The business of Islamic Finance is all about value driven profit. Value is defined and embodied in the purpose of the Shariah (Maqasid al-Shariah) while the right to profit is explained by property (mal), work (kasb) and responsibility (daman). Value deals with ethical principles and moral conduct of Islamic finance stakeholders in their pursuit of profits. This should be in line with the Shariah principle of al-ghorm bil ghuni meaning that “with profit comes risk”.
It is commonly understood that the purpose of the Law or Shariah is to protect the interest of the general public among which include the protection of property (mal). The Shariah protects property in many ways. One is to ban human conduct that thrives on the suffering of other people. The prohibitions on riba and gambling are two strong examples. The Shariah also accorded rights to property by way of trade, work and inheritance. Through trade, ownership of property is passed from seller to buyer so that the latter can freely dispose-off the property, when needed.
Islamic finance is often plagued with this issue of property ownership. Unable to cope with this problem suggests that the Maqasid of Shariah is not fulfilled yet. The Islamic business may not reflect true label, if this problem persist still.
But things have improved lately. To accord property rights, the inter-conditional clause (ICC) inenah sale has been banished. We saw evidences of commodity transfer in commodity murabaha transactions via ownership certification letter. Some Sukuk applied asset-back securitization structure involving true sale of assets by the originator to the special purpose vehicle (SPV).
Despite all of the above, a lot more insightful work is expected from all Islamic finance stakeholders. One is the ethical dimension of business which is the sharing of risk and the taking of risk as amplified by the legal maxim äl-ghorm bil ghuni. For instance, in commodity murabaha which is increasingly popular today, risk associated with the sales of commodities is practically zero. The only visible risk is credit risk that arises from the debt created from the sale. We also notice that commodity murabaha placements offer guarantees to both principle deposits and returns. While Shariah compliance is visible in contracts (áqd), less evidences on risk-taking is a point of concern.
By Prof. Saiful Azhar Rosly