MAQASID AL-SHARIAH AND ITS APPLICATION IN ISLAMIC FINANCE

MARYAM SAEED

ISLAMIC BANKING & FINANCE DEPARTMENT

UNIVERSITY OF MANAGEMENT ANF TECHNOLOGY

As per article titled Maqasid al-Shariah in Islamic finance by Mirza.

DEFINITION

The word “ Maqsid (plural: Maqasid) reflects a meaning of purpose, objective, principle, intent, goal (Kamali, 2008). the objectives of Shari’ah,
are designed to “promote benefits and repel harms. Maqasid al-Shari’ah calls for establishment of justice, elimination of unfairness and alleviation
of privation.

One view about maqasid al-Shari’ah is considered to be the grand framework that provides guidelines and directions for ensuring the realization of
maslahah (benefit) and the prevention of mafsadah (harm) in all financial contracts.

Second view identifies Shari’ah with Islamic laws regulating the Man God relationship and interactions between people. Shari’ah in this perspective
is limited to the domain of law that regulates practical aspects of human life: personal, societal, state or international relationships.

A third view of Shari’ah is wider, considering it a system of life that encompasses all aspects of the belief system, the system of ethics and morals
and the rules governing the Man-God relationship and human relationships. Shari’ah in this perspective covers the entire spectrum of Islamic life,
including belief, morality, virtues and principles of guidance on economic, political, cultural and civilizational matters that concern not only the
Muslim community but all of humanity. By this consideration, Shari’ah could be understood as synonymous with religion, encompassing all of
human life.

Sources of maqasid al-Shari’ah

The ultimate source of maqasid alShari’ah is the Qur’an and Sunnah.

The maqasid are often found in texts that explicitly or implicitly declare the purpose of the Shari’ah in human life. In this endeavour, intellectual
reasoning is significant. The interaction of texts and reasoning is not only legitimate but encouraged; the combination is necessary for elaborating
those comprehensive objectives, which are relevant to every aspect of life and those that relate to particular domains.

MAQASID AL-SHARIAH AND IJTIHAD

Maqasid ul shariah is instrumental for a mujtahid in at least two situations:

Firstly, when he undertakes ijtihad concerning interpretation of a speculative text. The text may be speculative with regard either to its meaning, or
its authenticity, or both.

Secondly, when the scholar conducts ijtihad over an issue on which no textual ruling exists in the first place.

In both situations, the mujtahid needs to ascertain the maqasid of shariah as an aid to textual interpretation and ijtihad.

With reference to zakah (poor due), Ibn Qayyim al-Jawziyyah has discussed the different views of the ulama on whether the zakah on commodities
such as wheat and dates must be given in kind or could it also be given in their monetary equivalents.

The HanafÏs have validated giving of zakah in monetary equivalents but al-shafi has held otherwise. The HanafÏ view is founded on the analysis that
the purpose of zakah is to satisfy the need of the poor and this can also be achieved by paying the monetary equivalent of a commodity.

To give another example, Imam malik was asked about a person who paid his zakah ahead of time, that is, prior to the expiry of one year, whether
he was liable to pay it again at the end of the year. Malik replied that he was and he drew an analogy with the ritual prayer (salah). If someone
performs his prayer before its due time, he must perform it again in its proper time. Subsequent Maliki jurists, including Ibn Rushd have reversed
this position and stated that early payment of zakah was permissible. There was, they added, a difference between salah and zakah in that the former
was bound to specific times, but no such time had been stipulated for the payment of zakah. Hence zakah may be paid earlier, especially if it is
prepaid by only a few weeks or even longer.

Hazrat umar stopped hand cutting punishment during famine of madinah. Basic maqasid behind this ijtihad was to protect the life of people.

Hazrat umar decision to include horses in the types of wealth included in the obligatory charity of zakah despite prophet clear instructions to exclude
them. Rationale behind umar was that horses at that time was more valuable.

Hazrat umar refused to divide lands of Egypt and Iraq to warrior after war. Reason behind this ijtihas is that they had fear that people would leave
battles and made landlord.

OBJECTIVES OF THE MAQASID AL- SHARIAH

There are three main objectives of maqasid ul-shariah namely educating individual, justice, and realization of benefit.

EDUCATING INDIVIDUAL:

One of the main purpose behind sending prophets is to educate mankind. The prophets were sent for following tasks:

 to enjoin right and forbid wrong

 to release mankind from the shackles of superstitious beliefs
 spreading Islam by inspiring a believer with faith educates and reforms his character and personality

Act of devotion or ibadah are part of Islamic educational programmes which are designed to educate the believer.

Prayer gives discipline to man. It teaches also cleanness, punctuality, unity and obedience.

Fasting, zakat and hajj educate and instill an individual about self-discipline, sacrifice and purity.

JUSTICE:

Adl means placing a thing in its proper and right place. Justice means giving a person his rights and punishment for wrong he has committed. Quran
states:

The main purpose behind sending the prophet is to establish justice. It says we sent our messenger and revealed book through them so as to establish
justice among the people.

REALIZATION OF BENEFIT

Sharaih intends to bring benefits to mankind both in this world and in hereafter.

All its commands and injunctions aim at realizing the interest of mankind and all its prohibition are designed to prevent evil.

Imam Ghazali, one of the earliest scholars to discuss this issue, has categorized the objectives of shariah into two primary categories; the deeni
(related to deen) and the dunyawi (related to this material world). The dunyawi purposes are further divided into four types, which are all individually
meant to serve the single deeni purpose. The four dunwayi purposes are protection of nafs (life), nasl (lineage), ‘aql (intellect), and maal (wealth).

These maqasid are categorized into three broad categories, the daruriyyat (essentials), the hajiyyaat (supporting), and the tahseeniyyaat
(embellishments).

The daruriyyat are those which are undoubtedly necessary, with no exception, for the benefits of deen and dunya, and the absence of which will lead
to chaos. Allamah Qaradawi discussed these daruriyyat into two main divisions, i.e. those which are necessary to be safeguarded, and those which are
necessary to be eliminated. However, Imam Shatibi considers the five essentials mentioned above among the daruriyyat. Allamah Qarafi and many
other scholars have added a sixth essential, namely ‘ird (dignity);16 which, however, can be considered within the scope of nafs (life).
There are 5 fundamental values (protection of religion, life, lineage, property, intellect) which are defined as those values the neglect of which leads
to total disruption and chaos in human societies.

The hajiyyaat are the interests which are required for the betterment of the society, absence of which though may not create chaos, however may lead
to hardship and difficulty. Since many Hanafi followers view unnecessary movement in the salat as invalidators of prayer, and therefore do not opt to
switch off their ringing handphones with musical ringtones19 while they are in the prayer. With this, they are causing disturbance to their as well as
other’s prayers, hence in this case it can be considered as hajiyyaat to switch off a ringing handphone while one is praying For instance, the need to
perform forward contract (salam), leasing contract (ijarah) and so on as to ease the needs of day-to-day life.

Finally, it is the tahsiniyyat, the complimentary factors that leads to the perfection of life. The tahseeniyyat are interests are beautification leading to
a desirable status. These are, for example, shaping oneself with the noblest characters and attitudes, and maintaining ihsaan at every stage. For
instance, the practice of sadaqah leads to harmonious life and shows the beauty of the Muslims way of life, welfare policies, comfortable
transportation, free healthcare etc

Muslim scholars agreed on five main objectives to be considered the Shari’ah’s high objectives.

The first higher objective of Islam: the preservation of religion

Religion is the sum of beliefs, rituals and rules commanded by God Almighty to regulate people's relationship to their Lord and relationships
with each other.

1. The reservation of religion is legitimated in many Shari’ah texts that call to faith and encourage it and forbid unfaithfulness. Some of these
Quranic texts are:

“And whoever desires other than Islam as religion - never will it be accepted from him, and he, in the Hereafter, will be among the losers.”
(3:85).

2. At individual level, it means the protection of religion to protect the faith of each and every individual Muslim from negative influences
that might cause confusion and weaken his faith.

3. At community level, it is to counter any attempt that may undermine religion and its fundamental which includes defending Muslim
countries and their sovereignties, making sure that learning and teaching of religion continue into future generations of the Muslim
community.

4. Prevention of fitna or sedition and propagation of heresy.

5. Safeguard freedom of belief in accordance with quran principal, there shall be no compulsion in religion (2:256).

6. Prayer, fasting, payment of zakat and performing hajj that are required for maintenance of very existence of fiath/din.

The second higher objective of Islam: the preservation of the life

Islam has devoted a significant amount of texts and teaching into establishing the preservation of one’s soul as the most fundamental principle of all.
It is through life that Mankind is able to maintain or preserve all of Almighty’s provisions and principles. Therefore, Islam has not only protected the
soul from being killed or wasted but also established a set of rules to ensure its welfare spiritually and humanlys—that is to secure surviving needs
such as food, marriage, shelter, drinks and clothing—as well as establishing rules that deny and forbid the all means of self’s distractions.
Allah Most High says:
“And in no way is it for a believer to kill a believer, except it be by mistake; and whoever kills a believer by mistake must set free a believing slave,
and present a blood money (diya) to [the deceased’s] family, unless they [charitably] remit it. As if [the slain] was from a people hostile to you and
he was a believer, then [the penance is] to set free a believing slave; and if [the slain] was from a people between whom and you there is a covenant,
then a blood money (diya) is to be presented to his family and [also] a believing slave must be set free. And whoever does not find [the means to do
so] must fast two months consecutively, a penance from Allah. And Allah has ever been Knowing, Wise. (Q 4:92)”
And says:

“O you who believe! Retaliation (qiṣāṣ) is prescribed on you for the ones murdered; the freeman for the freeman, the slave for the slave, and the
female for the female. But whoever is forgiven somewhat by his [slain] brother (i.e., his family), then adhering to with fairness and payment ( adāʾ)
[of blood money] to him in kindness (iḥsān). That is an alleviation and mercy from your Lord, but whoever transgresses [the limits of Allah] after
that, he shall receive a painful torment. (Q 2:178)
Also:

“And do not kill the soul which Allah has forbade[to be killed] except by [legal] right. This has He instructed you that you may use reason.” (6:33)

The third higher objective of Islam: the preservation of the mind/intellect

 Allah Most High has commanded us to preserve our minds thus has forbid all the means to disable it through the toxicities, alcohols.
 That is Allah Almighty has granted and distinguished humans from all other creatures by the grace of the mind, which means the ability to
distinguish and making choices, and solving the difficulties faced in life. Allah has made humans, therefore, His successor on earth, and so
they need to maintain the their mind, which is the basis of the discourse of the succession on earth. Aql differentiate between man and
animal. Acts that promote aql is learning and thinking. Acts that demote aql is cosuming drugs
 Some of the Quranic texts that encourage humans to use their mind to contemplate upon the creation of Allah Almighty and to understand
their succession on earth are:

“O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah ], and divining arrows are but
defilement from the work of Satan, so avoid it that you may be successful.” (5:90)

The fourth higher objective of Islam: the preservation of lineage/offspring

For the sake of persevering human’s offspring, Shari’ah has legitimized marriage and reproduction, and for the sake of protecting it, Shari’ah has
forbade adultery and assigned a legal punishment (had) for whoever commit it. This is done for protection of lineage.

 Moreover, Shari’ah also assigned a legal punishment for whoever lies about or render someone guilty unjustly of committing it (had al-
Qazf). This proves that in maintaining the lineage a necessity for the purity of offspring from any potential distortion or corruption by
mixing it so one does not even know who are their parents or who are their own children.
 In Quran we find the forbiddance of adultery is stated clearly and affirmly, Allah Most High says: “And do not approach unlawful sexual
intercourse. Indeed, it is ever an immorality and is evil as a way. (17:32).
 And its punishment is stated in: “The [unmarried] woman or [unmarried] man found guilty of sexual intercourse - lash each one of them
with a hundred lashes, and do not be taken by pity for them in the religion of Allah , if you should believe in Allah and the Last Day. And
let a group of the believers witness their punishment.” (24:23)

The fifth higher objective of Islam: the preservation of wealth/property

Shari’ah has commanded for the purpose of preserving human’s wealth the pursuit of earning a living and permitted transactions and exchanges and
trade.

Shari’ah also, for the sake of preserving wealth as well, forbid and placed punishments upon theft, deception, treason and consuming people’s wealth
unjustly, in addition to discouraging the squandering of money.

Money, as well as everything, belongs to God Almighty, who has granted humans the status of successors on earth, and so they are commanded to
preserve such grace not to waste it.
Allah Almighty says in Holy Qur’an:

“And do not consume one another's wealth unjustly or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the
wealth of the people in sin, while you know [it is unlawful].” (2:188)

“And give to the orphans their properties and do not substitute the defective [of your own] for the good [of theirs]. And do not consume their
properties into your own. Indeed, that is ever a great sin.” (4:2)

“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is
because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition
from his Lord and desists may have what is past, and his affair rests with Allah . But whoeverreturns to [dealing in interest or usury] - those are the
companions of the Fire; they will abide eternally therein.” (2:275)

“Allah expunges riba (Interest or other unlawful) and He augments donations, and Allah does not love every most disbelieving most-vicious
person.”(2:276)

As per article titled Maqāsid al-Sharī'ah in Islamic Finance: Applications and Challenges by Muhammad Abu Bakar

Maqasid al-sharaih in Islamic finance are directly related to hifz al-mal and preservation of wealth which is one of main five objectives of sharaih
(daruriyyat).

There are five main dimensions in wealth preservation which is one of the main elements in maqasid al-shari’ah. First, preservation of wealth through
the protection of ownership, second, through its acquisition and development, third, through damage protection, forth, its circulation and fifth through
protection of its value.

Preservation of wealth: it is used as means for fulfilling needs such as, food, cloth, shelter, zakah, sadaqa, hajj etc. which result in success of this
world and hereafter. If someone uses it for evil and bad things and spends his wealth in a way that does not please Allah, then it is fitna and real test
for him.

There are at least five dimensions through which the preservation of wealth can be achieved:

Protection of wealth through ownership:

In Islam, Allah is ultimate owner of wealth. The Quran states: to him belongs to what is under the soul. Human being as vicegerent of Allah are
allowed to earn and get ownership of wealth according to his guideline. Sharaih takes balanced approach between capitalism (gives absolute right of
accumulating wealth) and communism (denies right of ownership for individuals). In sharia, right of individual ownership is accepted and it cannot
be taken from someone without his consent or damage to other property.

Protection of wealth through acquisition and development:

There are many verses in holy Quran and saying of prophet pbuh which ask human beings to put their efforts for earning halal or acquire wealth in a
halal way. To seek halal earning is an obligatory duty following other obligatory duties. Sharaih encourage the development of wealth after
acquisition through business or trade. The unused wealth would be subjected to zakah.

Protection of wealth from damage:

Sharaih does not allow someone to damage or destroy the wealth and property. There are at least three dimensions given by shariah for preservation
of wealth. First, Protection of wealth from wasting it without any purpose like putting fire on precious property. Second, Protection of wealth from
consuming it in a way which harms human being such as spend money for alcohol or other intoxicants. Third, protection of wealth from squandering
and excessive consuming.

Protection of wealth through its circulation

Shariah aims to narrow the gap between poor and rich byproviding equal opportunities. In other systems, only those are entitled to get shares in
wealth who participate and take direct part in the process of producing wealth. Sharaih made obligatory for those who reached specified level of
wealth to share their wealth with poor, needy etc. those who put their efforts in the process of wealth production get abundance of rewards from
Allah for sharing this blessing with others. There are different channels for wealth distribution in islam such as, zakah, ushr, kaffarah, waqf, sadqqa
etc.

Protection of wealth through its value protection:

Dates trade hadith. This hadith gives indication that prophet pbuh wanted to determine the actual value of dates according to market forces as its fair
price is necessary in order to prevent manipulation and deception.

In current practice of Islamic banking, more inclination is toward debt based mode of financing rather than equity based mode of finance i.e
musharakah, mudarabah. Many debt based products have legal structure but leads toward resemblance with riba. Such as bay inah, tawarruq.

MAQASID AL-SHARI’AH IN FINANCIAL TRANSACTIONS

Maqasid al-Shari’ah is seeking to develop Islamic finance on firm grounds which can accept all improvement in financial transactions, whether it is
related to the banking system, capital market, or takaful industry.

The major components of Islamic Financial Services are following:

1. Islamic Banking

 Financing
 Deposit
 Investment

2. Islamic Capital Market

 Equity
 Islamic Securities
 Funds and Unit Trusts
 I-REIT
 Venture Capital / Private Equity fund
 Derivatives
 3. Takaful/Islamic Insurance

 Takaful
 Retakaful

1. Islamic Banking

As per article titled Achievement of Maqasid-al-Shari`ah in Islamic Banking: An Evaluation of Islami Bank Bangladesh Limited by
Mohammad Abu Hurayra

Maqasid al-Shari’ah ensure that Islamic banks (or any financial institution and/or manufacturing/industrial firm) could contribute to the promotion of
human welfare, prevent corruption, enhance the social and economic stability.

Maqasid al Shariah is the objective of shariah ruling and in finance it is not only the prohibition of Riba rather it includes on following things:

 circulation of wealth in the society,

 the continuity of investment of the wealth,
 Achieving the economic prosperity for the whole society by satisfying the basic needs of the people,
 transparency in financial activities to eliminate disputes. Transparency means that all financial transactions must be conducted in such a
manner that all the parties are clear about all important facts concerning the transactions. This information symmetry prevents the main
cause of disputes and damage to any party in all dimensions of the contract.
 Fairness means equity between the transacting parties. Islam insists that the contract is only legitimate if there is mutual consent of the
parties. A transaction that takes place under pressure or accompanied by fraud or misrepresentation by any party is not valid. justice, which
is the goal and maqasid of the Lawgiver. maqasid of fair and transparent financial practices are related to micro goals of the Shari’ah in
transactional instruments and mechanisms. The maqasid of justice embraces both micro and macro dimensions. The Islamic financial
system attempts to realise economic justice through wealth circulation, efficiency in resource utilisation, fulfilling society’s basic needs,
elimination of poverty and improving human wellbeing.
 permissibility of private and public ownership of the wealth.

Hence, for a proper realization of Maqasid al-Shari`ah , Islamic banking and finance must ensure that all transactions comply with Shari`ah; not only
in terms of legal technicalities and forms but more importantly in terms of the economic substance of these transactions which is premised on the
objectives outline by Shari`ah.

Islamic Banks should give priorities in their business activities to those areas related to the basic needs of the public such as investments in vital
sectors and financing of housing projects. The last priority should be those areas whose activities involve luxury goods.

Commercial and financial activities are viewed positively as mechanisms to circulate wealth among all the sections of society so that it is not
concentrated in the hands of a few and instead goes into all sectors of the economy that would benefit human wellbeing

Islamic banking is much more than providing Shari‟ah -compliant products. It should be structured in such a way that its primarily goal is to achieve
an affirmative contribution to the realization of the socio economic objectives of the society at large.

In general, Islamic nominate contracts related to economic transactions are classified into three main categories: exchange, partnership and
gratuitous. Exchange contracts include simple spot sales (bay’), sales creating debt such as ijara and istisna and work done for a reward (jualah).
Partnership contracts are ones in which one party assigns work/ capital/obligation to one or more other parties. These contracts include agency
(wakalah), partnership (sharikah) contracts in the forms of murabaha and musharakah, debt assignment (hawalah), and pledge or mortgage (rahn). In
gratuitous contracts, ownership or rights of use are transferred without consideration (payment) or compensation. Gratuitous contracts include loans,
deposits, gifts and guarantees. Every contract is designed to serve a particular purpose. The contract should, therefore, be respected and fulfilled, not
only in order to protect the interests of the parties involved in it, but also to serve the very purpose of the contract that caused the parties to enter into
it and willingly bind themselves to it.

The establishment of IBF is not an attempt to merely fulfil Muslim society’s desire to have a ‘legal’ form of financial services in a strict legalistic
(formalistic) sense by cleansing economic and financial practices from interest (riba), gambling (maysir), uncertainty (gharar) and other prohibited
elements commonly found in conventional financial services.

Islamic banks should rely more on equity-based financing. The equity financing is the way forward for realizing that stage of model as preserved in
Maqasid al-Shari‟ah. Many Muslim economists, for example, favor equity-based instruments and place greater social welfare responsibilities and
religious commitments, in order to realize maqasid al-Shari’ah for equitable distribution of wealth and promoting economic development and growth,
whereas most of the Islamic banking products range from Bai’ Bithaman ‘Ajil (BBA), Bai’ al-Dayn, Islamic credit card with Bay’ al-‘Inah contract,
Tawarruq, and many such other contracts. Therefore, it has become one of the biggest challenges of time, to come up with products which are not
only Islamic compliant, but are also Shari’ah compliant, i.e. compliant with the maqasid al-Shari’ah, without violating the business natures of being
competitive, profitable and viable in the long run.

As per article on Applications of Maqasid al-Shari’ah and Maslahah in Islamic Banking practices: An analysis by Tawfique Al-Mubarak

Bai’ Bithaman ‘Ajil (BBA) contract: The Bai’ Bithaman ‘Ajil (BBA) contract, which is very close to Murabaha or Bai’ Mua’ajjal, provides the
buyer the benefit of a deferred payment, whereby it implies a sale on a cost plus basis. The BBA contract has gained overwhelming popularity in the
South-East Asian region, and turned to a basic contract in the Islamic Banks. Obaidullah mentions a simple difference between the BBA contract and
the Bai’ Murabaha, that in the BBA contract both the parties may or may not know the cost and the mark up price of the product; however, in the
murabaha contract, it is a binding for both the parties to be aware of the cost and the mark up (profit) price. The BBA contract has been a subject of
much controversy around the world, to the effect that the Council of Islamic Ideology in Pakistan has mentioned in its report Elimination of Interest
from the Economy writes on bay’ muajjal in this manner

“However, although this mode of financing is understood to be permissible under the Shari’ah, it would not be advisable to use it widely or
indiscriminately in view of the danger attached to it of opening a back door for dealing on the basis of interest. Safeguards would, therefore, need to
be devised so as to restrict its use only to inescapable cases.”

BBA contracts profit rates, usually in the home financing or in car finances, are unfortunately identical to the interest rates. And in cases where the
BBA profit rate is fixed, which raises other questions, is usually higher than the interest based loans of the conventional banks, and volatile for the
long-run contracts. The bank according to the BBA contract, although should be liable for the risks of the property sold, many banks do not take any
risk at all as it only owns the property for a minimum period of time possible, usually a few minutes or less is a direct violation of the principle “Al-
kharaju bil-dhaman.” Similarly, in cases of default the bank does not bear any responsibility, as it does not own the property anymore! On the same
stance, the bank does not provide any choice or ikhtiyar to the customer in case of defects. Violation of the principles of “Al-kharaju bil-dhaman”
renders it to the same state of riba.

On the other hand, BBA financing is calculated based on the market interest rate, as its bench-mark. Although there is no Shari’ah restrictions to
profit being the same as interest rate, however it further leads to other mafasid which does not comply with the maqsad (objective) of eliminating
injustice, inequality and poverty, which were primary objectives behind the elimination of riba. Such mafasid mainly includes profiteering based on
the floating rate of interest and roll over on the profit based on the market condition, which is strictly impermissible in the Shari’ah Murabaha or
BBA based financing products are fixed rate product and do not allow for a roll over. It is indeed alarming to learn that the Central Bank of Malaysia
has approved a ‘floating-rate’ BBA where the customer pays a monthly instalment amount that is on the higher end, but subsequently gets a rebate
based on the prevailing market interest rate.

Another severe criticism posed at the BBA financing is its involvement in ‘hidden’ bay’ al Inah contracts, where the financier buys and sells the
products back to the customer. Bay’ al Inah has been severely criticized by majority scholars, including many Malaysian scholars, especially where it
is widely practiced.
Similarly, as the Islamic banks are simply imitating the conventional banking system, based on the Fractional Reserve System, Islamic banks are
also, in this way, making money ‘out of thin air’ violating the principles of equal distribution, societal welfare, justice, on the way to create a higher
default rate, debt loans and similar other greater mafasid.

Rahn or Pawn Broking against a qardh:

Another example of the imitating Islamic baking practice is the rahn, which is a sort of documentation of debt in its original sense. But in the modern
Islamic banking practices, it is widely known as a synonym for Pawn Broking, and a tool to generate profit in the business. In this transaction, the
Islamic bank will provide its customer with a qardh (benevolent loan) on condition that the customer guarantees it with a rahn; e.g. a valuable
jewellery to be kept by the bank as collateral. This would not have been a problem had the bank not asked for a custodianship fee against the rahn.
“The amount of this charge is subject to the amount of the loan and, in practice, equivalent to the bank rate of profit” writes Dusuki and Abozaid. In
fact, qardh contracts cannot be conditioned to a manfa’ah (benefit), unless it has been willingly offered by the borrower which is known as husnul-
qadha in the Shari’ah literatures. Any qardh conditioned to a benefit/favor is considered as riba. This, indeed, violates the fundamental maqasid
(objectives) of hifz al-deen primarily, and secondarily the maqasid of establishing Islamic Banks, i.e. dealing with interest-free monetary policies for
the Muslims, providing economic welfare, social equality, and a free flow of money among the citizens.

Bai’ al-‘Inah:

Bai’ al-‘Inah is a sale and buy-back arrangement with fixed mark-ups. A murabaha can change into Bai’ al-‘Inah if the identity of the seller is not
different from its customer; this is when the bank purchases a commodity from its client on a spot basis and sells it back to the client at a cost-plus
price and on a deferred basis. This practice has gained some popularity in the South East Asian region, despite the fact that it has been rejected
outright in almost all other Muslim countries by the Islamic scholars. One of the main reasons behind its prohibition is that its rate of profit is
indistinguishable from the rate of interest in the conventional banks. And the ultimate consequence of this transaction is that it transforms into a pure
riba-based transaction in the guise of bay’.

While most of the Southeast Asian scholars deem it permissible on the basis of Imam al-Shafi’i’s opinion, most other scholars do not find it
permissible at all. In fact, it is considered an alternative to riba. In fact, Imam al-Shafi’i’s opinion is only his personal view and not based on any
authentic Shar’i sources. Imam al-Shafi’i considered a contract valid as long it fulfilled the conditions and pillars, no matter what intention was
hidden. However, some of the contemporary Shafi’i scholars, like al-Sharbini al Khateeb and al-Ramlee, have expressed detestation (karahah) for
such a trade as it defeats the person in need. Contrary to this view, all other scholars based their opinions on the consensus of the jurists (ijma’ul
fuqaha) that it invalidates the contract by the usage of a legal device (hilah) to validate an interest-bearing loan. Ibn Qayyim prohibited Bai` al-`inah
quoting the following Hadith that the Prophet Muhammad (pbuh) is reported to have said:

“A time is certainly coming to mankind when they would legalise riba under the name of bai’ (trade/sale).”

The transactions based on bai’ al-‘inah violate many fundamental objectives of Islamic Banking practices. The mafasid that are caused due to bai’
al-‘inah overwhelm the masalih. To enlist a few, primarily, the lender or the bank is creating a ‘debt’ in the economy leading to higher speculation,
and putting the overall economic system in an unfair risk-bearing and uncertain condition. Secondarily, there is no sale and trade in real terms; it’s
only some paper work allowing exchanges of parties, and not real trade. This hinders the maqsad of equal distribution in income. Third, as
mentioned earlier, this is a different form of validation of riba through a legal device (heelah). Fourth, the contract does not require the bank to own
the article for sale for such a period of time that would imply the liability side on the bank, as the bank usually owns the article for a few minutes or
less. The profit that the bank is gaining without possessing the ownership and liability is antagonistic to the rights to profit, as the principles of “Al-
Kharaju bil-Dhaman” demands. In fact, this implies the profit as an increase without ownership liability. Again, in case of default, based on the same
concept, the bank cannot demand the article back, nor any compensation for it as it does not own it. However, unfortunately, the case is just the
opposite in practice. Fifth, since the article for sale is only brought to be sold for the need of some cash, the market price of the article need not
resemble the price offered by the bank; on this ground it is nothing other than zulm on the customer. Majority of the fiqh schools are in agreement
that the bai’ al-‘inah contract is invalid, and is tantamount to riba.
Tawarruq, an extension of the bay’ al-inah contract, although deemed permissible as long as it is not the organised tawarruq (tawarruq munazzam),
being a debt-based financing scheme its mafasid overwhelms the masalih. Siddiqi noted that the mafasid of such a debt based financing scheme at
least includes:

Leading to creation of debt whose volume is likely to go on increasing. Resulting in exchange of money now with more money in future, which is
unfair in view of the risk and uncertainty involved Through debt proliferation it leads to gambling like speculation. Through debt finances it leads to
greater instability in the economy. In a debt-based economy, the money supply is linked to debt with a tendency towards inflationary expansion.
Resulting in inequity in the distribution of income and wealth. Through debt finances it results in inefficient allocation of resources. It contributes,
by consolidating debt financing, to raising anxiety levels and destruction of environment.

Based on the Shari’ah principles of preference over the overall masalih and prevention of mafasid, it can be concluded that debt based finances like
bay’ al-inah and tawarruq should be thought over once again before sanctioning it for the society.

Preference of ‘Macro Maqasid’ over the ‘Micro Maqasid’:

It can be argued that the facilities devised from the contracts like BBA, rahn, bai’ al-‘inah, tawarruq and others, are serving the maqasid al-Shari’ah at
a macro level, i.e. providing a flow of economic activities in the overall economic system. On the same ground, the micro maqasid, which are the
maqasid related to individuals and individual financial transactions, are overlooked for a greater benefit. However, these cannot be considered as part
of the maqasid al-Shari’ah for the following reasons:

In the first place, for its violation of clear text (nass) on prohibition of riba, and promotion of zulm. Secondly, as mentioned earlier in the conditions
of maslahah that the maslahah should be greater than the mafsadah, neither less nor equal; whereas the mafsadah of these contracts have been
clarified earlier, which are undoubtedly massive. Third, prevention of a mafsadah does not always guarantee a maslahah by nature; it can in many
cases be a lesser mafsadah. In this case, only for the sake of competing with the conventional banks, as substitutes these Islamic banking products
cannot be considered as maslahah. In fact, the evaluations earlier in this paper have proven those to be a greater mafsadah in disguise of maslahah.
Fourth, there should be no confusion in preferring the ‘macro maqasid’ over the ‘micro maqasid’. However, the so called ‘macro maqasid’ here
needs of revised for the sake of the true macro maqasid which represents the overall society

Example:

Maqasid al Shariah in Islami Bank Bangladesh Limited

By avoiding all sort of Riba, IBBL successfully kept them away from any kind of interest and they completely implemented the Main and major
Maqasid al Shariah.

 Maqasid al shariah in deposit schemes

Since savings play an important role in capital formation, income-generation and creation of employment opportunities and contribute
towards the increase in wealth of the individual and nation through profitable investment, Islami Bank Bangladesh Limited, has therefore,
introduced the savings deposit accounts namely Mudaraba Account. According to the IBBL’s website, the bank has currently 14 products
on deposit scheme.
 Mudaraba WAQF Cash Deposit Account
The core intention to introduce this product is Maslaha (Public Benefit). IBBL from its very beginning launched this Khidmah for the mass
people of the country. The inspiration from the hadith that The Messenger of Allah said, "When a man dies, his deeds come to an end,
except for three: A continuous charity, knowledge by which people derive benefit, pious son who prays for him. The idea of Cash waqf is
to provide a unique opportunity for making investment in different religious, educational and social services. Savings made from earnings
for the purpose of Waqf by the well-off and the rich people of the society can be mobilized through this scheme and the income generated
can be spent for different benevolent purposes. Through this scheme people may contribute to popularize the role of Waqf in the country
including cash Waqf which can be instrumental in transferring savings from the rich to the members of the public by way of financing in
Bangladesh.
 Maqasid al shariah in Investment
 Two other products in investment scheme that have been introduced due to meet the Maqasid al Shariah. Firstly, Rural Development
Scheme (RDS) and Micro Enterprise (SME).

Rural Development Scheme' (RDS) has been introduced in 1995 to cater to the investment needs of the agricultural and rural sector , to
create an opportunity for generating employment and raising income of the rural people with a view to alleviate poverty. The main
objective to offer this product and service is to meet the Maqasis al shariah of circulation of wealth in the society, the continuity of
investment of the wealth, achieving the economic prosperity for the whole society by satisfying the basic needs of the people.

it has introduced several investment schemes to cater to the needs of SMEs keeping in view the needs of different sectors and various
sections of people for their socio-economic uplift and to improve their quality of life

2. Islamic Capital Market

Based on the Islamic financial concepts, sukuks issued could be based on different forms of contracts, ranging from mudharabah,
musharakah, murabahah, ijarah, and others alike. In this limited scope, we can take only the mudharabah sukuk into consideration for
analysis of its current practices. The mudharabah sukuk are based on the mudharabah contracts, whereas the sukuk are issued by the
mudharib to invest in an agreed project, and the investors (rabb al-maal) with their sukuk, agree upon a shared profit to be distributed at the
time of maturity of the sukuk. As managers, the mudharib shoulders the responsibilities of the management, and remains liable for any loss
due to negligence, or mismanagement. In this contract, the profit is not guaranteed, neither the loss, yet it can be expected at an
approximate figure. As a result, the capital invested is not guaranteed, and the periodic returns are also dependent on the profits and are
variable. These features are not meant for risk-averse investors, making the sukuk contract a less popular contract. However, the sukuk
providers have come up with the provision of ‘credit enhancement’ to attract investors. Such ‘credit enhancement’ facilities include
liquidity facility arrangement by the obligor, purchase undertaking at a fixed profit formula, and capping of profit with incentive payments
are simply a few to name. This provides security to guarantee income and the preservation of capital to the sukuk investors.39 In the
Shari’ah perspective, it is a violation of the mudharabah principle to comply with such ‘credit enhancement’ facilities as practiced by the
market. The Shari’ah supervisory board of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) have
decreed that providing liquidity facility and purchase undertaking at par value by the sukuk providers are not permissible in the Shari’ah.
The Shari’ah board further advised the Islamic Financial Institutions to invest more on a profit-loss sharing basis in order to achieve the
maqasid al-Shari’ah.

3. Takaful/Islamic Insurance

Takaful is derived from the Arabic root word “Kafal” meaning to take care of one‟s needs. Takaful simply means mutual help among a group. The
concept of
takaful had already existed during the time of Prophet Muhammad where the Muslims contributed to a fund under the tribal system of Aaqilah for
the purpose of helping members of their own community who were liable to pay diyat (blood money). the Muslim jurists concluded that insurance is
not Shariah- compliant. The first objection is the presence of the element of chance taken by the company. There is no certainty in the outcome of the
contract. Ambiguity is something that is not acceptable in Islam mainly because any of the two parties will be exposed to injustices. Ambiguity and
uncertainty of this type is called al-Gharar which when present in any contract will cause the contract to be void.

The second objection is the element of al-Maisir or gambling that arises out of the chance phenomenon that exists in the contract. The insured takes
a chance to protect himself from the risk that he is facing. He is quite prepared to lose the premium if the risk does not materialize. But if the risk
materializes, he will get much more than the premium he has paid. This situation of getting something more than what one pays for that is based on
chance is called gambling and is prohibited by Shariah.
The third element is riba or usury that is present in the form of returns from the investment of the insurance fund. Obviously, most of the
investments are placed ininterest-based instruments and hence is prohibited by the Shariah. These are the three main objections raised by the Muslim
jurists which make it necessary for them to formulate models that will be Shariah-compliant.

As for takaful the main principles are as below:

1)Policyholders co-operate among themselves for their common good.
2)Every policyholder pays his subscription to help those that need assistance.
3)Losses are divided and liabilities spread according to the community poolingsystem.
4)Uncertainty is eliminated in respect of subscription and compensation.
5)It does not derive advantage at the cost of others.

There are several models in takaful, as mentioned below: Mudarabah Model, Wakala Model, Wakala-Wakf Mode

As per article titled Fulfillment of Maqasid al-Shariah via Takaful by Abdul Aziz

Takaful provides Shariah alternative to Muslims for wealth protection. Takaful aim at life protection and assist in having smooth circulation of
wealth; instilling social responsibility spirit and facilitating mutual cooperation within society and flourishing ethical dealings.

Takaful is only a tool towards achievement of Maqasid al-Shariah as previously discussed. It helps to protect self, progeny (family), assets, extend
mutual help to ummah, etc.

 Self and Family Protection: Takaful compensation benefits the loved ones whom are left in case of death or support the family in case of
disabled breadwinner. It satisfies the notion of continuity of life of the maqasid. Takaful allows the treatment of critical illness of disable
insured person where the cost of treatment which consists of surgery, hospitalization, medication, post-surgery, etc can be huge.
 Asset Protection: Assets like house and car are necessary to fulfil human basic needs in the current standard of living. The indemnity
principle in Takaful allows for losses to be compensated.
 Mutual Protection: Mutual cooperation and assistance is among the primary underlying objective of Takaful industry. The basic contract
of Takaful is donation for common need among the participants. In Islam, donation is blessed while keeping wealth unnecessarily is cursed.
 Investment, Retirement and Education: current Takaful products do not only provide coverage but may also be utilised as an investment
or savings vehicle. In other words, it assists in wealth creation for the purpose of retirement and child education. Takaful which would
assist in wealth planning and prepare the financial fortress for the retirees. The objectives of investment-linked products can only be
achieved via investment. It should be reminded that Islam encourages business, trade and profit but prohibits riba. Thus, the Takaful
Operator should only have investment portfolio that is free of riba. Next, the sharing of profit between the Takaful fund and the Takaful
 Operator may be done via mudharabah model or giving incentives as performance fee for good investment performance and prudence fund
management. Apart from achieving personal investment objectives that are in accordance to Shariah and sharing the bounty with the
Takaful Operator, it also provides employment to the people and helps to spur the economy.
 Waqf and Charity: Takaful is built upon tabarruat or donation contract for a good cause (i.e. mutual protection). The system works just
like the wakalah model, only the donations (contributions) goes to the waqf fund. It requires initial donation by Takaful Operator to create
the waqf fund. The system works just like the wakalah model, only the donations (contributions) goes to the waqf fund. It requires initial
donation by Takaful Operator to create the waqf fund. The institution of waqf has been used to great advantage in meeting society’s many
socioeconomic needs