banking services.
3. Examining any inquiries referred to the Shari’ah board from Islamic financial institutions
or from their Shari’ah supervisory boards, either to give the Shari’ah opinion in matters
requiring collective ijtihad (reasoning), or to settle divergent points of view, or to act as
an arbitrator.
4. Reviewing the standards which AAOIFI issues in accounting, auditing and code of ethics
and related statements throughout the various stages of the due process, to ensure that
these issues are in compliance with the rules and principles of Shari’ah.
The objectives of AAOIFI are:
1. To develop accounting and auditing thoughts relevant to Islamic financial institutions;

2. To disseminate accounting and auditing thoughts relevant to Islamic financial
institutions and its applications through training, seminars, publication of periodical
newsletters, carrying out and commissioning of research and other means;
3. To prepare, promulgate and interpret accounting and auditing standards for Islamic
financial institutions; and

Unit 1 | 24
4. To review and amend accounting and auditing standards for Islamic financial institutions.
Unit 1.14.2 ISLAMIC FINANCIAL SERVICES BOARD (IFSB)
The Islamic Financial Services Board (IFSB) is based in Kuala Lumpur and was officially
inaugurated on 3 November, 2002 and started operations on 10 March, 2003. It serves as an
international standard-setting body of regulatory and supervisory agencies that have vested
interest in ensuring the soundness and stability of the Islamic financial services industry, which
is defined broadly to include banking, capital market and insurance.
In advancing this mission, the IFSB promotes the development of a prudent and transparent
Islamic financial services industry through introducing new, or adapting existing international
standards consistent with Shari’ah principles, and recommend them for adoption. To this
end, the work of the IFSB complements that of the Basel Committee on Banking Supervision,
International Organization of Securities Commissions and the International Association of
Insurance Supervisors.
The 150 members of the IFSB include 37 regulatory and supervisory authorities as well as
the International Monetary Fund, World Bank, Bank for International Settlements, Islamic
Development Bank, Asian Development Bank, and 108 market players and professional firms
from 22 countries. Malaysia, the host country of the IFSB, has enacted a law known as the
Islamic Financial Services Board Act 2002, which gives the IFSB the immunities and privileges
that are usually granted to international organisations and diplomatic missions.
The objectives of the IFSB are:
1. To promote the development of a prudent and transparent Islamic financial services

industry through introducing new, or adapting existing, international standards
consistent with Shari’ah principles, and recommending these for adoption
2. To provide guidance on the effective supervision and regulation of institutions offering
Islamic financial products and to develop for the Islamic financial services industry the
criteria for identifying, measuring, managing and disclosing risks, taking into account
international standards for valuation, income and expense calculation, and disclosure.
3. To liaise and cooperate with relevant organisations currently setting standards for the
stability and the soundness of the international monetary and financial systems and
those of the member countries.

Unit 1 | 25
4. To enhance and coordinate initiatives to develop instruments and procedures for

efficient operations and risk management.
5. To encourage cooperation amongst member countries in developing the Islamic
financial services industry.
6. To facilitate training and personnel development in skills in areas relevant to the effective
regulation of the Islamic financial services industry and related markets.
7. To undertake research into, and publish studies and surveys on the Islamic financial
services industry.
8. To establish a database of Islamic banks, financial institutions and industry experts.

Unit 1 | 26
SUMMARY
• The standardisation and diversity is one of the issues discussed in Islamic finance.
This issue has been addressed to ensure uniformity and consistency in the Islamic
finance practices globally, as well as to appreciate diversity in future and juristic
interpretations.
• This unit elaborated on some issues such as addressing the standardisation when
there is a divergence in Shari’ah opinions. Normally, standardisation promotes one
single practice whereas diversity accommodates many practices.
• This unit touched on the appropriate approach to adopt for a better practice of Islamic
finance globally.
• Standardisation should be understand within the nature of the law, whether it is a

positive law or a Shari’ah law.
• It should be understood that Shari’ah itself recognises the diversity in Shari’ah opinions,
therefore dealing with disagreements should be within the norm of Shari’ah.
• There are some criteria that should be taken into account when dealing with
standardisation and diversity.
• There are valid reasons for disagreement that should be understood to address the
issue of standardisation in a proper way.
• There were many efforts throughout the history to reconcile Shari’ah rulings. The
recent effort to issue standards was undertaken by the AAOIFI and IFSB.

Unit 1 | 27
CASE STUDY
As a Shari’ah scholar, you have been invited by the central bank of Malaysia and Pakistan to
draft Shari’ah standards for the industry in Islamic finance in the area of sale contracts. The
standards are supposed to be implemented in two different countries: Malaysia and Pakistan.
What are the features of the standards that you should consider, and what is the appropriate
approach in doing that? Include the steps to be taken in drafting the standards for those two
countries.

Unit 1 | 28
QUESTIONS AND PROBLEMS
Question 1.
Provide the definition of standardisation.
Question 2.
What does diversity in Shari’ah opinions mean?
Question 3.
What is the process of standardisation in Islamic finance?
Question 4.
Elaborate briefly on AAOIFI and IFSB.
Question 5.
What are the things to be considered in the process of setting up Shari’ah standards?
Question 6.
Can Shari’ah standards be binding on the different jurisdictions of Islamic finance? Why?
Question 7.
What are the challenges faced by institutions involved in standardisation?
Question 8.
Are there any issues of having diversity in Islamic finance?
Question 9.
What are the efforts undertaken by scholars and organizations in standardisation?
Question 10.
What is the difference between the standardisation and codification process?

Unit 1 | 29
• Shahul. (2002).Islamic Accounting –-Accounting for the

New Millenium. Paper presented at the IIUM International
Accounting Conference I, Kota Bahru, Kelantan, 2001.
• AAOIFI Shari’ah Standards.
• AAOIFI Auditing, Accounting and Governance Standards.
• Ahcene Lahsasna. (2010). Introduction to Fatwa, Shari’ah

Supervision and Governance in Islamic finance. Kuala
Lumpur. CERT. Abu Zahra. Usul al-fiqh. Cairo. Dar al Arabi.
• Standardization: The Secret to IT Leverage. An IDC White

Paper Sponsored by Dell Computer Corporation. Analysts:
John Gantz and Vernon Turner.
• Said al Kin. Atar al Iktilaf wi al qawayyid al usuliyyah wi

iktilaf al fuqahah.
• www.aaoifi.org
• www.ifsb.org
• www.fiqhacademy.org.sa


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Standardisation and Diversity in Islamic Finance Practices

Topics in This Unit

1.2- The concept of standardisation

1.3- The standards and the nature of the law

1.4- The implication

1.5- The standardisation in shari’ah

1.6- The consensus and the standardisation

1.7- Diversity in fiqh rulings

1.9- Efforts to codify the diversity in fiqh

1.10- Recent efforts in setting rules and standards

1.11- Standardisation within the diversity

1.12- Shari’ah versus diversity and reason for disagreement

1.13- Diversity and legal maxim

1.14- Organisation of standardisation

SH5023 Shariah Issues in Islamic Finance

Unit At the end of this unit, you should be able to:

Diversity in Shari’ah opinions hasexisted for

SH5023 Shariah Issues in Islamic Finance

Unit 1.1 INTRODUCTION

In the context of globalisation, standardisation becomes more challenging due to different

SH5023 Shariah Issues in Islamic Finance

Unit 1.2 THE CONCEPT OF STANDARDISATION

Standardisation is a process of developing parameters to be implemented in a particular

1. Reduced cost of IT deployment –Standard architecture allows deployment teams to roll

SH5023 Shariah Issues in Islamic Finance

2. Reduced cost of interoperating with business partners – Electronic communications,

There are some definitions of standards as follows:

SH5023 Shariah Issues in Islamic Finance

Unit 1.3 THE STANDARDS AND THE NATURE OF LAW

SH5023 Shariah Issues in Islamic Finance

Unit 1.4 THE IMPLICATION

SH5023 Shariah Issues in Islamic Finance

Unit 1.5 THE STANDARDISATION IN SHARI’AH

Consensus in Shari’ah Diversity in Shari’ah

Figure 1.1 Nature of standardisation and diversity in Shari’ah

SH5023 Shariah Issues in Islamic Finance

Unit 1.6 THE CONSENSUS AND THE STANDARDISATION

Unit 1.6.1 THE MEANING OF CONSENSUS

Unit 1.6.2 CONDITIONS FOR THE VALIDITY OF

SH5023 Shariah Issues in Islamic Finance

Unit 1.6.3 CONSENSUS VERSUS STANDARDISATION

1. The consensus produces a single Shari’ah opinion, so there is no trade-off between

SH5023 Shariah Issues in Islamic Finance

Unit 1.7 DIVERSITY IN FIQH RULINGS

The above issue raises the following implications:

1. There are different set of methodologies established in Islamic jurisprudence used by

SH5023 Shariah Issues in Islamic Finance

Unit 1.8 EFFORTS TO RECONCILE THE VIEWS OF

SH5023 Shariah Issues in Islamic Finance

Unit 1.9 EFFORTS TO CODIFY THE DIVERSITY IN FIQH

SH5023 Shariah Issues in Islamic Finance

Unit 1.10 RECENT EFFORTS IN SETTING RULES AND

SH5023 Shariah Issues in Islamic Finance

Unit 1.11 STANDARDISATION WITHIN DIVERSITY

SH5023 Shariah Issues in Islamic Finance

Unit 1.12 SHARI’AH VERSUS DIVERSITY AND REASON FOR

1. Methodology of mutakallimin (scholastic theologians) or Jumhur (the

(a) This methodology is based on the logical approach.

SH5023 Shariah Issues in Islamic Finance

2. Methodology of fuqaha (jurist) or Hanafiyyah – This approach is the opposite

(a) This approach is very practical.

3. The methodology of muta’akirin – This methodology is a combination of the two

Unit 1.1 INTRODUCTION