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Title: FORM OVER SUBSTANCE APPROACH IN ISLAMIC FINANCE DUE TO DARURAH CONCEPT
Authors: Muhammad Omer Rafique, Muhammad Akram Hureri, Hafiz Atif Iqbal
Journal: Pakistan Journal of Qur'anic Studies
Publisher: Islamia University, Bahawalpur
Country: Pakistan
Year: 2023
Volume: 2
Issue: 2
Language: English
The Islamic finance system is still in its infancy stage. It has a history of around half a century in a different part of the world. Despite remarkable performance in the last two decades this new system is able to capture only 1% of the global financial market approximately. Whereas the counterpart that is the conventional system has a history of 400 years(Richards, 2012). The capitalist system has entered its root in the Muslim and non-Muslim societies. There is lot to be achieved and faced by the Islamic finance system. There are several kinds of criticism on prevailing Islamic finance. One of which is the form over substance approach in Islamic finance resolutions and products. It means that the legal form of the contract is intended to fulfill, and the inherent substance of that particular transaction is compromised(Harasani, 2013; Maurer, 2010; Raza et al., 2012; Shamsudin et al., 2014). One of the arguments given against this criticism is that the state where the Islamic finance system is competing is a situation which falls under the darurah concept.
            In Islamic jurisprudence whenever there is a high degree of inconvenience many impermissible actions are allowed subject to the conditions(Abdul Aziz & Ahmad, 2018). The evidence of this principle can be seen in the verses of Quran as well as in hadees. But the problem is darurah concept is subjective in nature and it is not a black and white decision that can be made by a Shariah scholar. That is why many opinions are found contradicting to each other while deciding that a particular situation is a dire need or not.
To analyze the condition of the Darurah concept for preferring the form over substance approach through the application of legal stratagems in Islamic banking.
Content analysis approach, establishing the concept and principles of darurah as a foundation, and then analyzing the scenario of Islamic finance to determine if it qualifies for the darurah principle. Responses from seven Shariah advisors of Islamic financial institutions were sought and presented through thematic analysis.
graph TD;
A["Establish Concept and Principles of Darurah"] --> B["Analyze Islamic Finance Scenario"];
B --> C["Qualifies for Darurah?"];
C -- Yes --> D["Seek Responses from Shariah Advisors"];
C -- No --> E["No Application of Darurah"];
D --> F["Thematic Analysis of Responses"];
F --> G["Formulate Conclusions on Form over Substance"];
The article discusses the infancy stage of the Islamic finance system compared to conventional banking, leading to criticisms of a "form over substance" approach. It argues that the Darurah concept, which permits impermissible actions under conditions of necessity, is often cited as justification. The research explores the nuances of Darurah versus Hajah (need), the principles governing Darurah, and its relationship with Haraj (hardship). It analyzes expert opinions on applying Darurah in Islamic banking and provides examples of need-based permissions. The authors suggest that while the Islamic banking revolution aimed for Shariah compliance, it largely built upon conventional banking structures, necessitating practical, Shariah-compliant solutions for collective needs.
Islamic laws permit focusing on the form of a contract in some cases, but adopting this approach normatively can be a wrong way in Islamic finance. The concept of Darurah allows for flexibility in rulings in situations of pressing need or necessity, but this flexibility is not unlimited and is subject to conditions.
The authors opine that while dire need (Darurah) is subjective and a feature of Islamic law allowing relaxation of strict rulings, the current banking system's deviation from pragmatic economic rules necessitates the application of legal stratagems to fulfill collective needs. This requires adherence to Shariah guidelines and Ijtihad. Islamic financial institutions (IFIs) must develop proposed solutions with thorough analysis, including justifications, impact assessments, and exit strategies.
1. Islamic finance has a history of around half a century. (Confirmed by text)
2. Conventional finance has a history of 400 years. (Confirmed by text)
3. The Islamic finance system captures approximately 1% of the global financial market. (Confirmed by text)
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