1.1
Religious Foundations of
Islamic Finance
Roderick Millar
Introduction
Islamic finance and banking products and instruments set out to achieve
the same business goals as conventional financial products and instruments,
but within the constraints of Islamic rulings. The Islamic rulings have been
laid down from various sources which we examine below. Their intent is to
create a just and socially inclusive system across the broad spectrum of
society – and this clearly includes the financial and business elements
therein. While neither money nor wealth is,per se, disapproved of, Islam
teaches that money must be used in a productive manner and the rewards
of wealth should be derived from profit-and-loss sharing arrangements that
imply risk-sharing.
These Islamic rulings are codified in Islamic law, or Shari’a. The literal
meaning of Shari’a is “way” or “path to the water source”; technically, it
refers to the laws contained in or derived from The Qur’an and Sunnah of
the Prophet Muhammad and embodies all aspects of Islamic faith including
beliefs and practices. In order to understand how Shari’a law operates it is
necessary to have basic knowledge of the structure of Islam, and some of the
main concepts and terms involved.
Primary sources of Shari’a
Shari’a, though understood narrowly by some as Islamic law, is in reality a
complete and comprehensive code of behaviour, governing the moral, ethical,
spiritual, social as well as legal dimensions of a Muslim’s private and public
dealings.
Shari’a rulings are taken from the Quran−the main Islamic text−and
agreed by all Muslims as being both the original words of Allah (God) as
revealed to the Prophet Mohammed and infallible. Shari’a is also based
upon theSunnah, the traditions and practices of the Prophet Mohammed.
Hadith is the record of the Sunnah. The name of the main Islamic
denomination,Sunni, is derived from the wordSunnah, which comprises
nearly 85 per cent of Muslims worldwide and has four schools of thought:
