Shariah scholars, ijtihad and decision making in Islamic finance

Abstract EN

Islāmic finance is developed based on the spirit, philosophy and principles of Sharī‘ah.

Sharī‘ah contains the principles and foundations upon which financial system from an Islāmic perspective is established.

These fundamentals act as guidance and framework on which the direction of Islāmic finance industry is set.

All aspects of its operation need to be in compliance with the fundamental principles.

Likewise, in Islāmic financial product structuring, the compliance to Sharī‘ah principles is a prerequisite.

This would include the whole processes from product’s conceptual inception to developing products’ structure, products Sharī‘ah compliance manuals, reviewing the legal documentation, and producing report or opinion on the products’ application for the business.

The role of Sharī‘ah advisor in this endeavor is very significant.

His role would involve the ex-ante process of identifying the need of costumers towards particular product, identifying the appropriate contract and structuring the product in line with Islāmic contracts; and the ex-post processes of supervising the product application in the market, ensuring that Islāmic financial institutions follow the mechanism approved by the Sharī‘ah advisor and preparing certification or Sharī‘ah compliance report report.

The paper attempts to explore Islāmic finance product structuring, various approaches in this regard, the role of Sharī‘ah advisors in decision making, developing Islāmic financial products and certification that activities and income of IFIs are in line with the principles of Sharī‘ah.