Analysing the Present State and Future Agenda
Studies in Islamic Finance, Accounting and Governance series
Chapter 20: A trajectory of legal tricks (hiyal)
The journey of Islamic finance in the second half of the last century commenced with the search for an alternative to commercial interest as the basis for banking and finance. Behind this search was the orthodox interpretation that equated interest with riba and applied the Qur’anic prohibition to all transactions involving interest. Theoretical literature on the subject pleaded for the adoption of profit–loss sharing (PLS) as the basis for modern banking in the Islamic framework. However, as we have shown in previous chapters, PLS was not an easy concept in practice in banking and finance. Though a large number of Islamic financial institutions sprang up in the short span of three decades and dealt in trillions of dollars yet most of them shied away from PLS. However, pressure from the religious lobby pushed these institutions to adopt methods and procedures that appeared to comply with the Shari’ah though they did not adhere to its spirit. The Shari’ah supervisory boards (SSBs) helped Islamic financial institutions to devise these methods and procedures. They justified various solutions on the basis of the apparent legitimacy of each segment of the procedure without considering the impact of the transaction as a whole. Incidentally, this type of conciliatory attitude had some mention in Islamic legal literature.
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