NEWHORIZON

Under the Microscope
NEWHORIZON Jamatul Thani - Sha’ban 1434
Islamic Finance and Shari’ah Compliance:
Reality and Expectations
This article is based on a lecture given by Dr Frank Vogel at the London School of
Economics (LSE) on 27 February 2013. The lecture was jointly organised by the
LSE’s Department of Law and the Harvard Islamic Finance Project.
Preamble
The title of this lecture suggests there is some
divergence between Islamic finance and the
requirements of the Shari’ah both in reality
and expectations. Dr Vogel commented that
the reality in this dystopian world will never be
the same as the ideal of the Shari’ah, but that
he would focus in the lecture on expectations.
In particular he set out to address questions
such as are we expecting the industry to
achieve Shari’ah compliance, but in the end
expecting it to do so through means and
instrumentalities that will be inadequate. He
further asked whether, if by focusing on these
instrumentalities, we are neglecting other
means, so that our expectations will inevitably
be disappointed, perhaps to an even greater
extent than would be expected.
He indicated that his own interest in Islamic
finance is as a comparative lawyer specialising
in contemporary applications of Islamic law
and finance as one of the areas in which it is
applied. His own view is that Islamic law is
not just as a set of rules; it is a legal system.
Today Shari’ah is often seen as a set of religious
strictures, dos and don’ts, enjoined on the
faithful, but it needs to be remembered that it
has always been much more. It was a justifying
norm for the day-to-day legal and constitutional
system of myriad states covering much of the
known world for more than a millennium.
Does that history have any lessons for us today
in achieving compliance in Islamic finance?
The Shari’ah
Shari’ah is not just a legal code; it is a divine
template for all of human life for all time,
which includes the economic, financial and
commercial aspects of life, not just in a legal
sense, but also in an ethical sense, as well as
objectives, guidelines and institutions for the
larger economy and society. It addresses not
just individual believers but also groupings of
human beings – communities, societies, states
and the Muslim nation, even humanity at large.
The teachings of Shari’ah on trade, finance
and the economy are profoundly intertwined
with all of its principles and laws for other
aspects of life such as ritual observance,
individual morality, family life, community, law,
constitution and governance.
Shari’ah is often equated with the jurisprudence
of scholars, the fiqh. Over the centuries
Muslim scholars have worked hard to discern
what God’s commands are in relation to human
actions and to produce a set of laws based on
Shari’ah. The product of this collective work
is the fiqh. It is recognised that because fiqh
results from human actions, it is subject to
imperfections and that is evident in the diverse
interpretations of the scholars.
Fiqh
Fiqh emerged from the work of private
scholars; it was not laid down by the state and it
took some centuries for it to be unequivocally
adopted by the state as its law. Until that point
perhaps the state rather than the scholars had
the upper hand in determining what Islamic
law was. Given its origin in the private sphere,
even now fiqh concentrates more on the private
and civil sphere with rules on matters such as
cleanliness, lawful food, marriage and property
rather than the public and collective aspects of
society such as the criminal law and taxation.
On public and collective issues authority tends
to be delegated to decision makers other than
the scholars, usually the ruler or state, as long as
Shari’ah principles are respected. These could
be described as fiqh constitutional principles
and effectively this means there are many
people other than scholars, notably the ruler
and state, responsible for implementing fiqh
principles.
This constitutional delegation is subject to
conditions. One of the most important of
these conditions concerns the state, siyasa al-
Shari’ah, meaning governance according to the
Shari’ah. This delegates authority to those in
charge of public functions to act in their own
discretion subject to two main conditions that
actions should be in the interests of general
welfare and that they should not offend the
general rules and principles of Shari’ah. The
The teachings of Shari’ah on trade,
finance and the economy are profoundly
intertwined with all of its principles and
laws for other aspects of life such as ritual
observance, individual morality,
family life, community, law,
constitution and governance
40 IIBI
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