Role of Fiqh in Islamic finance

Fiqh, indicating Islamic law and the tools to produce it, covers all aspects of human dealings, including ones with the Creator, as embodied in Fiqh of devotions, and ones between human beings themselves as embodied in other branches of Islamic law like personal status law, political law, criminal law and financial law. Islamic financial law includes the Shariah nominated contracts that represent the bases for all Islamic banking and finance transactions including those that have been developed and modeled after the existing ones. However, developing or endorsing a financial product is a process that requires the Faqih (Shariah scholar) to employ and consult a variety of Fiqh instruments. These instruments are also prescribed and detailed in Islamic law; however, many Shariah specialists and observers have protested improper use of these instruments. The paper comes to first discuss the most important proper Fiqh instruments available to the Faqih to evaluate and endorse products and transactions in Islamic finance. It then elaborates on the instruments whose use in the domain of modern Islamic finance has allegedly reflected a departure from Shariah rules and tools of Ijtihad. The objective of this paper is to shed some light on the cotemporary Ijtihad in Fiqh of Finance in light of the guidelines provided by the Shariah in an attempt to draw the outlines of what constitutes a proper role of Ijtihad Fiqhi in Islamic finance.