Features of TajdÊd (Renewal) in the Fiqh of Contemporary Financial

Transactions

Concept – Principles – Areas of Application

The Sixth Conference of SharÊÑah Boards

Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

The Kingdom of Bahrain

by

Dr. RiyÉÌ ManÎËr al-KhalÊfÊ

PhD. in Principles of SharÊÑah Supervision of Islamic Banks and Financial Institutions

M.A. in Islamic Jurisprudence (UsËl al-Fiqh) from the Faculty of DÉr al-ÑUlËm, Cairo University

B.A. in SharÊÑah from ImÉm MuÍammad bin SaÑËd Islamic University, Riyadh

Diploma in Finance and Conventional Banking from Newcastle College

General Director of the Office for International SharÊÑah Advisory and External SharÊÑah
Auditing, in the State of Kuwait
 ‫باسم اهلل الرمحن الرحيم‬

INTRODCUTION

The Islamic SharÊÑah is the last divine message. It is the religion completed by Allah, and He has
chosen it for all mankind. And the one who brought the SharÊÑah, Prophet MuÍammad (peace be
upon him), is the seal of the prophets and messengers. That is why there was a need for this final
message to be distinguished by certain characteristics, such as inclusiveness, continuity and
relevance to every era while remaining anchored by precise constants. This makes it applicable
and able to encompass developments in the various fields of life in ever-changing times and
circumstances. No event will occur to any follower of the religion of Allah for which there is no
guidance in the Book of Allah and the Sunnah of His noble Messenger.

The fiqh of financial transactions, being a specialized area of Islamic fiqh, does not go beyond
the SharÊÑah principles to derive its rulings. However, it is true that the stagnation which beset
the fiqh of financial transactions for a period of many centuries left it divorced from current
realities in many of its aspects and applications. A contemporary jurist faces many problems
when he refers to the sources of Islamic fiqh, as he doesn’t find ready answers in them for
puzzling new issues and complex composite transactions. This situation calls for contemporary
jurists to strive to develop a contemporary fiqh of financial transactions based on the principles
of deduction in the SharÊÑah. At the same time, the decisions and paths of development of this
new fiqh should take into account the givens of the current situation. It would thus combine
authenticity and modernity.

Modern jurists have achieved great success in guiding and rectifying contemporary financial
transactions, starting with the activities of banks, financial and investment institutions of various
types, and insurance companies. That has invigorated confidence in the soundness of the
SharÊÑah and its ability to deal with the ongoing developments of modern financial transactions
with practicality and high efficiency. Even many conventional (ribÉ-based) financial institutions
have taken into consideration and applied some of the provisions and objectives of Islamic law in
modern financial transactions. This is in addition to the steady growth and remarkable expansion
in the number of Islamic financial institutions and their working capital, which indicates the
awakening of a comprehensive Islamic economics.
The rapid transformation towards adopting the principles and forms of Islamic economics and
the fiqh of financial transactions at both the local and global levels requires of modern jurists
activation and revitalization of the tools of Islamic fiqh. This is in order to effectively
accommodate rapid development in various sectors of Islamic finance, such as banking, finance,
investment, insurance, and the stock market.

This short paper titled “Features of TajdÊd (Renewal) in the Fiqh of Contemporary Financial
Transactions: Concept, Principles and Areas of Application” undertakes an examination of a key
aspect of the requirements of renewal in the modern fiqh of finance. The paper deals in depth
with the meaning and the concept of the term tajdÊd and the necessary parameters for its
application, and also identifies the major areas of the fiqh of modern financial transactions that
can be renewed. The research was conducted by studying traditional fiqh related to financial
transactions along with my practical experience in the field of modern financial fiqh.

I ask the Almighty to guide all towards the path He wishes and pleases.

And all praise be to Allah, the Lord of the Universe.

 1. THE CONCEPT OF TAJDÔD

1.1 The Linguistic Meaning of TajdÊd

TajdÊd is the verbal noun (maÎdar) of jaddada/yujaddidu [a Form II derivation of the trilateral
root J-D-D. The Form VI derivation] tajaddada means ‘to become new’, while forms II
(jaddada) and IV (ajadda) mean ‘to make something new’. [Form X] (istajadda) [can be either
reflexive] or transitive. Ibn FarÊs has given three meaning of the root J-D-D: 1) greatness, 2) luck
and fortune, and 3) cut.

According to Ibn FarÊs, the Arabs initially used the phrase thawb jadÊd (a new garment)
according to the third meaning: as if the weaver has just cut it. This was the original usage. Then
the word came into use for anything new. That is why the Arabs call the day and night jadÊdayn
and ajaddayn; because each of them is new every day.1

From the above linguistic meanings, we can derive the following results:

First: tajdÊd (the process of renovation) may be self-actuated or may be accomplished by an

outside actor.

Second: tajdÊd is a transformative process of a repetitive and ongoing nature. Moreover, it is an

interactive process that has a positive effect on the object being renewed.

Third: tajdÊd preserves the original nature of a thing and returns it to its state at the time of its
first appearance. Hence, we can understand why the Arabs use the word jadÊd for the face of
earth.

Fourth: one of the meanings of tajdÊd is to severe a thing from its root in order to add something
new and useful.

Fifth: tajdÊd includes the meaning of rectitude and uprightness. Arabs say: “Whoever walks the
straight path (al-jadad) will be secure from stumbling.”

1
MuÑjam MaqÉyÊs al-Lugah, 1:406-409.
 1.2 The Technical Meaning of TajdÊd

The term tajdÊd is derived from the SharÊÑah texts. The Prophet (peace be upon him) said, “Every
hundred years Allah will send those who will renew the religion of this Ummah.”2

The term, thus, has a religious basis; however, what is required in our academic work is to
pinpoint the meaning and the definition of the term.

In fact, it is not easy to formulate a precise and inclusive definition of the term tajdÊd. It is
difficult because it requires accurately comprehending the true nature of the term and precisely
understanding the linguistic, religious and conventional background of the term. This is in order
to encompass the meanings and connotations of the term over time in different circumstances.

It is very likely that a negative conception of tajdÊd (one without parameters) will have a
negative impact on the thing that is being renewed. This is a risk which should be taken into
account, and great caution should be taken not to fall into it. As long as our work on the technical
term tajdÊd is carried out within the parameters of SharÊÑah principles and an understanding of its
rulings and objectives, we are obliged to adopt the same foundations and principles of the
SharÊÑah in order to define the concept of tajdÊd and to outline its limits and regulations.

TajdÊd, in fact, is a kind of commendable ijtihÉd, which must adhere to the principles of
deduction and the rules of ijtihÉd in the SharÊÑah. Otherwise, it will turn into making up lies
against the SharÊÑah and speaking in God’s name without knowledge. In accordance with what
was just mentioned, we can define the term tajdÊd within the framework of the SharÊÑah as
“disseminating, implementing and utilizing the SharÊÑah, and clearing it of what has been added
to it”. The definition comprises many meanings, all of which fall under the concept of tajdÊd.
Some of them are as follows:

First: Sincere well-wishing in its broad sense, which includes to Allah, His Book and Messenger,
to the leaders of Muslims and the Muslim masses.3

2
Sunan AbË DÉwËd, 4:178, no. 4293; al-×Ékim, al-Mustadrak, 4:567, no. 8592; al-ÙabarÉnÊ, al-MuÑjam al-AwsaÏ,
6:324; al-BayhaqÊ, MaÑrifat al-Sunan wa al-ÓthÉr, 1:121, no. 98; all in al-Maktabah al-ShÉmilah, version 3.28.
3
Ibn Qayyim al-Jawziyyah. IÑlÉm al-MuwaqqiÑÊn Ñan Rabb al-ÑÓlamÊn, 3:478.
Second: The concept of Islamic education and calling for good, which includes enjoining right
and forbidding wrong. It is mentioned in the book ÑAwn al-MaÑbËd, explaining the phrase “who
will renew the religion of this ummah”: “i.e., he will clarify the difference between the Sunnah
and innovation (bidÑah), spread knowledge and support the people of knowledge, and defeat the
people of innovation and humiliate them”.4

Third: The concept of working to save the SharÊÑah from marginalization and save its features
and laws from being effaced. Ibn Taymiyyah said, regarding the relevance of tajdÊd to the
alienation of Islam:

Islam began as something strange, but it kept growing until it spread throughout the
world. Like that, Islam becomes strange in many times and places, then again
spreads by the will of Allah the Almighty. When ÑUmar b. ÑAbdul ÑAzÊz came to
power, many aspects of Islam had already vanished for many people. There were
many who had forgotten that drinking is prohibited. Allah used him to restore many
things in Islam which had become strange. The ÍadÊth says “Every hundred years
Allah will send for this Ummah those who will renew its religion for it.” Renewal is
only needed when something has been effaced, and this is the alienation of Islam.5

Contemplation of the concept of tajdÊd from a fiqh point of view reveals that tajdÊd revolves
around the following essential themes:

First: tajdÊd, meaning to disseminate and renew:

TajdÊd in this sense applies exclusively to reviving the practices of the Qur’Én and Sunnah that
have disappeared, to spread them and make them known. This encompasses all aspects of the
strangeness of Islam referred to in the hadÊth: “Islam began strange and will return strange as it
began, so ÏËbÉ (blessedness) is for the strangers”.6 Being considered strange may occur to certain
parts of the SharÊÑah or in certain locations.7

Second: TajdÊd, meaning to add and enrich:

4
ÑAwn al-MaÑbËd, 11:385.
5
MajmËÑ al-FatÉwÉ, 18:291.
6
ØaÍÊÍ Muslim, 1:90, no. 389; Musnad AÍmad, 4:73, no. 16736, in al-Maktabah al-ShÉmilah, version 3.28.
7
Ibn Taymiyyah, MajmËÑ al-fatÉwÉ, 18:291; Cf., Ibn al-Qayyim, IÑlÉm al-MuwaqqiÑÊn, 2:478.
What is meant by tajdÊd here is to add to and enrich the thing that is being renewed, by
elaborating upon and explaining it. This is in order to bring it in a situation which is more
suitable and useful for its time and place.

Third: TajdÊd, meaning to trim and delete:

What is meant by tajdÊd here is to review the subject of the renewal and to delete what has been
added to it which is not part of it. This is in order to bring it back to its original, more
appropriate, status.

2. THE PARAMETERS OF TAJDÔD

Since tajdÊd is a kind of ijtÊhad, it is necessary to consider the parameters of ijtÊhad. The
parameters for tajdÊd can be divided, according to its basic provisions, as follows:

2.1 Parameters of TajdÊd with Regard to the Person Who Is Going to Do It (Qualifications
for TajdÊd):

Although we recognize the need for tajdÊd in Islamic sciences in general and in the fiqh of
financial transactions in particular, the qualification for those who are to do this job should be
taken into account. This is because it is not a job for laymen or those who give legal opinions
carelessly and violate the sanctity of the SharÊÑah by their ignorance and lack of understanding
and, perhaps, lack of piety and fear of God.

The necessary conditions for a mujaddid (one who undertakes the job of tajdÊd) can be derived
from the extensive study conducted by the scholars of Islamic legal theory (uÎËl al-fiqh)
regarding the qualifications of a mujtahid. Additional information can be found in jurists’ study
of the qualifications required of a judge and a muÍtasib (inspector) discussed in the books of
jurisprudence, legal proceedings, Íisbah (inspection) and Islamic politics.

In brief, we can outline the conditions for a mujtahid, as discussed in the books of uÎËl al-fiqh, as
follows:
 1- Knowledge of the verses of the Qur’Én containing legal rulings (aÍkÉm)

2- Knowledge of the hadÊths with legal implications

3- Knowledge of the abrogating and abrogated texts of the Qur’Én and Sunnah

4- Knowledge of issues of consensus and where they can be found

5- Knowledge of the different methods of analogy (qiyÉs), its necessary conditions, the ratio
legis (Ñillal) of laws and the methods for deriving them from texts, as well as an
understanding of public interest and the general principles of the SharÊÑah.

6- Understanding the various disciplines of the Arabic language, especially syntax,

morphology, lexicology and rhetoric.

7- Knowledge of the principles of jurisprudence (uÎËl al-fÊqh).

8- Understanding the general objectives of the SharÊÑah.

According to al-ZarkashÊ, general, not comprehensive, understanding of all these disciplines is

what is required. Even the Companions of the Prophet (pbuh), who are examples and leaders for
us, didn’t comprehend them in their totality. Many of them were not aware of the evidence for
legal rulings and needed others’ help to know that.8

The abovementioned conditions are exclusive to the mujtahid. However, we want to emphasize
the need to have the qualifications to conduct tajdÊd in any field accordingly, whether it is in
education, or preaching, or enjoining right and forbidding wrong, or giving legal opinions and
explaining the SharÊÑah and clearing it of accretions that are not part of it. In short, tajdÊd is a
process which requires particular qualifications, according to its specific fields.

The general principle regarding the qualifications of a mujaddid is to know the required sciences
and the helpful technical tools whenever needed. This is according to the usËlÊ principle
“Whatsoever is needed to fulfill an obligation becomes obligatory”. Similarly, the legal maxim,
“Means take the rulings of the objectives [they serve]”. The Fiqh Academy of the Muslim World
League issued a decree on that, saying:

8
Al-ZarkashÊ, al-BaÍr al-MuÍÊÏ, 6:203-204.
 All modern means discovered by humans, by the help of knowledge bestowed by
Allah and resources given by Him, should be utilized to the extent that they serve
and achieve the requirements of the SharÊÑah. This is if they serve any SharÊÑah
purpose or requirement of Islam or achieve something that is not possible without
them. This is in accord with the famous usËlÊ principle that “what is required to
fulfill an obligation becomes obligatory”.9

2.2 The Parameters of TajdÊd with Regard to the Process of TajdÊd Itself

Parameters in this regard can be divided into two: inclusive standards for tajdÊd in general and
exclusive standards for tajdÊd in the fiqh of financial transactions in particular. The explanation is
as follows:

2.2.1 Standards for TajdÊd of the SharÊÑah in General

1- It should be conducted only by those who are qualified in the particular field (the
eligibility of the mujaddid).

2- It should not depart from the path of the SharÊÑah by contradicting any of its texts,
objectives and unchangeable rules.

3- The mujaddid should be committed to the proper usËlÊ and deductive methodology for
that particular domain.

2.2.2 Standards for TajdÊd in the Fiqh of Financial Transactions in Particular

We can summarize the standards for tajdÊd related to financial transactions as maintenance of the
established constants of SharÊÑah, both its principles and the agreed-upon implementations.
Particular stress should be placed on avoiding contradiction of the SharÊÑah prohibitions
established by clear texts, e.g., with regard to interest, gambling, fraud and ambiguity (gharar).

9
See: Majallat MajmaÑ al-Fiqh al-IslÉmÊ, issue no. 5, vol. 3, 1409/1988, p. 2461.
From all the previous parameters and based on the fact that tajdÊd is a kind of ijtihÉd, we come to
the issue of whether tajdÊd can be compartmentalized. This is a matter of great important, similar
to the issue discussed in uÎËl al-fiqh as to whether ijtihÉd can be compartmentalized.10 The truth
regarding this issue is that the tajdÊd is a kind of ijtihÉd, which can be split and divided according
to its theme and elements. There may be more than one mujaddid in the same era, whether they
all deal with a single issue or more than one.

3: AREAS OF TAJDÔD IN THE FIQH OF CONTEMPORARY FINANCIAL

TRANSACTIONS

Based on what we have discussed of the possibility of dividing tajdÊd, it is applicable to many
areas and issues related to the Islamic SharÊÑah. I have attempted to exhaustively survey the areas
in need of tajdÊd particular to the fiqh of financial transactions. I have arrived at the following ten
areas:

I: TajdÊd in the methodological premises for Islamic rulings on financial transactions

II: TajdÊd in the methodology of issuing rulings for financial transactions (a methodology of
parameters)

III: TajdÊd in making contemporary fiqh terms precise by distinguishing them from other
similar terms and from overlapping with one another

IV: TajdÊd to distinguish the domain of financial transactions from other domains of
Islamic Law

V: TajdÊd regarding the impact of contemporary Ñurf (custom) on SharÊÑah rulings for
contracts and financial transactions

VI: TajdÊd regarding the impact of the higher objectives of the SharÊÑah on contemporary
financial transactions

10
Editor’s note: This refers to the question: Is it possible for a person to be qualified to make ijtÊhÉd in certain areas
of fiqh while being unqualified in others; or must a mujtahid be qualified in all areas of fiqh?
VII: TajdÊd regarding the impact of Islamic legal maxims (al-qawÉÑid al-fiqhiyyah) on
financial transactions

VIII: TajdÊd in terms of juristic codification of financial transactions and contemporary

banking

IX: TajdÊd with regard to drafting financial transactions in contemporary legal language

X: TajdÊd in laying the foundations and procedures for practical repentance from interest
dealings and all other violations of Islamic law

I: TajdÊd in Methodological Premises for Islamic Rulings on Financial Transactions

What we mean by premises here is principles and sources that should be considered elements of
an exemplary methodology for the fiqh of contemporary financial transactions. In summary,
these principles and methodological premises are as follows:

The First Principle: Due Consideration of SharÊÑah Texts

A jurist should take into account the SharÊÑah texts related to the current financial transactions.
This is by applying them in order to answer the new issues, which should be done in accord with
the usËlÊ principles for inference and deduction. This is because the SharÊÑah texts are the main
source of SharÊÑah rulings for all times and places. Hence a mujtahid must rely upon them for all
time and not ignore a specific text except in a case where its implementation leads to undue
hardship. This is a living tradition agreed upon among the pious predecessors and the great
scholars of the Ummah. It is by an accurate understanding of these texts and their meanings that
the statement of Almighty Allah is realized: “We have neglected nothing in the Book” (6:38) and
“We have sent down to you the Book as an exposition of everything” (16:89), and other similar
statements. That makes manifest the perfection and the miraculous nature of the SharÊÑah.

The failure to consider the texts or a lack of rigor in collecting, analyzing and deriving rules from
them would definitely lead to the infraction of SharÊÑah rules for financial transactions, which
will result in corruption in both religion and the world, according to the extent of the
shortcoming. On the other hand, consideration of the SharÊÑah texts in the best manner will lead
to finding the truth and acquiring religious and worldly benefits as a result. The Prophet (peace
be upon him) said, “I left two things with you; you will not go astray as long as you hold onto
them firmly: the Book of Allah and my Sunnah.”11 Al-ZarkashÊ said, regarding the ÍadÊth, “A
jurist with good aptitude should study the wordings of the two revelations, the Qur’Én and the
Sunnah, and derive meanings from them. Whosoever makes that his constant practice will find it
full [of benefit]. He will find himself before an unending ocean.”

Consideration of SharÊÑah texts and understanding of them are only possible by achieving two
types of understanding: understanding the intent of the text and understanding the context of the
text. We will discuss this in detail in the tajdÊd of the fiqh of financial transactions.

Second Principle: Consideration of the Rules and the Tools of Deduction

The optimum utilization of texts is only possible if it is based upon the rules and the principles of
deduction established by the scholars of uÎËl al-fiqh. As for financial transactions and their
rulings, a mujtahid should have good experience and solid understanding (practically or
potentially) of how to apply the principles of jurisprudence to the SharÊÑah texts in order to
derive SharÊÑah rulings from them. It is said,

The guidelines used to derive these rulings are called uÎËl al-fiqh. It is known that
the detailed rules are derived from the principles. Thus if someone doesn‟t
understand the nature of the deductive process and the way that detailed rulings are
linked to their evidence, i.e. uÎËl al-fiqh, he is not at all eligible to derive the rulings.
This is because the subsidiary issues, even though they are wide ranging and
multidimensional, follow the known principles and established conventions. And
those who are not aware of these principles cannot understand them properly.

11
Al-BayhaqÊ, al-Sunan al-KubrÉ, 10:114, no. 20124; al-DÉraquÏnÊ, al-Sunan, 4:245, no. 149; in al-Maktabah al-
ShÉmilah, version 3.28.
The rules and the regulations of deduction can be ascribed to three main divisions, all of which
are related to fiqh. These are: usËl al-fÊqh principles of jurisprudence, qawÉÑid fiqhiyyah (Islamic
legal maxims) and maqÉÎid al-SharÊÑah (higher objectives of the SharÊÑah).

Thus, if any kind of ijtihÉd intends to derive the rulings from the texts but disregards one of these
three sciences, it would definitely be judged a flawed methodology, lacking credibility, even if
the practitioner happens to arrive at a correct decision.

Al-ZarkashÊ said: “A mujtahid must know most of the SharÊÑah evidence, should have the ability
to derive rulings from the various types [of evidence], and be aware of their levels and realities,
i.e. to know which classes of evidence take precedence over others. Imam al-ShÉfÊ summarized
all these conditions in a short and comprehensive statement: „Whosoever knows the Book of
Allah, the text as well as the method of deriving rulings from it, deserves leadership in the
religion‟.”

Ibn Taymiyyah said: “Benefit and harm should be weighed upon the scale of the SharÊÑah. As
long as a person is able to follow the texts, he is not allowed to abandon them. If there is no
[specific text on a case], he can use legal reasoning to know similar and parallel [cases]. A
person with a comprehensive understanding of the texts and their legal implications will rarely
need [any other legal tool].”

Third Principle: Consideration of the Fiqh Heritage

The depth and authenticity of our fiqh heritage contains many aspects of exemplary methodology
for applying SharÊÑah texts to new issues and events that confronted the early jurists in their eras.
The methodology of our past jurists, in general, reveals their tremendous respect for the SharÊÑah
texts as manifested in their efforts to collect them, verify them and derive rulings from them in
accord with the rules and principles of deduction. This includes the works of leading scholars
who gathered the verses of the Qur’Én and the traditions of the Prophet (peace be upon him) with
legal implications and commented upon them. That is in addition to all the fiqh works produced
by the different schools. Some scholars developed a special genre of legal literature in which
they sought to reveal the depth of the methodology used by the early jurists. These are the works
known as takhrÊj al-furËÑ ÑalÉ al-uÎËl (extracting detailed legal rulings from the fundamental
principles). Their method in these books was to mention a principle of jurisprudence―or
sometimes a legal maxim―then show the way that detailed rulings were based upon it. Some of
these works compare more than one juristic school, as al-ZinjÉnÊ did in his book TakhrÊj al-FurËÑ
ÑalÉ al-UÎËl and as SharÊf al-TilmisÉnÊ did in MiftÉh al-UsËl, while some authors worked within
the framework of a specific juristic school. This is what the ShÉfiÑÊ scholar al-IsnawÊ did in al-
TamhÊd.

Since we are discussing the importance to the fiqh of contemporary financial transactions of
knowing the methods of past scholars, it is timely to discuss the controversy among scholars of
uÎËl al-fiqh as to whether a mujtahid is required to have extensive knowledge of detailed fiqh
rulings. Scholars have two different opinions on the issue; a few of them affirm this as a
condition for a mujtahid. That was attributed to AbË IsÍÉq and AbË ManÎËr. However, the
majority do not consider it a condition. However, there is an intermediate opinion, developed
from a thorough review of the earlier arguments, which interprets the opinion of those who
affirm the condition as meaning it is necessary to have experience and proficiency in fiqh, not to
have encyclopedic familiarity with earlier juristic opinions on detailed issues. The latter would
demand something beyond human capacity, which is forbidden in the SharÊÑah. On the other
hand, those who reject the condition affirm the importance to a mujtahid of knowing the rulings
for detailed issues, especially in developing experience in deduction and honing juristic
proficiency. The stand of al-GhazÉlÊ, a jurist and usËlÊ, supports our opinion. He said, after
having rejected the condition that a mujtahid must know detailed fiqh rulings: “True, the position
of ijtihÉd in our time can only be achieved by practicing it. This is the way to gain proficiency in
this era.” Similarly, al-ÙËfÊ also rejects the condition; however, he affirms the importance of
knowing the ijtihÉd (legal arguments) of earlier jurists and describes the benefits of quoting and
compiling the different opinions of a single scholar on the same issue:

Based upon a certain recurring principle, these opinions shouldn’t have been
compiled. That would be closer to the way the SharÊÑah regulates because, if
something is not practiced, there is no need for it; hence, compiling them would be
no more than a cause for fatigue. However, they have been compiled for a different
reason. That is to highlight the sources of rulings and different perceptions and
opinions and to show that these opinions are the result of the endeavors of a mujtahid
at a given time. This helps approach the level of absolute or limited ijtihÉd. If a
latecomer looks at the sources and means by which earlier scholars arrived at rulings,
 he can extract many benefits from the study and comparison. He may find some
opinions weightier, and that is an important achievement. These are the benefits of
compiling the opinions of past scholars.

The general statements of scholars in this regard should be understood within this framework;
among them: “Knowledge is the understanding of different opinions,” and QatÉdah‟s statement:
“One who is not aware of differences knows nothing of fiqh.” When ImÉm AÍmad was asked
whether it is a condition that a muftÊ know the opinions of earlier scholars, he replied, “He who
gives fatwÉ should be aware of the opinions of those who preceded him; otherwise, he should not
give fatwÉ.”

Accordingly, a contemporary mujaddid is obliged to know the juristic heritage from the different
schools, for these works are brimming with practical applications of deductions from the
SharÊÑah texts to derive rulings for the financial transactions of their eras. Studying them is a
practical training for the mujaddids and mujtahids of later eras. That is because what is required
to fulfill an obligation becomes obligatory as well.

Fourth Principle: Consideration of the Nature of the Issue

One of the duties of the mujtahid in the field of the contemporary financial transactions is to be
sure about the true nature and conditions of the transaction, especially when it is ambiguous and
confusing as to its real form. In fact, passing judgment on any matter is based upon first
understanding it. If a muftÊ delivers a verdict on a financial transaction without having proper
understanding of how it actually works, his methodology would be considered flawed and his
method of deducing the ruling would be mistaken, even if he happens to arrive at the correct
answer.

The abovementioned condition requires that the mujtahid have an understanding of the technical
terms people use, the nature of their contracts, their stipulations, business language and
customary practices. He should get detailed information about the qualifications and
particularities of the matter at hand and avoid general rulings. He should be vigilant about the
ways people obscure matters in order to get an answer in line with their own desires.
These are Ibn al-Qayyim‟s words. I quote them in full due to their value:

Detailed information is needed if the question contains ambiguities. MuftÊs frequently

make mistakes in this regard. The questions they receive about issues come in very
different forms. If a muftÊ is not of penetrating intellect, he will go astray and lead
others astray. Sometimes he is presented with two issues that are apparently the
same, but they have different rulings. The outer form of the valid and permissible is
the same as the form of the invalid and prohibited; however, the reality is different,
but the muftÊ lets the form distract him from the reality. Consequently, he gives the
same ruling to two different issues, whereas Allah and his Messenger (peace be upon
him) differentiated between them. On the other hand, he is sometimes presented with
two issues having different outer forms but having the same reality and which,
therefore, should receive the same ruling. However, the differences in form cause
him to overlook the underlying unity of essence; thus he differentiates between what
Allah has joined. Sometimes he is presented with an issue in a summary form, but it
has different permutations when considered in detail. He overlooks the variety
contained in the question, focusing upon only one of the alternatives, and gives the
wrong answer. Sometimes a deceptive issue is presented in alluring packaging and
fine words, and the muftÊ hastens to approve it, whereas it is the worst kind of
falsehood. Sometimes the opposite occurs. Alas, the majority of people do not look
beyond outer forms to perceive realities. They are the prisoners of words who have
bound themselves to phrasings. Glory be to Allah! How many times has the truth
been invalidated and falsehood approved by such methods! The majority of people
are content with outer forms, whether it is in speech, dresses or actions.

II: TajdÊd in the Methodology of Ruling upon Financial Transactions (Systematic

Parameters).

A researcher in the fiqh of financial transactions according to the sources of Islamic fiqh notices
an undeclared methodology in the process of arriving at a ruling for a financial transaction. In
fact, the researcher will notice two distinct approaches, as follows:

The first approach: One finds certain distinct titles for the names of the major contracts, such as
sale, lease, salam, istiÎnÉÑ and partnership, with all its different types, like muÌÉrabah,
muzÉraÑah, musÉqÉh, etc. This is in addition to discussions of ribÉ and its related issues. This
contractual methodology is the original methodology of the classical reference works in Islamic
fiqh.
The second approach: a set of non-explicit parameters for constructing legal arguments which
keep recurring in legal arguments and are used by jurists to arrive at rulings for financial
transactions. A survey of the literature allows us to summarize these rules as follows:

i- Rule: The starting assumption for financial transactions is that they are valid and
permissible.

ii- The rule on ribÉ

iii- The rule on uncertainty (gharar) and ignorance (jahÉlah)

iv- The rule on gambling

v- The rule on fraud, cheating, deception and injustice

vi- The rule [that a given ruling] will lead to abandoning an obligation or committing a
prohibited act; i.e., rules established by a text directly or by its indication

The importance of this methodology is manifest in organizing the process by which a

mujtahid or a muftÊ gives rulings for contemporary financial transactions. According to this
methodology, the starting presumption for financial transactions is validity and
permissibility, which is the opinion of the majority of jurists. The duty of a mujtahid is to
then check to make sure that none of the reasons for prohibition mentioned above is present
in a given transaction. If he finds such a cause, he should judge accordingly, to either prohibit
it outright or declare it disliked (makrËh).

The truth is that the methodology of parameters is the one to be followed. It should be given
due attention and promoted and disseminated among those engaged in delivering legal
rulings. This is one of the tasks of tajdÊd in the fiqh of contemporary financial transactions,
especially for the fiqh councils and the SharÊÑah supervisory boards of Islamic financial
institutions.
III: TajdÊd in Making Contemporary Fiqh Terminology Precise by Distinguishing between
Similar Terms and Removing Overlapping Usages and Ambiguities

The nature of financial transactions and contracts is that they continue to change and develop. As
a result, we see multiple terminologies emerging and being generated on an ongoing basis,
according to different times, places and situations. This state of affairs has created a phenomenon
of the same terminology being used for different meaning, which has led to changes in prevalent
custom from one situation to another.

Some examples are:

1- Juristic contractual terms are being used for current financial transactions in ways
completely different from their juristic meanings. Among the terms affected in this way
are: muÌÉrabah, ÍiwÉlah and wadÊÑah. These terms have their own meanings in Islamic
law, which are different from the way they are being used at the present time. Here is an
explanation:

a. MuÌÉrabah is used in Islamic law for one of the famous contracts of partnership. In
this contract, one party provides the capital and the other provides the entrepreneurial
labor. The one who provides the capital is the rabb al-mÉl, and the one who provides the
entrepreneurial labor is the muÌÉrib. They share the profit between them according to the
terms they have agreed upon.

On the other hand, we see the term muÌÉrabah currently being used for trading in
contemporary financial markets by selling and purchasing securities on the basis of
ambiguity, risk and falsehood. The juristic form of this contract is valid whereas the
contemporary form is prohibited.

b. ×iwÉlah is used in Islamic law for the transfer of liability from a debtor to another
person who will pay the debt on his behalf. However, ÍiwÉlah is used in modern times
for the transfer of money from one place to another for a fixed price, which is, in fact, a
form of agency for payment.

c. WadÊÑah is used in Islamic law for wealth deposited for safekeeping with a trustworthy
person, who is not authorized to use it without the owner‟s permission. But now it is
 being used for the deposits saved in banks with the condition that the banks are
completely authorized to use them. From a secular legal perspective, bank deposits are
loans upon which interest is due.

Hence, we can see the difference between the concept of wadÊÑah in Islamic law and
contemporary business and banking terminology.

It is worth mentioning here that the need to renew and distinguish contemporary juristic
terms became more obvious once Islamic banks started to be established in the Muslim
world. For this reason the Union of Islamic Banks in (1987) adopted this goal of renewal
as one of its major projects, and they have done an excellent job in this regard.

IV: TajdÊd to Distinguish the Area of Financial Transactions from Other Areas of Islamic
Law

The dominant feature of the fiqh of financial transactions in earlier eras was that the transactions
involved individuals. As a result, the fiqh that dealt with them was relatively simple and
uncomplicated, which was reflected in fiqh books in terms of the content and the amount of
space devoted to the topic. However, transactions have now become institutional, with
overlapping and composite features and great diversity in the modes of finance, investments and
trades between individuals, groups and countries. Along with that, there have been technological
leaps which have impacted upon commerce, its means and methods. All these elements have
contributed to the great expansion of topics and legal issues associated with them in the domain
of the fiqh of contemporary financial transactions.

That is why I think it has become necessary to treat the fiqh of financial transactions as a separate
discipline independent of other areas of Islamic law. This is because it has its own sources,
principles of inference, conditions, divisions and general and specific applications. By doing that,
we are following the precedent of our classical jurists, who treated certain areas of fiqh
independently in order to give them increased attention due to their great importance and the
magnitude of their impact on public life. For instance, they composed special works on the rules
of the judiciary system and Íisbah, and, of course, they separated the greater fiqh (i.e., ÑaqÊdah)
from the lesser fiqh (the rules that apply to people’s actions). The intention behind this was to
comprehensively and carefully treat those issues with all their subdivisions. Based upon the
recognition that this area has become an independent discipline with its own methodology of
inference, we have no choice but to write works entirely devoted to the fiqh of financial
transactions, especially since we earlier accepted the need for an independent methodology,
which we have named the “methodology of parameters”, in addition to the disciplines of Islamic
legal maxims (qawÉÑid fiqhiyyah) and SharÊÑah objectives (maqÉÎid al-SharÊÑah) and their
impact on the fiqh of financial transactions.

V: TajdÊd Regarding the Impact of Contemporary ÑUrf (Custom) on SharÊÑah Rulings for
Contracts and Financial Transactions

Custom and traditional practice (Ñurf and ÑÉdah) comprise a famous class of evidence of disputed
authority among the scholars of uÎËl al-fiqh.12 The proper understanding and interpretation of
SharÊÑah texts on financial transactions rely upon giving them consideration. Jurists consider the
legal maxim ‫( العادة محكمة‬custom is to be resorted to for judgment) as one of the five major legal
maxims which is referred to for understanding SharÊÑah rulings.

The truth is that Ñurf is a supplementary rather than primary category of evidence. It is to be used
only in case of necessity and when evidence of greater legal weight is not available. The
interpretations of terms assigned special meanings in the SharÊÑah texts should first be sought in
a source of the same strength, which is only the Qur’Én and Sunnah. If it is not possible to
precisely determine their meanings from the Qur’Én and Sunnah, we should refer to the Arabic
language, the language in which the SharÊÑah was revealed. If determining the parameter of a
term is not possible even from the language, we are then forced to refer to Ñurf and ÑÉdah to
interpret them. The bottom line from all this is that there are two kinds of Ñurf: valid and invalid,
based on whether or not there is a stronger class of evidence than Ñurf on a particular issue.

12
Editor’s note: The controversy was more related to semantics than substance. All the fiqh madhhabs recognize a
role for Ñurf, as can be gleaned from their agreement upon the legal maxim ‫العادة محكمة‬, which the author mentions
in the next sentence.
We can phrase the rule by saying; “The SharÊÑah should be interpreted from the SharÊÑah itself; if
that is not possible then from the language; and if that is not possible, then from Ñurf.” Examples
of that are the parameters for terms like ‘possession’(qabÌ), uncertainty (gharar), ignorance
(jahÉlah), contract session (majlis al-Ñaqd), and the ripening of fruit and grain. It also includes
referring to experts to assess the amounts of money and the acts required to fulfill rights and
responsibilities and to define the limits of transgression and neglect in trust-based contracts. This
is in accord with the statement of Allah, the Almighty: “Ask those with knowledge if you know
not” (16:43).

Al-QarÉfÊ said:

All SharÊÑah laws based upon customs will change when the customs change, to
bring them in line with the new customs. Don’t you see that [jurists] all agree that
when the price in transactions is mentioned as a number without specifying the
currency, it is understood to be the commonly used currency [in that land]?...Hence,
if the custom changes and people start using another currency, the previous custom
would be considered canceled and the later one would take its place. The same goes
for unqualified words used in bequests, oaths and all other chapters of fiqh in which
customs are a point of reference; their rulings would change according to changes in
the customs.

Ibn QudÉmah said, “Our point is that Allah has permitted sale but didn’t specify how it is done.
Only local custom would determine it, as in the case of taking possession, safekeeping and the
separation [that makes a contract binding]. Muslims follow the same in their markets and
transactions.”

The point is that Ñurf as a class of evidence has its known place in the literature of earlier jurists,
especially in the laws of financial transactions. That was in the context of primitive financial and
commercial transactions and limited methods of concluding contracts. If Ñurf had such
importance for earlier scholars in the process of ijtihÉd and the derivation of laws, what do you
think about its importance for a mujtahid in our times? This is especially so when transactions
have expanded tremendously and have generated numerous methods, formulas and structures
which cannot even be conceptualized within the terms familiar to earlier scholars, let alone find
judgments for them.
One indicator of the importance of using Ñurf to set the parameters for the rules of contemporary
transactions is a resolution specifically on Ñurf issued by the International Islamic Fiqh Academy,
No. 47 (9/513) on JamÉd al-ÕlÉ 1409/December 1988. The resolution stated the following:

1- ÑUrf is something that people have become used to and which they practice [as a matter
of course]. It applies to statements and acts and also to abstentions from action. A given
custom may or may not be recognized by the SharÊÑah.

2- If a customary practice is specific to a particular group within a society, it is taken into

consideration in judgments that affect those who practice it. If it is general, then it is
applicable to everyone.

3- For a customary practice to be recognized by the Shari„ah, it must fulfill the following
conditions:

a. It should not contradict the SharÊÑah. If it contradicts a SharÊÑah text or any of its
rules, it would not be considered valid.

b. The customary practice should be constant or predominant.

c. The customary practice should be in existence at the time the transaction is

contracted.

d. The two contracting parties must not have agreed to a condition contrary to the
customary practice. If they have agreed to the contrary, then the customary practice is
not given consideration [in their case].

e. It is not befitting for a Muslim jurist―be he a mufti or a judge―to adhere only to

what is reported in the jurists‟ books without considering the shifting nature of
customs.

An example of contemporary tajdÊd using Ñurf as a tool for deduction and judgment is
Resolution No. 53 (4/6) of the Islamic Fiqh Academy, issued in ShaÑbÉn 1410 AH/March
1990, regarding qabÌ (taking possession of a purchased good): its types, especially the new
ones and the rules for them”. The Academy decided the following:
13
This arrangement means it was the ninth resolution issued at the fifth annual conference of the Academy.
First: Taking possession of property may occur physically, as when taking holding of it by
hand, or the measuring out of food, or transfer [of the good] to the place of safekeeping [of
the new owner]. Similarly, it may occur constructively and legally by providing the buyer
free access to it and authorizing him to dispose of it, even if he did not take physical
possession. Taking possession of property differs according to the circumstances of [the
property] and the varying customs and norms [regarding it].

Second: Some ways of taking possession that are validated by both the SharÊÑah and custom
are:

1- Transferring an amount of money into a customer’s account in the following

cases:

a. If the amount of money is deposited in the customer’s account directly or

by bank transfer.

b. If the customer concludes a contract for a spot currency exchange with the
bank whereby one currency is sold for another currency, which is then
deposited in the customer’s account.

c. If the bank deducts the money, upon the customer’s request, and transfers
it from his account to another’s account in a different currency, in the
same bank or another, for his benefit or for any other beneficiary. In this
case, banks should take into account the rules of exchange (Îarf) in
Islamic law.

A delay can be tolerated in crediting the beneficiary’s account so that he

can draw the funds, if the delay is for a period accepted in the market. In
this case, the beneficiary is not allowed to use the amount during the
waiting period until after the crediting of the transfer takes full effect and
the funds are available.

2- Receipt of a check, if there is a sufficient balance in the account to cover it in the

currency mentioned in check, once the bank [on which the check is drawn]
sequesters the funds.
 VI: TajdÊd Regarding the Impact of the Higher Objectives of the SharÊÑah on
Contemporary Financial Transactions

The provisions of Islamic law have been legislated based upon higher objectives and goals and
great wisdom which ensure the interests of people in this world and the hereafter. These purposes
and goals have been named by the scholars as “the higher objectives of the SharÊÑah” (maqÉÎid
al-SharÊÑah). Due to the subtlety of the subject, only a few of the early scholars wrote to explain
its importance and outline its chapters and issues and show how the maqÉÎid affect rulings on
practical issues.

MaqÉÎid is the plural of maqÎid. Maqsid means ‘destination’ [literally, intended place] and
maqÎad means objective. (al-MuÑjam al-WasÊÏ). There are many definitions of maqÉÎid al-
SharÊÑah; however, we can define it as “meanings and wisdom which the Lawgiver intended in
His legislation in order to secure the interests of people in this world and the hereafter”.

Here we can see the relation between the linguistic and technical definitions. The intention of the
SharÊÑah, by means of its various laws, is to fulfill certain goals and objectives. Some of the
characteristics of these objectives are soundness, moderation and balance in pursuit of people’s
interests. Hence, both linguistic meanings of maqÉsid are relevant to the technical Islamic
meaning.

The importance of the higher objectives of the SharÊÑah was fully recognized by both earlier and
later scholars with regard to their impact on deriving rulings and their immense significance for
all SharÊÑah sciences, particularly fiqh. The importance of this science is manifest in the
following points:

1- Knowledge of the science of maqÉÎid deepens the understanding of a mujtahid regarding

the goals and objectives that the SharÊÑah came to achieve, and it will strengthen his
understanding in exploring the general trends of the SharÊÑah in its legislation. It will also
help him to arrive at the SharÊÑah rulings on new issues for which there is no clear text.
His ability in this regard depends on how well he has comprehended the rules of maqÉÎid.
ÑIzz b. ÑAbd al-SalÉm said in his book QawÉÑid al-AÍkÉm (2/160): “One who studies the
objectives of the SharÊÑah in achieving benefits and avoiding harm will come to realize
from the set of [such examples] that some particular benefit must not be ignored and that
 some particular harm must be avoided, even if there is no consensus (ijmÉÑ) of scholars,
or text, or specific analogy (qiyÉs).”

2- The understanding of maqÉÎid is a guide for referring ambiguous and confusing issues
and rulings to clear standards. This is the way of those who are firmly grounded in
knowledge, whom Allah praised in His Book, saying; “And those who are firmly
grounded in knowledge say, ‘We believe in the Book; the whole of it is from our Lord’”
(al-Qur’an, 3:7).

3- The understanding of maqÉÎid increases the faith and strengthens the certainty of the
believer that what Prophet Mohammed (peace be upon him) brought is the truth. This
happens through his observation of the systematic nature of the SharÊÑah and the
consistency of the comprehensive concepts that regulate and govern its approaches and
laws, which is in fact a strong proof of the unity of its Legislator and the perfection of His
wisdom.

4- The understanding of maqÉÎid is one of the secrets behind the SharÊÑah’s permanence and
its ability to provide rulings for new phenomena in different times and places.

5- The study of maqÉÎid al-SharÊÑah has significant impact in shaping the rulings of
financial transactions for both individuals and private bodies. It also contributes directly
to shaping the trends and decisions of Islamic economic thought in general.

Due to the significance of these aspects and others, al-JuwaynÊ denied that the ijtihÉd of those
unaware of maqÉÎid could have any insight. He said in al-BurhÉn (1:295), “One who is
unaware of the maqÉÎid in orders and prohibitions will not have a clear understanding of the
basis of the SharÊÑah.” A mujtahid will only have achieved a true understanding of maqÉÎid
when he understands the balance between the limits of each SharÊÑah objective; this happens
when he is able to resolve the apparent contradiction between two objectives impinging upon
a single issue.

An examples of a fiqh issue in which the Rightly Guided Caliphs―may Allah be pleased
with them―made ijtihÉd that considered the objectives of the laws of financial transactions
was their ruling that craftsmen are liable for damage to property left with them on trust. Al-
ShÉÏibÊ said in al-MuwÉfaqÉt (2:119), “The Rightly Guided Caliphs ruled to hold craftsmen
liable for damage to property left with them on trust. ÑAlÊ said, ‘Nothing will realize public
welfare except that.’” This demonstrates clear consideration of one of the objectives of
SharÊÑah, which is to save property from loss and keep people’s transactions in line with
justice and righteousness and far away from injustice and corruption.

There are many contemporary applications that deserve to be highlighted in the process of
renewing the fiqh of financial transactions. Contemporary jurists may benefit from them, and
they can provide guidance for the precise conduct of contemporary ijtihÉd on economic
matters in the light of SharÊÑah objectives. Let us illustrate how by citing two examples
related to tajdÊd in the fiqh of financial transactions; the first is with regard to establishing the
objective of a transaction itself, and the second shows how to derive a ruling for a
contemporary issue based on SharÊÑah objectives.

Example One: The Purpose of Achieving Circulation and Flow and Preventing Hoarding:
Our research has come up with a most important result while studying the objectives of the
prevention of ribÉ in Islamic SharÊÑah. We found that one of the main economic objectives of
SharÊÑah in financial transactions is “to achieve the purpose of circulation and prevent
hoarding”. Linguistically tadÉwul (circulation) means to transport.

Kanz is used linguistically for buried wealth. This is the source of the expression that if zakah
is given on wealth which has reached the minimum limit on which zakah is due, such
property shall not be considered as kanz. (al-MuÑjam al-WasÊt, 1:304, al-QÉmËs al-MËÍÊÏ,
3:377).
The meaning of this objective is that the SharÊÑah looks at wealth as a means which grows by
its perpetual motion and that by doing so develops other resources and financial activities.
All these economic activities are negatively affected if wealth is prevented from circulating.
This is just like the circulation of blood in the body; the body benefits from it, and all its
organs carry on the activities of life as long blood circulates. But if it should clot and stop
flowing, the body will be harmed accordingly, leaving the person incapable or even causing
death. The importance of the circulation of money in the society can also be illustrated by
comparing it to the circulation of water or air. Water becomes putrid and turbid if it stagnates
and becomes pure and beneficial if it flows. Similarly, when the wind stops the temperature
rises, sailing ships are becalmed, and the air becomes stultifying. When the air starts moving
again, life carries on and the nature of things is renewed. The same is the case for the
movement of wealth and its circulation through the units of the economy, whether
individuals or groups.

It is an expression of the Lawgiver’s wisdom that He put in place laws to protect the
circulation of money and prevent wealth from being withheld and hoarded. This is clearly
manifested in two great laws, one of them a command: the obligation to give zakÉh, making
it one of the pillars of Islam―and the second a prohibition: outlawing ribÉ and declaring it
one of the greatest sins in Islam.

This precise balance in legislation, which raises the status of zakÉh by making it one of the
pillars of the religion and condemns ribÉ by making it a grave sin, is, in fact, based upon the
excellent SharÊÑah policy of having wealth circulate; hence, it intends to spread wealth and
facilitate the means of its flow; and, in contrast, it prevents the causes of withholding and
retaining wealth.

There is much legislation beside these two laws―i.e. the obligation of zakÉh and the
prohibition of ribÉ―that is woven together to enhance the objective of circulation and
prevent impediments to it. Among the laws that support the objective of circulation are the
following:

1- The legitimacy of charity, spending, loans and general kindness.

2- The prohibition of hoarding wealth.

3- The permissibility of pricing and prohibition of monopoly.

Example Two: Expropriating Private Property for Public Interest:

The International Islamic Fiqh Academy, on Jumad al-AkhÊr, 1408H/February 1988, issued
Resolution No. 29, (4/4) on “Expropriating property for public interest”. It states:
 We have studied the research papers presented to the Academy regarding
“Expropriating property for public interest”. [We have taken into consideration] the
recognized and firmly established principles of the SharÊÑah that respect private
property, to the extent that this has become one of definitive rules of Islam known to all
Muslims. The protection of property is one of the five necessities considered among the
higher objectives of SharÊÑah, and multiple texts of the Qur’Én and Sunnah testify to its
importance. We have also kept in mind the Prophetic traditions and the practice of the
Companions―may Allah be pleased with them―and those who came later regarding
expropriation of real estate for public interest by applying the general principles of
Islam regarding common interests, by treating public need (ÍÉjah) on a par with
necessity (ÌarËrah), and by tolerating some harm to individuals in order to avoid
public harm. Based upon all that, the Academy has decided the following:
First: Private property must be recognized and protected from any violation of
it. It is not lawful to narrow its scope or limit it. An owner has fully authority
over his own property. Within the limits of the lawful, he is allowed to dispose
of his property and use it in all legitimate ways.
Second: Expropriation of real estate for public interest is not allowed except
with the following SharÊÑah conditions and parameters:
1- An immediate fair compensation estimated by experts should be given
for it; it should not be less than the going market rate.
2- Only the ruler or his deputy can carry out expropriation.
3- Expropriation should only be for public interest, called for by pressing
general need (ÌarËrah) or an intermediate need (ÍÉjah) that is treated, for legal
purposes, like ÌarËrah; for instance: to build mosques, roads or bridges.
4- Expropriated property should not be used for public or private
investment, and expropriation should not occur before the time [of need].
If any of these conditions is lacking, the expropriation should be considered
injustice and forcible seizure (ghaÎb), which is forbidden by Allah and His
Messenger (peace be upon him).
If it is decided not to use the expropriated property for the abovementioned
public interest, the first priority should be to return it to its original owner or
his heirs in return for fair compensation.

In fact, what we need today is to develop a methodology that helps to enable and qualify a jurist
or mujtahid to practice by referring legal issues to their related objectives. This could be done
through the process of examining the objectives of financial transactions in the SharÊÑah and
clearly and accurately connecting them with their relevant laws. The process will create a
maqÉsidÊ ability in those who profoundly study it and will pave the way for judging
contemporary financial transactions in the light of the general objectives, goals and purposes of
the SharÊÑah.
 VII. TajdÊd Regarding the Impact of Islamic Legal Maxims (QawÉÑid Fiqhiyyah) on
Contemporary Financial Transactions

Since the beginning of Islam, legal maxims have held a high status as a means of knowing
SharÊÑah rulings, and they continue to meet the needs of jurists and mujtahids for deducing
SharÊÑah rulings on new issues for which rulings cannot be found in a specific SharÊÑah text. In
the present era, the need of contemporary jurists involved in the fiqh of financial transactions for
legal maxims has become manifest on a larger scale and for wider applications. Hence, one of
the tasks of tajdÊd in the fiqh of financial transactions is to refine the legal maxims and
systematically examine their applications to new issues related to contemporary financial
transactions.

If we accept the proposal that “when a systematic survey establishes that a particular legal
maxim has been validly applied to the issues for which it has been invoked, it becomes valid
speculative evidence for the deduction of rulings, in the absence of stronger evidence”, that
should facilitate pathways for arriving at rulings for new financial and economic issues.

The Majallat al-AÍkÉm al-ÑAdliyyah is prefaced with ninety-nine (99) legal maxims
accompanied by comments and explanations that combine both old issues and new ones from
contemporary fiqh in general and financial transactions in particular.14 This is one of the most
prominent indicators of the Ummah’s need to refocus attention upon the legal maxims and to
codify and explain them, particularly those related to transactions.

The work of Dr. ÑAlÊ al-NadwÊ is one of the great achievements with regard to the renewal of the
fiqh of transactions through Islamic legal maxims. He has prepared a great encyclopedia of legal
maxims related to financial transactions and has named it al-Jamharah. It is a most valuable and
beneficial publication. In this work the author has undertaken tajdÊd in a practical manner by
surveying the legal maxims related to the fiqh of financial transactions and by explaining their
meanings and citing examples of their application found in the fiqh books of the recognized
madhhabs.

14
Editor’s note: They were contemporary when the Majallah was first published in the waning days of the Ottoman
Empire (from 1869 to 1876).
In fact, this great work precludes my having to discuss at length the need for renewal with regard
to new and old fiqh issues. However, I would like to call attention to another dimension of
renewal related to our contemporary financial needs to infer new legal maxims from the current
state of contemporary financial issues. This is another landmark of tajdÊd which, in my opinion,
is not less important than the previous one. Let us clarify it with an example:

Since the growth and success of Islamic banks and financial institutions, various modes of
financing have emerged compatible with SharÊÑah, such as: bayÑ bi-thaman Éjil (deferred-
payment sale), taqsÊt (payment by installments), murÉbaÍah (mark-up sale) ijÉrah muntahiyah
bil-tamlÊk (rent to own), salam (Islamic forward sale), istisnÉÑ (manufacturing contract),
mushÉrakah mutanÉqiÎah (diminishing partnership), muÌÉrabah (silent partnership) and
tawarruq.15 Most of these institutions began using these modes of financing as strategic tools for
investing funds in pursuit of superior returns with relative security while avoiding the financing
format of conventional banks, which charge interest in exchange for the period of time the
money is lent.

In my opinion one of the most important tasks of tajdÊd for contemporary jurists is to extract the
legal maxims and parameters that can codify the basis for the instruments of legitimate
financing. An example of that would be the maxim that “the financer’s ownership is the basis of
legitimate financing”. This contemporary fiqh parameter tells us that the basis of all forms of
legitimate financing is that the financer must first acquire ownership of the subject of financing
and, secondly, transfer it to the beneficiary by any of the permissible forms of exchange. We
should highlight this point when defining Islamic finance and its rules; for example, our
preferred definition of the term ‘Islamic finance’ is: “to acquire ownership of the subject of the
financing and to then transfer the ownership of the subject or of its usufruct to the beneficiary on
the spot or in the future for a fixed return and with specified conditions”.

We can also define the rules of Islamic finance that differentiate it from other modes of financing
as follows:

1- It adheres to the Islamic SharÊÑah in all its circumstances, objectives and stages.

15
Editor’s note: Tawarruq is monetization, i.e., purchase of a commodity for a deferred price, followed by its sale to
a third party for a spot price in order to obtain cash.
 2- Its fundamental basis is acquiring ownership of the subject of the financing.

3- It is committed to preserving the role of money as a medium of exchange and not

converting it to a tradable commodity.

4- It is committed to a debt ceiling, in that no extra charge is imposed in case of

temporary or total inability to repay.

5- It cannot be a means for financing projects and activities that are prohibited by the
SharÊÑah.

6- It is based on mushÉrakah (partnership) in which the risks are shared by the parties
involved in the financing.

VIII: TajdÊd in Terms of Juristic Codification of the Laws of Financial Transactions and
the Contemporary Banking System

The strategic development witnessed in the fiqh of financial transactions during the last quarter
of the previous century is considered a major leap forward that has no precedent in the field. This
can be attributed to the proliferation of banks and investment and insurance companies that
operate in accord with SharÊÑah principles. Another factor is the many fiqh studies being
conducted to examine the extent to which the activities of securities markets and stock exchanges
are SharÊÑah compliant, as a prelude to establishing competing markets explicitly committed to
adherence to SharÊÑah laws.

The fiqh of financial transactions throughout Islamic history has been limited to the format of
juristic texts studied in the educational institutions of various madhhabs. However, the current
situation of Islamic financial institutions requires further development of the old formats to
enable them to keep pace with the current situation and to be more capable of addressing it.
Hence, the fiqh of financial transaction has leaned towards juristic codification. A few prominent
examples of contemporary juristic codification are the following:
First Example: International Fiqh Academies:

The fiqh academies are a recent phenomenon that has gained prominence. They have issued
precise and accurate resolutions, reached through a collective process with the participation of
scholars on a global level, regarding many contemporary contracts and financial transactions.
Examples of these are the International Islamic Fiqh Academy of the OIC in Jeddah, and the
Fiqh Academy of the Muslim World League in Makkah al-Mukarramah.

Second Example: SharÊÑah Standards:

What we mean by SharÊÑah standards is an attempt to reformulate the fiqh of financial
transactions, both old and new, in accord with “comprehensive and precise contemporary juristic
formulations of the laws and parameters of financial transactions”. They are, thus, precise
SharÊÑah rules that regulate the permissibility, prohibition and qualifications of technical
procedures of contemporary financial transactions and which, of course, include the transactions
conducted by banks, financing and investment companies, and insurance companies.

The first version of SharÊÑah standards was issued by the SharÊÑah Board of the Accounting and
Auditing Organization for Islamic Financial Institutions (AAOIFI) in the Kingdom of Bahrain.
Seventeen SharÊÑah standards have been issued until now.

IX: TajdÊd with Regard to Drafting Financial Transactions in Contemporary Legal

Terminology

The current practical situation is based on organized legislation and codifications intended to
regulate people’s affairs and their dealings with one another to ensure their rights, establish
justice and secure their interests both in this world and the hereafter.

If the fiqh of financial transactions is to be renewed at a normative contemporary level, it must be

reformulated according to the established legal terms, which will make it effective and firmly
established within the contemporary civil, banking and commercial legal frameworks. This task
will also help legal experts to understand contemporary forms of Islamic financial operations.
One of the greatest challenges is the urgent need to codify contemporary financial transactions
using contemporary legal terminology in order to introduce the fiqh of financial transactions in
non-Islamic countries.

Perhaps one of the most impressive examples of the importance of codifying transactions in
modern legal terms is Majallat al-AÍkÉm al-ÑAdliyyah, issued during the Ottoman caliphate. It
was drafted according to the ×anafÊ madhhab.

We are in dire need of renewing the fiqh of financial transactions by codifying them in accord
with the principles of contemporary legal drafting. In fact, Muslim experts on conventional law
keep recommending codification of the SharÊÑah and its laws if we want to make it the
preeminent legislation that rules Muslim countries.

X: TajdÊd in Laying the Foundations and Procedures for Practical Repentance from
Interest and All That Violates Islamic law.

One positive effect of the success achieved by Islamic banks and financial institutions
throughout the world is that they have practically raised consciousness about the advantages of
Islamic financial transactions. As a result, many conventional (interest-based) banks and
institutions began to understand the nature of Islamic transactions and to observe their positive
impacts on profits and social development. That is in addition to their religious effect of
commitment to the ÍalÉl (permissible) and avoidance of the ÍarÉm (prohibited). One of the
pressing needs of the current financial and commercial situation of Muslims is to lay down
foundations and regulations that practically demonstrate how to repent from prohibited
transactions and move to SharÊÑah compliance. This is what is known in contemporary Islamic
economics terminology as “Islamizing financial activities” [or SharÊÑah conversion]. A financial
institution, such as a bank, investment or insurance company, may take a decision to abstain
from ribÉ (a grave sin) and make their financial transactions compatible with the SharÊÑah. But
they need guidance on how to get rid of prohibited funds, particularly when it comes to illicit
rights, obligations, assets and income.
For that purpose, the SharÊÑah Board of AAOIFI took the initiative to issue its SharÊÑah Standard
No. 6, which specifically addresses how to completely convert financial activities to make them
SharÊÑah-compliant. The authors of the standard did a good job of closely studying a number of
the requirements of the transformation and regulating them according to the SharÊÑah. However
there are still many gaps in this regard that should be treated in order to meet the requirements of
the banks and institutions that want to make the change.

CONCLUSION:

At the end of the study, I am obliged to give my deep thanks to all our scholars, jurists and
experts who undertook the difficult task of developing and guarding this promising Islamic
experience from its cradle until its rise and consolidation. May Allah reward them the best for
what they have done and make their efforts an ongoing charitable act that benefits them in this
world and hereafter.

Finally I would like to thank the organizers and sponsors of AAOIFI in the Kingdom of Bahrain
for their great efforts to serve Islamic banking and financial work. I pray to Almighty Allah to
bestow these efforts with success.

And all praise is for Allah from the beginning to the end…

Dr. RiyÉÌ ManÎËr al-KhalÊfÊ