THE INTERNATIONAL ISLAMIC FIQH ACADEMY (IIFA)

Although the Organization of Islamic Conference (OIC) has not yet succeeded in solving major problems of the Muslim world, it has at least provided a platform for the discussion of our collective problems. It has also produced some academic, research, and economic institutions that are active in various fields. One of these important institutions is the Islamic Fiqh Academy.

The idea of the Islamic Fiqh Academy was proposed by King Khalid in the OIC meeting of Rabi Awwal 1401 (January 81) that was held in Masjid Haram in Makkah Mukarramah. The suggestion was to have a body consisting of scholars and jurists of the Muslim world that would focus on the new problems presented by the contemporary world and propose Islamic answer to those problems. The OIC accepted this suggestion and the idea of the formation of Islamic Fiqh Academy was approved.

Each Muslim country was asked to nominate an expert in Islamic disciplines as its representative. While governments nominate the representative, once nominated only the Academy can revoke their membership. The first meeting of the general council of the Academy, consisting of all the nominated members, was held on 26 Safar 1405 (19 November 1984). Dr. Bakr Abu Zaid of Saudi Arabia was chosen as the president of the academy in that meeting. The operating procedure of the Academy was also decided upon in that meeting.

The planning committee of the Academy selects topics for research. Then a selection of these topics is sent to the Academy members as well as other Islamic experts who are asked to write research papers on them. The research papers are then circulated to all the members for review. In the annual meeting of the Academy, these papers are presented and freely discussed. Every word said in those discussions is recorded and published later. For every topic, a drafting committee is formed to draft the proposed resolution in light of that discussion. Finally, the draft proposal is once again presented to the meeting of all the members for discussion and approval.

In addition, the Academy is also compiling an encyclopedia of fiqh about finance and a compilation of fiqh rules in collaboration with other organizations of the Muslim world.

GENERAL RESOLUTIONS BY INTERNATIONAL COUNCIL OF FIQH ACADEMY

Resolution 47 (9/5)

The International Council for the OIC Fiqh Academy, in its 5th session, held in Kuwait from 1 – 6 Jumaddah Al-ula 1409 AH, corresponding to 10 – 15 December 1988, having reviewed the research presented by the members and experts in the topic of custom, and having listen to the deliberations about it, resolved the following:

1. Urf (custom) is something that people get used to and practised by them. It may or may not be recognized by the Shariah;

2. If an urf is specific, it is enforceable within the domain of those professing it. If it is general, then it is enforceable by all;

3. For an urf to be recognized by the Shariah, it must fulfil the following conditions -

a. It should not violate the Shariah. If an urf violates a divine text or any Shariah principle, it is regarded as a void urf;

b. The urf should be perpetual or occurs frequently;

c. The urf should be in existence at the time of establishing the transaction; and

d. The two contracting parties must not have agreed to the contrary of the urf. If they agreed to the contrary, then the urf is not recognized.

4. It is not befitting for a faqih (Muslim jurist), be he a mufti or judge, to only adhere to what is reported in the fuqaha’s (jurist’s) books, without considering the volatility of the customs.

Resolution 10

The International Council of Fiqh Academy, organized its 2^nd conference in Jeddah from 10 – 16 Rabi’ Al-akhir 1406AH, which corresponds to 22 – 28 December 1985.

After various research papers concerning transactions of modern banks were presented to the Council, and having pondered over the economic destructions caused by this (financial) system, due to its deviation from the directives of the holy book which clearly prohibits interest/usury, be it partial or total, and commands us to seek repentance from it as it (the holy book) also commands us to recover only the capital of the loans without addition or reduction, be it (the loan) small or big, and enjoins us to be mindful of the warnings of Allah and His Prophet, i.e. to wage war against the usurers. The Council resolved the following:

1. The transactions below are considered as riba (usury) and prohibited from the Shariah point of view:

a. Addition or interest charged on extension of debt that has matured, due to default; and

b. Addition and interest charged on a loan, from the beginning of the loan contract.

2. Transactions that conform to Shariah laws are the alternative (to a usury-based transaction) that guarantees financial liquidity and assistance for economic activities; and

3. The Council reiterated their stand, i.e.:

a. Calling upon Muslim governments to encourage the banks (under their respective jurisdictions) to engage in transactions that are in accordance to Islamic laws; and

b. Allowing the establishment of Shariah-compliant banks in every Muslim country, in order to meet the needs of the Muslims, so that Muslims will be able to live in this modern world and at the same time, adhering to their beliefs.

Resolution 141 (15/7)

The International Council of Fiqh Academy, in its 15^th session in Masqat, Oman, which was held from 14 - 19 of Al-muharram 1425AH, which corresponds to 6 – 11 March 2004, having reviewed the research papers that were presented to the Council regarding the topic of al-masalihu al-mursalah, and after listening to the discussions that revolved about it and after considering the ijma’ that Islamic legal rulings are based on ‘acquiring benefits and averting harm’, resolved the following:

1. Al-maslahah al-mursalah is the preservation of the objectives of the Shariah, which is the protection of religion, life, intellect, lineage and property;

2. Maslahah al-mursalah is the maslahah that the Divine Lawmaker did not specifically mention, including the types of maslahah, so as to take it into consideration or nullify it. It is under the general maqasid of the Shariah (objectives);

3. It is compulsory for a faqih (Muslim jurist) to know that there are guidelines for the usage of maslahah, i.e.:

a. The maslahah should be real and not imaginary;

b. It should be wholly and not partial (the maslahah should not be part of an issue but it must be the issue itself);

c. The maslahah should be general in nature and not particular to certain individuals or groups;

d. There should not be another contradictory maslahah, which is more important or of equal importance to the earlier maslahah; and

e. The maslahah must be consistent with the maqasid al-Shariah.

4. The ulama have laid down accurate standards to distinguish between the types of maslahah and how to prioritize them, on the basis of detailing the issues connected with those masalih (singular: maslahah). Thus, the ulama classified them with regard to their connection to the norms of life. It is then arranged in accordance with their order of importance, as follows:

a. The essentials;

b. The needs; and

c. The complementarities.

5. As part of something that is confirmed in fiqh, the management of the affairs of the people by their leader(s) is based on an important consideration, i.e. public welfare. The ummah is bound to obey their leader(s) in that;

6. Maslahah mursalah has broad applications in the affairs of the society, including in economics, social discipline, management, judiciary and others. Thus, from the research presented in this session, we can conclude that the Shariah is perpetual in nature, i.e. its rulings can accommodate the demands of classical times, contemporary times and beyond.

RULING ON TAWARRUQ BY INTERNATIONAL COUNCIL OF FIQH ACADEMY

The International Council of Fiqh Academy, which is an initiative of the Organization of Islamic Conferences (OIC), in its 19^th session which was held in Sharjah, United Arab Emirates, from 26 – 30 April 2009, decided on the following:

Having reviewed the research papers that were presented to the Council regarding the topic of tawarruq, its meaning and its type (classical applications and organized tawarruq), a resolution were passed. Furthermore, after listening to the discussions that revolved about the applications of tawarruq, the resolutions were presented at the International Council of Fiqh Academy, under auspices of the Muslim World League in Makkah.

The following were the resolutions:

First: Types of tawarruq and its juristic rulings:

Technically, according to the Fiqh jurists, tawarruq can be defined as: a person (mustawriq) who buys a merchandise at a deferred price, in order to sell it in cash at a lower price. Usually, he sells the merchandise to a third party, with the aim to obtain cash. This is the classical tawarruq, which is permissible, provided that it complies with the Shari’ah requirements on sale (bay’).

The contemporary definition on organized tawarruq is: when a person (mustawriq) buys a merchandise from a local or international market on deferred price basis. The financier arranges the sale agreement either himself or through his agent. Simultaneously, the mustawriq and the financier executes the transactions, usually at a lower spot price.

Reverse tawarruq: it is similar to organized tawarruq, but in this case, the (mustawriq) is the financial institution, and it acts as a client.

Second: It is not permissible to execute both tawarruq (organised and reversed) because simultaneous transactions occurs between the financier and the mustawriq, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This is considered a deception, i.e. in order to get the additional quick cash from the contract. Hence, the transaction is considered as containing the element of riba.

The recommendation is as follows:

To ensure that islamic banking and financial institutions adopt investment and financing techniques that are Shariah-compliant in all its activities, they should avoid all dubious and prohibited financial techniques, in order to conform to Shariah rules and so that the techniques will ensure the actualization of the Shariah objectives (maqasid Shariah). Furthermore, it will also ensure that the progress and actualization of the socioeconomic objectives of the Muslim world. If the current situation is not rectified, the Muslim world would continue to face serious challenges and economic imbalances that will never end.

To encourage the financial institutions to provide Qard Hasan (benevolent loans) to needy customers in order to discourage them from relying on Tawarruq instead of Qard Hasan. Again these institutions are encouraged to set up special Qard Hasan Fund.

ETHICAL INVESTMENT = SHARIAH COMPLIANCE

The notion of ethical investing goes back at least to 1758, when the Quakers banned profiting from the slave trade. But the market for ethical investments has always remained a niche. The goals of maximizing profit and fulfilling a moral agenda conflict more often than they complement one another, and investors who want to put ethics first have turned out to be relatively few.

Finance that complies with Shariah, is still a niche within the ethical investing niche. In all, there are at least $500bn worth of Islamic finance assets worldwide and Islamic banking has expanded by more than 10% annually over the past decade, according to Standard & Poor’s. It’s grabbing the attention of some of the biggest banks in the world and changing how they do business.

So just what does Shariah-compliant banking entail? Some of it is simply prohibiting things seen as immoral. Investing in casinos, pornography and weapons of mass destruction is out.

The animating religious goal behind other restrictions is to achieve greater social justice by sharing risk and reward. Islamic finance bans people from selling what they don’t own, which rules out short selling, and from engaging in contracts deemed to have excessive uncertainty on either side. That rules out traditional insurance, so Islamic banks have instead developed takaful, in which a group of people pool risk.

The Shariah stipulation banning interest, though, is the one that poses the most problems for modern finance.

To be sure, from the Bible to Buddhism, most of the world’s faiths have issued warnings against usury, and theologians through the ages have debated the line between permissible and excessive interest rates. But ultimately, in the West, governments and religious authorities deemed some amount of interest permissible.

Not so in Islam, in which most scholars deem fixed-interest payments forbidden. So, for example, the sukuk issuer does not sell a debt, as a traditional bond issuer would, but rather sells a portion of an asset, on which the buyer is then entitled to receive rent. Likewise, rather than take out an interest-bearing loan, a business in need of financing might enter a musharaka, a partnership with profit-and-loss sharing.

Why the growth in Islamic finance now? After all, Islam’s rules have been around since the seventh century, and some Muslim countries have been rich since the discovery of oil.

One important factor has been the recent rise in religiosity in Muslim countries especially, after the terrorist attacks of September 11, 2001. With the US-led invasions of Afghanistan and Iraq, there was a feeling in many countries that Islam was a religion under siege.

Some observers date the rise in religious observance back even further, to the 1980s, when guest workers in Saudi Arabia from across the Muslim world began returning to their own countries, re-importing with them the strict Wahhabi subsect of Islam for which the desert kingdom is known.

Whenever this burgeoning religious observance began there is now an increasing appetite for Shariah finance. In some cases, Middle Eastern governments have embraced Islamic banking to advertise their religious chops.

Some of the growth in Islamic finance has also been due to clever positioning by Malaysia. After September 11, US authorities froze the bank accounts of several prominent Saudis, which triggered other wealthy Arabs to withdraw their funds from the United States.

Ultimately, some $200bn left the US. Many of the investors were from tiny Gulf states whose economies were too small to absorb their funds, and so they looked to Malaysia, a Muslim country with a relatively sophisticated financial system. It issued the first sovereign sukuk in 2002, and made a point of appointing Shariah scholars from the Gulf to monitor compliance.

Today, Kuala Lumpur rivals traditional hubs like Dubai and Bahrain as a global centre of Islamic finance.

In the end, the maths behind the growth of Islamic banking may be pretty simple: There are 1.3 billion Muslims in the world - roughly a fifth of the world’s population. Some live in quickly developing economies, some sit on vast oil wealth and some are newly middle-class Americans and Europeans.

No one can say for sure how many will seek out banking that complies with Shariah, but even a small fraction of 1.3 billion is a market no one wants to ignore.