Note, this is a chapter from the book ‘Prophetic Finance and Economics’ by Mufti Faraz Adam

Summary

• Ḥiyal refers to legal mechanisms, devices, or stratagems that seek to attain a permissible objective without violating the law. They provide lawful alternatives when the current option is prohibited.
• Linguistically, Ḥīlah means movement in a cycle to go around something. Technically, it refers to sidestepping a prohibition through lawful means for a lawful outcome.
• The concept emerges from the Quran, which mentions examples of permitted Ḥiyal like the case of Prophet Ayyub (ʿalayhi al-Salām), and prohibited cases like that of the children of Isrā’īl fishing on Saturdays.
• Understanding Ḥiyal is crucial for comprehending complex financial products in Islamic finance, such as Commodity Murabahah and Tawarruq.
• Types of Ḥiyal:
  • Lawful means to lawful ends.
  • Lawful means manipulated for prohibited outcomes.
  • Unlawful means to entitled outcomes.
  • Lawful means for genuine benefit or harm prevention.
• Forms of Ḥiyal: Distinguishes between absolute Ḥiyal (universal lawful alternatives) and contextual Ḥiyal (specific solutions for particular needs).
• The application of Ḥiyal must adhere to ethical principles that are embedded in each chapter of Fiqh, avoiding harm, deceit, and violation of rights.
• Many classical scholars across the schools of Fiqh like Imam al-Sarakhsī, Imam al-Shāṭibī, and Ibn al-Qayyim have discussed and provided examples of Ḥiyal.
• Macro level Ḥiyal require more caution as they impact entire economies. Widespread need brings concession but requires careful consideration of impacts.
• Ratio legis for the prohibition of Bayʿ al-ʿĪnah includes taking surplus through this unethical device, greed, combining two sales, resemblance of combining two prices.
• Bayʿ al-Wafā’ and Bayʿ al-Istighlāl are historical examples of contextual Ḥiyal crafted for needs of the time.
• The Muftī advises on Ḥiyal while the Qāḍī judges based on apparent factors. Muftīs can consider contexts and craft tailored solutions.
• All lawful transactions are absolute Ḥiyal – alternatives to prohibited Ribā-based financing and are usable universally regardless of context.
• Contextual Ḥiyal involve modifications and structures crafted for specific situations that require review.
• Classical scholars proposed Ḥiyal for various legal and financial issues, which contemporary Islamic finance continues to develop, addressing modern economic realities while adhering to Sharīʿah.
• Examples of contemporary Ḥiyal include the use of Commodity Murabahah, the use of Special Purpose Vehicles (SPVs), the use of Waʿd, the use of service agency agreements.
• The development and validation of Ḥiyal require the expertise of Muftīs and Islamic scholars, who assess both the legality and ethicality of financial products and strategies.

Introduction

After discussing the current confusion and landscape of Islamic Finance, it only makes sense to dive straight into the heart of the matter: Ḥiyal. Many Islamic financing products are structured using different modes and principles to create an overall financing facility. At times, different contracts are used at different times, but packaged as one product; in many instances, undertakings are used to ensure that customers follow through with their commitments; at other times, financing is provided through a series of commodity sales, with the commodity just being a device to manoeuvre around the prohibition of a direct cash-for-cash financing with a mark-up. Welcome to the world of Ḥiyal.

This chapter looks at the issues which are among the most controversial and debated in Islamic Finance. We will go through each topic, understand the practice in the industry, as well as review what the classical jurists and scholars have exactly written on the matter.

Perhaps the most contested matter in Islamic Finance is the issue of Commodity Murabahah and Tawarruq. The use of this product has increased across several markets. For instance, Tawarruq made up 46% of Malaysia’s Islamic Finance instruments based on the Financial Stability Review 2019 published by Bank Negara Malaysia. Thus, this product always forms the starting point when voicing objections against Islamic Finance. For this reason, this product, as well as the use of Sharīʿah wrappers, will be addressed thoroughly. However, before addressing this product, it is important to understand Ḥiyal in detail. Without understanding Ḥiyal, one cannot understand what Commodity Murabahah is. Commodity Murabahah is among the Ḥiyal.

Definition of Ḥiyal

Engineering, structuring, and product development all fall under the Fiqhī concept known as Ḥiyal, plural of Ḥīlah. Ḥīlah is translated as a legal device, ruse, and legal stratagem.

Linguistically, Ḥīlah is derived from the root letters Ḥā, Wāw, and Lām. Ibn Fāris (d.395 AH) explains the linguistic meaning as follows:

“It signifies movement in a cycle. So الْحَوْلُ refers to the year, and that’s because it cycles, i.e., it turns. It is said حَالَتِ الدَّارُ وَأَحَالَتْ وَأَحْوَلَتْ: a year has passed upon it. And I have stayed (أَحْوَلْتُ) in a place (أَحَلْتُ), meaning I have resided there for a year. It is said a man settles in the saddle of his horse, he leaps upon it, and he also initiates the leap. And a person moves (حَالَ الشَّخْصُ يَحُولُ) when he is active and moves, and so is every being that changes from one state to another. From this is the saying استَحَلْتُ الشَّخْصَ, meaning I observed whether he would move. And الْحِيلَةُ (cunning), الْحَوِيلُ (alternative), and المُحَاوَلَةُ (attempt) come from a single way, and it is the measure that we mentioned; because it revolves around the thing to comprehend it” [Muʿjam Maqāyīs al-Lughah].

Considering the above, Hīlah is all about movement in a manner to go around something.

Technically, Ḥiyal are legal mechanisms, devices, or stratagems. Permissible Ḥiyal are legal and law-abiding structures that seek to attain a permissible objective, without which you would have ended up violating the law. When the status-quo and norm is Ḥarām, the Ḥiyal provide a law-abiding construct to fulfil your need and circumvent the Ḥarām. The Ḥiyal are just a means to an end; if the end is something that is lawful and permissible in and of itself, then such Ḥiyal are generally acceptable.

Examples of Permissible Ḥiyal in the Quran

Ḥiyal are explored and mentioned directly in the Quran. The subsequent examples of Ḥiyal were lawful and permissible, as instructed by Almighty Allah.

1. Almighty Allah’s guidance to ‘Ayyūb (ʿalayhi al-Salām)

The Quran states:

“Take a small bunch of grass in your hand, and strike with that so as not to break your oath.’ We found him patient in adversity, an excellent servant! He, too, always turned to God” [Quran 38:44].

In this episode, ‘Ayyūb (ʿalayhi al-Salām) had made an oath of striking a hundred times, which he did not want to break. Not fulfilling one’s oath would have been a violation of the law. However, he did not want to execute the oath either, considering the negative outcomes of it. Allah revealed to him a way to remain law abiding, whilst mitigating the negative outcomes of striking. This revelation was through the Ḥilāh of simply gathering a hundred blades of grass in the hand and striking once. This would be equivalent to striking a hundred times in number, without the negative consequences.

This was a Ḥilāh to operate within the law and achieve a permissible objective. The Ḥilāh circumvented the direct violation of the law. If this Ḥilāh was not practiced, and neither the striking was practiced, it would have been a violation of an oath, which is morally unethical and against the sanctity of one’s word. To uphold the sanctity of one’s word and not directly break the law, the violation of the law was circumvented, by-passed, and evaded through the Ḥilāh.

A Ḥilāh is just that, it facilitates side-stepping, and by-passing a prohibition to reach your desired outcome without having to break the law. Prior to the Ḥilāh, to reach the objective, one would have had to break the law and go down the avenue of violating the law to reach the desired objective. A Ḥilāh is a detour and an alternative, a permissible route to the same destination. Breaking the law is unethical, and illegal. It makes one a ‘criminal’ from the lens of the law. At the same time, the law does not diminish your agency or overpower your utterances and intents. Instead, it acknowledges and respects an individual’s capacity to make deliberate choices and actions. Thereby, it does not restrict you from making an oath.

2. Yūsuf’s (ʿalayhi al-Salām) strategy

The Quran states:

“And, once he had given them their provisions, he placed the drinking-cup in his brother’s pack. A man called out, ‘People of the caravan! You are thieves! and they turned and said, ‘What have you lost?’ They replied, ‘The king’s drinking-cup is missing,’ and, ‘Whoever returns it will get a camel-load [of grain],’ and, ‘I give you, my word.’ They said, ‘By God! You must know that we did not come to make mischief in your land: we are no thieves.’ He asked them, ‘And if we find that you are lying, what penalty shall we apply to you?’ and they answered, ‘The penalty will be [the enslavement of] the person in whose bag the cup is found: this is how we punish wrongdoers’” [Quran 12:70-75].

In this incident, Yūsuf (ʿalayhi al-Salām) wanted to keep his brother Binyāmīn with him, however, such a practice was against the law of the land he was in, whilst the law practiced by Yaʿqūb (ʿalayhi al-Salām) was that the thief is handed over. As such, Yūsuf (ʿalayhi al-Salām) assigned the decision to his brothers, as they would naturally suggest the law that they are used to, the law of Yaʿqūb (ʿalayhi al-Salām). In addition to this, Yūsuf (ʿalayhi al-Salām) also had the cup planted into the bag of his brother. These are examples of Ḥilāh, where the law would have been violated if he had proceeded to detain Binyāmīn. To prevent breaking the law and to achieve the desired outcome, a stratagem and legal device was adopted by Yūsuf (ʿalayhi al-Salām).

3. Indirect proposal to women in ʿIddah (waiting period)

The Quran states:

“You will not be blamed whether you give a hint that you wish to marry these women or keep it to yourselves- God knows that you intend to propose to them” [Quran 2:235].

This verse is based on the principle that it is not permissible to propose to women who are observing ʿIddah. Such women should be respected, and the relationship they were in should be honoured. As such, proposing and offering to marry should only occur once a woman has completely exited a Nikāḥ. That complete exit occurs after the completion of the ʿIddah period. However, if a man or his family were to come across a woman who is observing ʿIddah who they deemed as an ideal partner, and wanted to ensure that their interest is registered with this lady, Allah permits inferring to one’s intention without explicitly proposing. This is a Ḥilāhwhich permits you to get your intention across without violating the law, without disrespecting the circumstance of the woman, and without dishonouring her relationship that is about to end.

Examples of Prohibited Ḥiyal in the Quran

Just as the Quran has mention and instruction to adopt permissible Ḥiyal, there is also admonition against unlawful and evil Ḥiyal. An example of an evil Ḥiyal is as follows:

1. The Sabbath Violators

“[Prophet], ask them about the town by the sea; how its people broke the Sabbath when their fish surfaced for them only on that day, never on weekdays- We tested them in this way: because of their disobedience” [Quran 7:163].

The Banū Isrā’īl referenced in the above verse lived in a coastal city, which Ibn Kathīr (d.774 AH) deems to be a city called Ayla historically. Ibn ʿĀshūr (d.1393 AH) was of the view that this is the contemporary port city of Aqaba in Jordan. Imam al-Rāzī (d.606 AH) explains this verse by stating that Almighty Allah had initially prescribed Friday as the sacred day of the week, however, the people rebelled and adopted Saturday instead. They had promised to observe the sanctity of Saturday, giving every assurance to uphold the same reverence that was prescribed for Friday. Since they made this challenge and contested Almighty Allah’s initial decision, Almighty Allah tested them to reveal the truth to them about themselves. As they lived in a coastal town with a marine-based economy, Allah commanded the fish to appear abundantly on Saturdays while decreasing supply on other days. Had they repented with humility, Allah would have blessed them further. However, they continued in arrogance and pride. To avoid economic loss, they concocted a ruse – installing fish weirs that would operate on Saturdays, justifying that the weirs, not them, were catching the fish. The prohibition was for them to fish and be involved in trade and business on Saturday. When they transgressed and continued, believing they have got away with it and nothing will happen, according to some narrations, they then physically started to fish themselves. It is at that moment a punishment struck them all.

This Ḥilāh was a blameworthy and evil practice. The Ḥilāh in this instance facilitated the very thing that was prohibited, namely, fishing on Saturdays. They developed an alternative method to fish through the use of fish weirs; however, they were still regarded as fishing as they were the ones who put all of this into motion. Fishing itself was unlawful, thus, any means which led to fishing on Saturdays was unlawful. It was a violation of the law.

Some people misquote this verse and try to apply this verse to Islamic Finance, implying that Islamic Finance is simply ‘Ḥalāl dressing’. That is a gross error, a shallow understanding of the reality of matters, and a poor reading of what the verse is really about and actually saying.

Examples of Prohibited Ḥiyal in the Sunnah

Among the most famous examples of prohibited Ḥiyal in the Sunnah is the prohibition of Bayʿ al-ʿĪnah. In Bayʿ al-ʿĪnah, the seller sells an asset to a buyer on a deferred basis with a mark-up, and thereafter, the initial seller immediately repurchases the asset from the initial buyer at a lower price that is settled instantly. Following the sale and buy-back, the outcomes are as follows:

• The seller re-owns the asset.
• The buyers gets the funding he requires.
• The buyer owes a deferred obligation with a mark-up.

Generally, the intended borrower buys on a deferred basis at a higher price, and then resells the asset immediately for a cash payment at a lower price.

The Fuqahā’ like Imam al-Marghīnānī (d.593 AH), Shaykhī Zāda (d.1078 AH) and others have also included another scenario within Bayʿ al-ʿĪnah, which is a tripartite structure, as follows:

1. The lender sells an asset for £12 to the borrower.
2. The borrower sells the asset for £10 to a third party.
3. The third party sells the asset for £10 to the initial lender, then takes the cash from initial lender, and thereafter pays the borrower, who was the seller to him.

Ibn al-Humām (d.861 AH) states that as long as the commodity or asset does not return to the original seller in a structured product, it will not be Bayʿ al-ʿĪnah. If the commodity or asset they sold was to be purchased spontaneously and not in a structured product, then it would not be deemed Bayʿ al-ʿĪnah. However, if the commodity returns to the original seller in a structured fashion, then it falls under the prohibition of Bayʿ al-ʿĪnah [Fatḥ al-Qadīr].

Bayʿ al-ʿĪnah will manifest when the following conditions are met:

1. The transaction occurs between the same parties.
2. The transaction is executed on exactly the same asset, without it going through any change in form, substance, or economic value.
3. The transactions are back-to-back and immediate.
4. One transaction is a spot transaction where payment is made, whilst the other transaction is deferred and payable later. Typically, the deferred payment is always marked-up.
5. The payment on both sides is with money.

Bayʿ al-ʿĪnah will not manifest in the following circumstances:

1. If the first transaction is settled immediately. If this is the case, then the price of the first and the price of the second contract will not be equated to see if there is any excess.
2. If the price of the second contract is the same as the first contract. There will no possibility of Ribā as there is no excess.
3. If the price of the second contract is more than the first contract. In this instance, there will be no surplus either as the outstanding amount will be deducted. Secondly, the prohibition for this contract is known by Naṣṣ (revealed guidance), and therefore, the prohibition will only be applied in the scenario in which it was revealed.
4. If the payment is done with something other than money.
5. If the sale item changed due to defect or for any other reason whilst in the ownership and possession of the buyer in the first contract.
6. If the purchaser from the initial contract sells the item, and the original seller acquires it from a third party at a price lower than what it was sold for, before the payment has been made. This is because the change in ownership of the asset is considered to make it a different asset, thereby not constituting Ribā.

The Aḥadīth that prohibit Bayʿ al-ʿĪnah include:

The Prophet ﷺ said, “If people perform ‘ʿĪnah transactions, they bow to wealth, they leave striving in Allah’s cause, then Allah shall inflict them with a calamity” [Sunan Abū Dāwūd]

‘Ibn ʿAbbās (Raḍiallāhu ʿanhumā) was asked regarding a person who sold a bolt of silk for 100 dirhams on credit, then bought it back for 50 dirhams in cash payment. He said, “It is exchanging dirham with dirham in unequal quantities and the silk is merely a smokescreen” [Iʿlām al-Muwaqqiʿīn].

Sayyidah ʿĀ’ishah (Raḍiallāhu ʿanhā) was asked about Bayʿ al-ʿĪnah when a woman said, ‘I bought from Zaid a slave at 800 [deferred price], and then, I sold it to Zaid at 600 [cash price]’. Sayyidah ʿĀ’ishah (Raḍiallāhu ʿanhā) responded, ‘What a bad person, you bought and sold! Tell Zaid that he has spoiled his striving with the Messenger of Allah unless he repents’ [al-Sunan al-Kubrā].

Why is Bayʿ al-ʿĪnah Prohibited?

The Ḥanafī jurists have discussed Bayʿ al-ʿĪnah explicitly, typically in the chapter of Kafālah, where a debtor asks his guarantor to facilitate Bayʿ al-ʿĪnah for the debtor. However, the actual prohibition and more detailed discussion on Bayʿ al-ʿĪnah is found in the chapter of corrupt sales (al-Bayʿ al-Fāsid), under a different heading, Bayʿ mā Bāʿ Bi Aqalla mimmā Bāʿ – to repurchase something for less than the price in the first contract.

Among the most authoritative scholars in the Ḥanafī school, Qāḍī Khān (d.592 AH), in his commentary on the Ziyādāt which is among the most authoritative works in the Ḥanafī school and part of the Ẓāhir al-Riwāyah, states the following:

“To repurchase a commodity for less than what one sold it for prior to payment being made in the first transaction is Fāsid (a corrupt sale) according to us, due to Istiḥsān. However, according to the logic of the law and the principles of Fiqh, this ought to have been permissible. The reason for the Istiḥsān (and the view of impermissibility) is the Ḥadīth of Sayyidah ʿĀ’ishah…The consequences of a sin cannot be known except through revelation; hence, this is as good as being narrated directly from the Prophet ﷺ. The underlying rationale and reason for prohibition is the concept of profiting without bearing any risk (Ribḥ Māl lam Yuḍman); the seller repurchases the exact identical commodity in the manner he sold it without taking possession and risk of the payment. This is prohibited in our sacred texts” [Sharḥ al-Ziyādāt].

Shubhat al-Ribā is among the main causes for the prohibition of Bayʿ al-ʿĪnah. Shubhat al-Ribā is established by the combination of the two contracts in Bayʿ al-ʿĪnah. It is as though he is using the same credit, without ever taking the risk, to use it to purchase something from the debtor. The debtor did not deliver the money to him, so the money was never in his risk in the first place, it was merely a claim.

Imam Ibn Māzah al-Bukhari (d.616 AH) in his al-Muḥīṭ al-Burhānī states:

“It should be known that purchasing what a man has sold himself, or what has been sold on his behalf by his agent for less than the price he sold it, whether from the same buyer or someone who stands in the place of the seller, like an heir, before the price is paid in full, is not permissible if the item is still in the same condition and has not diminished due to a defect. This is also the case if anything of its price, however small, remains unpaid. This is because, if he buys back what he sold himself, it is prohibited in the well-known Ḥadīth. Secondly, there exists the suspicion of Ribā (Shubhat al-Ribā) since there is a valid interpretation of combining two contracts together, giving the plausibility to the prices in the first and second contract as being part of one contract. This is because the second contract, once executed, necessitates crystalising the first price (without the possibility of cancelling the first contract, hence, the second contract is connected to the first contract, almost connecting the two together). This is because the first payment could have potentially been cancelled by rejecting the transaction, and this option is nullified due to the second sale. The second sale necessitates crystalising the first price, and the affirmed has the ruling of the obligatory. When it is established that the second sale crystalises the first payment and price, and affirmation has the ruling of obligation, then the obligation of the first payment is attributed to the second contract, obligating the first payment in ruling (Ḥukman), and the second payment in reality (Ḥaqīqatan). So, there is a resemblance of combining and equating both contractual obligations to one contract in one instance. If there was an actual equating, comparing, and contrasting between the two transactions, Shubhat al-Ribā would be established without a doubt. This scenario is different to when the price is fully paid; because there, the second contract does not crystalise and affirm the first payment, since the first price is already crystalised by possession and settlement, and there is no longer a possibility of cancellation before the second contract, so the second contract does not influence the payment of the first contract” [al-Muḥīṭ al-Burhānī].

Some of the Fuqahā’ opined on other causes behind the prohibition in Bayʿ al-ʿĪnah, such as:

1. Imam al-Haṣkafī (d.1088 AH) states that the reason for the prohibition of Bayʿ al-ʿĪnah is that one intentionally neglects giving an interest-free loan to someone that comes seeking a loan, and instead, they monetise the opportunity.
2. Imam al-Bābirtī (d.786 AH) states that ʿĪnah is prohibited due to taking a surplus through an impermissible legal device [al-ʿInāyah].
3. Shaykhī Zāda (d.1078 AH) described the problem with ʿĪnah as the overwhelming and apparent greed that manifests in such transactions.

Despite all of the above, the dislike of Bayʿ al-ʿĪnah is not absolute among the classical scholars. Imam Ibn ʿĀbidīn (d.1252 AH) records an opinion of Imam Abū Yūsuf (d.182 AH) quoting al-Hindīyyah which quotes Mukhtār al-Fatāwā, that Bayʿ al-ʿĪnah was not prohibited, and in fact, it was permissible, and even rewarding (as it fulfilled the need of someone) [Ḥāshiyah Ibn ʿĀbidīn]. This is further highlighted by what Ibn ʿĀbidīn (d.1252 AH) writes whilst quoting Kamāl Ibn al-Humām (d.861 AH):

“They have condemned the current transactions taking place more severely than the ʿĪnah. So much so that the scholars of Balkh, including Muhammad Ibn Salamah, said to the merchants: ‘The ʿĪnah which is mentioned in the Ḥadīth is better than your transactions.’ And this is true. For many transactions, like those involving oil, honey, and others, have become established based on their weight, packaged, and then a specific amount is reduced from the package. This makes the sale corrupt (Fāsid). And there is no doubt that a corrupt sale is considered like forbidden usurpation (Ghaṣb). So, where does it stand in comparison to the ʿĪnah, which is correctly done? Even its dislike is disputable and a matter of disagreement” [Ḥāshiyah Ibn ʿĀbidīn]. 

An Example of Permitted Ḥiyal in the Sunnah

Sayyidunā Abū Hurayrah (Raḍiallāhu ʿanhu) reported that Allah’s Messenger ﷺ delegated a person to collect the revenues from Khaybar. He brought fine-quality dates, whereupon Allah’s Messenger ﷺ said, “Are all the dates of Khaybar like this?” He said: “No. We acquired one Ṣāʿ (of fine dates) for two Ṣāʿ (of inferior dates), and (similarly) two Ṣāʿ for three Ṣāʿ.” Thereupon Allah’s Messenger ﷺ said, “Don’t do that, rather sell the inferior-quality dates for dirhams, and then buy the superior-quality with those dirhams” [Ṣaḥīḥ Muslim].

This person owned inferior dates and wanted to acquire superior dates. If he sold two Ṣāʿ of them for one Ṣāʿ, it would be the very essence of Ribā. However, if he sold it for dirhams, the sale becomes valid; because it satisfies the cornerstones of a sale, even though his intention from the very outset was to obtain superior dates. This intention does not invalidate the sale, provided that he bought the superior dates from another counterparty in another transaction, and not from the same party from whom he bought the inferior dates.

Shaykh Anwar Shāh Kashmīrī (d.1353 AH) states that in the above Ḥadīth, there is permission and evidence for Ḥiyal, despite there being evidence for it being prohibited. He thereafter reconciles and says that it is based on circumstances and contexts [Fayḍ al-Bārī].

Mullā ʿAlī al-Qārī (d.1014 AH) quotes Imam al-Ṭībī that this narration is a form of advice and instruction to save people from falling into Ribā by operationalising the transaction in a compliant manner. Mullā ʿAlī al-Qārī then states that this narration is a principle upon which many rulings are derived [Mirqāt al-Mafātīḥ].

Shaykh Nūr al-Dīn al-ʿItr (d.1442 AH) states that in this Ḥadīth, there is guidance of having two transactions with two separate contracts for two different assets, whereas Bayʿ al-ʿĪnah involves selling the same identical asset in two contracts (that are combined)” [Iʿlām al-‘Anām].

Shaykh Zakariyyā al-Anṣārī (d.926 AH) also states that this teaches the lawful way of transacting, in what would have been otherwise, a Ribā transaction [Fatḥ al-ʿAllām].

Ibn al-Qayyim (d.751 AH) said, “This indicates that there should be a separate transaction that occurs after the first transaction. Whenever it is pre-agreed to a sale and buyback, then they have agreed to combine two contracts into one. Therefore, the second transaction will not be independent. Rather, it will be a completion of the first according to their own understanding and agreement. The Ḥadīth shows that the Prophet ﷺ ordered for two separate contracts, where they are not combined” [Iʿlām al-Muwaqqiʿīn].

Scholars that have Discussed Ḥiyal

Ḥiyal have been discussed by scholars from all the different schools of Fiqh. In fact, all schools of Fiqh have proposed Ḥiyal as solutions to problems. Some examples of such writings include:

1. The Ḥanafī school – Imam al-Sarakhsī (d.483 AH) has authored a commentary on the book of Ḥiyalattributed to Imam Muhammad. This book has approximately one hundred Ḥiyal for problems in marriage, leasing, trade, Mudarabah, and more.
2. The Mālikī school – Imam al-Shāṭibī (d.790 AH) has quoted dozens of examples of Ḥiyal in his al-Muwāfaqāt.
3. The Shāfiʿī school – Imam Abū Ḥātim al-Qazwīnī (d.440 AH) has penned more than seventy lawful Ḥiyal as solutions to problems across different chapters of Fiqh in his book Kitāb al- Ḥiyal.
4. The Ḥanbalī school – Imam Ibn al-Qayyim (d.751 AH) has penned approximately one hundred and sixteen Ḥiyal as solutions to various problems in transacting and other areas of law.

The Essence of Ḥiyal

Ibn al-Qayyim (d.751 AH) states that a sale (Bayʿ) transaction, Ijarah or any other permissible transaction, are actually all forms of Ḥiyal. Ḥiyal are just that; permissible ways to achieve outcomes that otherwise, could have been acquired through unlawful means.

Imam al-Sarakhsī (d.483 AH) writes that whoever reflects on the rulings of the Sharīʿah will find that all transactions are characterised in this manner (with Ḥiyal). For instance, if a man loves a woman and asks, ‘What stratagem (Ḥīlah) can I use to be with her?’ he is told to marry her. If he dislikes the companionship of his wife and asks, ‘What stratagem can I use to be free of her?’ he is told to divorce her. After divorcing her, if he regrets it and asks for a stratagem, he is told to remarry her. Therefore, those who dislike stratagems in rulings are, in reality, disliking the Sharīʿah’s rulings. Such confusion arises from a lack of reflection. Any stratagem a man uses to escape from the prohibited or to reach the permissible, is good. What is disliked is using stratagems to nullify someone’s rightful claim, to make the false appear true, or to introduce doubt into a rightful claim. Anything on this approach is disliked, but what is on the aforementioned method is not objectionable, because Allah the Almighty said: ‘And cooperate in righteousness and piety, and do not cooperate in sin and aggression.’ In the first type, there is the meaning of cooperation in righteousness and piety, and in the second type, the meaning of cooperation in sin and aggression [Kitāb al-Ḥiyal].

We all have identical outcomes and objectives in transactions and in financing; the Muslim and non-Muslim both want to acquire a property, acquire assets for business or need financing for their companies. Those outcomes can be acquired through either unlawful or lawful means. When a person adopts a Ḥalāl means to acquire a desired outcome, they have used a Ḥīlah, and taken a detour around the prohibition to achieve the same outcome.

Ribā-based financing and Islamic financing are both means to an end, being the acquisition of something; one’s means is unlawful, whilst the other is lawful. The end goal of wanting and seeking financing is permissible in and of itself. Islamic financing involves simply sidestepping and moving away from one route and taking another route to the same destination. That is Ḥiyal – manoeuvres and detours.

The different types of Ḥiyal

Ibn al-Qayyim (d.751 AH) states that there are four types of unlawful and impermissible Ḥiyal:

1. Prohibited Means + Prohibited Outcome = Impermissible Ḥīlah

The action that is a Ḥīlah, and the intended outcome, are both prohibited; that is, the means and the end are both prohibited activities. Since the very Ḥīlah activity is a prohibited action in the Sharīʿah, regardless of the objective, the overall Ḥīlah will not be permitted. For instance, lying and misrepresenting in order to usurp (Ghaṣb) someone’s property is a prohibited Ḥīlah.

2. Lawful Multi-Purpose Means + Prohibited Outcome = Impermissible Ḥīlah

An action is a permissible activity in and of itself; however, it is practiced to reach a forbidden outcome, making the means impermissible. An example of this is travelling to commit highway robbery or to kill an innocent person. In this category, the activity typically has multiple use cases and options, however an unlawful objective is designated by the actor. Hence, one could have travelled for multiple reasons, but the traveller intended and perpetrated an impermissible reason for travel.

3. Lawful Means (Manipulated) + Prohibited Outcome = Impermissible Ḥīlah

The action is permissible in and of itself and does not naturally lead to something prohibited, rather it natural leads to something lawful and permissible, meaning, the action typically has one lawful result and consequence, however, it is manipulated from its natural course to lead to something unnatural and prohibited. For instance, lawful activities like confession, sales, marriage, gifting, and the like are all permissible that naturally lead to known, lawful outcomes. However, a person uses these activities as a means to contrive something prohibited. For example, a woman seeks to cunningly annul her marriage with her husband by adopting means that are generally used in lawful ways. For instance, witnesses are there to ensure a Nikāḥ is valid and sound, they are there to support the Nikāḥ. However, she manipulates the use of witnesses and makes the implication of the testimony and witness to demolish the Nikāḥ. Hence, she claims that the marriage is invalid because the witnesses were seated on a silk bed or leaned against a silk cushion at the time of the contract (these can impact the integrity of the witnesses and thereby weakening the strength of their testimony). This same activity of raising objections on the morality and integrity of the witnesses is also wrongly adopted when a husband divorces his wife three times and wants to save the marriage without Taḥlīl(a practice to make a divorced woman lawful for her former husband by marrying another man). In this manner, he contrives to save the marriage without Taḥlīl. Similarly, a seller may contrive a legal device to annul a sale by claiming that he was not of legal age at the time of the contract, or was not of sound mind, or was under legal restraint, or that the sold item was not his property, nor was he authorised to sell it.

4. Unlawful Means + Entitled Outcome = Impermissible Ḥīlah

An unlawful activity is performed to gain a right and objective that one is entitled to. For example, a person holds a right against another, but the other party denies it, and does not acknowledge it. So, the rightful claimant sets up two false witnesses to testify, even though they do not know the right is established. Another example of this is that a man divorces his wife three times, then denies the divorce, and does not make it clear to her, so she sets up two false witnesses to testify that he divorced her, even though they did not hear the divorce from him. Or, for instance, a person has a debt on another who has a deposit with him, and he denies the deposit, so the debtor denies the debt, or vice versa, and swears that he has no right over him, or has not entrusted him with anything. Another example of this is that a person wants to bequeath something for his inheritor, so he falsely gives oath and confesses to owing something to that person. This false confession becomes the means for the inheritor to receive the bequest. In all such instances, the person will be sinful for adopting an unlawful means and legal device.

There are three types of permissible Ḥiyal:

1. Lawful Means + Lawful Outcome = Permissible Ḥīlah

The activity is permissible, and the natural outcome and effect of that activity is also permissible. All lawful actions prescribed in Sharīʿah are examples of this, such as selling, buying, leasing with Sharīʿah-compliant contracts and the like. These are all means to obtain permissible outcomes, such as the transfer of ownership, or the lawful use of an asset.

2. Lawful Means + Genuine Benefit/Harm Prevention = Permissible Ḥīlah

A lawful action is practiced to acquire something genuinely beneficial, or to ward off harm. Although this is generic, it actually captures scenarios where the outcome is not an activity or legal ruling as such, but more of a facilitation or prevention. Hence, this type overlaps with the Rasm al-Muftī (the protocols of Fatwā), where a cost-benefit analysis is considered. This category is often deployed in Islamic Finance.

3. Lawful Means (novel use) + Lawful Outcome = Permissible Ḥīlah

A permissible activity is practiced to develop an outcome that is not the natural course of the initial activity, in that the activity was not originally designed or intended for that particular outcome at the outset. This includes scenarios where a person undertakes lawful activities to achieve a right or to ward off injustice which were not established for that purpose but for something else. For example, it is not valid to lease land that is occupied with crops. If one wants to do that, there are two permissible stratagems: He first sell the crops to the intended lessee, and then leases the land to him. Thus, the land is leased, and at the same time, it is occupied by the property of the lessee, which does not affect the validity of the lease. In this example, the sale was used not entirely for the purpose of sale, rather it is used to permit the lease and facilitate the lease. A permissible lease is not the natural outcome of a permissible and independent sale. If he is unable to employ this stratagem because the crop is not yet strong or that the crops belong to someone else, the land owner could practice a second stratagem, which is to lease the land out for a period after the crop is harvested, and this is valid based on the validity of a forward lease. In this example, the forward lease is not deployed because they genuinely want a forward lease, but it is practiced to ensure that the lease itself does not become prohibited because of the crops. More contemporary examples of this include the manner in which Waʿd and Tabarruʿ are used in Islamic Finance. Their natural use cases are something else, but they are deployed in a novel manner.

Another example of this type of legal device is the scenario where a person wants to lease a house or a shop, but does not know the duration of his stay, for if he leases it for a year, he may need to move before that. The legal device to resolve this issue is to lease the house on a monthly rolling contract, so the lease is valid and binding in the first month and becomes permissible in the subsequent months, so each of them has the right to terminate the lease at the end of each month. So, if the lessee fears that he may move before the end of the second month and thus be liable for its rent, the stratagem is to lease it every week for a certain amount. If he fears moving before the week, he leases it every day for a certain amount, and it is valid, and the ruling of the day is like the ruling of the month. This category of Ḥiyal is used extensively in Islamic Finance.

To summarise, the permissible Ḥiyal are actions, activities and means practiced to:

1. Avoid and circumvent sinful actions by choosing a legitimate path leading to an allowable result.
2. Seek or create a permissible option as an alternative to an existing forbidden method.
3. Prevent or mitigate harm and safeguard oneself and others from potential loss.
4. Seek a genuine benefit through an action.
5. Seek a permissible solution through novel and unconventional methods which are permissible.

Forbidden Ḥiyal entail engaging in practices to:

1. Utilise impermissible methods and actions to achieve prohibited results.
2. Use permissible activities and methods to attain outcomes that are forbidden.
3. Infringe upon or violate the rights of others.
4. Cause or intend harm towards others.

Contemporary bodies in Islamic Finance have also explored the concept of Ḥiyal. For example, the AAOIFI Shariah Standards differentiate between two categories – prohibited tricks (Ḥīlah) undertaken to bypass restrictions and achieve forbidden objectives, and permissible alternatives (Makhraj) devised to avoid sin, attain something beneficial, or realise a lawful interest. The standards caution against exploits aimed at deceiving people or permitting prohibited matters, while validating structures crafted to fulfil legitimate needs or prevent violation of religious principles. Just as classical jurists analysed the application of legal stratagems, modern experts continue to contemplate the ethics and pragmatism of financial mechanisms according to their given contexts and purposes. The AAOIFI Standards state:

“Shari’ah-Banned Tricks (Ḥīlah): It refers to those permissible contractual arrangements and other practices, which may be used to achieve prohibited goals like permitting what Shari’ah has prohibited, like escaping duties, deceiving people and performing other Shari’ah-banned practices.

Shari’ah Exit (Shari’ah-Acceptable Trick) (Makhraj): A Shari’ah exit is an act that is performed for the sake of avoiding commitment of sins, or achieving a permissible objective, or refraining from prohibited acts, or realising a Shari’ah-acceptable interest.”

Examples of Ḥiyal in the books of Fiqh

To fully understand Ḥiyal and how classical scholars offered legal workarounds for genuine problems, it is instructive to explore some examples found in traditional Fiqh literature. These instances demonstrate how jurists of the past carefully constructed permissible alternatives to provide lawful channels for meeting valid needs while upholding Sharīʿah injunctions. Their meticulous guidance on navigating prohibitions through ethical means continues to inspire modern solutions that both fulfil individual requirements and honour the greater good. Analysing their approach grants insight into the flexibility and pragmatism within Fiqh alongside its unwavering principles. Most of the following examples fall into the third type of permissible Ḥīlah, in that a permissible action is used in a novel way to arrive at a permissible solution.

1. Donning ‘Iḥrām When There is Insufficient Time to Make it for Ḥajj: If a person was unsure whether they would make it to Makkah in time for Ḥajj, to prevent the penalties of Qaḍā’ (repeating Ḥajj when performed deficiently) and Damm (compensation by animal sacrifice), one can enter into the state of ‘Iḥrām without a specific intention of Ḥajj. If one arrives in Makkah in time for Ḥajj, then the intention of Hajj can be set; if not, the intention can be shifted to ʿUmrah. This Ḥīlah assists in fulfilling a lawful outcome of worship and ensures that the means is lawful when donning ‘Iḥrām, whilst side-stepping the penalties and unlawful violations.

2. Forming a Partnership with Assets in Kind: According to the majority, forming a partnership directly with assets-in-kind and capital goods is not allowed. To achieve the lawful outcome of forming a partnership in a scenario where you only have capital goods to form a partnership, the Ḥanafī jurists advise that each partner can sell a 50% share in their assets to the other, thereby forming a valid partnership with these assets. This method and Ḥīlah lawfully circumvents the prohibition of direct in-kind partnership formation. The Ḥīlah itself is permissible as a transaction, and the outcome is also permissible in and of itself. The Ḥīlah has prevented a head-on clash with the prohibition through a detour.

3. Leasing a Property for an Indeterminate Term: A lease should have a defined term and maturity, as that brings definition and clarity to the services (Manfaʿah), which is something invisible and needs quantifying and clarifying to ward off ambiguity (Jahālah). Instead of committing to a long-term lease when the duration of stay is uncertain, a Ḥīlah is to engage in multiple, consecutive short-term leases with the property owner. This Ḥīlah assists in fulfilling a lawful goal and objective, that being the lease of property, whilst adopting a lawful means of short-term leases, whilst side-stepping and avoiding a head-on clash with the prohibition of not having a defined lease term in the lease.

5. Selling Crops That Are Yet to Grow: The sale of non-existent or unknown items, like crops that have yet to grow, is a form of Gharar (major uncertain) and hence impermissible. To achieve the lawful outcome of benefiting from future crops without directly purchasing them, a lawful approach is to lease the land itself. In this scenario, the lessee leases the land with an understanding, witnessed and testified by others, that the crops grown during the lease period belong to the lessee. This Ḥīlah avoids the sale of non-existing crops by leasing the land which is known and tangible. It ensures the lawful acquisition of the crops upon their growth from the land, thereby fulfilling the contract’s rights lawfully and avoiding the prohibited sale of unknown items.

6. Extending a Cooling-Off Period Beyond Three Days: Traditionally, a cooling-off period in a contract is limited to three days. To extend this period while adhering to the principles of Fiqh, one can employ a continuous renewal strategy. This involves renewing the cooling-off agreement every three days, thereby extending the period in a legally permissible way. This Ḥīlah provides a solution to extend the cooling-off period beyond the standard limitation, fulfilling the contract’s terms within the boundaries of lawful practice.

7. Paying a Broker a Salary: Normally, a broker is remunerated through commissions and cannot receive a fixed salary for brokerage services before any trade. That is because the service of the broker is not a fixed time or a fixed duration like standard employees, rather it is a particular activity, that being trades. If no trades are executed by the broker, the broker has not performed any services to demand a pay. To circumvent this while adhering to Islamic financial principles, one can employ the broker for general services unrelated to trade commissions. Subsequently, brokerage tasks are assigned as part of these general services. This approach, a Ḥīlah, allows for the payment of a fixed salary to the broker while ensuring that the compensation is linked to lawful services rendered, rather than speculative trade outcomes. This method ensures compliance with Fiqh principles, where the payment is tied to actual service rather than uncertain future trades.

8. Mudarabah and the Capital Treatment: In a Mudarabah arrangement, the investor (Rabb al-Māl) cannot have their capital guaranteed, as it goes against the risk-sharing principle inherent in Mudarabah. If the investor wants to have some of their capital guaranteed, they cannot do so via a Mudarabah. Imam al-Sarakhsī (d.483 AH) writes that on the principles of Imam Abū Ḥanīfah, Imam Abū Yūsuf and Imam Muhammad, the parties can arrange this in a different manner; the investor can lend an amount to the Mudarib through a Qarḍ (loan), that would guarantee the amount transferred. Separately, the investor can invest a lesser amount as a Musharakah, with the Mudarib now using the capital he received in the Qarḍ as his capital contribution. They can agree whatever profit-sharing arrangement they want. This will ensure that the capital provided in the Musharakah is at risk and it follows the laws of Musharakah, the capital given as a loan in a Qarḍ will follow the laws of Qarḍ. This is a Ḥīlah which circumvents the prohibition of guaranteeing capital through a Mudarabah structure. In this example, the contracts (Ḥiyal) are lawful in and of themselves, and the outcomes are also lawful in and of themselves. The Ḥalāl outcomes flow naturally and independently from the two respective contracts. Two contracts are working in parallel and independently between the same two counterparties. The consequences of each contract are ascribed to the correct contract. It would be impermissible if the Mudarabah contract itself led to that outcome, as then, the Ḥīlah would be impermissible as it is structured incorrectly.

Forms of Ḥiyal

Ḥiyal can be divided into two forms:

1. Absolute Ḥiyal – These are lawful alternatives to prohibited activities, applicable universally for achieving permissible outcomes. They provide a lawful substitute for all forms of prohibited means and actions. This category encompasses all permissible contracts and recognised forms of Islamic financing, such as Ijarah, Murabahah, Musharakah, Mudarabah, etc.
2. Contextual Ḥiyal – these are structures and suggestions that are specifically tailored for certain situations to achieve lawful outcomes. This can involve moving away from a lawful means to another lawful means that has seemingly more situational benefit than the other Ḥalāl option, or it facilitates something that the other Ḥalāl alternative cannot facilitate. An example of contextual Ḥiyal includes Bayʿ al-Wafā’ (sale with commitment) and Bayʿ al-Istighlāl. A more contemporary example is that of Commodity Murabahah. We will look at these in the next chapter.

Absolute Ḥiyal are simply alternatives, and not necessarily a ruse, stratagem, or device in the way these terms are understood. The contextual Ḥiyal are stratagems, and solutions to problems, and alternative actions in circumstances that prevail in a particular context and situation.

What does this all mean for Islamic Finance?

As previously discussed, all lawful and permissible structures are Ḥiyal. Anything which is an alternative to Ḥarām is a Ḥīlah; that is the essence of a Ḥīlah, an alternative to the prohibited. Therefore, standard financing structures such as Murabahah, Ijarah al-Muntahiyah, Musharakah, Mudarabah, Wakalah are just alternatives to Ribā-based financing. These structures offer Muslims a Ḥālal means for financing. Further, financing is a lawful objective that even Muslims seek, so even developing Ḥiyal for it would be acceptable and encouraged. Such Ḥiyal are universally applicable and provide morally acceptable solutions across various contexts. They are not tailored for specific situations but are general, ethical substitutes for prohibited financial transactions. These are examples of what I would call absolute Ḥiyal, as they are standard alternatives for Ḥarām financing. They are not developed as alternatives to particular contexts, rather, they are context-free alternatives to Ḥarām financial transactions. When implemented, these original structures are not only permissible but are indeed the recommended method of financing within Islamic financial principles.

In addition to these standard alternatives, the notion of contextual Ḥiyal comes into play. These represent adapted versions of the original structures or legal arrangements, specifically designed to address particular needs or scenarios. Examples of such adaptations include:

• Modified Musharakah arrangements that incorporate a preference-like element, involving either a Tanāzul (voluntary gifting mechanism) or the allocation of the majority of profits to one partner up to a specified threshold to create a waterfall-like effect.
• Modified Mudarabah frameworks featuring an initial profit-sharing ratio skewed heavily in favour of one party, such as 99.9:0.01, until reaching a predetermined financial goal or hurdle.
• Modified Ijarah structures where a master lease and sub lease are used to prevent a Muslim being exposed to and being a party to unlawful financing on a property, especially when one of the partners is a non-Muslim and engaged in leveraging.
• Implementation of financial screening measures, notably employing specific ratios like 30% for interest-bearing receivables and debts and limiting non-Ḥalāl income to a maximum of 5% of total revenue.

Contextual Ḥiyal have applications in specific products and legal aspects of Islamic Finance. These include:

• A range of treasury, financing, investment, and hedging products based on Commodity Murabahah.
• The use of Commodity Murabahah and reverse Musawamah contracts to generate a variable rate of return like effect.
• Agents providing voluntary guarantees in a different capacity.
• Employing undertakings, known as Waʿd, to ensure customer commitment to financing agreements and the ability to enforce specified outcomes.
• The use of additional rent and service agency agreements in Diminishing Musharakah products to shift the initial cost of maintenance to the customer.
• Frequent use of SPVs (Special Purpose Vehicles) and Orphan Trust SPVs for diverse purposes like avoiding dilution of board control, adhering to foreign ownership limits, managing risks and liabilities, legal safeguarding, tax considerations, maintaining confidentiality, and enhancing efficiency in complex, cross-border financial transactions, including off-balance sheet arrangements.
• Crafting contractual language that suggests certain actions, such as the use of the word ‘may’, to imply a course of action while keeping it non-binding and discretionary, thereby aligning with Sharīʿah requirements.

These types of Ḥiyal are not standard practices but are specifically developed and utilised for particular needs. They require periodic review and methodical application, depending on the context. These are not proactive solutions but are reactive in nature, designed to navigate complex situations. This forms a part of what is known as Rasm al-Muftī, the established protocols and principles a Muftī follows in issuing Fatwā and guiding transactions ethically and effectively. Understanding the ethics of applying Ḥiyal is, therefore, crucial.

Ethics of Ḥiyal 

Questions often arise regarding the ethical nature of Ḥiyal. Fiqh inherently incorporates ethical considerations, guiding us on what is permissible, desirable, disliked, and prohibited. The Ḥiyal are discussed in almost every chapter of Fiqh, and it is the Ḥiyal that provide a window into the moral framework of a chapter of Fiqh. The Ḥiyal clarify the moral parameters of any activity and discern the ethical from the unethical. Thus, the Ḥiyal are actually legal cases embedded within each chapter of Fiqh that teach the moral implementation of that practice.

Fiqh is replete with ways to attain lawful outcomes. Ethical breaches occur when the Fiqh is either violated through structured means or manipulated to achieve unlawful ends. Furthermore, unethical practices arise when Fiqh is misinterpreted in ways that harm individuals, society, the economy, or the environment. Fiqh is intrinsically linked to the Quran and Sunnah, serving as a detailed interpretation of their principles and rulings. Thus, Fiqh reflects the moral and ethical framework of the Quran and Sunnah.

Fiqh also dictates that Ḥiyal must adhere to certain moral principles, which are alluded to by Imam al-Sarakhsī (d.483 AH):

1. Ḥiyal should not result in direct, tangible, and significant harm to individuals, property, society, or the economy.
2. The intent and objective behind the use of Ḥiyal should not be to inflict harm on anyone.
3. Utilising Ḥiyal should not involve the violation of trusts or agreements.
4. The application of Ḥiyal must avoid deceit or dishonesty.

The ethical application of Ḥiyal requires careful consideration of its impact on broader societal and economic factors, ensuring that it aligns with Fiqh.

Ibn Nujaym (d.970 AH), Imam al-Ṭaḥṭāwī (d.1231 AH), among other scholars, have explored the application and ethical considerations of certain Ḥiyal by commenting on the effective causes and reasonings in the different applications of Ḥiyal. Under different Masā’il (legal cases), they list the differences between the Imams of the Ḥanafī Madhhab in understanding the Ḥiyal. We can summarise their writings in the following:

1. Utilising a Ḥīlah to meet legitimate needs while complying with the protocols of Fatwā (Rasm al-Muftī) is universally accepted.
2. Employing a Ḥīlah to circumvent an obligatory duty (Wājib) once it is binding is universally objectionable.
3. The use of a Ḥīlah motivated by lowly desires and impermissible traits like greed are universally frowned upon.
4. A Ḥīlah that serves to protect an individual from committing sins is deemed acceptable and even commendable.
5. The use of a Ḥīlah to secure a lawful entitlement is acceptable.

Ethical considerations have always been integral to classical discussions on Ḥiyal. For example, Imam Abū Yusūf (d.182 AH) allowed the use of a Ḥīlah to circumvent paying Zakat by temporarily transferring wealth before the Zakat year-end, then reclaiming it later. He argued that if the intention was to genuinely utilise the wealth for personal needs, this approach was ethical. However, if the same Ḥīlah was employed merely out of stinginess, it was considered unethical [Ḥāshiyah al-Ṭaḥṭāwī].

Similarly, Imam Abū Yusūf permitted a Ḥīlah to avert the right of pre-emption (Shufʿah), arguing that exercising such a Ḥīlah prior to the right becoming binding did not infringe on anyone’s rights but rather pre-empted a future obligation.

The realm and practice of Ḥiyal is the office of the Muftī, not the Qāḍī (judge). The Muftī is a personal advisor and has a wider mandate than that of a Qāḍī in Islamic law. The Qāḍī is required to go with whatever is apparent and apply the law as it is. The Qāḍī is concerned with maintaining social order and works according to a set protocol and framework. The court of the Qāḍī aims to bring justice on Earth. However, the reality is, this can be wrong and there can be errors. The Prophet ﷺ said, “Verily, I am only a human, and the claimants bring to me (their disputes); perhaps some of them are more articulate than others. I judge according to what I hear from them. So, he, whom I, by my judgment, (give the undue share) out of the right of another Muslim, I have in fact given him a portion of (Hell) Fire” [Ṣaḥīḥ al-Bukhārī].

The above Ḥadīth clearly shows that the most just of people, the Prophet ﷺ, acknowledged that a judgement on Earth can be rendered inaccurately. Erroneous judgements are witnessed even today; There are numerous instances where prisoners have been exonerated and released after years of imprisonment, following the emergence of new evidence establishing their innocence.

The Qāḍī’s role is to implement Sharīʿah, governing human activities with their complex nuances, in an imperfect world filled with uncertainties and conflicting situations. On the other hand, the office of the Muftīdelves into matters concerning the court of Allah, operating within the realm of Diyānah. This realm focuses on probing the depths of issues, considering the words and intentions of individuals. The Muftī is principally concerned with ensuring justice in the Afterlife, in the ultimate tribunal with Almighty Allah. In this capacity, the Muftī offers advice and rulings based on what is presented as reality, assuming it is the same truth one is prepared to present in the divine court of Allah.

To make sense of the above difference, let us look at an example. A person issues a divorce to his wife by saying “I give you Ṭalāq, Ṭalāq, and Ṭalāq.” If there is a dispute on the number of divorces issued and the case is taken to the court of the Qāḍī, the Qāḍī will rule that three Ṭalāq have been issued based on the apparent text and phrasing. If the same case was taken to the office of the Muftī, the Muftī would query and question, “what did you actually intend?”, “did you know that when you issue Ṭalāq three times it can mean three issuances?” If the person in question responds saying he is unaware of the rules, and that the only reason why he repeated the word Ṭalāq three times was simply to emphasise that he was giving Ṭalāq once, then the Muftī will tell him, based on his intention and Allah as his witness, that only one Ṭalāq has been issued.

From Classical Ḥiyal to Contemporary Islamic Financial Ḥiyal

In Islamic Finance, Ḥiyal are often utilised to address a variety of needs. These needs span legal, regulatory, economic, commercial, and market considerations, as well as concerns for efficiency, expediency, and wealth protection. However, each application of a Ḥīlah must meet ethical standards. This is why a Muftī often acts more as a personal advisor or counsel, taking into account the broader impact and specific details of each case.

In Islamic Finance, Ḥiyal are often employed as alternative solutions to navigate various challenges. These alternatives are designed to achieve lawful outcomes and objectives. The Fiqh literature typically showcases Ḥiyal involving interactions between a small number of parties, focusing on micro-level solutions. More expansive Ḥiyal, affecting entire economies, are rarer. Bayʿ al-Wafā’, which will be explored soon, is one such example. Generally, individuals seek guidance from Muftīs for bespoke solutions to their specific issues. These Ḥiyal are crafted to ensure fairness and benefit for all parties involved, with a clear alignment of needs and mutual understanding. However, when Ḥiyal are formulated for broader, macro-level application, careful consideration of their wider effects is crucial due to their potential significant impact. Often, Sharīʿah provides greater leniency in macro matters. Hence, a widespread need (Ḥājah) escalates to a level of necessity (Ḍarūrah), allowing for more extensive concessions. This principle, along with the concept of ʿUmūm al-Balwā– dealing with widespread challenges – underscores the importance of accommodating broader communal needs in Islamic Finance. ʿUmūm al-Balwā is about an unavoidable matter impacting many, thereby bringing concession. Imam al-Kāsānī (d.587 AH) and others have stated a principle underpinning this:

إِذَا عَمَّتْ بَلِيَّتُهُ خَفَّتْ قَضِيَّتُهُ

The more widespread the challenge, the lighter its impact and rulings.

On the other hand, when dealing with issues that have widespread implications across various facets of society and the economy, it becomes imperative to exercise increased caution, thoughtfulness, and thoroughness in the adoption of Ḥiyal and in the approval of products and practices. As much as there is concession, there must be caution in application.

How Ethics are Embedded in the Fiqh

The Sharīʿah has a spectrum of value judgements such as Ḥurmah (unlawful), Makrūḥ (disliked), Khilāf al-‘Awlā (contrary to what’s preferable), Khilāf al-‘Adab (contrary to proper etiquette), Mubāḥ (permissible), Mustaḥabb (desirable), Sunnah, Wājib (binding) and Farḍ (obligatory). These value judgements stem from the moral framework and worldview of Sharīʿah. They are assigned to actions depending on the ethical nature of the actions. When developing Ḥiyal, they must be developed in light of these values and their corresponding actions. As mentioned earlier, each chapter of Fiqh already has a framework for what is ethical in that particular practice. The Ḥiyal of that chapter, along with the principles of the chapter, govern the ethical application of any practice.

There are two spheres and dimensions for ethics when discussing Sharīʿah compliance: The text and secondly, a specific circumstance or context.

1. The text: the transaction flows and contracts

When Sharīʿah scholars review transactional structures and contracts – what we can call ‘text’ – for Islamic financial institutions, it is generally in the absence of a context. The core transaction and its flows are reviewed in light of Sharīʿah principles as they have been presented in writing. If a structure is deemed Sharīʿah compliant at this level and dimension, it necessarily means that the structure meets the criteria the Sharīʿah considers for a contract to be morally right and ethical. Scholars use words such as Ḥalāl (lawful) and Ṣaḥīḥ(valid) to state that this transaction has incorporated all the ethical considerations Sharīʿah has placed at this level and dimension. These terms are value-laden statements. The Sharīʿah would not consider something to be Ḥalāl if it is intrinsically wrong or morally problematic. Likewise, something cannot be Ṣaḥīḥ if the contractual nature was unethical. In fact, the opposite of Ṣaḥīḥ is Bāṭil (void) which means there is something severely wrong with the core contractual elements from an ethical and legal perspective. Something legally invalid is something that is unethical. Sharīʿah deems something as illegal due to an ethical breach. Whenever something is Fāsid (corrupt) or Bāṭil (void), there is an underlying evil and unethical element. These terms are tied to underlying means. These meanings form the worldview and values-based framework rooted in Sharīʿah guidance that deems what is ethical and unethical for mankind.

In Sharīʿah, a transaction’s validity implies its fairness concerning the rights and obligations of the involved parties. Unethical or unfair contract terms render a transaction Fāsid (corrupt). The term “Sharīʿah-compliant” in Islamic Finance is typically used in this regard, indicating the transaction’s adherence to ethical and legal standards.

For instance, pre-Islamic contractual practices like Mulāmasah (sale by mutual touch) and Munābadhah (sale by throws) were deemed unethical and prohibited by the Prophet ﷺ, failing to meet the ethical standards of Sharīʿah in contractual conduct and transactional morality.

2. The context

Another dimension which the Sharīʿah also considers is the context. Due to the unethical nature of a context or situation, there can be a specific ruling for that context. This results in a contextual and conditional Fatwā. For example, a product structure might meet all the ethical considerations for Islamic contract law making it Ṣaḥīḥ, however, due to an extrinsic consideration beyond the contracting parties and their rights, it violates macro and extrinsic ethical considerations in Sharīʿah. The Sharīʿah then assigns negative values such as Ḥarām, Makrūh and Khilāf al-‘Awlā. Such a violation would not mean that the contractual structure is intrinsically invalid or problematic, rather in this given circumstance and in light of wider considerations, an overall negative value is assigned. This is anchored to the Islamic legal maxim, “Preventing harm is given priority to gaining benefits.” Similarly, there may be a context in which a structure is assigned a positive value such as Mustaḥabb, Sunnah and Wājib. Examples of this include:

1. Transacting at the time of Jumuʿah (Friday prayer)

It is not permitted for a person upon whom Jumuʿah prayer is obligatory to engage in trading at the expense of going to Jumuʿah. This is impermissible even if the transaction intrinsically met all the Sharīʿah principles and was ethical at a micro, contractual level. Since this transaction is preventing a person from fulfilling their duty to Almighty Allah – which is unethical and morally wrong in Islam – a negative value is assigned to this context. Hence, even though the contract was executed correctly, the wider unethical implication overpowers.

2. Talaqqī al-Jalab (intercepting a delivery of goods to the market)

Another example which is mentioned in the Prophetic traditions is the prohibition of intercepting a delivery of goods designated for the market. This was a commercial practice in early Arabia. Traders would, on hearing of a merchandise caravan, proceed out of the city to meet the caravan on the way for buying the entire merchandise. They would then sell these goods in the city market at a higher price.

This practice is only disliked and discouraged if it will economically harm the people in the city market and does not add any value in the supply chain. If this practice is not economically harmful but brings benefit, then such a practice is not disliked. Again, the Sharīʿah has a contextual ruling and deems it unethical and morally wrong, giving the negative value of Makrūh when harm is perceived.

3. Making an offer after two parties have agreed in principle

The Prophet ﷺ prohibited making an offer to purchase something after two parties have come to an agreement in principle. Making an offer is independently lawful and ethical when made according to the Sharīʿah principles. However, the context here is unethical due to the wider consideration of harming another party.