Hiyal in Islamic finance: a recognition of genuine economic need or circumvention of Riba?

Abstract

Purpose

This paper aims to develop a Sharīʿah framework for using ḥiyal in Islamic finance. Ḥīlah (singular of ḥiyal) is an Islamic juristic term which refers to the application of acumen and ingenuity to avoid hardship in one’s commitment to Islamic rulings. It has been used as a legal device in Islamic jurisprudence to actualize a legitimate objective. Particularly, it plays a significant role in financial engineering, as it alleviates financial predicaments with remedies.

Design/methodology/approach

The study adopted qualitative method of research by using content analysis approach. Inductive reasoning is applied to drive legal provisions from Sharīʿah sources that would be used as basic principles to develop an objective measure for using ḥiyal in Islamic banking and finance.

Findings

This study attempted to identify the distinctive features of legitimate ḥiyal for the purpose of developing a Sharīʿah framework. It is observed that a ḥīlah would be considered permissible in Islamic finance if it meets the prescribed criteria of (1) Sharīʿah objectives, (2) user’s motivation, (3) means, (4) benefit and (5) concessionary rules. This proposed framework may serve as an ‘objective measure’ that will determine whether a ḥīlah based financial engineering aims to actualize a genuine economic need or to circumvent the prohibition of ribā.

Practical implications

The proposed standard of ḥiyal will enable Sharīʿah advisors, economists, financial engineer, legal experts and policy makers to develop comprehensive guidelines for using ḥiyal in Islamic financial engineering.

Originality/value

Islamic financial institutions rely heavily on ḥiyal to operate in a predominant conventional financial system. The application of these legal stratagems in Islamic finance has been the center of an intense debate between Islamic economists and jurists. The former argues that over-reliance on ḥiyal not only divorces morality from technicality but also defeats the noble purposes of Islamic economics. This paper provides a synthesis of the diverse views on the subject to facilitate a minimum level of convergence among scholars on the permissibility of ḥiyal.

Citation

Syed, E. and Omar, M. (2017), "Hiyal in Islamic finance: a recognition of genuine economic need or circumvention of Riba?", Qualitative Research in Financial Markets, Vol. 9 No. 4, pp. 382-390. https://doi.org/10.1108/QRFM-05-2017-0041

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