Fundamentals of Islamic Finance and Banking

CHAPTER 2Shariah Law and the Shariah Supervisory Board

Learning outcomes

Upon completion of this chapter, you should be able to:

1. Define Shariah law and explain the main sources of the Shariah law.
2. Explain Shariah prohibitions and principles and their impact on Islamic finance and banking.
3. Describe the Shariah Supervisory Board, its formation and functions.
4. Discuss the Shariah governance process.

INTRODUCTION TO THE ISLAMIC LAW – SHARIAH

The Arabic word ‘Shariah’ means path to the watering place. It is also called the Islamic law. Islam influences all aspects of a Muslim's life – as individuals, within the family, society, in relationships with the State and the community and in the manner business or commercial activities are conducted. Shariah law is a comprehensive code of conduct for the Muslim's life, given by the Creator – Allah. The global Muslim community, called the Ummah, serves as the trustee for upholding Shariah law. The Muslim population can derive rules from the Shariah law but cannot create the law. Islam is a democracy, so every capable Muslim has the right to interpret Shariah law and give an opinion. But when a clear command on any issue exists from Allah or his Prophet, no one, including a leader, court or scholar, or the entire Muslim community together, can change the Shariah law. The same Shariah law applies in all Muslim countries.

As discussed in Ginena & Hamid (2015), the Shariah rulings can be grouped into two types – obligatory rulings ...