ARTICLE REVIEW:THE USE OF

HIYAL IN ISLAMIC FINANCE

AND ITS SHARIAH LEGITIMACY
BY BRENDAN MEHDI LANZA
 Background
•Written by Dr. Muhammad Tahir Mansoori in 2011.
•The article reviews the problem that a number of Ulama
find that many Islamic Finance practices are un-Islamic

•The main reason for this being reliance on “Hiyal” products

 What is “Hiyal?”
*Used to describe a number of strategies and subversive
techniques, or “legal artifice,” that are methods of getting
around the safeguards set in Islam against “riba” (interest).

*Following the law to the letter, not the spirit of the Law
*The author says, “use of legal means for extra-legal ends
that could not whether themselves legal or illegal, be
achieved directly with the means provided by the shariah”
 Two Kinds of Hilah
1. To get around difficulties presented in the practical
application of Islamic Law, a solution when you are in a
difficult position and you wish to still be as halal as
possible

2. The second kind that is mentioned is used to evade

shariah obligations.
 Not All Madhabs Agree
After investigating the author concludes:
*The Hanafi school was the most liberal (Fatawa Hindiyyah)
*The Shafi’i school is the next most flexible
*As for the Hanbali are generally more forbidding in their
viewpoint
* The most strict viewpoint comes from the Maliki school
Which Islamic Financial Products?
According to the author:
*Bai’ al-inah
*Tawarruq
*Commodity Murabaha
*Sale and Lease Sukuk
 Tawarruq

*Someone buys a commodity on credit only to sell it back in the market at

a lower price for quick cash on the spot.
*Shafi’i and Hanbali permit it and Maliki doesn’t allow it at all. The Hanafi
have two views on it. The Zayla’i (jurist’s name) sees it as a kind of bai’
al-inah and forbids it. Ibu Humam (another jurist), the other view, allows it
but sees it as unfavorable.
*Issues included are that someone is receiving money now for more cash
later while using concealed buyback. There is no third party, either, and
the actual commodity can be seen as not being the real subject matter of
the deal. This is because there is no consideration to actually purchase the
commodity and keep it but rather it is used as a scapegoat that allows the
two parties to participate in riba.
 Commodity Murabaha
*This kind of Murabaha has become very important to Islamic banks as a treasury liquidity
tool that helps them to do business with conventional banks allowing them to meet their
spot cash reserve necessities.

*The Islamic bank will buy a commodity from a broker or agent on the spot, at the market
rate, and sell it to the conventional bank through Murabaha. Once the conventional bank
receives ownership they will then sell it in the market for cash.
*The main objection is that there is no interest in the actual commodity itself but the whole
process is merely a game that allows the monetary interests of the banks, including
conventional banks, to prevail. There is no possession of the commodity that is really
exchanged, hence no liability or investment risk which is inherent in trade in general, which
is also an issue for jurists. It is mainly a gain on a loan/sale through a concealed means.
 Sale and lease-back sukuk

*Sukuk are Islamic bonds where there are assets attached instead of debt, through profit
sharing.
*AAOFI standard no. 17 describes them as, “Certificates of equal value representing
undivided shares in ownership of tangible assets, usufruct and services or (in ownership of)
the assets of particular projects or special investment activity

*Jurists contest the model because they say that frequently, explicitly or implicitly, in it one
can find traces of bay al-inah and bay bil wafa. Thus, the buyback arrangement is the main
issue here. Especially in the case of bay bil wafa, where the owner becomes obliged to sell
the asset back and can’t take true ownership of the asset, the International Islamic Fiqh
Academy has ruled such a contract to be invalid.
*The maintenance is forced upon the lessee by the lessor, when it is the duty of the lessor.
 Other Issues
*The author goes a bit further with Ijarah Sukuk, going into the opinions of Maulana M.
Taqi Usmani, prominent Shariah scholar, who believes that these Sukuk violate Maqasid
Al-Shariah (The objectives of Shariah).

*He is quoted as saying, “...The mechanisms of sukuk today, however, strike at the
foundations of these objectives and render sukuk exactly the same as conventional
bonds in terms of their economic results.”

*Mansoori maintains that these issues must be addressed as they are strategies that allow
banks to circumvent riba.

*Maqasid Al Shariah and Sadd Al Dharai should be used as main criteria

 Dr. Mansoori concludes
*Tawarruq and Commodity Murabaha definately violate the Islamicity of
Islamic Financial products in their intent. They affect the “authenticity
and Islamicity” of Islamic Finance on the whole

*Both products focus were too external based in form, and the intent and
spirit needed for the Islamicity of a financial product were not there, but
these things are just as important
*Makhraj can be used in certain Islamically beneficial ways he infers,
Maqasid Al-Shariah and Sadd’ Al-Dharai are the prime factors that must
be taken into account in order to create halal Islamic Financial products
and derive Islamic financial rulings.
 MY ANALYSIS
•I agree with the author that Maqasid Al-Shariah and Sadd Al Dharai should be the
prime foundation in Shariah rulings within Islamic Finance. We should not
sacrifice our core fundamentals under the guise of Maqasid Al Shariah, however.

•Islamic Finance is still growing in the industry and still needs a lot of refining to
do before it is completely Shariah compliant, which should be the end goal.

•The Islamic banks can’t ignore the conventional ones and must benchmark against
them in a way that doesn’t alienate the customers, so we need to have better public
education on shariah compliancy matters as so many regular citizens don’t
understand Islamic Finance themselves. This is a problem as they are more used
to conventional products and are afraid of what they don’t understand.
 MY ANALYSIS(2)
•Islamic banking will eventually be able to outcompete the conventional banks
and become more Shariah compliant, over time.

•Until this goal happens, there will be some things that can be criticized in the
industry’s evolution, but we must keep on trying, to do something
good, after all. However, we must keep our Finance “Islamic”, both in
letter and in spirit.

•It would be a good start to develop a “Recognized” regulatory body that can
help put some agreement on what can and can’t be done in Islamic Finance,
with the aid of all the four Madhabs and Financial Specialists as well. This
action will no doubt take time but is an inevitable step towards our end goal.
Satu Ummah
.
Any questions?...