Discussion of Book - Islamic Finance and the Shari'ah
Islamic Finance and the Shari'ah: The Dow Jones Fatwa and Permissible Variance as Studies in Letheanism and Legal Change is the first book in the Islamic Finance in Practice series and was published in December of 2013. It is intended to serve as an introduction to modern Islamic finance.
It is an introduction unlike any other, however. The book tells a story, one of the most compelling stories in modern Islamic finance.
The book focuses on a monumental fatwa (legal opinion) issued in 1998 to the Dow Jones Islamic Market Index in respect of equity investing in the Islamic capital markets. This fatwa - the DJIMI Fatwa - established a series of tests that are used to determine whether an investment in an equity security is permissible under the Shari'ah as interpreted in contemporary times. In so doing, the DJIMI Fatwa institutionalized the concepts of "permissible variance" or "permissible impurity" and related concepts (such as "cleansing" or "purification"). The book then traces the evolution of the permissible variance principles into a wide range of business transactions, including investing in and the financing of equity, private equity, real estate and project and infrastructure finance. Tracing the evolution of permissible variance principles leads to consideration of the more important transactional structures used in modern Islamic finance. In particular, the book considers in the structures of lease (ijara) financings, cost-plus sale transactions (murabaha transactions), and project and infrastructure financings.
Islamic Finance and the Shari'ah is a study of how change in law occurs, how ancient principles of the Shari'ah (as law) are applied in modern financial and commercial contexts. And it is a study of how the modern Islamic finance industry was born and has developed. The Shari'ah is interpreted by Shari'ah scholars, often sitting in groups as Shari'ah supervisory boards. Interpretations are enunciated through fatawa, or legal opinions. Thus, the book examines the roles, functions and methods of the Shari'ah scholars and Shari'ah supervisory boards and the nature of fatawa. Finally, the book addresses many of the primary criticisms that have been levelled at modern Islamic finance.
The Foreward to the book is written by Sheikh Yusuf Talal DeLorenzo, one of the leading Shari'ah scholars in the world and a member of the Shari'ah supervisory board that issued the DJIMI Fatwa.
It is an introduction unlike any other, however. The book tells a story, one of the most compelling stories in modern Islamic finance.
The book focuses on a monumental fatwa (legal opinion) issued in 1998 to the Dow Jones Islamic Market Index in respect of equity investing in the Islamic capital markets. This fatwa - the DJIMI Fatwa - established a series of tests that are used to determine whether an investment in an equity security is permissible under the Shari'ah as interpreted in contemporary times. In so doing, the DJIMI Fatwa institutionalized the concepts of "permissible variance" or "permissible impurity" and related concepts (such as "cleansing" or "purification"). The book then traces the evolution of the permissible variance principles into a wide range of business transactions, including investing in and the financing of equity, private equity, real estate and project and infrastructure finance. Tracing the evolution of permissible variance principles leads to consideration of the more important transactional structures used in modern Islamic finance. In particular, the book considers in the structures of lease (ijara) financings, cost-plus sale transactions (murabaha transactions), and project and infrastructure financings.
Islamic Finance and the Shari'ah is a study of how change in law occurs, how ancient principles of the Shari'ah (as law) are applied in modern financial and commercial contexts. And it is a study of how the modern Islamic finance industry was born and has developed. The Shari'ah is interpreted by Shari'ah scholars, often sitting in groups as Shari'ah supervisory boards. Interpretations are enunciated through fatawa, or legal opinions. Thus, the book examines the roles, functions and methods of the Shari'ah scholars and Shari'ah supervisory boards and the nature of fatawa. Finally, the book addresses many of the primary criticisms that have been levelled at modern Islamic finance.
The Foreward to the book is written by Sheikh Yusuf Talal DeLorenzo, one of the leading Shari'ah scholars in the world and a member of the Shari'ah supervisory board that issued the DJIMI Fatwa.
Foreward by Sheikh Yusuf Talal DeLorenzo
Sheikh Yusuf begins with a discussion of methodology in the application of the Shari'ah to commercial and financial transactions, what is commonly referred to as "Islamic finance". He notes the practice of beginning with fundamentals and thereafter applying an interpretive methodology, with full recognition that matters are often "impure" to various degrees. The practices and methodologies developed by Shari'ah scholars to address impurities led to the 1998 issuance to the Dow Jones Islamic Index of a monumental fatwa - the DJIMI Fatwa - which expressly addressed, and institutionalized a set of principles regarding, matters of impurity. "As the reader will gather from the pages of this book, the presence of a common legal tradition in practical (furu) and theoretical (usul) jurisprudence, as well as the dynamic of ijtihad (especially when performed collectively) and the tradition of allowing jurisconsults to offer formal opinioins, were all factors that contributed to the making of the landmark Dow Jones fatwa. Indeed, all of these contribute to the continued growth of the Islamic financial products and services industry." Sheikh Yusuf then considers the question of the objectives of modern Islamic finance, examining a range of possibilities. He also discussed the necessity of change, in law, in commerce and finance, and in Muslim society and the role of Islamic finance in effecting change in each of these realms..
General Overview of Islamic Finance and the Shari'ah
Islamic Finance and the Shari'ah is about how Islamic finance is conducted in contemporary times. It was created as an introduction to Islamic finance in practice for students and practitioners. However, the method of the book is unlike any other Islamic finance book. This book tells a story: a story of how law (here, the Shari'ah) changes, of who effects those changes (Shari'ah scholars), of how those changes are premised and constrained, and of how an industry changes. After reviewing the essential nature of the Shari'ah and the fundamentals of the interpretive methodologies used in applying the Shari'ah in the context of commerce and finance, the book discusses Shari'ah scholars, Shari'ah boards and the nature of the fatawa (legal opinions; fatwa is the singular) that are used to effect those changes. The story then begins with a monumental fatwa - the 1998 fatwa rendered to the Dow Jones Islamic Index in connection with the establishment of the equity side of the capital markets in the Islamic finance realm. That fatwa dealt, specifically, with determinations of when an investment can be made in equity securities of entities that are impure (because then have impure income or expenses (such as interest) or conduct impure business activities (such as transactions involving alcohol or pork for human consumption, interest-based financing, pornography or other activities that are impermissible under the Shari'ah (and under other ethical codes of conduct)).
More broadly, that fatwa addressed "permissible impurity" or "permissible variance" in activities with which Shari'ah-compliant investors or participants may become involved. And here the story takes form as it traces how those principles have developed and been applied in a wide range of different industries and transactions. The first developments related to the specific equity investment tests that were set forth in the DJIMI Fatwa. The tests were first refined, and then they began to evolve to encompass new methodologies (largely in response to global changes in technology and in the availability of information). Soon, the tree began to grow new limbs and branches: the principles began to be applied in areas other that equity investing. They were applied in private equity transactions, in real estate investment and finance transactions, in project and infrastructure financings, and in numerous other endeavors. This book tells the story of when, how and why these developments occurred. It addresses the various considerations that influenced those developments. And the story leads us through many of the most widely-used structures that comprise contemporary Islamic finance, such as the lease (ijara) and cost-plus sale (murabaha). It explains why Islamic finance can operate in systems that take no cognizance of the Shari'ah as a matter of law and systems that are premised entirely on interest-based paradigms.
In telling this story, Islamic Finance and the Shari'ah addresses many of the primary criticisms that have been levelled against Islamic finance. And the book uses the DJIMI Fatwa as a study in how legal change, considered as a jurisprudential matter, occurs.
The book is divided into four parts. Part I outlines the context and provides background for later discussions. Part II introduces the Shari`ah and its interpretation and discusses Shari`ah scholars, Shari`ah boards and the fatwa (legal opinion) as relevant in Islamic finance. Part III discusses the DJIMI Fatwa and groupings of sequelae, including bifurcated transactions that allow Islamic finance to be practiced throughout the world and controversial murabaha transactions. Six areas of evolution and expansion are considered and these cover many of the major areas of contemporary Islamic finance. Finally, Part IV addresses issues pertaining to and criticisms of Islamic finance.
Please see the full table of contents of Islamic Finance and the Shari'ah.
More broadly, that fatwa addressed "permissible impurity" or "permissible variance" in activities with which Shari'ah-compliant investors or participants may become involved. And here the story takes form as it traces how those principles have developed and been applied in a wide range of different industries and transactions. The first developments related to the specific equity investment tests that were set forth in the DJIMI Fatwa. The tests were first refined, and then they began to evolve to encompass new methodologies (largely in response to global changes in technology and in the availability of information). Soon, the tree began to grow new limbs and branches: the principles began to be applied in areas other that equity investing. They were applied in private equity transactions, in real estate investment and finance transactions, in project and infrastructure financings, and in numerous other endeavors. This book tells the story of when, how and why these developments occurred. It addresses the various considerations that influenced those developments. And the story leads us through many of the most widely-used structures that comprise contemporary Islamic finance, such as the lease (ijara) and cost-plus sale (murabaha). It explains why Islamic finance can operate in systems that take no cognizance of the Shari'ah as a matter of law and systems that are premised entirely on interest-based paradigms.
In telling this story, Islamic Finance and the Shari'ah addresses many of the primary criticisms that have been levelled against Islamic finance. And the book uses the DJIMI Fatwa as a study in how legal change, considered as a jurisprudential matter, occurs.
The book is divided into four parts. Part I outlines the context and provides background for later discussions. Part II introduces the Shari`ah and its interpretation and discusses Shari`ah scholars, Shari`ah boards and the fatwa (legal opinion) as relevant in Islamic finance. Part III discusses the DJIMI Fatwa and groupings of sequelae, including bifurcated transactions that allow Islamic finance to be practiced throughout the world and controversial murabaha transactions. Six areas of evolution and expansion are considered and these cover many of the major areas of contemporary Islamic finance. Finally, Part IV addresses issues pertaining to and criticisms of Islamic finance.
Please see the full table of contents of Islamic Finance and the Shari'ah.
