From its nascent start in the last quarter of the previous century, Islamic finance has turned into an undeniable reality today. It is no more restricted to Muslim majority jurisdictions. Even the non-Muslim and secular jurisdictions have realized its importance and have initiated actions to develop Islamic finance in their respective jurisdictions; rather one can observe a race among different countries in becoming central hub for Islamic finance: “In 2014, the United Kingdom, Hong Kong, and South Africa issued debut sovereign ṣukūk (or Islamic investment certificates), not so much to raise financing, but to make deeper inroads in the Islamic finance market” (Hayat & Malik, 2014, p. 11). Islam gives a lot of importance to trade and is considered as an alternative to interest Quran (2:275). This book has been written to present the structure of Islamic trading framework.
We have discussed the long standing issue of whether Islamic commercial law could give a comprehensive theory of contract or not. However, it is evident from the discussion in Chapter 2 of the book that Islamic commercial law has provided a comprehensive list of contracts that are permissible and those which are prohibited. Islam as a religion dis not abrogate the earlier practices, especially in the sphere of commerce and finance, out rightly. Instead, it cancelled only those contract which were based on exploitation and injustice. On the other hand, it retained some contracts in their entirety, as we shall see in the coming chapter, while modifications were introduced in a number of other contracts. We also observed that Islam has strictly prohibited riba in all its forms. However, Islamic law is unique in the sense that it also put a complete ban on gharar and this feature is not found in other religions. No wonder why Islamic finance was spared from the miseries of the global financial crisis in 2007–2008. Many practices and instrument especially those in the derivatives market could not find acceptance from Shariah scholars. Consequently Islamic financial institutions are by and large safe from such practices so far, with the exception of a few practices in some jurisdictions. Likewise, we also observed that consumer protection has a special space in Islamic commercial law and this is evident from the theory of options or khiyarat.
Chapter 3 elaborates on the nature, modes and types of contracts which are permissible under Islamic commercial law. We elucidate on some contested contracts found in contemporary Islamic finance sphere. In Chapter 3, an overview of the prominent Islamic commercial contracts and their application in Islamic finance was discussed. It is evident from the discussion that there are bunch of such contracts that are utilized to fulfil the needs of the customers in the Islamic finance industry. However, these contracts are not applied independently. Due to the complex nature of the products offered by financial institutions, these contracts are utilized in a group to design a particular product. This has been made possible due to financial engineering which is the backbone of the industry enabling to respond positively to the demands of the customers. However, there are certain risks involved in this financial engineering process because combination of contract in Shariah has certain parameters that need to be observed. Due to this, standard setting bodies especially AAOIFI has come up with detailed guidelines about the issue of combination of contracts and the different conditions that need to be observed in this connection. Overall, it can be seen that Islamic commercial has quite a number of contracts that can fulfil the demand of the contemporary complex business and finance arena. However, modification and adoption are at the core of this process and it is understandable due to the difference in time when Islamic law was developed and different circumstances that we have today.
Chapter 4 discusses the profit theory in mainstream economics, its issues and solutions provided by Islamic economics. The profit theory is an essential part of both Islamic and conventional trading frameworks. As discussed, in order to construct a well-integrated theory of profit, profit shall be defined revenue minus cost. Secondly, the focal point of the theory shall be a firm instead of an entrepreneur. Additionally, it should be considered as the function of dynamic changes in business environment. Lastly, the profit may be shared between labor and capital in order to endorse fairness, growth, and peace in society. This type of profit theory will be acceptable in both conventional and Islamic trading frameworks.
Chapter 5 discusses both the practical and philosophical similarities and differences between Islamic and conventional trading framework. This chapter is based on the general rule of fiqh i.e. the primary regulation governing all things in Islam is their permissibility. This means that everything is permissible except it is explicitly forbidden by shariah law. Same is the case with trading frameworks, Islamic trading framework includes whatever a conventional trading framework has except the forbidden parts. We discuss these forbidden parts in detail which include gharar, riba, risk shifting, etc. We also discuss the philosophical differences including property ownership, risk sharing and the impacts on economy. Islam seems to present a more comprehensive yet compatible trading framework to be practice, which not only suits Islamic world view but is also promoted to have positive impact on the economies at large.
The significance of markets cannot be disregarded. The welfares they have contributed in the economies weighed sufficiently to absolve of their shortcomings. However, these downturns have directed us towards many valuable insights for taking preemptive actions in future. The Islamic economic system entails markets based on strong ethical foundations where every individual’s rights are sufficiently protected. These issued are termed as auxiliary which include the ethical dimension, government intervention, social and development goals. As discussed in Chapter 6, government’s intervention is needed in dire issues, though not acceptable in form of artificially pampering the markets through tariffs, quota, etc. and creating dead weight loss, but surely in the events of income disproportionality, alarming poverty hikes, unfulfilled public needs, environmental degradation and the like. Although Islamic markets guidelines serves a platform of equity, honesty, justice and ethical system for common welfare, there is a need for a more focused approach for corporate social responsibility (CSR), an emergent notion in conventional economics. With rapid advancement and competition in the markets, an intensive methodology for instilling a social responsible behavior among firms is looked-for in Islamic system.
To conclude, Islamic trading framework is an umbrella which shows the process of trading governed by Islamic Principles. It comprises the prohibitions, pricing, profitability, and other auxiliary issues like government intervention and ethical framework related to exchange of goods and services. Islam’s framework is proved to be superior not only because of its moral values and compatibility with the modern philosophy but also because of its evidently positive impact on the economy and society at large.