Islamic Finance

4 Background to Islamic Finance

1. Hanifi;


2. Maliki;


3. Sha’afi; and


4. Hanbali.

The other denomination isShia,which follows theJafiriSchool of thought.

However, all Muslims irrespective of whether they areSunniorShia, agree

on the Quran andSunnahand therefore, these are considered as the primary

sources for Shari’a.

Secondary sources of Shari’a

Where the analysis of legal issues is not covered precisely in the Quran and

theHadith, the following secondary sources are the basis of particular

rulings:

• Ijma(consensus of scholars ona particular issue);


• Qiyas(analogical deduction from rulings already derived from the Quran,
  Sunnahandijma);


• Ijtihad(rational independent deduction by qualified Islamic scholars);
  and


• Urf(common practice and custom).

The different denominations may not agree on the applicability of all

these sources, and the different schools within these denominations may

interpret an issue differently based upon these sources, and it is from these

differences that disparities in opinion occur whenconsidering Islamic

financial products.

Generally,Sunnisgive greater importance toijmathan theShiasdo.

Mohammed Hasim Kamali, professor of law at theInternational Islamic

University of Malaysia, states in his book “Principles of Islamic Jurispru-

dence”:

It must be noted ... that unlike theQuranandSunnah,ijma

does not directly partake of divine revelation. As a doctrine and

proof of Shari’a,ijmais basically a rational proof. The theory of

ijmais also clear on the point that it is a binding proof.

Qiyasis the next source of Shari’a and is widely accepted bySunni

Muslims, but not accepted byShia.Qiyasis where an existing ruling is

extrapolated to a connected (but not explicitly mentioned) action. TheShia

rather look toaql, or intellectual reasoning, in place of analogy (see next

paragraph onijtihad). While the results ofqiyasandaqlmaybe similar, it is

the jurisprudential explanation and its process that causes the debate and