Chapter 8: Structural compliance of Islamic finance with Qur’anic exegesis
Islamic finance is a divinely sourced normative discipline. As such, its structural compliance with its roots – the Qur’anic exegesis – is its legitimizing basis for having a definitive identity. A compliance mechanism is in place at the macro level in industry standard-setting bodies – the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB) and the Malaysian Central Bank – and at the micro level in the implementation bodies, the Shari’ah supervisory boards (SSB) of Islamic financial institutions (IFI). However, at both levels this mechanism suffers from a lacuna: absence of unification of command, lack of mandatory enforceability for the SSB and the IFI, and lack of standardization in standard setting and in individual fatwa (religious rulings) issuance. This situation derives, inter alia, from the absence of an agreed credible exegesis of the Qur’anic foundational verse ‘Allah permitteth bay‘ and forbiddeth riba’ (2:275) and other pertinent verses and of a correct comprehension of the supporting Prophetic sayings (ahadith). This, in turn, stems from the very complexity of the concepts of riba particularly and bay‘ generally, and their explication with a literalist approach based on casuistry at the hands of exegetes and jurists. The resulting juridical scholarship requires an Islamic financial structure, in a nutshell, to be interest-free and risk-based. The second part of this formulation is highly problematic.
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