What is Islamic Law?


This article is part of a brief introduction to the subject of Islamic banking and finance for those who have no previous knowledge or experience. Before we can discuss Islamic finance, we need to cover the laws in Islam relating to Islamic finance. And before we do that, we need to understand where Islamic finance laws fit in relation to the wider concept of law in Islam.



What is law in Islam?


The main principles of Islamic finance are derived from sources – they are not just created because they seem appropriate. Each principle is based on specific literature (for example, based directly on textual elements that are revealed in the Quran - the “revealed” holy book of Islam, or based on deeds, or the reporting of those deeds of the Prophet Mohammed (peace be upon him).


Islamic finance, in this sense, is only one aspect of an overall set of rules and principles that are prescribed for Muslims. These rules are not created by man. They ultimately derive from God, Allah, our Creator


A general name given for the overall “law” that is derived is Shariah. Shariah literally means “the path” or “the way” in Arabic.


I realise that for some non-Muslims, Shariah is a byword for chopping off people’s hands or methods to execute people. However, this perception is a result of ignorance and wide mis-reporting and (quite likely) some prejudice. It is also a consequence of incorrect application of Islamic law, and is driven by political matters rather than a desire to adhere solely to matters of faith and law.


For example, many of my activities every single day are governed by Shariah law. I need to have some level of knowledge of Shariah to be able to function as a Muslim. For example, the following are governed by Shariah and it is incumbent for me to be aware of them:

  • at what times of the day I should pray (the time varies every day based on the daily cycle)

  • what I need to do in order for any prayer to be valid and accepted

  • how I should wash or purify myself before I pray

  • what I can and can not buy when I go to the supermarket to buy food

  • how I greet someone when I see them

  • which hand I use when I eat

  • which foot I lead with when I step into and out of the bathroom


The point to be made is that Shariah impacts my daily life very frequently, and it is part of my everyday routine and life as a Muslim. This is Shariah law for a Muslim. Not what you may see on TV and youtube.


Shariah is the reference to the sets of laws that govern not only religious aspects, but also every-day life. The scope of Shariah is much wider than, for example, the scope of law in other “Western” systems.


Shariah certainly regulates an individual’s relationship with others and the state. However, it also regulates an individual’s relationship with God.


Our relationship with God, and related aspects such as prayer, the giving of charity, fasting, pilgrimage, is subject to quite detailed laws and rules. Indeed, if you look at a typical legal manual of Shariah law, these aspects of law are covered first.


Shariah law is not just concerned with laws and rules, but also with ethical standards. We are told not only what we are bound to do, or entitled to do, but also what one ought to do, or ought to refrain from doing.


Beyond the aspect of Shariah that covers our relationship with God, the other aspects cover areas such as:

  • Transactional/commercial law

  • Family law (marriage, divorce, etc)

  • Inheritance law

  • Criminal law

The point here is that the aspects of law relating to Islamic finance are simply a subset of a much wider canon of law that relates to many of the important aspects of life for an individual, for communities and for society as a whole.


The actual rules and laws are often referred to as Fiqh. Two key areas of Fiqh are those related to our relationship with God (Fiqh al ibadah) and then to our relationship with each other and with the state (Fiqh al Muamalat).


Each topic is a very complex one, and is certainly very interesting to me. I teach Fiqh and Islamic Law at University, and I appreciate the vast depth and breadth of knowledge and literature relating to Fiqh.


How the rules are created is another fascinating topic in itself. There are four major sources of law, which can be listed as follows (in order of importance) :

  1. The Quran – the revealed text

  2. Hadith or the Sunnah – this relates to reported acts and sayings attributed to the Prophet Mohammed (peace be upon him).

  3. Ijma – this is the consensus of scholars, ie where they agree on an aspect of law

  4. Analogical reasoning – where no clear and relevant rules can be found for a particular event or situation, there is method for them to be deduced from the act of human reasoning. This is highly regulated and the aim is to prevent something becoming a point of law simply because it seems like a good idea.


Islamic commercial law falls under the topic of Fiqh al Muamalat, and it is this aspect of law that covers much (or all) of the major activity in Islamic banking and finance.


We will begin to look at Islamic commercial law in a following post.

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