Muslim scholars have generally classified maqasid al shariah into three categories, which is darruriyat essentials, hajiyyat embellishment and tahsiniyyat(embellishment). Darruriyat is considered vital for the well being in this world and hereafter, neglect in which result in chaos and imbalance in wellbeing of all in this world and hereafter. Essentials is further divided into five categories in which lawgiver aims to protect, which is preservation of religion, preservation of life, preservation of lineage, preservation intellect and preservation of wealth. Hajiyyat is complementary to the essential. Neglect in this aspect will not lead to total disruption or chaos in human life. It aims to create ease in prevent hardship. Ibn Ashur defined the meaning complementary as "It consists of what is needed by the community for the achievement of its interest and proper functioning of its affairs". The embellishment relates to matter in enhancement and improvement in the life of a society, for example clean body and attire for ibadah purposes,offering charity and avoiding extravagance, ethical and moral rules and etc. Neglect in this part will not lead to disruption in normal order of life.
Maqasid al-Shariah in Islamic Banking and Finance
The significance of Maqasid al-Shariah in Islamic Banking and Finance is based on the perspective of the wealth in Islamic Law. This can be relate to the objective of Islamic Law which is the preservation of wealth (al-mal). The protection and preservation of wealth is considered one of the essentials ( darruriyat in which Lawgiver aims to protect. Neglect in this part will lead to disorder and chaos as mentioned in previous discussion. Therefore, it can be highlighted here that Maqasid al-Shariah
Therefore, it is important to give emphasize on the importance of the realization of maqasid al-Shariah in present Islamic Banking and Finance, this is because first, there is a strong correlation between the objectives of shariah and objectives of business transaction as it can be observed that from the position wealth in Maqasid al-shariah that request the preservation of it in everyday business transaction and the encouragement of socially responsible activities. As consequences, when business transaction is abandoned by society it will result to poverty and disorder. Secondly, the principle of Islamic Law and fundamental objective of Islamic Law is important in the application of business transaction domestically or internationally as they must follow the guidelines and principle laid down by Islamic Law. Third reason is the regulation of business transaction must be based on the rules and requirements of Maqasid al-Shariah that is it should administer and govern by the shariah principle of Islamic Finance.
One of the most important issues in Islamic Banking and finance today is to developed products and services that is Shariah compliant and or genuine from Islamic point of view without Shari'ah without reducingthe importance of the business features of being competitive, profitable and viable in the longrun. However, there are several issues that should be addressed and one of the most pressingis what should be the foundation in justifying whether a product Shari'ah -compliant or not? Islamic Financial System that can be considred genuine is based on Islamic principle and value that eliminates riba and ensure and ensure profit sharing mechanism.
What is islamic Banking and Financial System
In defining Islamic Banking and Financial System, let us forst seperate the term to Islamic banking and Islamic Finance
The definition of Islamic Banking as given by Organisation of Islamic Conference (OIC) is a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations" means it is a banking activity that is consistent with the principle of shariah.
Therefore Islamic Banking and finance legal definition provided by Islamic Banking Act in 1983 is "banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam"
Islamic Banking and Finance System is a financial system that is based on islamic principle and value which is free from riba and based on ensure a profit sharing instrument and not debt financing instrument.
Islamic banking and Finance is considered genuine when it is free from interest based transaction, free from uncertainty gharar,and transaction does not involeved with unlawful or prohibited activities such as gambling, trade in wine, liquors etc.
The basis of Islamic Financial system is it is a sytem based on belief in unity of God and relate this belief with economic life of man. Allah S.W.T is the exclusive owner of all resources while man is the vicegrant of Allah who is responsible in taking care of the property and wealth provided by Allah S.W.T. The goal of Islamic Financial instutuion is to ensure that the welfare of human being is taken care of both in this world and the hereafter and also ensuring proper and equitable distribution of income and wealth among all in the society.
Principle of Islamic Banking and Finance
The basic structure of Islamic banking and Financial System is a collective set rules and laws refered as Shariah which govern the social , political and culture aspect of Islamic socities. Shariah derived the rules and law from the divine revelation which is Quran and its elaboration and explaination is derived from the Sunnah. Scholars in Islamic jurusprudence has also further elaborates it within the framework of Islamic jurisprudence.
Prohibition of Riba
Literally riba means excess, increase, expansion, growth. Technically riba means, every excess in return which no reward or equivalent countervalue is paid. Riba can also be interpret as "unjustifiable increase in capital whther in loans or sales". For example , regardless of the outcome of investment, whether profit or loss, the borrower is obliged to pay a fixed amount of interest on the amount of money borrowed even if the borrower had incurred loss. This is therefore not perceived as just and reasonable on the part of the borrower because the lender is guaranteed to get the interest rate. The prohibition is based on the argument of social justice, equality and property rights. Islam allows earning of profits but by lawful means which means without charging interest .Therefore, Islam encourage a productive dealing by hsaring loss and profit accordingly.
Risk Sharing
The prohibition of riba in Islamic banking and Finance had caused the supplier of funds to be investor instead of financier or creditors. Instead of merely lending money, the contributor of capital must get involve in risky business activity and in return they will get share of profit from the investment. Profit and loss have to be shard accordingly, Islamic Bank must take risk in the investment made by the other parties. Profit earned byIslamic Bank without taking risk in the invesment is considered unjustiified.
Prohibition of speculative behaviour
Islamic Banking and Financial System must be free from uncertainty or gahar as on of the condition for valid sales is certainty tehrefore any forms of speculative or doubt must be avoided. Transaction with extremes uncertainties, gambling and risk is prohibited as well.
Sanctityy of contract
Disclosure of informaation between parties involve in transaction is necesary this is to reduce the risk of assymetric information and moral hazard.
Prohibition of illegal activities
Activities that are unlawful from Islamic perspective is not allowed. Activities involved in invetsment must not violate the rules of Shariah. For example unlawful business activities is dealing with alcohol business, gambling, casinos and etc is prohibited.
http://www.kantakji.com/fiqh/Files/Finance/N363.pdf rahnu
http://www.slideshare.net/saifulchowdury/islamic-financial-system-4415695#btnNext
http://www.academia.edu/1146010/Maqasid_Al-Shariah_in_Islamic_Finance_An_Overview
