Open University Malaysia MBA Programme

Issues in Islamic finance

T1:a. Standardization versus Diversity in Islamic Finance
Assoc. Prof. Dr. Ahcene Lahsasna lahsasna@gmail.com
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The concept of standards

Meaning of standards
That which is established by authority as a rule for the measure of quantity, value or quality. That which is established as rule or model by authority, custom, or general consent, criterion, test. something considered by an authority or by general consent as a basis of comparison; an approved model. a rule or principle that is used as a basis for judgment.
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The standards and the nature of the law

There are two types of laws, the positive law (the man made law), and the divine law. For the positive law the process of standardization has a easy process, and very smooth concept, whereby the regulator will establish a set of rules, regulations or parameters in order to drive the industry towards a particular achievement according to some particular objectives and policy. For the positive law there is no impediment towards having set of parameters or standards because of the following factors:
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Cont.
There is no references to particular set of provision as known is Islamic law the sources of Shariah (Quran and Sunnah). So there is no process of interpretation of provision. The process of setting the standards is based on the consensus of the regulators along with the players in the industry. The tendency of the industry and the market will be the main driver of the process of standardization.

Easy process when it comes to the adjustment, reviewing, amendment of the law, regulations, and existing standards.
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The implication
The implication of the that can be observed in the following results:

The process of standardization can take place in the law, meaning the exercise of the setting up the standards can be done at the level of the law. (the easy process of doing that). This is the key feature which distinguish between the process of standardization between the Islamic law and the positive law.

The standards and the Islamic law

There are two types of laws, the positive law (the man made law), and the divine law.

Shariah as divine law is different than the positive law, therefore the treatment in addressing the issue is different. The issue of standardization must be understood in the light of Islamic jurisprudence. Because of the issue of interpretation of the provision of the revelation:
In Shariah we have two types of rulings:
Shariah rules subject to one interpretation. (consensus). Shariah rules subject to different interpretation. (diversity) 6

The puzzle of standardization

Standardization

Consensus In shariah opinion

Diversity in shariah opinion

Possible standardization

Challenges in standardization
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The consensus and standardization

The meaning of consensus Ijma is the consensus of all Mujtahiddin (independent jurists) from the ummah of the Prophet Muhammad (PBUH) after his death in a determined period upon a rule of Islamic law (hukm shari). Why there is a consensus? Because there is one single interpretation, there is no second meaning provided. All the scholars agreed upon one interpretation.
Permissibility of sale. Prohibition of riba,
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The consensus versus standardization

The consensus produce a single shariah opinion.

1&2

The single Shariah opinion is binding and enforceable by the Muslim ruler

There is a consistency between the consensus and the standardization.

3&4

The standard or the parameter can be easily derived and deduce from the consensus.

In case of the enforcement of the standards by the regulators, it will not create any potential conflict between the two, because both share the same feature.

5&6

The way that the shariah opinions in the consensus are set and articulated are the same of the standards.

The process of standardization in diversity

The agreement on the diversity in opinions put the standardization in very critical stage.
Standardization produce one single standard (opinion) Diversity produce more than one opinion.

So how to reconcile the two approaches:

The standardization will be based on proper selection and preference of opinions as established in Islamic jurisprudence. (qawaid al tarjih). The standardization should not be binding, otherwise it will be an enforcement of the preferred Shariah opinion on others scholars. The standards should recognize the other Shariah opinions.
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What should be considered in standardization?

The following should be considered in the process of standardization:

The standards should recognize the other Shariah opinions. Because Shariah recognize the diversity of Shariah opinions. Diversity existed during the Prophet (pbuh), companions, and will continue till the day of judgment.
The well established school of law demonstrate this fact. Diversity exist through out the sections of Islamic law, and not only matter concern Islamic finance.
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Cont.
The diversity is related to some branches and details cases.

The diversity may exist even there are standards to be followed, because there is what is known as applied ijtihad, where the external facts, conditions and circumstances during the implementation of the ijtihad may give different ruling.
Understand the reason for diversity in Shariah. There are many shariah ruling that are in form of standards, the consensus section in Islamic law.
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Efforts to reconcile the views of fiqh scholars

Abd Rahman Ibn Mahdi wrote to Imam Shafi to write a book which contents a set standards govern the process of interpretations. One of the Caliphates of the second Hijrah appointed Imam Malik to unify fiqh. The best experience in the history of Islamic law was the introduction of Majallah al-Ahkam al-Adliyyah by the Ottoman Caliphate towards the end of 19th century of A.D. al-Azhar University Research Academy in accordance of major schools of thought. The job was not completed. The General Secretariat of the Arab League countries tried to codify laws in accordance with Shariah. This job could not be completed International Islamic Academy of Fiqh, an organ of the Organization of Islamic Conference (OIC) which is based in Jeddah. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) The Islamic financial services board (IFSB) 13

Thank you
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