International Conference of Global Islamic Studies 2014
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Understanding of Maslaha and Maqasid al-Shariah Concepts on Islamic
Banking Operations in Malaysia
Mohd Daud Awang, [email protected]
(Academic Visitor at DCIEF, Durham University, Nov. 2013-Nov. 2014)
Senior Lecturer, [email protected]
Faculty of Human Ecology, Universiti Putra Malaysia, 43400 Serdang, Selangor,
Malaysia
Mehmet Asutay, [email protected]
Director, Durham Centre for Islamic Economics and Finance, Durham University
and
Mohd Kamal Azman Jusoh, [email protected]
Senior Lecturer, Universiti Teknologi Mara (Pahang), Malaysia
Abstract
Since the 50's, Malaysia has taken the lead in the role of studies on Islamic Banking
and Financial System (IBFS). Malaysia has successfully introduced a variety of IBFS
products and services and thus is recognised globally as a front-liner of the Islamic
banking and finance industry. Nevertheless, world recognition and past success do not
stop the industry from facing new challenges and issues. Many Islamic scholars
continue to work on their research in IBFS for innovation to fulfil the Muslims’ needs
for Shariah-compliant products and services. This in turn, requires a thorough
understanding of the Islamic jurisprudence methods. However, some researchers
argued that Maslaha and al-Maqasid, in the recent financial issues have shown that
there might be negative implications on individuals such as bankruptcy and family
financial problems based on some Islamic debt products and services. From an
economic stand, if the issues worsen, this could lead to a crisis. Relating these
indications to the proactive debt financing, it is found to contradict the Maqasid al-
Shariah. Therefore it is crucial to understand the depth of all aspects that utilise
Maslaha and al-Maqasid concepts as reference. This paper explores and identifies the
concepts of Maslaha and Maqasid al-Shariah in Islamic banking operations with a
holistic understanding. The research also includes a critical analysis on the issues of
uses of these methods as a systematic jurisprudence. At the end of the paper, some
suggestions are provided on ways to improve the development of IFS in Malaysia in
order to make the IBFS more resilient and competitive through the understanding of
Maslaha and Maqasid al-Shariah for the well-being of the users.
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1. Introduction
Malaysia introduced Islamic Banking System (IBS) via the establishment of Bank
Islam Malaysia Berhad (BIMB) in 1983. The success of the inception of Islamic
banks is the result of a collective efforts between economists and local Islamic
scholars in understanding the issues and needs of Muslims for Islamic finance to
achieve Maqasid al-Shariah as it does not involve interest or riba-free. IBS is an
Islamic system of financing that is based on the business rules of Islamic laws;
Ahkam Muamalat. It is also pronounced Fiqh al-Maliyyah as the business dealing
between individuals in exchanging properties or benefiting (Wahbah al-Zuahaili:
1997). In general, IBF products were derived from Islamic business contracts such as
al-Bai’, al-Ijarah, al-Wadiah, al-Mudharabah, and al-Musyarakah. For example, al-
Wadiah is for savings account, al-Bai’ is for Islamic home or car-financing and al-
Ijarah is for Islamic commercial-financing.
Facing current challenges in the banking and finance industry, many banks have taken
initiatives to introduce more services and approaches to attract people to become their
customers including Islamic banking. Unfortunately, there have been some difficulties
to get a consensus from all Islamic scholars for some contracts of IBF products. This
is either because the contracts are in new formats or require some restructuring. This
has resulted in having the IBF institutions to monitor the Islamic banking and finance
products in order to fulfil customers’ financial needs to achieve Maqasid al-Shariah
by providing Shariah-compliant financial products and services. Many Islamic
scholars refer to Maqasid al-Shariah and Maslaha concepts. Therefore many of
Islamic scholars refer to Maqasid Shariah and Maslaha concept as arguments and
suggestions of the contracts. Although, the questions of the issues seem to be whether
the implications of these contracts are more Masalih or more Mafasid. Therefore, this
paper discusses the issues raised using Maslaha concept, which will overcome the
issues of IBF operations and allow banks to continue offering financial products and
services that are in line with the Muamalat rules or are Shariah-complicant to achieve
Maqasid al-Shariah. This study also aims to explore the confusion prevalent in the
industry – the use or abuse of the concept – in relation to Maqasid al-Shariah through
the insight of Maslaha. On that account, if the result of the research indicates that
there is an abuse of practice in the current application of the concepts, this paper will
suggest some measures that can be taken to improve the system thus ensuring that all
aspects of IBF achieve the true meaning of Maqasid al-Shariah.
2. The Meaning of Maslaha and Maqasid Al-Shariah
Maslaha is important mechanism of Shariah in facing the challenges of social change,
needs and development in the modern times that understand relation between Islam
law and these natures. Many scholars and writers attempt to elaborate the role of
Maslaha concept and objective of Syariah or Maqasid Syariah to solve current and
contemporary problems. This mechanisms or concept stand from the spirit of
compassion and mercy as such term in the Quran: “We have not sent you but as
mercy to the worlds” (21:107). On another note one can refer to the concessions that
Allah said “Allah burdens not any soul but according to its capacity” (3: 286).
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2.1 What is Maslaha?
Maslaha is benefit or useful acknowledge by Shariah. It also can meant as public
interest. All of the jurists define Maslaha in literally means benefit or interest, and in
technical term means unrestricted public interest in the absence of regulation by the
Allah and when no textual authority can be found on its validity or otherwise. For
instance, the Companions decided to impose tax (kharaj) on agricultural lands in the
conquered territories despite the fact that no textual authority could be found in favour
of this. Al-Ghazali, define “maslahah as consists of consideration which secure a
benefit or prevent a harm (prohibition).”. It is also defined as a consideration which is
proper and harmonious (wasf munasib mulaim) with the objectives of the Shariah,
either by securing benefit or preventing harm in situation where there is no indication
as to its validity. If the consideration is contrary with the textual, it shall not be
considered as Maslaha or maslahah mutlaqah because it is not in light of Shariah.
Maslaha broad use in Islamic law in such secondary areas as economics, business,
Halal food and other worldly activities require flexibility and development according
to time and space. Among the first jurists who regarded Maslaha as a legal principle
in legislation are al-Juwayni, al-Ghazali, al-Razi, al-Shatibi, Schactt, Ahmad Hasan,
Kamali etc (Wan Azhar, 2003). There were also evidence that in the time of Hanafi,
Maliki and Shafie, also apply some of Maslaha practices through there were no
precise definition of the principle for the consideration of Maslaha (public interest).
For example Imam Malik once said that” It is permisibble to kill one-third of the
people for the interests of the remaining two-thirds” (al-Zuhaili, 1986). Kamali
(2008), expended the meaning of Maslaha to the realm of justice which is very
meaningful in the life of the peoples in the modern time. These is because the
meaning from Islamic law and Maqasid on the particular aspect and seem has limited
and confusing. For example, according to Kamali, he said that Maslaha aim to achieve
the Justice which it is not only in its corrections and retributive sense of adjudicating
grievances but also in the sense of distributive justice, establishing equilibrium of
benefits and advantages in society. He added If Shariah fail to preserves public
interest it means that Islam has failed to serve its followers. This is surely absurd.
From these points, the meaning of Maslaha in line with the objective of Shariah is not
to impose any difficulty or inconvenience on people but in additional it is promotes in
assisting on goodness, benefits and utility. This view is aim actually to express the
meaning of Maslaha is the Maqasid indirectly. Before his opinion about justice, al-
Qurtubi had illustrates the meaning of maslahah in establishing justice. Some cases
are more related to establish justice than to understand Maslaha itself.
2.2 What is Maqasid al-Shariah?
Maqasid al-Shariah (Objectives of Shariah), is a term that is derived from two words.
The first word; “Maqasid is the plural form of “Maqsad” which means “purpose” and
the latter; “Shariah” means Islamic Law. According to Imam al-Ghazzali: Maqasid
al-Shari`ah is to promote the well-being of all mankind, which lies in safeguarding
their faith (din), their human self (nafs), their intellect (`aql), their posterity (nasl) and
their wealth (mal) (M. Umer Chapra, 2000; Tawfique Al-Mubarak and Noor
Mohammad Osmani, 2012) . According to Kamali (2012), al-Maqasid al-Shari’ah, or
the Higher Objectives of Shari’ah, is a manifestly important and yet somewhat
neglected discipline of the Shari’ah. The fundamentals of Shariah generally focused
on the well-being of both individuals and the community and the law is designed to
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protect those benefits and to facilitate the improvement and betterment of the quality
of life. Kamali is a well-known scholar of Maqasid al-Shariah and he has explained
the term in a few different ways. In one article, he defines Maqasid as a tendency to
have a quality of constancy and permanence and it may well be the ultimate purpose
of Maslaha and stands a degree above it and others. Other than his own, Kamali has
also brought together a lot of Maqasid definitions by other scholars. For example,
Raysuani suggests that Maqasid is the end goals of Shariah and al-Qardawi said,
Maqasid consists of the attraction of the people to benefits and repelling them from
harm and corruption (Kamali, 2011). Kamali said, that al-Zuhaily has describes
Maqasid as the ultimate goals that aims for consequences and meanings which the
Shariah has upheld and established through its laws and consistently seeks to realise,
materialise and achieve them at all times and places (ibid).
Here we can conclude that the meaning of Maqasid al-Shariah is all the Shariah goals
comprising of five core values; faith, life, lineage, intellect and prosperity. This study
focuses on what Maqasid al-Shariah is in Islamic finance. Dusuki (2011) said, Islamic
finance of essential Maqasid is second category after preservation of religion. Many
papers have discussed this topic and the most important measure is to avoid riba or
interest. Most people have understood this purpose. The more important matter is for
them to understand financial issues regarding Maqasid al-Shariah such as how it could
help manage economic crises and bankcruptcy issues. The objectives of preservation
actions of Maqasid al-Shariah is to lead people and Islamic entities for the well-being
and prosperity in this world and the hereafter – al-Falah.
2.3 Relationship between Maslaha and Maqasid al-Shariah
“Maslaha” literally means “benefit” and is one of the methods of Islamic
jurisprudence but the term “Maslaha” has also been recognised as “Maqasid” which
means al-Dharuri situation or essential level of benefits. This opinion is approved by
Dusuki and Abdullah. They said, Maslaha sometimes connotes the same meaning as
Maqasid, and scholars have used these two terms almost interchangeably (Dusuki, A.
W., Abdullah, N. I., 2007). Kamali (2008) also wrote something similar in this book
titled “Maqasid Al-Shariah Made Simple”. He said that the entire range of Masalih-
cum-Maqasid can be grouped into three categories in a descending order of
importance, beginning with the essential Masalih (daruriyyat), followed by the
complementary benefit (hajiyyat) and then the embellishments (tahsiniyyat). All
categories relate to the five core values mentioned earlier; faith, life, lineage, intellect
and prosperity. Achieving the optimal level (al-Dharuri) of all categories of Maqasid
is considered “Maslaha”.
The Essential interests accordance to ‘Abas Husni Muhammad (1983) means “thing
which must be executed for the necessary protection and benefit of the ummah in life
and hereafter”. Kamali (2008) define the essential interest to meant that to create
normal order in society as well as to sustain the survival and spiritual well-being of
individuals so much so that their destruction and collapse will precipitate chaos and
collapse of normal order in society. How to know this level and it’s different from
other level, is to understand the level of needs where it’s absent will lead to the
peoples’ destruction and collapse and what is not achieve these level, is not al-
Dharuri. This can be properly conducted when it can distinguish between different
needs. To understand the level of needs in case of the management of purchasing
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needs, the needs to purchase should be refered to the real needs. It should be
differentiated between own needs and the enjoyment of life. This is important as there
are many cases of financing management that are too extravagant in spending. Islam
forbids the ummah to be excessive or wasting because it will lead the people to
destruction and collapse. Therefore a successful man must have high level of
sacrifice. He should know which one to sacrifice in accordance to the importance in
order to obtain better return. Understanding the definition of needs is something that
is a must to a certain extent in order to achieve harmony. Need is something that must
be provided. Whereas the ‘demand’ or ‘desire’ is something supplementary to the
needs which will just increase the level of satisfaction. However, when we do not
meet our desires it will only cause us to feel less satisfy. We can distinguish between
desire and needs based on its function. Something that we call desire will act
supplementary to the main function of needs. However if we do satisfy our need it is
intolerable. Therefore Islam do not like extravagant. Those who like extravagant and
wasting are considered as friend of evil.
Base on the above fact of discussion, and conclusion Maqasid al-Shariah have three
situations levels or interests. The first situation level as a key require flexibility and
adjusting to change with permanent features and mechanisms for adapting to change,
to fulfil the needs of the people in life and it was also be known as essential interests.
On the other hand, the essential Maslaha level can change to another levels (hajiyat or
Tahsiniyat) depends to difference situations such as in case of Ijarah that a Maslaha of
the second class is elevated to the rank of the essential Maslaha when it concerns the
public at large.To illustrate this, the validity of Ijarah may be of secondary importance
to an individual but it is an essential Maslaha for the society at large (Kamali, 2008).
For other example from Kamali, is in case of certain concessions (Ruhsah) that are
granted in the sphere of ibadat (other thing Muamalat) may be secondary to the
survival of an individual but become a matter of primary interest (essential) for the
community as a whole. In the event of a conflict arising between the various classes
of interest, the lesser of these may be sacrified in order to protect a higher interest.
This issue with reference to the Hadith where the Prophet has reportedly: When I
order you to do something, do it to the extent to your ability, but when I forbid you
from something , then avoid it (altogether). While al-Qaradhawi said, when there is a
plurality, then prevention of evil takes priority over the realisation of benefit (al-
Qaradhawi:1990). Kamali conclude this situation that the classification of Masalih
need not be confined to the divine (ahkam) of the Syariah or to religious matters alone
as it is basically a rational construct that applies to customary, social, political,
economic and cultural affairs and so forth accordingly. It also appears that classifying
a certain Maslaha under one or the other of these categories is likely to be relative
and involve value judgment that contemplate the attendant circumstance of each other
(Kamali, 2008).
The conclusion, all of the jurists recognized that Maslaha is one of secondary sources
of the Islamic law. While, the term of Maslaha, when it is define as the essential
benefits level or al-Dharuri so it become the first of Maqasid al-Shariah categories.
Al-Dharuri can measured by understanding of differentiate of needs requirement on
certain situations in resulting as exact Maslaha in light of Shariah. In the other words,
based on the above fact of discussion that al-Dharuri level as a key require flexibility
and adjusting to change with permanent features and mechanisms for adapting to
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change, to fulfil the needs of the people in life and it was also be known as essential
interests. Therefore Maslaha and Maqasid al-Shariah very close relation and cause
some of people think that both are same but in correctly understanding the word of
Maslaha or benefit used for explanation meaning of Maqasid as term: protection of
benefits.
3. Analysis of Maslaha and Maqasid Al-Shariah on Islamic Banking and
Finance Contracts in Malaysia
This section will explore how Maslaha and Maqasid concepts implement in IBF
contracts. Of course, it not refer to knowledge of fiqhiyyah alone but has expended to
the realities of economy or nature of economy. It meant that products which are not
only Islamic compliant, but are also Shariah compliant, i.e. compliant with the
maqasid al-Shari’ah, without violating the business natures of being competitive,
profitable and viable in the long run (Tawfique Al-Mubaraka and Dr. Noor
Mohammad Osmani, 2012). If there is fail to understand the reality of economy terms
that also fail to use of Maslaha concept accordingly.
Indeed, Maslaha is the way of Shariah, while IBF is the outcome of Islamic economy.
In developing of IBF operations of establishing products and services on particular
approach so much so that refer to maslaha concept. It also must emphasize the
principles or values of Islamic moral economy (IME), the well-being as a result of
maqasid and ensure the protection of the people interests individually or in the
community. According to Asutay (2012) the consequentialist nature of economic
development and the substance of the process, which, as a result, produced a ‘social-
welfare’ or ‘social good’ oriented developmentalist paradigm. He added the important
to make reference to the norms and values of IBFIs as formulated by the Islamic
moral economy (IME), which give meaning to the Islamicness of IBF. These
statements suggested that any approach of IBF operation that recommended through
Maslaha concept must also confirmed IME as one of the important aspect of them.
The IBF products not only introduce new products and services, over the
comprehensive operation applicable to protect people of precipitating to destruction or
chaos as the holistic view on Islamic perspective.
Maslaha has been an important concept in solution of IBFS operation issues to
achieve Maqasid al-Shariah. For the purpose, the implementation of Maslaha shown
by a new approach of some contracts with particular conditions and it must follow the
Shariah compliance as a Syariah. According to M.Fahim Khan and Layachi Feddad
(2005) regarding about standardization need in the growth of Islamic financial
industry described the IBFS need to Maslaha with clear words is the diversity and
flexibility in the contemporary application of Islamic law into complexities never
known in the past.
3.1 Analysis of Islamic Banking and Finance Contracts using Maslaha and
Maqasid al-Shariah Concepts
In Malaysia, Islamic banks have established many products successfully such as al-
Wadiah and al-Mudharabah savings accounts, Bai’ al-Murabaha and al-Musyarakah
for contracts of sale for cars and properties and Ijarah for commercial financing.
There are some contracts that refer to Maslaha and Maqasid al-Shariah such as Bai’
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al’Inah, al-Tawarruk, Hibbah and mixed investment issues, Ijarah Sukuk. Therefore
Islamic scholars decided to adopt specific approaches linked to Muamalat activities to
fulfil customers’ demand by offering Islamic financial products in conventional
banks. As a result, several IBFS products under the Maslaha concept have been
successfully introduced in conventional banking such as Bai’ al-‘Inah and Tawarruk
for personal financing and Islamic credit card service, BBA and Murabahah for home
financing and Bai’ al-Dayn for Islamic debt financing. The following discussion
explains how the Maslaha and Maqasid are referred to in establishing these contracts.
i. Maslaha Concept For Bai’ al’Inah and Tawarruk Contracts
Bai al-‘Inah is a sell and buy-back contract. There are two separate transaction. Base
on the analysis by Mohd Daud, Norsazali, Mohd Kamal Azman and Sayuti (2013) has
discussed about the contract Bai’ al-‘Inah and its significant to the IBF operation is
consider as Maslaha concept. The question is why it is regarded to Maslaha ?. It is the
majority of jurists have rejected this contract due to contractual exercise similar on
agreement of loan. It also intrepreted as planning of two parties for cash money to
customer and to earn the profit for bank, which the transaction of sale of goods is not
intention of the parties but the hightlighted questions indicate that the main issue is
Helah reason or trick which related in the contrack as a view point due to riba or
usury. Meanwhile, accordance to Shafie opinion, it is permits as the contract has
fulfilled all of the pillars or elements of the Islamic contract of sale or in line of
Islamic law. In Malaysia this contract offered for Islamic Personal Financing and card
credit that they refer to Maslaha are due to two main factors. Firstly, there are
essential situation to offer these products and secondly, any contracts not applicable
for both of the products except Bai al’Inah and Tawarruk. The analysis also concluded
that the implementation of Bai’ al’Inah and also Tawarruk were considered as
Maslaha level as a result, through interviews with some of the Muftis and Executive
officers of Islamic Banking in Malaysia. It also concluded that Tawarruk contract
rather than Bai’ al-‘Inah contract and Bai’ al-Inah should be exercise. Bai al-’Inah
also should be restricted using and that only for difficult products to be structured. It
also must be monitored by authority bodies accordingly. All of them: Muftis and
Shariah officers of IBF have described that implementation of Bai’ al-‘Inah and
Tawarruk are in light of Maslaha as long as they remain significant to Islamic
financing operation. The arguments of Maslaha, can be understood through serious
requirement of IBF product personal loan and card credit as necessary need of the
people. If they are not offered, than the peoples will get them from the conventional
bank or sharks loan (illegal loan) which are confirm prohibited due to riba. At the
same time, there are nonexistence of applicable contract to be used for Islamic
personal financing except that if only Bai’ al-‘Inah and al-Tawarruk were exercise.
Hence the contracts require that all conditions pertaining to sale are fulfilled. On the
other reason refer at absently of particular text of hadith as proof of prohibition of Bai
'al-Inah specifically and most of hadiths which forbid it still in incontrovertible
validity (Awang Haji Metussin Haji 2006; Bank Negara Malaysia, 2007). An
additional proof can be refer to Imam Ibn Taymiyyah opinion about the usage of the
al-Tawwaruk contract. He is of an opinion that to get cash money in a desperate
situation (Dharuri) is permitted. Thus the Tawarruk and the Bai’ al-‘Inah are similar
approach that is strongly point of this view.
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For the other reason, Islamic bank institution need significant product to perform the
financing liquidity of the capital fund. According to Fazlur Rahman Ebrahim (2005),
Bay Inah and bay Dayn are largely attributed to be application of contract in
consumer and trade financing and need to be understood to fully appreciate and
maximize the true potential and wisdom of Shariah. The significant of these products
can also be understood from the same author when he said, suitable IBF instruments
need to be developed to meet the requirement s of more diverse business activities. In
the global market, standardisation, harmonisation and application of Shariah
compliant products based on some general principles should be promoted.
The second contract is Tawarruk contract, that is has permitted by the 15th conference
of al-Majma al-Fiqhi al-Islami. However in the 17th conference, the contract of al-
Tawarruq al-Munazzam was banned in Islamic banking practices, whereas the
contract of al-Tawarruq al-Fiqhi is remain permitted as stated in the classical practice
(Majallah Majma’, 2003). The above statements and other discusions indicated
support to al-Tawarruk contract rather than bai al-‘Inah contract. In the middle east
contract of al-Tawarruk was used in offering Islamic financing products. For example,
personal financing at Shamil Bank of Bahrain and credit card products at Tayseer al-
Member in The National Commercial Bank (NCB) of Jeddah in Saudi Arabia.
Looking at this effort, more positive transaction which prefer to use the tawarruk
contract proved that Maslaha as not only sound but a good practice as well. (Mohd
Kamal Azman, 2014)
By inference, the Malaysia Central Bank (BNM) still allows Bai’ al-Inah and
Tawarruq based on a Discussion entitled “Muzakarah Cendikiawan Syariah
Nusantara’ on 28-29 June 2006 to examine and review the law of sale of Bai’ al-Inah
and Tawarruq in current practice and have decided as the follows are:
a. The permissible of Bai’ al-Inah and Tawarruq still in debating amongs jurists,
however for each view has its own arguments.
b. The permissible requirement for Tawarruk is similar to Bai’ al-Inah.
Therefore, both of them based of the same ruling.
c. Bai’ al-Inah contract is still necessity for the developing of Islamic finance in
national level. However, practitioners need to strengthen and streamline
operational processes and documentation must be comply all of the criteria of
Bai’ al- Inah as required. (Bank Negara Malaysia, 2007):
Currently, in Malaysia, the BNM encourages Islamic bank institutions who offer
personal financing to use Tawarruq contract which replace Bai’ al-Inah contract that it
can be considered as Maslaha efforts. All of full pledge Islamic bank (Bank Islam
Malaysia Berhad (BIMB) and Bank Muamalat (BMM) ) has decided to use al-
Tawarruk for credit cards and personal financing starting from 2013. Though, Bai al-
Inah is still in use, it is limited that only for necessary application or operation.
ii. Maslaha Concept For BBA and Murabaha Contracts
Murabaha and BBA contracts are distinguished from loan contract (conventional) as
their contractual capacity to earn profit income is based an underlying of Shariah of
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exchange of real good and services. Nonexistence of such good invalidates the
contract. Pricing of the real good rather than the financing services accorded to the
transaction is the substance of the consideration of exchange. Not anticipating
subsequent productive activity during the ex-post sale or credit period, the contract
limit the price ceiling to the ascertained credit period agreed at the point of sale (Syed
Musa, 2005). Murabaha involving method of promising with other contract such Bai
al-‘Inah. On the other hand, severe criticism posed at the BBA financing is its
involvement in ‘hidden’ bay’ al-Inah contracts, where the financier buys and sells the
products back to the customer. (M.Fahim Khan and Layachi Feddad, 2005; Syed
Musa, 2005: Tawfique Al-Mubaraka and Dr. Noor Mohammad Osmani, 2012). While
in BBA the price BBA is higher than the price of normal transaction…The increment
in price is allowed in case of deferment of price in a sale contract provided that there
is asset to be sold which represent the subject matter of the contract or the object of
trade. Thererfore, the increase of price is against the commodity and not against
money or loan, otherwise it will be tantamount to riba. Maslaha can be understood
that the bank have to ensure its benefit of the satisfaction of price against the
fluctuations of financing system and buyer have no cash to purchase some properties
of necessary needs except by financing instrument. From the Maqasid Shariah in BBA
in imposing such requirements is to ensure a win win situation, whereby both parties
benefit from the transaction in a very satisfactory manner. There is an increase of the
price for the satisfaction of the seller (bank) by advancing the asset against deferred
payment and a scheme of instalment for the benefit of the buyer (Dr Achene, 2013).
BBA and Murabaha sometime will be engaging Bai al-‘Inah. In Syed Musa (2005), he
explain BBA and Murabaha conditions : “In financing activity the property has
become not only the object of sale but has become the basis for liquid funds to be
made available to deficit units. This particularly relevant in sell and buy-back
arrangements for re-financing. Bai al-‘Inah which has the characteristics of mark-up
financing resembles Murabaha except that it allows the customer to be the agent and
subsequent purchaser”. However the Central Bank of Malaysia has approved a
‘floating-rate’ BBA where the customer pays a monthly instalment amount that is on
the higher end, but subsequently gets a rebate based on the prevailing market interest
rate. The rebate showed that it is one conditions of Maslaha requirement. Therefore
this paper also suggest BBA and Murabaha have to review their price and rebate from
time to time to benefiting all the parties fairly and justice.
iii. Maslaha Concept For Bai al-Dayn Contract
What is Bai al-Dayn and what is product used this contract ? Bai al-Dayn or debt
trading or sale of debt can be defined as the sale of payable right or receivable debt
either to the debtor himself, or to any third party. This type of sale is usually for
immediate payment or for deferred payment. In Malaysia this contract used to
establish the Islamic securitized debt.
Controversy of this contract is whether engaging riba-based or not due to meaning
about the ruling is that financial transactions involving debt should never allow
deferred payment. According writing by Zaharudin, (2006), he said, to most Hanafis,
Hanbalis and Shafie jurists, it is not allowed to sell al-Dayn to non-debtor or a third
party at all. However Malikis, and some Hanafis and Shafie jurist allowed selling of
debt to third party with some conditions. The condition almost regarding about the
debt must be refer to validity commodity of Shariah. He also added, that the
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Mainstream Islamic scholars have put a plug on the possibility of earning profit by
confirming that any sale of debt (Bay’-al-dayn) or transfer of debt (Hawalat-al-dayn)
must be at face value. (Zaharudin 2006; Saiful Azhar, 1999). While with reference of
Glossary (2013) Bai al-Dayn: to a large majority of Islamic jurists, sale of debt except
at its face value is not allowed. The International Islamic Fiqh Academy, Jeddah,
which is the largest representative body of Sharī’ah scholars and has the
representation of all the Muslim countries, including Malaysia, has unanimously
upheld the prohibition of bay al-dayn at a discount. (Resolution No. 101 (4/11), 1998)
In this paper, what the point to highlight is the role of Maslaha and how it related to
the contract of Bai al-Dayn. According to Achene (2013), bai al-Dayn was established
base on Maslaha due to the resolution of 2 meeting on 21 Auguts 1996, the Shariah
Advisory Committee (SAC) unanimously agreed to accept the principle of bay’ al-
Dayn i.e. debt trading as one of the concept for developing Islamic capital market
instruments. According to the council,“this was based on the views of some of
Islamic jurists who allowed this concept aubject to certain conditions. In the context
of the capital market, these conditions are meet when there is a transparent regulatory
system when can safeguard the maslaha of the market participants”. He added, the
council refer to maslaha by saying, “ The argument of the Islamic jurists that
prohibited bay al-Dayn to the third party for fear that the buyer will have a bear great
risks (Hanafi School) have some truth in it. This is especially true is there is an
absence of supervision and control. In this context the buyer’s maslaha should be
safeguarded because he is the party that has to bear the risks of acquiring the debt sale
while making the sale contract”. He also explain that the issue by referring to maslaha
by point of there is a regulatory system that protect the buyer’s maslaha in an
economic system. According to Fazlur Rahman Ebrahim (2005), suitable IBF
instruments need to be developed to meet the requirement s of more diversity for
business activities. In the global market, standardisation, harmonisation and
application of Shariah compliant products based on some general principles should be
promoted and refer to bai Inah and bai Dayn are largely attributed to be application of
contract in consumer and trade financing and need to be concerted to fully appreciate
and maximize the true potential and wisdom of Shariah.
In this context of the Islamic financing contract that use the contract of sale through
the nature of banking system, refer spirit of Maslaha and Maqasid Shariah. Maslaha
placed some conditions to the contract as essential action to achieve the objective of
Shariah from two aspect, firstly product based the contract for liquidity purpose of
financing in economy system and secondly to avoid from engaging riba.
In Malasysia the implementation of Bai’ al’Inah, Tawarruk, BBA and Murabaha and
Bai al-Dayn, should be follow particular conditions to become Islamic products in line
with Syariah compliance through Maslaha and Maqasid Shariah. Therefore, all of
them have to follow the regulatory issued from BNM as authority body and it
seriously emphasize on the development of IBF. All of arguements and improvement
of these contracts from time to time is recognized as a good Maslaha exescise.
International Conference of Global Islamic Studies 2014
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3.2 A Critical Analysis of the Use and Abuse of Maslaha and Maqasid al-
Shariah in Islamic Banking and Finance
This section aims to explore the use and abuse of Maslaha in Bai al-‘Inah and
Tawarruk and the Islamic debt financing issues. It will focus on consumer debt
financing products, especially personal financing and credit card. It also explores and
examines the benefits and implications of these products from the economic
perspective.
In Malaysia the implementation of personal financing based on Bai al-Ina or al-
Tawarruk contracts that client who needs the cash will submit an application to the
bank. Once the application is approved, the bank will sell the asset to the customer at
certain amount with deffered payments within certain period, and then that customers
will sell back the asset to the bank with price lower then he bought it by cash.
Meanwhile the Tawarruk as the purchase of a commodity that is in the ownership and
possession of the seller against a deferred price. Its subsequent sale by the purchaser
to a party other than the seller on cash is for the purpose of obtaining cash, that is
warik ( Achene,2013; Resolution of the Muslim World League, Session 15, Mekkah,
31/11/1998). Dinstinguising between both contracts is Bai al-‘Inah engaging two
parties, while al-Tawarruk involving three parties but both in the same contractual
objective of IBF operation. Thus, these contracts have accepted by Shariah law due to
all of their conditions fulfilled the sale contract at the time of the contract. These
contracts have not only approved in Malaysia but extended in many Arab countries
where they also have credit card product under IBF system.
As we know, Bai al-Inah and Tawarruq have been used for customer debt financing
products. Therefore, they become important role for developing of Islamic economy
system, aimed at achieving well-being of the ummah, universal brotherhood, justice
and equitable distribution of income. The objective of Shariah also is to provide
Islamic way for activities in economy through IBF system to challenge the
conventional facilities. In fact, the conventional institutions offering consumer debt
loans which is highest demand from the people such as personal loan, card credit that
are confirmed engage with riba or interest, even in the same time, existing of the shark
loan as illegal form where marketable among the people. According to analysis of
Muftis and Shariah officers of Islamic banks by Mohd Daud, Norsazali, Mohd Kamal
Azman and Sayuti, (2013), have described that implementation of Bai’ al-‘Inah and
Tawarruk are in light of Maslaha as long as they are significant to Islamic financing
operation. The arguments of Maslaha, can be understood through serious requirement
of IBF product personal loan and card credit at necessary level from the people, if
they are not offered that the peoples will get them from the conventional bank.
According to Fazlur Rahman Ebrahim, (2005), the creation of a bigger market in this
industry is extremely important in order to ensure the growth and sustainability of
Islamic banking and finance at present and in the future. New innovations of products
would be meaningless if the market does not grow. Therefore, IBF needs to be
dynamic and proactive in meeting the needs of the Muslim community and other
communities at large to gain growing trust from them. Thus suggested that Maslaha of
Bai’ al-‘Inah and Tawarruk also can be understand from view of economy to achieve
the Maqasid in protection of people from involving of riba bank.
International Conference of Global Islamic Studies 2014
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This situation also could be understood from the writing of Achene, (2013), said,
Islamic banking is linked to the economics and business activities in the real market,
Islamic banking is not mere loan extended to the client regardless whether there is
physical movement of the asset sold or bought. The Islamic bank is not a loan
provider; it is not a money lender. The Islamic bank can take different positions in the
market depending on the nature of the transaction. The Islamic bank can be a buyer or
seller in trade transaction and it can be a partner in case of musharakah etc. He added,
that the Islamic bank behaves as an enterprise in the market by taking different
positions to earn money and generate wealth. Therefore there is a link between the
Islamic banking activities and the activities of the business in the real market,
whereby any banking transaction executed in the Islamic banks has an impact on the
real economy which shows the contribution of the Islamic bank in the real economy
sector. The link between the Islamic bank activities and the real economy is one of
the key features that distinguish the Islamic banking entity from the conventional
banks. This statement really proof that IBF is very important in Islamic economy
including the Islamic debt financing that based on Bai’ al-‘Inah and Tawarruk. All the
above statement witnesses that implementation of both contracts as Maslaha in macro
aspect or macro-Maslaha.
In section 3.1 that mentioned several circumstances of these contracts in light of
Maslaha. They are addressing to serious demand from the people’s need of financing.
Maslaha also regarded to the Islamic bank which have to come up with varieties of
products to fulfil the need of the societies. In case of Malaysia for example offer a
dual banking system where conventional banks provide various products and services
that Islamic banking facilities also have to come out the innovative products in the
competition within in banking industry and aimed to capture a sizable market share.
On the other hand, IBF has to strive in offering the demand product at least on par
with products offered by the conventional banking system. The product of Islamic
debt financing is considered as the demand product in Malaysia.
The analysis by Mohd Daud, Norsazali, Mohd Kamal Azman and Sayuti, (2013)
conducted through interviews with some of the Mufti and Executive officers of
Islamic Banking, has also explained the abuse of Maslaha in implementation of these
contracts. However all of respondents in stand that Bai’ al-‘Inah and Tawarruk have
applied in light of Maslaha as long as it is needed in Islamic financing. It also
concluded using of Bai’ al-Inah should be restricted in products are difficult to be
structured with monitoring accordingly. Understanding of this point that Shariah has
granted Bai’ al’Inah and Tawarruk to operate in underlying of Maslaha, but the
application has to follow requirements or conditions have outlined by the authority
bodies for example in Malaysia is the authority entity is BNM. BNM has determined
some regulatory such as the asset should be used for the contract must relatively with
the price of sale and also the implementation of sale contract and buy-back contract
must be separated. If there are acts of ignorance of these conditions so that are
considered abuse of Maslaha. The mistake actions due to the error in implementation
of both of the contracts would be arises issue is about the intention of the transaction
like a loan contract and is considred as unlawful. When the violation of conditions
occurred that considered as abuse of Maslaha. This situation also will proof that the
intention of contract of Bai’ al-‘Inah and al-Tawarruk as simply a loan agreement and
the arguement of trick or Helah that cause of riba considartion become more relative
International Conference of Global Islamic Studies 2014
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in this case. The abuse of Maslaha can be understood from several factors such as lack
of understanding among the staff about Islamic banking concept and it’s implication
in Islamic law such as ignorence the separating exercise of one contract to another
contract in Bai al-‘Inah agreement become invalid performing of contracts refer to
Shariah compliant, unclear of the al-Qabd exercise, unclear of the value of asset to the
price of sale and so forth. All of the errors practice considered as abuse of Maslaha in
Bai’ al-‘Inah and Tawarruk contract. Thus all of those who responsible to practice the
Bai’ al-Inah and Tawarruk must be good understanding in IBF concept for away of
breaching where might be cause these contracts invalid.
This paper also will highlight the current issues of IBF regarding the use and abuse of
Maslaha. Maslaha should be ensuring the people to achieve the well-being or
prosperity and harmonies in the life as the Maqasid. If the product leads to the
destruction and chaos, of course that is considered as abuse of Maslaha in this case
due to the negative result which is contrary with Shariah objective. However, in
Malaysia Bai’ al-‘Inah and Tawarruk contract have been approved based on Maslaha
to establish various debts financing for consumers. The question is how harmonise the
peoples with the offer of Islamic debt financing whether they are success of failure in
their life. The purpose of Maslaha should be make the peoples to the better
circumstance compare to the absent of the contract as the above previous arguments.
Unfortunately refer to analysis and studies by MK Azman, M Daud & Atikullah
(2012), indicated that the issues of debt in Malaysia considered the social failure. This
is debt issues has become more negative effect in increasing of bankruptcy among the
peoples. The paper also reported is increasing number of bankruptcy cases in
Malaysia among young people which in 2009 total of 1,086 public servants had been
declared bankrupt by the Insolvency Department. The statement also relate the greatly
affects with the attractions and promotion of financial institutions that offer debt
financing scheme which has influenced the society being trapped into the midst of
serious debt. They added also in 2010, the Malaysian community household debt is
the highest in Asia increased by 76.7% of Gross Domestic Product (GDP) from the
year 2009 and it increased in 2011 with the increasing by 5% from 2010. The latest
report case of bankruptcy in Malaysia in 2012 that total of 19,575 public servants had
been declared bankrupt by the Insolvency Department. While from January to
September 2013 the total of bankruptcy is 16,306, (http://www.sinarharian.com.my).
This effect will contribute to the debt payment problems in the community. When the
debt is not paid, bankruptcy cases will increase. The seriously case of indebtedness
has been damaging the public service image in Malaysia.
Based on three tables at the appendix are significant of this study that table 1
illustrated that the level of the consumer durable (debt-based) at in highest level out of
others financing (asset-based) in financial industry has been very dangerous situation.
While in table 2, indicated the sum of BIMB Islamic financing of household sector in
2010 achieved 75.8%. The situation also reported on 30 october 2013, Malaysia,
Thailand, Singapore, and Korea have the highest household debt in Asia, according to
the report, with banks in Malaysia and Thailand deemed the most vulnerable to non-
performing loans in the household segment (http://www.sinarharian.com.my). Lastly
based on, table 3 showed that Bai’ al’Inah contract of BIMB (2010) contributed
13.64%, while BBA 50.55% and al-Tawarruq contract acquire 20.95%, which the
consumer Islamic debt financing become the biggest percentage of financing segment.
International Conference of Global Islamic Studies 2014
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When we compare this report to the previous analysis of bankruptcy issue there are
very significant. The issues also including the Islamic banks as reported on 9 july
2013, Malaysia's household debt-to-GDP ratio rose to 82.9% in March 2013 from
76.6% in 2011. Some 80% of household debt was issued by commercial banks and
Islamic banks (http://www.sinarharian.com.my). All of the reports become a relevant
evident to what Asutay meant in his analysis with mention as the ‘social failure’ of
IBFIs into his words sound that these new products, as the controversy around
Tawarruq and sukuk as well as other Islamic derivatives and futures indicates, are
constructed by compromising the value system of IBF. The result, therefore, has been
the financialisation of IBF, which as a principle was considered detrimental to a
robust economy by IME. Thus, the particular and pragmatist path followed has
resulted in internalising ‘fiancialisation’ as an essential part of IBF, which runs
against the aspirations and values of IME and IBF. In a recent study by Asutay and
Aksak [2011], the performance of IBFI indices were examined for a number of cases
and compared to conventional finance, a direct correlation between the performance
of both the financial sectors is established, and it is argued with evidence that IBF
does not necessarily bring stability to the financial system. It is assumed by the IME
that IBF should provide stability to the financial system and should also be a moral
compass for capitalism [Asutay 2007a, 2008].
In this case about the regarded issues, Malaysia’s Centre Bank (BNM), has issued the
order of limiting the tenure for personal loans to ten years compare to twenty years
previously as reported on July 5, 2013. BNM had implemented a set of measures
aimed at avoiding excessive household indebtedness and to reinforce responsible
lending practices by key credit providers. These included a 10-year cap on the tenure
for personal loans, a 35-year limit on both housing and non-residential property loans,
as well as a prohibition on pre-approved personal financing products. (Posted on 21
August 2013 - 10:16pm, http://www.thesundaily.my/news). According to Akram
Laldin, regarding to this issue, BNM has outlined the instruction of limitation for
personal financing to 10 years as a Maqasid effort.( Akram Laldin, 2014). With the
implementation of the scheme it overcomes issues related to Non-performance
loans/financings (NPLs) and achieve Maqasid for both finance institution and client.
But in additional of abuse of this application, that is understood from the general
observation show a lot of peoples who applies the loan not for necessary situation as
its define as Maqasid but most of them for purpose to buy something better than what
they has belonging before such as buy a new car and the same time his old car still
good for used. This situation will become reality if proper investigation is not carried
out. The management of needs purchasing can be properly conducted when it can
distinguish between different needs. The needs purchase should be referring to the
real needs. Besides that, a Muslim should be able to differentiate their own needs and
the enjoying of life. This is important as there are many cases that about Muslim that
too extravagant in expending. Islam forbid the ummah to be excessive or wasting as
mentioned by Allah: “Those who are excessive (in expending) is a family to evil
whereas evil creature that is very disobedient toward its gods.(al-Isra’:27)
All of the above opinions and arguments are considered as the understanding of the
Maslaha and Maqasid. It is also aim to achieve the wisdom (hikmah) in Islamic
jurisprudence. But the appearance of increasing of the debt issues among people
including Islamic bank’s customer especially in Malaysia that require the reviewing
International Conference of Global Islamic Studies 2014
26
the stand of Maslaha and Maqasid on this issues. It should be taken seriously with
good understanding of the concepts and the reality accordingly. With the spirit of
Maslaha and Maqasid as the methods of Islamic jurisprudence, it could meet the good
solution in which to build the Islamic wealth through the good understanding of
individuals and good management of Islamic banking institutions.
4. Recommendation
Based on the analyses discussed above, this paper will now provide some suggestions
to overcome the issues of Islamic banking operations in Malaysia. Below are the
suggestions:
i. The issues of the increasing number of bankruptcies and consumer debt
financing among the people have put them in a dangerous situation. This paper
aims to provide opinions in the spirit of Maslaha and Maqasid. If these
products are still affecting the bankruptcy issues, then the terms and conditions
of these contracts are in a vulnerable position due to the lenient approval
process. BNM needs to take additional measures to tighten the contracts’
terms and conditions. If the same issues persists, then Islamic banking
institutions, with good strategies, have to gradually stop offering personal
financing based on these contracts to remove the negative culture of debt. It
could be replaced with a new innovative contract as a solution such as al-Rahn
which requires personal liability and collaterals. This does not mean that we
reject Bai’ al-‘Inah and Tawarruq contracts but both contracts are only used in
a manner to fulfil the liquidity requirement of IBF operations when necessary.
It is not to encourage debt culture among the people. To achieve Maqasid al-
Shariah, the government can educate the people about the true meaning of
wealth from an Islamic view through education institutions.
ii. The IBF institutions have to introduce new innovative debt financing proucts
to meet consumers’ need for special method of financing. Most Malaysians in
general need two important items; a house and a car as basic life necessities.
Al-Musharakah principle can be used to establish a new suitable product with
particular conditions for home and vehicle financing. This effort can reduce
the number of consumers applying for personal loans. In a different case, some
entrepreneurs use personal financing/loan to finance their business capital
where their application for commercial loans fail. The business then ends up in
a failure due to the low limit of personal financing. Therefore, IBF institutions
should offer more business financing products that are based on Muamalat
principles because there is a good potential in the trade sector for financing as
an investment effort. Understanding Maslaha, IBF institutions should focus
their funds in financing the trade sector rather than consumer debt financing in
expanding Islamic wealth. It can also enhance the liquidity performance of
IBF institutions.
iii. The education institutions in Malaysia should equip the people with
knowledge on how to manage their finance and inculcate the Maslaha and
Maqasid al-Shariah concepts to increase their understanding of IBF.
According to Kamali, (2008), educating the individual (tahdhib al-fard) is
another important objective of the Shariah so much so that it comes, in order
International Conference of Global Islamic Studies 2014
27
of priority, even before justice and Maslaha. For these are both socially-
oriented values which acquire much of their meaning in the context of social
relations, whereas tahdhib al-fard seeks to make every individual a trustworthy
agent and a carrier of the values of the Shariah, and it is through educating the
individual that the Shariah seeks to realise most of its social objectives.
Therefore, in order to achieve the Maqasid al-Shariah through Maslaha, every
man must have a high level of sacrifice. He should know which one to
sacrifice according to the importance in order to obtain something bigger in
return. The definition of needs is something that must be understood to a
certain extent in order to achieve harmony or otherwise. Need is something
that must be provided whereas ‘demand’ or ‘desire’ is something
supplementary to the needs which will increase the level of satisfaction.
However, when we do not meet our desires it will cause us to feel less
satisfied. We can distinguish between desire and needs based on its function.
Something that we call desire will act as a supplement to the main function of
needs but satisfying our need is imperative. Islam does not like extravagance.
Those who live in extravagance and wastage are considered as friends of evil
and injustice. Therefore through the education system, consumers can enhance
their understanding of Maslaha and Maqasid for financing purposes. It should
strive to explain to the consumers the meaning behind the three categories of
needs in building wealth from an Islamic perspective. Consumers must be
reminded that debt is only allowed to finance need and necessities and not for
luxury purposes. If the debt taken leads people to a negative way of life, then
an abuse of Maslaha has occurred. Maqasid al-Shariah should prevent unfair
redistribution and damage of wealth as Dusuki (2011) has said – while Shariah
takes full account of people’s right to acquire, use and enjoy their property and
the corresponding benefits, it also emphasises the need to preserve the
property from being damaged and exposed to any form of harm. Thus, the
education strategy can solve this problem with the support from the
government.
5. Conclusion
To understand Islamic banking and finance operations in light of the Shariah law
through Maslaha and Maqasid al-Shariah requires not only fiqhiyyah knowledge, but
also the understanding of the reality of economy itself. The Maslaha method means
the protection of Masalih (plural of Maslaha/benefit) and prevention of Mafasid
(plural of Mafsada/corruptive). Therefore, the use of Maslaha and Maqasid al-Shariah
concepts in IBF products is due to the financial system’s needs from an economic
aspect. Among them are; to maintain a market discipline in the contemporary
environment, perform the liquidity purposes of the financial system and to meet
customers’ demand. The situation is identifiede as the global spread of Islamic
banking that is taking advantage of the diversity and flexibility in the Fiqh opinions to
meet the challenges of growth because generating the ummah’s wealth is also
considered Maslaha-oriented. Meanwhile, there is an understanding of Maslaha and
its association to the comprehensive analysis regarding Bai’ al-‘Inah and al-Tawarruk
contracts which offer Islamic debt financing products such as personal loans and
credit card facility. However, the issue of increasing number of bankruptcy filed and
household debt financing due to the abuse of Maslaha and Maqasid concepts are
International Conference of Global Islamic Studies 2014
28
reported to be of the highest level. Therefore the study believes that some suggestions
have to be implemented to achieve equilibrium and justice for the people by
understanding both concepts where Islam is able in all times and places. Regarding
these issues, it is suggested that the terms and conditions of personal loans must be
tightened, and more innovative products should be introduced for personal financing
such as al-Rahn. This will thus establish various ways of Islamic financing for
businesses and simultaneously educate the people about Masalaha and Maqasid in
order to enhance the understanding of their financial needs. It is also suggested that
the ethical management among the staff members of IBF be improved and taken
seriously. The implementation of Maslaha is not only to meet the financial needs but
also to ensure that individual and economic status remain under the protection of
Masalih and away from Mafasid. On the other hand, Maqasid al-Shariah is to ensure
the IBF institutions are able to sustain their products and services in the competitive
financial market while meeting customers’ requirements with the responsibility of
tahdhib al-fard in achieving the equilibrium and justice in life. Education plays a very
important role in improving people’s ability to make informed decision when
obtaining debt financing facility based on Maslaha and Maqasid without being
influenced by common debt culture. Finally, IBF institutions should apply a
monitoring system that promotes transparency and accountability with a good policy
and support from the government.
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Appendix 1
Table 1
Financing Breakdown Of Islamic Banks And Industry Formation
Models of Islamic Finance Industry Formation Mehmet Asutay21-23 December 2013,
Kizilcahamam, Ankara, BDDK Workshop 2013
Table 2
Islamic Finance Realities: Industries Financed Islamic financing methods in 2010
for selected banks
Models of Islamic Finance Industry Formation Mehmet Asutay21-23 December
2013,Kizilcahamam, Ankara, BDDK Workshop 2013
International Conference of Global Islamic Studies 2014
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Appendix 2
Table 3
Islamic Finance Realities: Debt Over Assetbased/Backed Financing
Islamic Financing Methods In 2010 For Selected Banks
Models of Islamic Finance Industry Formation Mehmet Asutay21-23 December 2013,
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