Critical Review of the Tools of Ijtihād Used in Islamic Finance

Sharī‘ah covers all aspects of human dealings, including Islamic financial law and its Fiqh nominated contracts, essentially the basis for all Islamic banking and finance transactions. These contracts are either readily found in the classic books of Islamic law or modified versions adopted to suit the modern financial needs. In some cases they are a combination of more than one contracts designed to serve a particular financing purpose, like the contract of Ijārah Muntahia Bittamlik (lease ending with transfer of ownership) where the transaction starts with lease and ends with sale. This paper attempts to discuss the most important Ijtihād instruments that can be used by the faqih (jurists) to evaluate and endorse products in Islamic finance. It then elaborates on the instruments that are in use in the modern Islamic finance, and which reflect a departure from Sharī‘ah rules and tools for Ijtihād (the process of deriving Sharī‘ah rules for the new incidents from the Sharī‘ah sources). The objective of this paper is to shed light on the cotemporary Ijtihād in Fiqh of finance in light of the guidelines provided by the Sharī‘ah in an attempt to draw the outlines of what constitutes a proper use of Ijtihād instruments in Islamic finance