Understanding Islamic Finance - Doha Academy of Tertiary Studies

148 Understanding Islamic FinanceMowafaqāt, etc. contain reference to many techniques that people used to make transactionstechnically permissible. 77Joseph Schacht has undertaken extensive work in modern times on the subject of Hiyal.By elucidating types of Hiyal and commenting on works by Shaybani and Khassaf, of theHanafi Fiqh, and Qazwini, a Shafi‘e jurist, Schacht relates a part of Hiyal to casuistrypractices that could mislead the people. Study of a vast literature in this regard would revealthat the legality of Hiyal refers to some procedural devices advising people to be careful inmaking contracts and framing legal statements. The purpose would be to avoid clashes withthe law and not to avoid the law. Accordingly, Hiyal, to the extent that they are acceptable,are precautionary devices and a counterpart of Shariat literature. 78Mahmasani narrates the following bases for the prohibition of Hiyal:“First – the Sharī´ah texts are not aimed at the deeds themselves but rather at the interest whichthose deeds are intended to serve. Therefore, all acts should be interpreted in the light of theirspirit and intent and not by their appearances Second – attempts at bypassing the law aretantamount to deceit, and deceit is prohibited in Sharī´ah as evidenced by the Qur’ān and theSunnah Third – the Prophet, the Companions and the Followers have been quoted in oppositionto legal fictions Ibn Masud and Ibn Abbas, following the example of the Prophet, were reportedto have ruled against acceptance of a gift from the debtor before settlement of the debt, becausethe purpose of a gift under such circumstances was the postponement of payment of the debt anda ruse to legalize interest. Similarly, Muslim jurists, their followers and the doctors of traditionssuch as Imam Bukhari agreed on the prohibition of legal fictions and on the necessity of avoidingthem”. 79According to Mahmasani, ruses or subterfuges are against the Shari’i spirit and are notpermissible. The Shafi‘e, Malikis and Hanbalis have declared the use of Hiyal as haramand totally prohibited, while according to Hanafis, only such Hiyal are permissible as arecompatible with the spirit of the Sharī´ah. An example of a permissible Shari’i Hilah is thata borrower may sell something to a lender at a price which is less than its actual price,or the borrower may purchase something from the lender at a price higher than its actualprice. 80 The purchaser can use the commodity himself or sell it in the market to get cash forother needs. However, this is the practice of real purchase and sale (termed Tawarruq) anddifferent from Bai‘ al ‘Inah that involves buy-back and that has been prohibited by the holyProphet.In Fatāwa Alamgiri (Hanafi Fiqh), a Hilah in terms of which a ruser sells a commodity of$1000 payable after a year and then buys the same commodity for $950 on cash payment,has been declared unlawful due to the involvement of the element of Riba. This practiceis known as Bai‘ al ‘Inah, defined as a double sale involving “buy-back”, by which theborrower and the lender sell and then resell a commodity between them, once for cash andonce for a higher price on credit, with the net result of a loan with interest.Jurists consider ‘Inah a stratagem whose function is to attain illegal ends through legalmeans. Ibn Qudama says: “If a person sells something on credit, it is not permissible to buythat commodity at a price less than the price at which he sold. Similarly, if a person soldsomething for cash and then purchased on credit at higher than the sale price, it would not77 Ali, n.d., 10, p. 355–364.78 Schacht, 1964, pp. 81–84, 205–210.79 Mahmasani, 1961, pp. 124, 125; for detail see pp. 119–126.80 Mahmasani, 1961, p. 122.