Origins of Islamic Banking and Finance – Shariah

Lots of my students were asking me about the role of Shari’a in Islamic Finance System from past few days. I would like to answer these question from my Islamic Finance Qualificiation, which I earned at institute of Islamic banking and finance

I learned a lot on about shari’a during my diploma in Islamic banking and finance

What is Shari’a?

The word “Shari‘a” literally means “a way.” In Islamic terminology, it means the legal system of Islam.

Throughout history, God has sent messengers to people all over the world, to guide them to the straight path that would lead them to happiness in this world and the one to follow. All messengers taught the same message about belief (the Qur’an teaches that all messengers called people to the worship of the One God), but the specific prescriptions of the divine laws regulating people’s lives varied according to the needs of his people and time.

 The Qur’an says, “When Allah and His Messenger have decreed a matter, it is not for any believing man or believing woman to have a choice in their affairs. And whosoever disobeys Allah and His Messenger has gone astray into clear error.” (33:36)

The Prophet Muhammad (God bless him and give him peace) was the final messenger and his Shariah represents the ultimate manifestation of the divine mercy. “Today I have perfected your way of life (din) for you, and completed My favour upon you, and have chosen Islam as your way of life.” (Qur’an, 5: 3). The Prophet (pbuh) himself was told that, “We have only sent you are a mercy for all creation.” (Qur’an, 21:107)

Shariah consists of followings:

·         Holy Quran

·         The Sunnah (practices) of Holy Prophet Muhammad (s.a.w)

·         Ijma

·         The Qiyas.

(Image Ref: AIMS College UK's Website)

Now to make you understand Shariah laws more clearly, you must be explained about the four constituents of Shariah mentioned above.

Before explaining further I would like to thank a friend of mine who is doing PhD in Islamic Finance and allowed me to share definitions from her thesis.

1. Holy Quran

Holy Quran is the sacred book of Muslims and is the principle source of the Muslim laws. Allah, dictated Quran through Gabriel (the Angel) to Prophet Muhammad (s.a.w). It was revealed towards the end (most probably 27th) of Ramadan (the holy month of Muslims). Quran was revealed in Arabia and in the Arabic as the first target people were all those who knew Arabic. Allah through the Quran once said:

“So we have made it easy in their tongues that they may be mindful”. (Az-Zumar: 28)

2. The Sunnah

It is the secondary source of Muslim laws. Sunnah means the doings of Prophet Muhammad (s.a.w), reported through different “Sahabahs” (close friends or people who worked and lived with him). Holy prophet Muhammad (s.a.w), all his life acted on what Allah told him to do and in respect of everything one can do to be a pious and complete Muslim, there is no one but prophet Muhammad (s.a.w)'s Sunnah which is so much complete and comprehensive that it must be followed. Sunnah is the traditions or known practices of the Prophet Muhammad, many of which have been recorded in the volumes of Hadith literature.

3. Ijma’ (Consensus)

  Ijma is the third source of Shariah laws. It can be defined as the “consensus of opinion of the companions of the Holy Prophet Muhammad (s.a.w) or Muslim jurists”. It is the approval and agreed opinion of the Muslim jurists of the first three centuries of the Hijra. It is simply an agreed upon decision. It is also used in an Islamic society to overcome a problem, which could not be found in Quran or in Sunnah. It is narrated in a hadith.

“If anything comes to you for decision, according to the book of Allah, if anything comes to you which is not in the book of Allah, then look to the Sunnah of the Prophet (s.a.w), if anything comes to you which is not in the Sunnah of Prophet (s.a.w), then look to what people unanimously agrees upon”.

 

4. Qiyas (analogy)

Qiyas is the fourth important source of Sunnah. The word Qiyas means, “Comparing with” or “Judging by comparing with a thing”. Qiyas is a process of deduction by which the laws of a text is applied to the cases which though not concerned by the language, are governed by the reason of the text (Ref: Study Notes from MBA in Islamic Finance). It is actually analogy from the Quran, the Sunnah and Ijma.