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Shariah and Fiqh

To understand Islamic Finance it is important to get an understanding of the principles of the religion of Islam on which the economic framework is based on.

 

Shariah compliance is a basic requirement to ensure that all investment products offered by the banks and institutions are in conformity with the Shariah law.

 

 

Shariah is Islamic aw based on the Koran and Sunnah (sayings and practices of the prophet Mohammed PBUH) which governs the way of life for muslims in their matters for  social, moral and business conduct. Shariah is applicable in normal conditions and therefore there are relaxations for abnormal situations.

 

 

Shariah is advised by Shariah scholars who can spend about 10-15years studying the Koran and Sunnah. The Sunnah are recorded in books normally referred to Hadis or Hadith. There are specialist schools and universities which provide training and education in this field. 

 

In addition to the two sources for Shariah i.e. the Koran and the Sunnah, two additional principles are used on matters which are not clearly defined in the Koran and Sunnah, these are Ijma and Qiyas.

 

Ijma is technically the third source of Shariah law. This is where all the contemporary scholars unanimously agree to a decision.

 

Qiyas is the forth source of Shariah law.  This looks are similar cases to derive to a verdict, but this option is exercised after failing the the above three.

 

Shariah Organisations - there are now exist national and international bodies which set Shariah standards and some of these are:

· National Sharia Council (Malaysia)

· AAOIF - Accounting and Auditing Organisation for Islamic Financial Institutions.

· OIC Fiqh Academy (Bahrain) - one of the most influential organisation responsible for interpreting Shariah in the light of modern developments including Islamic banking and Finance.

 

Fatwa is a ruling based on Ijma and Qiyas for answer to issues which are not direct in Koran and Sunnah.

Background

Shariah

Fiqh

Fiqh is Islamic jurisprudence. This provides the framework for extracting principles from the basic sources of Shariah and providing judgement on matters where there is no clear guidance. Where a new decision is made then a Fatwa is produced declaring the judgement.  Fatwa is not binding and muslims can limit their actions to the core Shariah law.

 

 

References

Read English/Arabic  Koran , More Islamic links

More on Sunnah:  University of Southern California  As-Sunnah Foundation