Critique of Shari’ah compliance in murabaha transactions
Produced in partnership with King & Spalding
Critique of Shari’ah compliance in murabaha transactions

The following Banking & Finance practice note Produced in partnership with King & Spalding provides comprehensive and up to date legal information covering:

  • Critique of Shari’ah compliance in murabaha transactions

Some commentators have noted that the interplay of form and substance for UK tax purposes parallels the relationship of form and substance for Shari’ah purposes. From a Shari’ah perspective, substance can also take precedence. However, given the novelty of the modern Islamic finance industry, the uncertainty regarding permissible transactions and the importance placed on Shari’ah compliance, industry participants have nonetheless tended to emphasise the form of a transaction.

Adherence to approved forms provides some assurance that the transactions represented by those forms comply with Shari’ah. From this perspective, the use of old transaction structures such as the murabaha appears conservative. However, many critics of the Islamic finance industry target adherence to these structures as one of the chief problems with the industry. These critics argue the structures have been used in the UK by equity investors and financial institutions to mimic conventional interest-bearing transactions such as loans, and to circumvent the substance of the transactions that the structures should memorialise.

Islamic jurisprudence encompasses the methods of exegesis by which Islamic Shari’ah may be derived from the ultimate sources of Islamic Shari’ah. These methods seek to derive an understanding that comports with the overall objectives of the Shari’ah, as well as with the objectives of individual rules that are specifically stated in the primary sources of the Shari’ah. Based on this, contemporary Shari’ah criticism of murabaha agreements

Popular documents