Mitigating Shariah Risk Through Ḥiyal (Legal Stratagems): A Classical and Effective Technique- A Literature Review

Abstract

Ḥiyal (legal stratagems) means to find an unconventional way to meet an end in a complicated Shari’ah issue. It has a wide application in today’s versatile cutting-edge Shari’ah matters to avoid the Sharī’ah non-compliance risk. It is the risk of financial damages suffered by IFIs as a result of non-compliance with Sharī’ah principles in their operations. These stratagems should comply with the Maqasid-e-Shari’ah to remain legal. The research objective of this study is to explore the application of Ḥiyal (legal stratagems) in Islamic financial institutions in mitigating and managing Sharī’ah non-compliance risk. The study uses the content analysis method to achieve its objective. The study finds that Islamic finance scholars have developed the Ḥiyal theory that is well applied as a solution to manage this special kind of risk. Keeping these Hiyal within the limits of Sharī’ah is a real challenge. That is why the application is criticized by other jurists for advising such relaxed Ḥiyal. Several cases from classical jurists’ scriptures as well as from AAOIFI standards are discussed and analyzed to assess how this technique is useful in managing the Sharī’ah non-compliance risk.