by Dr. Zulkifl Hassan


Islamic finance has emerged as an alternative and competitor to the commonly used conventional banking system. Since its establishment, the system has been slowly adapted into the existing banking system and has proven its effectiveness and sustainability. While witnessing the significant progress and positive development of Islamic finance, we also cannot ignore the critiques and negative appraisal on its current implementation and practices. The literature has indicated the growing frustration of scholars and proponents of Islamic economics on the failure of Islamic finance in addressing the real economic and ethical issues beyond the legal realm of Shari’ah-compliance. In fact, the imitation of many Islamic finance products and services with conventional has resulted in making Islamic instruments seen as a sub-set of those available in conventional finance.

Over Legalism In Islamic Finance and Its Drawbacks

Considering the valid concerns of various scholars and stakeholders, it is imperative to revisit the present Islamic finance practices and to advocate holistic reform to ensure its dynamicity and authenticity. The current form of Islamic finance practices is dominantly influenced by the legalistic approach and has produced various implications and these include:

  • Mere Shari’ah Compliance: There are no substantial changes in financial objectives.
  • Shifts Attention Away from the Values and Principles: Legalism delinks Islamic finance from its purpose and spirit which leads to overemphasizing form over substance or ritual over the values and consciousness underlying those ritual;
  • Less Concern on Ethics: Legalistic approach ignores the broader issues related to the moral teachings of Islam;
  • Relying on Legalism will not Free Islamic finance from Crisis and Difficulties: There are no significant differences in terms of the effect of the financial crisis on the soundness of Islamic finance and Conventional banking system.
  • Convergence with Conventional Practices: A divergence between the theory of Islamic finance and the way it is practiced.

The Preferred Futures of Islamic Finance

Although Islamic finance is conceived to be inherently stable, in reality it is actually not immune from the financial crisis as it is part of the global financial system. Studies show that the adherence to Islamic finance per se does not guarantee that this sector is safe from any economic crisis. In fact, Islamic finance will face significant challenges when it reaches to certain degree of complexity and sophistication of financial products and instrument such as derivatives that have been always the hallmarks of its conventional counterparts.
Islamic finance needs to have the right post-pandemic vision to ensure change towards a better future. For this purpose, the author speculates four futures scenarios of Islamic finance namely (i) The Disowned: Business as Usual; (ii) The Outlier: Failure and Crisis; (iii) The Ideal: Replacing the World Financial System; and (iv) The Preferred: Value-oriented and Beyond Legalism.

Beyond Legalism and Shari’ah Compliance

In general, there are three stages of Islamic finance practices. The Stage 1 refers to where Islamic finance focuses on how to migrate Muslim from practicing riba and to free the transaction from any Shari’ah prohibited elements. The Stage 2 moves towards more genuinely based Shari’ah by removing excessive hiyal in their practices. The author suggests that Islamic finance now must be ready to transform towards the Stage 3 where it shall go beyond contractual transaction and concern more with the tayyib and ihsan dimensions of having a good and responsible finance. The overall business dimension and permissibility of a transaction will not only depends on the pillars of a valid contract but also on the values, ethics, outcome or consequences of the transactions. Islamic finance is also concerned on the overall implications and impacts of the products and services offered by IFIs.
The preferred futures of Islamic finance shall go beyond legalism and Shari’ah compliance towards value-oriented practice. This value-oriented practice should integrate the following frameworks:

  • Tenet-Bound: Fundamental tenets derived from Shari’ah;
  • Principles-Bound: Concept is grounded on ethics and values;
  • Real-economy Linked: Asset-backed transactions with investments in real and durable assets; and
  • Holistic Communal Prosperity: Serving communities not only markets.

Strategic Approaches

The author proposes four approaches in transforming and fostering Islamic finance by advocating and internalising the principles of Maqasid al-Shari’ah

Value-oriented Jurisprudence

A value-oriented jurisprudence that employ ethics and go beyond legalism and Shari’ah compliance in the context of maqasid al-Shari’ah. It is imperative for the Shari’ah board to take into account the Maqasidic approach on top of illah (legal cause) in deliberating the Shari’ah rulings with the objective of establishing the requirements of maqasid Shari’ah in an aspirational sense

Value-oriented Stakeholders Management

Maqasid approach as a principle to formulate the IFI’s objectives, to determine the stakeholder roles and obligations, tools for decision making process, consideration for Shari’ah rulings. The stakeholders do not necessary refer to the shareholders per se or to those who have active participation in the decision-making process, but it includes non-investor or non-owner stakeholders, i.e. any party who has direct or indirect participation in the corporation. The IFI’s objective should not only be motivated with the profit maximization but also should aim to maximize social welfare function. The shareholders, BOD and managements, also play a big role as active participants and conscious stakeholders in the process of decision-making and policy framework by considering the interest of all direct and indirect stakeholders.

Value-oriented Intermediation

Value-based Intermediation (VBI) promotes Maqasid al-Shari’ah, a more holistic approach of Shari’ah, beyond legalism and Shari’ah compliance. VBI considers the outcomes of Islamic finance products and services to focus on the enhancement of well-being of the people through preservation of wealth, faith, lives, posterity and intellect. VBI can be a game changer to transform Islamic finance towards value-oriented practices.

Value-oriented Economic Policy

Strategic approaches in transforming Islamic finance must be supported with value-oriented economic policy that incorporate the Maqasid al-Shari’ah principles. Economic planning and development must promote inclusive wealth and intergenerational well-being and emphasise both the legal and socio-economic needs of the community; enhancement of the community’s economic resources; and improvement in the cultural milieu of the community. Value-oriented economic policy will be a catalyst for a sustainable and effective Islamic finance that encompasses the halal and tayyib principles.


There are some valid and legitimate concerns on the current practices and trends of Islamic finance. It is important to critically evaluate the performance of IFIs against their foundational base and at the same time to maintain its positive development. Value-oriented practices based on Maqasid al-Shariah aims to endogenise all the interests and rights of all the stakeholders in the wider sense in the process. The novelty of such a conceptualization emerges from the fact that it extends the model beyond mechanistic fiqhi perspective into value or religio-spiritual oriented dynamic maqasid understanding. As Islamic finance is multi-dimensional, its reform requires a maqasidic approach from both micro and macro perspectives.

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