Maqāsid al-Sharī'ah in Islamic Finance: Applications and Challenges

Abstract

Islamic finance has shown a tremendous growth in the last two decades particularly after Global Financial Crisis (2007-2009). Islamic finance has been proposed as an alternative to the conventional financial system as it is believed to have the ability to address issues associated with the existingsystem. As it is based on the divine principles of Sharī‘ah, the advocates propagate it not something just for Muslims but for the entire humanity. However, the current practices of Islamic finance, especially Islamic banks, are criticized on the grounds that the offered products merely comply with the legal requirements of Islamic law and fail to fulfill the main objectives of Islamic finance.This paper revisits the debate on the objectives of Sharī‘ah (Maqāsid al-Sharī‘ah). More precisely, this paper attempts to discuss the philosophical foundations of Maqāsid al-Sharī‘ah under Islamic law and explain their potential contribution towards the equitable financial system. The paper also highlights some of the reasons behind the negligence of Maqāsid al-Sharī‘ah in prevailing Islamic finance. The study concludes that only the fulfillment of legal requirements and reliance on replicating conventional debt-based instruments would lead to Islamic finance nowhere. More importantly, Islamic financial system would not be able to succeed unless the ethical values and objectives of Sharī‘ah are adhered to. The paper adds value in the existing literature by presenting new insights and an integrated analysis of the current Islamic financial practices and by proposing various suggestions to take the industry towards the fulfillment of Maqāsid al-Sharī‘ah.