Islamic Finance and Shariah Compliance - More Than This
April 26, 2018 | Updated at May 24, 2018
It is a pleasure to introduce our third ‘thought piece’ explaining why and how Islamic Finance is more than Shariah compliance. We have titled the piece “More than This” as that describes our feelings about the subject in just three simple words. The following comments should give you a good understanding of why Islamic finance is indeed about a great deal more than just Shariah compliance.
Following the Maqasid al Shariah is much more than a compliance issue. It is a way of life. We often hear about ‘form over substance’ or conversely ‘substance over form.’ Both of us lean towards the substance over form approach, and in many ways, it has been discussions in this idiom that have developed our friendship and our line of thought on many topics. Sadly, many take the approach that Shariah is a list of instructions that you have to tick off in order to maintain compliance. This line of thought is, in part, endorsed by factors such as the process of negative screening for Shariah-compliant stocks and investments, which gives the impression that if the box is ticked then everything is okay. This form of screening should be for guidance only, and, does not do a particularly good job at ensuring Shariah compliance overall. For example, the permissible percentage of debt or leverage in a company that uses conventional finance is a good example of the limitations of considering Shariah compliance as sufficient. If you come under the number prescribed, you are Shariah compliant; if you are over the ratio then you are not. Does that mean that stealing less than a prescribed amount from someone is somehow OK?
The essence of our message is that Shariah compliance is not quite as simple as a box-ticking exercise to determine in ‘form’ terms whether you are compliant or not. In ‘substance’ terms, you would need to look at the objectives of the Shariah, known as the Maqasid, and understand the role of Stewardship that all Muslims are entreated to perform as guardians and protectors of the planet and of all humanity.
The two of us have the great opportunity to interact with incredible people around the world. It is amazing to see the breadth of experience and the many religions across this group of people. Perhaps surprising to some, religious guidance on the ‘substance’ approach is very similar. Whilst this post is focused on Islam, the same discussion is relevant to all major religions.
In future articles we will address this topic in more detail and start to describe the clear alignment of the objectives of the Maqasid al Shariah with such things as the 17 Sustainable Development Goals (SDGs) of the United Nations. It suffices, for the time being, to encourage you to start thinking in very simple terms about ‘substance.’ What is the intention? What is the desired outcome? What are the behaviours required to demonstrate good intentions? All of which must be supported by a governance process as well as guidance and encouragement to ensure that outcome. The Shariah is exactly that from a ‘substance’ point of view, and from a ‘form’ point of view, the Shariah allows you to tick the boxes, but it does nothing to encourage the focus of your attention on the desired outcome. Simply put, this is what is known as "A Duty of Care." A concept that we would encourage everyone to follow.