Product Development and Maqāṣid in Islamic Finance: Towards a Balanced Methodology

Islamic finance and its adherence to the core objectives of Sharī‘ah (maqāṣid) has been a controversial issue for some time. However, this debate has intensified in the last few years. Two particular issues have been widely argued. These are the overuse of debt-based instruments by Islamic financial institutions and the strict compliance of large number of ṣukūk structures with Sharī‘ah principles. The current reliance of the industry on debt-based instruments is considered to be a failure and not in line with maqāṣid al Sharī‘ah. This paper argues against this conclusion, as it is unwarranted and based on shaky grounds. In correspondence to this issue is the ṣukūk market and, despite its resounding success, suffers from some structural shortcomings. These defects are illustrated in this paper by the absence of ‘true sale’ in most ṣukūk issues in the market. This flaw casts real doubts regarding the transfer of the ṣukūk’ assets from the balance sheet of the originator to that of the issuer, and as a result becomes the source of misgivings regarding the Sharī‘ah compliance of some ṣukūk structures and their conformity with maqāṣid al Sharī‘ah. The paper argues that if these shortcomings are not addressed then it can be argued that these structures are not in full conformity with maqāṣid al Sharī‘ah. Some suggestions and recommendations are proposed to address these critical issues.