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The Fatāwá in Islamic Banking and Financial Industry: Explaining the Use of
Darūrah (Dire Necessity) and Hājah (Need) Maxims

Article · December 2019

DOI: 10.26501/jibm/2019.0902-008

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 Journal of Islamic Business and Management
2019, 9(2), 355-367
https://doi.org/10.26501/jibm/2019.0902-008

ANALYTICAL RESEARCH

The Fatāwá in Islamic Banking and Financial Industry: Explaining the Use
of D. arūrah (Dire Necessity) and H
. ājah (Need) Maxims

Muhammad Abubakar Siddique 1 *, Abdul Rashid 2

1
Lecturer and Ph.D. Scholar of Islamic Banking and Finance, International Institute of
Islamic Economics (IIIE), International Islamic University Islamabad (IIUI), Islamabad, Pakistan
2
Associate Professor, International Institute of Islamic Economics (IIIE),
International Islamic University Islamabad (IIUI), Islamabad, Pakistan

Keywords Abstract: Sharı̄‘ah objectives in relation to people are to secure interest of all and
Sharı̄‘ah Legitimacy avert harm/hardship from them. These objectives have been taken care of in different
D. arūrah Sharı̄‘ah rulings. Regarding economics and finance, the principle of prevention of
H. ājah harm has been especially observed in the sphere of various Islamic contracts and
Islamic Banking business transactions. This study focuses on the use of maxims relating to d. arūrah
Islamic Finance (dire necessity) and h. ājah (need), which redress the harm from people. Based on
Products these maxims, Sharı̄‘ah scholars/committees have often been issuing the license
of legality to several Islamic banking and financial transactions and products. The
Received: 3-Aug-19 objective of the paper is to explain whether h. ājah and d. arūrah are amalgamated
Accepted: 30-Nov-19 concepts, and to find out the extent to which the maxims of h. ājah and d. arūrah
are being exploited in Islamic banking transactions and products. In so doing, the
paper, through a literature review, differentiates h. ājah from d. arūrah. Analyzing the
transactions and products as being used in Islamic Finance Industry (IFI), paper
asserts that h. ājah, rather than d. arūrah, is being entertained, and exploited to some
extent. The paper also puts forward some suggestions for the stakeholders of Islamic
banking and financial industry.

KAUJIE Classification: A6, B4, C2, C3, L2, K0

JEL Classification: I3, L14, Z12
© 2019 JIBM. All rights reserved.

INTRODUCTION
Sharı̄‘ah is a vast encyclopedia of juristic rulings along with the mechanism and maxims
relating to relaxation (rukhs. ah) and permissibility (ibāh. ah) for odd situations. It was not
a cakewalk for contemporary Islamic banking to reach its current position. It had to go
through many difficult stages. New world of Islamic finance emerged facing different hurdles
regarding its products, operations, contracts, and transactions. Sharı̄‘ah scholars faced many
* Corresponding author: Muhammad Abubakar Siddique
†
Email: [email protected]

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 356 Siddique, M. A. & Rashid, A. - The Fatāwá in Islamic banking and financial industry: .... 2019

juristic challenges to guide the institutions how to meet their needs in the light of Sharı̄‘ah.
Keeping the newly engineered financial products Sharı̄‘ah compliant, avoiding or removing
the complexities and hardships is a difficult task.
Islam is the religion of relief (yusr) that facilitates human being in different fields of
life under the Divine guidance (Al-Shatibi, 1997). Benefits, interests, and needs of human
being are the main part of Sharı̄‘ah objectives. The classical jurists analyzed the Sharı̄‘ah
objectives parallel to the hardships which could be faced in obtaining these objectives. They
ranked Sharı̄‘ah objectives according to the severity of hardships and named them d. arūrah
(unavoidable necessity) or h. ājah (less essential desires) accordingly1 . They also developed
different principles and rules consequently. Many matters are in practice after extracting the
license of legality under the Sharı̄‘ah principles of d. arūrah and h. ājah. However, there is
confusion about such matters whether they belong to the category of d. arūrah or h. ājah, or
none of the two and what could be the suitable verdict (h. ukm)?

Background
Contrary to conventional economic system, it is a unique feature of Islamic economic system
that all of its affairs are covered under the Divine principles. It is mandatory that Sharı̄‘ah
principles must be followed in true spirit and not circumvented. Therefore, a fatwá is required
to justify every new embryonic matter in Islamic paradigm. Fatwá is known as the issuance
of Sharı̄‘ah opinion on behalf of the Holy prophet (PBUH) (Al-Shatibi, 1997). Contemporary
Islamic banking emerged as an alternative of interest-based banking system. It brought new
challenges to the Islamic world with respect to Sharı̄‘ah compliance and permissibility of op-
erations and offerings of Islamic Banks (IBs) and Islamic Financial Institutions (IFIs). Fatwá
in Islamic finance is a legal device through which a competent Sharı̄‘ah scholar extracts from
Islamic sources any rulings on ambiguous matters through a process of ijtihād in the light
of principles of Islamic jurisprudence (Lahsasna, 2011). Fatwá is a device that plays a vital
role in ensuring that Islamic financial principles are being followed in IBs and IFIs in true
spirit of Sharı̄‘ah (Laldin, Khair, & Parid, 2012). All IBs and IFIs are bound to follow the
fatwá given by their Sharı̄‘ah advisor/Sharı̄‘ah board regarding their operations, products and
services (Accounting and Auditing Organization for Islamic Financial Institutions, 2010, SS
No. 29, clause 6/1, p: 510).
Over the last four decades, Islamic financial engineers have been playing a vital role
in the development of new contracts to meet the need of newly emerged IFI. In so doing,
they ask for fatwá from their Sharı̄‘ah board to keep newly developed transactions and
products Sharı̄‘ah compliant, and the Sharı̄‘ah boards guide them accordingly in the light of
Sharı̄‘ah principles. The critics like Abozaid and Dusuki (2007), Hussain and Choudhury
(2007), Meera and Razak (2005), Wajdi (2009) and Zakariyyah (2012) are accusing Sharı̄‘ah
boards of exploiting the Sharı̄‘ah maxims of d. arūrah and h. ājah to circumvent the Sharı̄‘ah
prohibitions of ribā and gharar. Such criticism is defaming Islamic Banking and Finance
Industry (IBFI) and creating false perception about it among people. According to Abozaid
1
Generally, English word “Need” means h. ājah and Necessity means d. arūrah, without which one could not
pull-on.
 2019 Journal of Islamic Business and Management Vol. 9 Issue 2 357

and Dusuki (2007), Islamic banks exploited the Sharı̄‘ah maxim of d. arūrah in their fatwá to
get a legal excuse for products impermissible otherwise, e.g., bay‘ bi-thaman ajil (deferred
sales contract) and Islamic Pawn Broking. They argued how Islamic banks can launch
products using maxim of d. arūrah while people can survive without those products. If it
is presumed that such products are necessary for the survival and long-term sustainability
of IBFI due to certain considerations, then the argument is that very concept of bank itself
is not indispensable for the people’s survival from the Sharı̄‘ah perspective. If the maxim
of d. arūrah supposedly exists in dealing with Islamic banks, then it would rather approve
the dealing with conventional banks directly on the same grounds (Abozaid & Dusuki,
2007). Majid (2011) says that takāful operators are using d. arūrah principle to get the legal
excuse to commit prohibited deeds like obtaining covers from reinsurance companies of the
conventional system.
The purpose of this study is to explain whether h. ājah and d. arūrah are amalgamated
concepts, and to find out the extent to which the maxims of h. ājah and d. arūrah are being
exploited in Islamic banking transactions. The paper also highlights how to remove the
obstacles of the impermissibility in many financial matters and to smooth the regulatory
process for IBFI. It critically analyzes the banking and financial transactions and products
that were pointed out by critics.

D. ARŪRAH (DIRE NECESSITY) AND H

. ĀJAH (NEED)
According to Al-Shatibi (1997), maqās. id do not go beyond three categories: al-d. arūriyyāt,
al-h. ājı̄yāt, and al-tah. sı̄njı̄yāt (embellishments) (Al-Shatibi, 1997). This is the preference
order, which facilitates the process of choosing and preferring one over the others, in case
there is a conflict between them. This can be named as Al-Shatibi’s (1997) theory of maqās. id
preference. The first two categories are subject to relaxation to preserve the maqās. id al-
Sharı̄‘ah in broader way, and it depends upon the situation and severity of matter. Therefore,
this paper is limited to the first two categories only. In fact, the embellishments are not
subject to rukhs. ah and al-takhfı̄f , so they do not fall under the scope of the paper.

D. arūrah
D. arūrah, which represents the state of emergency, generally renders the prohibited things
permissible as this constitutes a well-established fiqh maxim in the Sharı̄‘ah “Necessities
relax prohibitions”. Classical and modern scholars consider d. arūrah either in specific sense2
or in general sense3 .
Al-Suyuti (1990) explains d. arūrah as follows: “A person reaches such a situation that if
he does not indulge in prohibited deed, he will die or reach close to death (then it would be
d. arūrah)”. Al-Hamawi (1098H) confirmed this definition with bit different words. According
2
Abubakr Al-Jassas (370H), Ibn al-Arabi (543H), Imam Fakhruddin Razi (606H), Al-Qartabi (671H), and
Al-Suyuti (911H).
3
Imam Ghazali (505H), Izz al-Din ibn Abd al-Salam (660H), Al-Shatibi (790H), Shaikh Abd al-Wahhab Khallaf
(1375H), Abu Zahrah (1957) (p:43), Shaikh Mustafa Zarqa (1419), Al-Zuhaili (1975, p. 73), and Al-Raisuni
(Muhadarat, p. 189-191)
 358 Siddique, M. A. & Rashid, A. - The Fatāwá in Islamic banking and financial industry: .... 2019

to Al-Shatibi (1997), “As for d. arūriyyāt, the meaning is that they must seek to establish
interests of the dı̄n (hereafter) and this world, so that if they are missing, the interests of this
world lose their harmony. In fact, their absence leads to corruption and trials as well as to
the loss of life. In the Hereafter, it leads to the loss of success and blessings and reversion to
manifest loss.
From the first definition, it becomes clear that one can indulge in prohibited activities
entertaining the concept of d. arūrah only to save one from death. To convey this concept of
d. arūrah, usually examples of pork or prohibited carrion are presented in the literature. In
this scenario, d. arūrah becomes limited to the situation of id. t.irār4 . Consequently, it does not
remain an appealing definition of d. arūrah, because it ignores the equally important matters
other than life, like the other Sharı̄‘ah objectives-narrows the vast concept of d. arūrah into
the life preservation. The second definition is not confined to just life, rather it includes all
fields of life and all those cases where life is not in danger, but there is a big loss and trouble
to life through affecting property, intellect, religion, and progeny.
Al-Raisuni (1995) explained Al-Shatibi’s (1997) view that al-d. arūriyyāt are things which
are necessary for the achievement of human beings’ spiritual and material wellbeing. If these
essentials are missing, the result will be imbalance and major chaos in both this world and the
hereafter. Moreover, their lacking will cause greater or lesser corruption and disturbance in
people’s lives (p. 146). Abu Zahrah (1957) commendably explained the concept of d. arūrah
in following way: the necessity regarding life is to preserve the life and organs and all that
without which life cannot be sustained, while necessity regarding the property and progeny
is that without which property and progeny cannot be preserved.

H . ājah
Al-Shatibi (1997) defined h. ājah in the words, “Complementary interests; people need them
in terms of expansion and also to remove the hurdle often leading to severity and hardship
which cause the loss of objective. If these interests are not observed, people will face severity
and hardship, though, which will not reach at the level of total disruption of the public
interest”. He further says that h. ājah is also acknowledged for ‘ibādāt (worships), ‘ādāt (Cus-
toms), jināyāt (punishments), and mu‘āmalāt (contractual matters). Al-Zuhaili (1975) also
explained and differentiated the h. ājah from d. arūrah. According to him, h. ājah is considered
beneficial to alleviate the hardships and severity from people, but its absence does not pose
a threat to the life (Al-Zuhaili, 1975, p. 53). However, it is Ibn ‘Ashur (1984) who defined
h. ājah comprehensively. According to him, “h. ājah consists of what is required by the people
for the realization of their interests and the proper execution of their affairs. The social order
would not, in fact, collapse, but will not function properly, if it is ignored. Likewise, h. ājah is
not on the level of d. arūrah.
In simple words, the h. ājah is subordinate to d. arūrah (Zarqa, 1989, p. 209) and it grants
legal excuse from hardship, so that one can enjoy a life free from distress and predicament.
According to Al-Raisuni (1995, p. 146), al-h. ājı̄yāt are the interests which, when fulfilled,
contribute to relieving hardships and difficulty and creating ease in the lives of mukallafı̄n
4
Id. t.irār is a state of being forced or being coerced in which one’s death is certain otherwise
2019 Journal of Islamic Business and Management Vol. 9 Issue 2 359

(those who are accountable before the law).

THE DIFFERENCE BETWEEN D. ARŪRAH AND H

. ĀJAH
In addition to the above discussion, we indicate the following differences between d. arūrah
and h. ājah:
1. The relaxation granted in case of h. ājah remains everlasting, but it would remain
temporary in case of d. arūrah (as necessities are estimated according to limits there under)
(Zarqa, 1989, p. 209). Al-Zuhaili (1975) also confirmed the opinion that relaxation granted
in case of h. ājah remains everlasting.
2. D. arūrah can be effective in permitting things which are prohibited by default (h. arām
bi al-dhāt) such as using alcohol, and eating pork, while h. ājah can be effective only in
things which are prohibited by external factors (h. arām bi al-ghaı̄r) such as to say prayer in
a snatched land is permissible (Abu Zahra, 1957). Organisation of Islamic Cooperation Fiqh
Council (2000) passed the resolution no. 50/1/6: House is a basic human need (h. ājah). This
need should be fulfilled through legitimate means by lawful (h. alāl) money. The method of
advancing loans on interest adopted by the real estate and housing banks or other financial
institutions is prohibited under Sharı̄‘ah, no matter how high or low the interest rates may
be, because this method is based on ribā (usury) transaction and it cannot be allowed on the
basis of h. ājah, because h. ājah cannot make h. arām bi al-dhāt things permissible.
3. According to Ibn al-Qayyim (1991), h. ājah makes permissible what is prohibited as a
protective measure (sadd al-dharı̄‘ah) for public interest, while what is prohibited by clear
text can only be permitted by virtue of d. arūrah.
4. D. arūrah provides a legal excuse regarding matters, which are announced h. arām by
Qur’ān and Sunnah. The case of h. ājah is different in a way that it grants legal excuse in
matters which often do not contradict with Qur’ān and Sunnah, but with general principles
(qawā’id ‘āmmah).
5. D. arūrah includes h. ājah, but not vice versa, as Al-Shatibi (1997) says that an imbalance
in the domain of h. ājı̄yāt does not dictate an imbalance in d. arūriyyāt, but its complete
imbalance may cause partial disturbance in d. arūriyyāt. While a little disorder in d. arūriyyāt
will lead to complete imbalance in h. ājı̄yāt.
From this discussion, it becomes clear that d. arūrah and h. ājah are not amalgamated
concepts. Both have different conditions and applications. Researchers and critics should
think on these guidelines in their analysis and Islamic financial engineers should keep these
prerequisites in their view before entertaining the h. ājah maxim.

ELEVATION OF H
. ĀJAH TO THE LEVEL OF D. ARŪRAH
Islamic jurists are of different opinions whether both, or only h. ājah ‘āmmah could be elevated
to the level of d. arūrah. In the opinion of Al-Juwayni (1997), h. ājah ‘āmmah is considered
equal to d. arūrah when it is collective and universal. He denied such elevation of h. ājah
khas. s. ah in favor of individuals. Al-‘Anzi (2015) said that only h. ājah ‘āmmah can make
a h. arām thing permissible, if it is close to h. alāl like ijārah, otherwise it cannot make it
360 Siddique, M. A. & Rashid, A. - The Fatāwá in Islamic banking and financial industry: .... 2019

permissible the prohibited like eating pork, taking one’s property through unfair means, and
adultery. Such acts cannot be allowed on the basis of h. ājah, because all these deeds are far
from the state of h. alāl. Therefore, the principle of Al-Juwayni (1997) is not in absolute term.
Al-Zarkashi (1985) says that h. ājah khas. s. ah also makes prohibited things permissible and
calls for relaxation in the original law and justifies departure from it. Later, Al-Suyuti (1990)
combined both qawā’id, that of Al-Juwayni (1997) and Al-Zarkashi (1985) and presented
new qawā’id that h. ājah, whether general (‘āmmah) or specific (khas. s. ah), is considered
as d. arūrah. Ibn Nujaim (2011, p. 114) also adopted the same view of Al-Sayuti in his
Al-Ashbah. h. ājah khas. s. ah is the need faced by a particular community or the peoples of
particular profession as the need faced by the people of Bukharah to obtain loans through
redeemable sale (Majallah al-Ahkam al-‘Adliyyah, p. 19). Unlike d. arūrah, the hardship in
case of h. ājah is not so extreme as to endanger life or limb (Mansuri, 2007; p. 106).
After it has been established that h. ājah, either general or specific, sometimes reaches
at the level of d. arūrah to extract the permissibility (ibāh. ah) in matters that are h. arām bi
al-ghaı̄r, and still such strong h. ājah will remain ineffective in h. arām bi al-dhāt matters or
things like ribā. If anything is considered h. ājah equal to d. arūrah in any special case, it
would be subject to the rules of d. arūrah which constitute that provision of relaxation would
be temporary, not for ever. Al-Shunqaiti (2007), a Hanbali Scholar, is of the view that zakāh
payment can be delayed if its spot payment may cause loss in asset of a person. He built
his view on the basis that such situation is h. ājah equal to d. arūrah in favor of the person.
Therefore, he can delay in zakāh payment until threat of loss is removed, because that was a
temporary permission as d. arūrah grants temporary permissions only.

USE OF H
. ĀJAH MAXIM IN ISLAMIC BANKING AND FINANCE
Social, economic, and financial matters of classical as well as modern times always propped
up by Sharı̄‘ah rules of relaxation which are derived from primary sources of Islam. Some
financial transactions and contracts in which h. ājah is being entertained are given below;
1. To avoid buy back in Murābah. ah to Purchase Order (MPO), it is not recommended
for Islamic banks to appoint the client as an agent because "a party cannot become buyer
and seller in same contract" (Al-Kasani, 1986). AAOIFI Sharı̄‘ah standard considers it
permissible in the situation of need (h. ājah) (Accounting and Auditing Organization for
Islamic Financial Institutions, 2010, SS No. 8, clause 3/1/3, p. 119). In case of appointing
the third party as agent, Islamic banks apprehend that client of MPO (orderor) might refuse to
buy promised item if he disliked and it would be injurious to the banks. Therefore, AAOIFI
considered it genuine h. ājah for Islamic bank to appoint its client as agent to buy ordered
goods and called for relaxation in original law of prohibition.
2. The jurists have difference of opinion regarding the permissibility of opening documen-
tary credit. According to opponent jurists, documentary credit pertains to the category of
delaying counter values in ribāwı̄ items, which is not permissible in Sharı̄‘ah (Accounting
and Auditing Organization for Islamic Financial Institutions, 2010). However, documen-
tary credit has become essential part of international trade and it facilitates the payments.
Two-dimensional risk is involved in it that can be mitigated through the documentary credit
2019 Journal of Islamic Business and Management Vol. 9 Issue 2 361

and counter parties remain satisfied through this device. Keeping in view this importance,
AAOIFI considered documentary credit permissible on h. ājah basis.
3. According to AAOIFI Sharı̄‘ah standard, it is necessary to cease or dispose of the
impermissible transaction immediately and it is not allowed to delay. However, at the same
time, AAOIFI allows this delay if it is necessary (d. arūrah) or pressing need (h. ājah) (SS No.
6, clause 2/1 and 3/f, p. 83-84). Usually conversion of conventional bank to an Islamic bank
takes some time. Therefore, AAOIFI Sharı̄‘ah standard used the term d. arūrah in this regard.
Such delay can be become pressing need (h. ājah equal to d. arūrah) which would be limited
to the extent of magnitude of the need. That is why, AAOIFI Sharı̄‘ah standard says “any
dealing with conventional banks must be limited to the magnitude of the need to do so” (SS
No. 6, clause 3/f, p. 84).
4. Application of ju‘ālah in exploration for minerals, extraction of water, collection of debt,
brokerage, discoveries, innovation and designs, is permissible on the basis of general need
(h. ājah ‘āmmah), because it was basically permitted as a reward for the return of runaway
slave, as is mentioned in Sunnah. That is the reason that some of jurists restricted it with
runaway slave situation only. According to AAOIFI’s SS, it is allowed based on general need
(h. ājah ‘āmmah) (Accounting and Auditing Organization for Islamic Financial Institutions,
2010).
5. Dealing in commercial papers, bill of exchange, promissory note, and bank cheque, is
permissible on the basis of h. ājah. Commercial papers are loan-based instruments and belong
to the category of suftı̄jah (Accounting and Auditing Organization for Islamic Financial
Institutions, 2010) which is an instrument in which a creditor stipulates another place for the
settlement of the loan (Salim, 2013). Imam Al-Shafi‘i (204H) considered it illegal. Malikis
considered it permissible, if it is necessary for the protection of property otherwise it would
be impermissible (Al-Zuhaili, 1985). Hanbali jurists allowed it if executed without any
consideration in other city (Ibn Qudamah, 1997). Hanafi considered it disliked (makrūh), if it
is stipulated with loan (Al-Sarakhsi, 1989). According to Ibn Taymiyyah (728H), there is no
text (nas. s. ) against or in favor of the permissibility of suftı̄jah, so it is necessary to maintain
its permissibility (ibāh. ah), especially when there is a general need (h. ājah) for it (Accounting
and Auditing Organization for Islamic Financial Institutions, 2010).
6. According to classical Ahnaf, a unilateral promise is not binding. Yet, according to
Ibn ‘Abdin (1992) promises some times are considered binding because of h. ājah of people
(Ibn ‘Abdin, 1992). In case of non-binding promise in MPO, a client can cause a harm to an
Islamic bank by refusing to buy after Islamic bank buys an asset on his order in murābah. ah.
That is why, in today’s banking and financial contracts, unilateral promises are taken as
binding on promising party because of such h. ājah.
7. Jurists, based on h. ājah, allowed financial penalty in case of failure of the debtor in
paying when due. Nadwah al-Barkah (2002) passed a resolution according to which creditor
should relax the borrower regarding time, if the liability to pay has resulted from any sale
contract or exchange transaction subject to deferred payment, the debtor can be asked to
pay fine in unjustified late payment (p. 103) which has to be credited to charity account
(State Bank of Pakistan, 2008) as some Maliki jurists say that a delaying borrower should be
362 Siddique, M. A. & Rashid, A. - The Fatāwá in Islamic banking and financial industry: .... 2019

obliged to pay for charitable activities (Accounting and Auditing Organization for Islamic
Financial Institutions, 2010). The Organisation of Islamic Cooperation Fiqh Council (2000),
however, resolved that penalty provision would be ineffective when a client proves that he
could not pay on time due to a reason beyond his control, or when he proves that the bank
incurred no loss as a result of his breach of the contract (Resolution No. 109 (3/12). Now
the question is whether aggrieved party can be compensated by this penalty amount or not?
Chapra and Khan (2000) mentioned a view of some scholars who allow taking penalty from
defaulter in case of unjustified delay, but they also allow passing on the penalty amount to
the aggrieved party as compensation, if penalty is imposed by a court. According to one
resolution of Al-Barakah seminar, bank can be compensated for its actual loss caused by
client’s delay (Al-Barakah, 2002), but cannot be paid the ‘opportunity cost’. The point to be
made here is that penalty clause application is permitted on the basis of h. ājah.
8. Kaf ālah bi al-dark is also considered permissible on the basis of h. ājah. Kaf ālah bi
al-dark is a guarantee by seller, that he will return the price of object if someone claims on
that object. This guarantee may also be from third party in favor of seller that he will offset
the loss of buyer in case of claim by real owner (Mansuri, 2007; p. 113).

MISUSE OF H
. ĀJAH MAXIM IN ISLAMIC BANKING AND FINANCE

Wa‘dān based Islamic Foreign Exchange Forward Contracts

The term Wa‘dān means that two parties makes two unilateral and independent promises to
each other in a particular deal and their respective fulfillment depends on two independent
conditions. This concept is applied in foreign exchange forward contracts in Islamic finance.
In fact, it was Nadwah al-Barkah (1981) who issued fatwá “If two promises are binding on
both parties, then it falls within the prohibition of selling a debt for a debt and is, thus, not
permitted. However, if it is not binding on either party then it is permitted”. Of course, they
did not provide any Sharı̄‘ah base of this fatwá. However, Aznan et al. (2008) suggested
to entertain h. ājah ‘āmmah maxim to get legal excuse for the product of Islamic foreign
exchange forward contract based on Wa‘dān (promises by the both contracting parties).
Ahmad, Salmy, and Mat Noor (2014) also confirmed it and commented that this wa‘dān
based product has become the pressing need (h. ājah ‘āmmah) for the public in general, so this
product should be allowed only on the basis of h. ājah and this permission should be limited to
hedging purpose only. Aznan et al. (2008) and Ahmad et al. (2014) did not provide rationale
for allowing the contracts based on promises by the both exchange parties. It is not possible
that two promises in same contract and same dealing will remain unilateral and independent
of each other. Their interdependency implicitly does exist in case of the same contract.
Binding nature on the both sides implies that a contract has been allowed vide a strategy, that
otherwise was prohibited. Practically, these two promises constitute bilateral promises which
lead to a contract. In this way, it leads to the situation of contingency between the contracts.
Holy Prophet (PBUH) prohibited two contracts in one contract (Al-San’ani, 1983). H. ājah
can be employed only if there is no opposite explicit text, while there is a certain text (Sunnah)
against it. Therefore, wa‘dān based Islamic foreign exchange forward contracts should not
2019 Journal of Islamic Business and Management Vol. 9 Issue 2 363

be granted the license of permissibility using the h. ājah maxim, particularly, because the IFIs
have started using the same for investing in financial derivatives without the need for hedging
and without fulfilling the conditions of underlying contracts (Anwer & Habib, 2019).

Bay‘ al-mu’ajjal of GOP Ijārah S. ukūk

Government of Pakistan (GOP) has been issuing fixed rental rate GOP Ijārah s. ukūk for about
a decade. For the three years maturity period s. ukūk, Jinnah International Airport Karachi
(JIAK) was sold to Special Purpose Vehicle (SPV). GOP got same terminal on lease with the
binding promise to purchase the JIAK at the end of lease. SPV issued Ijārah s. ukūk and sold
them to Islamic banks and the money paid to GOP. GOP Ijārah S. ukūk were also tradable in
secondary market, but it was rare for Islamic banks to sell them because they wanted to hold
till maturity to retain investment giving them secure return. As GOP did not issue new ijārah
s. ukūk, and did not renew the old one, practitioners and treasury officials of Islamic banks got
worried that liquidity of Islamic banks would remain idle and un-invested after GOP Ijārah
S. ukūk matured. As discussed in the Ayub (2015), a way out was suggested to the Sharı̄‘ah
Board of SBP according to which s. ukūk would be sold, sometime before maturity, to the
SBP for the period of one year on credit basis (bay‘ al-mu’ajjal) in such a way that the seller
bank would add one year’s T-bills related rate to the face value and the rental receivable by
that time. He further contended that if s. ukūk could be sold on credit for one year, the same
could be for any maturity e.g. five or even ten tears.
According to Asim et al. (2018), SBP allowed the bay‘ al-mu’ajjal of GOP Ijārah S. ukūk
keeping in view the need (h. ājah) of Islamic financial institutions with respect to liquidity
management. The concerns of scholars seem apparently to be valid because basic purpose
of this credit sale of GOP Ijārah S. ukūk is to earn from the receivable. But, the issue is that
earning on receivables/debts amounts to ribā. In that case, it is only a subterfuge (h. ı̄lah) to
circumvent the prohibition of ribā and is being adopted in the name of h. ājah to invest Islamic
banks liquidity. Ayub (2015) indicated that it was irrational sale contract of ijārah s. ukūk -
when Islamic banks don’t remain owner of the asset after maturity and asset is re-purchased
by GOP, how Islamic banks can get rental over same asset for any period after maturity
while knowing that the even the subject of the sale would not be in their possession and risk.
Moreover, GOP Ijārah S. ukūk represented debt receivable upon maturity, and not an asset
for a valid sale. Therefore, GOP Ijārah S. ukūk cannot be traded after maturity except only
on h. awālah basis. On the other hand, in credit sale of GOP Ijārah S. ukūk, the seller banks
added one year’s T-bills related rate to the face value and rental receivable by that time (p.
181-186).
Salman Syed Ali, Senior Research Economist at IRTI, IDB, Jeddah, as a discussant on
the matter says, in this regards, “Any party that is buying the s.ukūk just before its maturity
date (i.e., the date of its automatic transformation into cash) and it is willing to pay a higher
amount (than the cash receivable from retirement of s.ukūk) if allowed to make the payment
on a deferred time; it is violating ah.kām al-s.arf (rules of ribā al-fad.l). Hence, sale of s.ukūk
just before maturity on a price contractually deferred beyond the maturity date of the s.ukūk
is prohibited”. “However, a planned buy very near to the maturity date such that the s. ukūk
364 Siddique, M. A. & Rashid, A. - The Fatāwá in Islamic banking and financial industry: .... 2019

are held only for a short time with intact tangible underlying asset and for a longer planned
time without a tangible underlying asset while earning a return falls under prohibition zone”.
“The Open Market Operation (OMO) arrangement has been made to keep the money invested
to earn a return beyond the maturity date, into a period when the s. ukūk have transformed
from representing a real asset to pure cash (or cash receivable or liquid) asset. This intension
is not simply hidden, but made explicit in the policy evidenced by the arrangement to do it
regularly and on a large scale. Thus, the arrangement is not Sharı̄‘ah compliant”, he adds
(Ayub, 2015).
Particularly, the following concern expressed by Syed Ali is worth noting: “A seemingly
small move by the SBP to accommodate an incidental need of return-generating short-term
liquid asset for Islamic banks is going to create a hole that will open the floodgates of wrong
practices and undermine some core values of Islamic finance”. We reiterate, therefore, that
ribā belongs to the category of h. arām bi al-dhāt, and need (h. ājah) cannot be invoked for
granting legal excuse in h. arām bi al-dhāt matters. Therefore, sale of GOP Ijārah S. ukūk on
the basis of bay‘ al-mu’ajjal should not have been granted license of legality.

WAY FORWARD

According to Mansuri (2007), jurists generally leave h. ājah maxim to the person or institution
facing the situation and it leads towards the manipulation of this maxim. He suggests that to
avoid such manipulation of h. ājah maxim, in legislation, it seems appropriate that a competent
body of Muslim scholars, instead of few scholars, should frame concessionary laws, based
on h. ājah ascertaining its necessity and magnitude (p. 117).
Mostly such exploitations and manipulations of Sharı̄‘ah maxims and principles are caused
by Sharı̄‘ah advisors/committees that might not be having enough knowledge of modern
economics and finance. There may be other factors like pressure by the management of
the banks and the conflict of interests of Sharı̄‘ah board members with concerned bank.
This matter is related to regulatory authorities that must focus on developing separate and
foolproof regulations for Islamic banking and financial institutions so that the maxim of
h. ājah is not entertained to circumvent the prohibitions. It is also matter of concern for the
Sharı̄‘ah scholars, because such practice is adversely affecting their credibility into the public.
They have to equip themselves with enough knowledge in the field of modern banking and
finance.
Further, the Sharı̄‘ah advisory system has to play its role properly. Sometimes, such
products are allowed in the name of need and ijtihād that clearly violate Sharı̄‘ah principles.
Adherence of the principles of Islamic finance must be ensured. Ayub (2016) expressed con-
cern on flexible approach of the Sharı̄‘ah advisors issuing fatāwá for launching of products
like currency Salam and Running Mushārakah as replica of bill-discounting and the con-
ventional overdraft, respectively. He concluded that regulators needs to focus on policies to
control the Sharı̄‘ah advisors regarding replication of conventional interest based prohibited
products, because it is damaging the credibility of Islamic finance.
2019 Journal of Islamic Business and Management Vol. 9 Issue 2 365

To develop strong Islamic financial industry, it is suggested for the regulatory authority
that hiring of Sharı̄‘ah board members must not be left on the discretion of the concerned
Islamic bank. Sharı̄‘ah advisors/board members must be paid through central bank to make
their fatāwá unbiased. It would enhance financial inclusion, and credibility of Islamic banks
and would be helpful in enhancing their customer base.
There must be proper educational criteria at degree level and scholars having conventional
economics, banking and finance education as well as proper Sharı̄‘ah education should be
preferred. The existing criterion for eligibility of Sharı̄‘ah board members says “adequate
understanding of banking and finance in general and Islamic finance in particular” (State
Bank of Pakistan, 2018). It leaves loophole, because “adequate understanding” cannot
be judged and can be compromised. Therefore, degree level (BS/MS/PhD) education in
economics/Banking/Finance/Islamic banking & Finance must be required along with solid
research work/papers/book and degree of Shahādat al-‘ālamı̄yah (Sharı̄‘ah education).

CONCLUSION

D. arūrah and h. ājah are not amalgamated concepts. Each concept has its own prerequisites,
which must be met before entertaining the related Sharı̄‘ah maxim. Islamic financial engi-
neers, regulators, researchers and critics should keep in view this difference between these two
concept before developing financial product, regulation, research and criticism, respectively.
However, some of Islamic banking transactions and products have been found exploiting
the maxim of h. ājah. Day by day changing business environment, circumstances, values,
culture, custom (‘urf ), needs and life style are witness that nothing is subject to status quo.
Today, business and trade matters are different and more complex as compared to the classical
times. Islamic sources are very rich and flexible enough to meet the need of every time.
Accordingly, it becomes necessary to carefully consider the financial needs of modern times
at both individual and institutional levels, so that new Sharı̄‘ah rulings regarding business,
trade, economics and financial matters remain within the Sharı̄‘ah parameters and serve the
maqās. id al-Sharı̄‘ah.

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