The Islamic Banking and Finance Workbook E-Book

Brian Kettell

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 245

Veröffentlichungsjahr: 2011

Beschreibung

The ongoing turbulence in the global financial markets has drawn attention to an alternative system of financial intermediation: Islamic banking and finance. This is now one of the fastest growing sectors within the market place and has, so far, remained on the sidelines of this unrest. Since the inception of Islamic banking thirty years ago the number and reach of Islamic financial institutions worldwide has risen significantly. Institutions offering Islamic financial services constitute a significant and growing share of the financial system in several countries, and market participants everywhere are joining the race to study and be a part of this emerging financial system.

The Islamic Banking and Finance Workbook is a one-of-a-kind workbook on the topic, enabling readers to test their understanding of Islamic banking and finance concepts. Although suitable as a standalone learning tool, the book is designed to test the information covered in the companion book, Introduction to Islamic Finance and Banking, and covers the fundamentals of Sharia'a law, the Islamic contracts interpretations and definitions, Murabaha, Mudaraba, Musharaka, Istisna'a, Salam and Ijara modes of finance, Takaful and much more. Emphasis is placed on mini case studies, multiple choice questions and tests of the basic concepts. It also includes a full answer key and brief chapter summaries, as well as learning objectives.

The Islamic Banking and Finance Workbook is an essential learning tool for students and practitioners who want to test their knowledge of the rapidly growing world of Islamic banking and finance.

Leseprobe

Contents

Cover

Series

Title Page

Copyright

Dedication

Preface

About the Author

Chapter 1: What Do You Know About Islam?

1.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

1.2 QUESTIONS

1.3 ANSWERS

Chapter 2: Sources of Sharia'a Law and the Role of Sharia'a Boards

2.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

2.2 QUESTIONS

2.3 ANSWERS

Chapter 3: Principles of Islamic Banking and Finance

3.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

3.2 QUESTIONS

3.3 ANSWERS

Chapter 4: The Murabaha Contract as a Mode of Islamic Finance

4.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

4.2 QUESTIONS

4.3 ANSWERS

Chapter 5: The Mudaraba Contract as a Mode of Islamic Finance

5.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

5.2 QUESTIONS

5.3 ANSWERS

Chapter 6: The Musharaka Contract as a Mode of Islamic Finance

6.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

6.2 QUESTIONS

6.3 ANSWERS

Chapter 7: The Ijara Contract as a Mode of Islamic Finance

7.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

7.2 QUESTIONS

7.3 ANSWERS

Chapter 8: The Istisna'a Contract as a Mode of Islamic Finance

8.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

8.2 QUESTIONS

8.3 ANSWERS

Chapter 9: The Salam Contract as a Mode of Islamic Finance

9.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

9.2 QUESTIONS

9.3 ANSWERS

Chapter 10: Takaful: Islamic Insurance

10.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

10.2 QUESTIONS

10.3 ANSWERS

Glossary

Bibliography

Index

For other titles in the Wiley Finance Series please see www.wiley.com/finance

This edition first published in 2011 © 2011 Brian Kettell

Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom

For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com.

The right of the author to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books.

Designations used by companies to distinguish their products are often claimed as trademarks. All brand names and product names used in this book are trade names, service marks, trademarks or registered trademarks of their respective owners. The publisher is not associated with any product or vendor mentioned in this book. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold on the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional should be sought.

ISBN 978-0-470-97805-4 (paperback) ISBN 978-1-119-99062-8 (ebook) ISBN 978-1-119-99063-5 (ebook) ISBN 978-1-119-99126-7 (ebook)

A catalogue record for this book is available from the British Library.

To my wife Nadia, our son Alexei and daughter Anna. Nadia keeps the whole fleet on an even keel with only the occasional shipwreck.

Preface

The ongoing turbulence in the global financial markets has drawn attention to an alternative system of financial intermediation: Islamic banking and finance. This sector is now one of the fastest growing within the marketplace and has, so far, remained on the sidelines of this financial unrest. Since the inception of Islamic banking, about three decades ago, the number and reach of Islamic financial institutions worldwide has risen significantly. Institutions offering Islamic financial services constitute a significant and growing share of the financial system in several countries.

Indeed the Islamic finance industry is in the midst of a phenomenal expansionary phase, exhibiting average annual growth rates of about 15% in recent years. This rapid growth has been fuelled not only by a surging demand for Sharia'a-compliant products from financiers in the Middle East and Muslim countries, but also by investors around the world, thus rendering the expansion of Islamic finance a global phenomenon.

Besides its wide geographical scope, the rapid expansion of Islamic finance is also taking place across the whole spectrum of financial activities, ranging from retail banking to insurance and capital market investments. But perhaps the most striking has been the fast growth of sukuk (Islamic bonds), the most popular form of securitised credit finance within the industry. Sukuk issuance soared over the period 2001--2007 although it has fallen back more recently.

Educational and training material for the industry is, however, lagging far behind the speed at which the industry is evolving. Indeed the lack of quality educational and training material has now become a serious obstacle to effective training and education. This workbook is designed to provide students and practitioners with the first ever workbook that enables readers to test their understanding of the underlying principles. Emphasis is placed on multiple choice questions and tests of the basic concepts. Suggested answers are provided.

It must be stressed that the newness of the industry means that designing quality educational and training material is fraught with problems. In addition to this newness the industry also faces the challenge of changing Sharia'a interpretations of many of the products. Although this factor should not be exaggerated, given that Sharia'a law has been around for centuries, the existence of different schools of Islamic jurisprudence (Fiqh) combined with controversies revolving around some of the contracts has certainly created some uncertainties as to how the contracts are being applied.

These aspects may lead to the potential for controversy over some of my suggested answers. No doubt some of the answers will be disputed. I cannot claim to have universal answers and would ask that readers please assume that these may change over time.

If readers do feel strongly that they have an alternative answer I would certainly welcome a dialogue. Indeed if anyone wishes to provide me with reasons for their proposed alternative solutions I would urge them to please do so, and I will be delighted to thank them in later editions. It is this dialogue that is so important for the health and future of the industry and I look forward to an active debate with the readers. My email address is [email protected].

Companion texts are available from the publishers:Introduction to Islamic Banking and FinanceandCase Studies in Islamic Banking and Finance.

About the Author

Brian Kettell has a wealth of practical experience in the area of Islamic banking and finance. He worked for several years as an Advisor for the Central Bank of Bahrain where he had numerous Islamic banking responsibilities.

Subsequently, Brian taught courses on Islamic banking and finance at a range of financial institutions including the World Bank, National Commercial Bank (Saudi Arabia), Global Investment House (Kuwait), Noor Islamic Bank (UAE), the UK Treasury, the Central Bank of Iran, the Central Bank of Syria, the Chartered Institute for Securities and Investment, the Institute for Financial Services and Scotland Yard.

Brian's vast academic expertise in Islamic finance is highlighted by his role as former Joint Editor of the Islamic Finance Qualification Handbook and his past teaching work at a number of top universities worldwide including the London School of Economics, the City University of Hong Kong, the American University of the Middle East in Kuwait and London Metropolitan University Business School.

Brian's impressive list of publications include over 100 articles in journals, business magazines and the financial press including Islamic Business and Finance, Islamic Banking and Finance, the Central Banking Journal, Euromoney, the Securities Journal and the International Currency Review. He has also published 16 books on Islamic banking and financial markets.

1

What Do You Know About Islam?

1.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

1.1.1 Learning Outcomes

After reading Chapter 1 you should be able to do the following:

Describe the role played in Islam by the Prophet Mohammed.Explain the Islamic five pillars of faith.Describe zakat.Define the Islamic creed.Explain how one becomes a Muslim.Distinguish zakat from sadaqah.Describe Salat.Explain the Islamic belief in angels.Describe the hajj.Explain the Islamic belief in Qada'ar.Describe the Shahada.Explain the Islamic belief in the Apostles.Define the Ulema.Explain the importance of Ramadan to Muslims.Describe Tawhid.Define imam.Contrast the hajj with the umra.Explain the Islamic belief in the Hereafter.Explain the Islamic belief in the revealed Books.Test that you have fully understood the Islam beliefs that drive Islamic banking.

1.1.2 Summary Overview

The books of the Islamic faith shape both the culture and philosophy of the Muslim world.

1.1.2.1 The Books of Islam

The Qur'an: For Muslims, the Qur'an is the ‘Word of God’. Muslims believe the identical book is in Heaven and Allah sent the angel Gabriel to Mohammed to reveal his ‘Word’. The Qur'an is divided into 114 chapters or Surahs. These Surahs are revelations given to Mohammed during his 23 years of ‘Prophethood’ from AD 610 to 632. The Qur'an, composed during Mohammed's lifetime, corresponds to the time and circumstances of his life. The Surahs can be divided into three time periods. The earliest are the shortest and known as Early Meccan, and date from AD 610 to 622. These were composed in Mecca, prior to the Hegira where Mohammed fled to Medina in September AD 622. The Median Surahs were composed during the time when Muslims controlled the city of Medina. They date from AD 622 to 630. The Late Meccan Surahs were written between AD 630 and 632, during the last two years of Mohammed's life and after Mecca surrendered to his authority. At this time, Surahs were not collected in one book but were memorised and collated on various items. The Hafiz were Muslims who had committed much of the Qur'an to memory. In the battle of Yamamah in AD 633, many of the Hafiz died. With the urging of Umar, Zayd ibn Thabit, one of Mohammed's most trusted secretaries, was appointed to the task of collecting the Qur'an into one book. Still later, after different versions of the Qur'an began to appear, Zayd was put in charge of collecting all the Qur'ans throughout the Muslim world and issuing an authorised copy in the place of the one's collected.The Hadith: After the death of Mohammed, his followers collected his sayings and actions in books to guide and direct their beliefs. They gave additional meaning behind the Surahs and helped interpret their meanings. The most respected Hadith are the collected works of Bukari. Muslims do not feel that the Hadith is the ‘Word of God’. They would compare the Hadith to the Christian Gospels, which report what Jesus said.

1.1.2.2 Who is a Muslim?

A Muslim is someone who submits to Allah by confession of the Shahada, which is part of the five pillars of faith – observances in Islam that are foundational practices, or duties, that every Muslim must observe:

The Five Pillars of Faith:

• 1. The Confession: ‘La ilaha illa llah’ (‘There is no God but God’); the Shahada (testimony); the Kalima (‘There is no God but Allah, and Mohammed is the Prophet of Allah’).

• 2.Salat (prayer) five times a day facing Mecca.

• 3.Zakat (almsgiving).

• 4. Fasting during the month of Ramadan, from sunrise until sundown.

• 5.Hajj: pilgrimage to Mecca once in a lifetime.

In addition, there are five major beliefs or doctrines in Islam:

The Five Articles of Faith:

• 1.God: There is only one true God and his name is Allah. Allah is all knowing, all-powerful and sovereign judge. Yet Allah is not a personal God, for he is so far above humans in every way that he is not personally knowable.

• 2.Angels: Angels in Islam serve Allah's will, as with Gabriel delivering the Qur'an to Mohammed. Angels do not perform any bodily functions (sexual, eating and so on) because they are created from light. Angels serve different purposes. Each person has two recording angels who record his or her good or bad deeds.

• 3.Scripture: There are four inspired books in Islam: Qur'an, Torah (the ‘Books of Moses’, Ingil (Gospel of Jesus) and Zabur (Psalms of David). These are the books mentioned in the Qur'an as God's Word, but most Muslims feel the latter three books are corrupt. For this reason Allah, gave Mohammed the ‘Qur'an’.

• 4.Prophets: In Islam God has spoken through numerous prophets down through the centuries, including Adam, Noah, Abraham, Moses and Jesus. The greatest prophet and the last prophet is Mohammed; he is the seal of the prophets.

• 5.Last Days: The last days will be a time of Resurrection and judgement. Everybody will be resurrected to stand before Allah to be judged on the Last Day. Those who follow Allah and Mohammed will go to Paradise. Others will go to Hell.

1.2 QUESTIONS

1. What does Islam mean?

2. Muslims make no distinction between

3. A Muslim is

4. How does one become a Muslim?

5. What are the two main sects within Islam?

6. What are the similarities between Shia Islam and Sunni Islam?

7. What are the differences between Shiites and Sunnis?

8. List the Five Pillars of Islam.

9. What are the principal sources of the Sharia'a?

10. Give four examples of Islamic investment principles.

11. What are the six doctrines of the Islamic creed?

In the following questions, only one statement is true. Please indicate the letter of the true statement.

12. Which of the following is true?

A. Islam is the world's largest religion.

B. Islam is the world's second largest religion.

C. Islam is the world's third largest religion.

13. Where did Islam begin?

A. In modern-day Jerusalem.

B. In modern-day Saudi Arabia.

C. In modern-day Egypt.

14. What does it take to convert to being a Muslim?

A. You can't readily. You are either born into the faith or, in limited circumstances, become a Muslim by marriage.

B. Personal study and preparation during one Islamic year, mentored by two practising Muslims and a sponsoring imam.

C. Making the declaration of faith, in Arabic and before witnesses: ‘There is no God but Allah and Mohammed is his messenger.’

15. Muslims are expected to put their faith into action through the ‘five pillars of Islam’. One of them, zakat, is

A. The obligation to give annually to charity.

B. The obligation to seek potential converts.

C. The obligation to learn the Qur'an by heart.

16. Which of the following statements is false?

A. An imam is a quasi-political leader whose decisions are acted upon by his followers.

B. Jihad describes the experience of Muslims ‘struggling’ to live out their faith to the best of their ability.

C. A Fatwa is a legal opinion put forward by an Islamic scholar.

17. Islam was founded by

A. Mohammed.

B. Allah.

C. Adam.

18. Sunni is to Shia as. . .

A. Catholic is to Protestant.

B. Christianity is to Judaism.

C. Sikhism is to Hinduism.

19. What does the term the Ummah refer to?

A. The Grand Mosque in Mecca.

B. The Islamic community.

C. Fasting at Ramadan.

20. Which of these specialises in ‘law’ rather than in theology?

A. The Imam.

B. The Mufti.

C. The Sheikh.

D. The Muezzin.

21. The difference between Sunni and Shia Islam is

A. A doctrinal difference on the meaning of Allah.

B. A political disagreement on the issue of leadership.

C. A disagreement about the role of the prophet Mohammed.

D. A disagreement about how battles should be waged.

22. The word ‘Islam’ means

A. Justice and peace.

B. Peace achieved through submission to Allah.

C. Peace achieved through submission to the Prophet's message.

D. The spread of peace around the world.

23. What do Muslims believe regarding the Prophet Mohammed?

A. He is God.

B. He is the son of God.

C. He was the first Messenger from Allah sent to mankind.

D. He was the last Messenger from Allah sent to mankind.

24. Which of the following is a prophet in Islam?

A. Moses.

B. Abraham.

C. Jesus.

D. Noah.

E. All of the above are prophets.

25. The word ‘Allah’ means

A. Father, in Arabic.

B. The prophet of Islam.

C. The Moon God worshipped by Muslims.

D. God, in Arabic.

26. The country with the largest Muslim population is

A. Iran.

B. Pakistan.

C. Egypt.

D. Indonesia.

E. Saudi Arabia.

27. What do Muslims believe about Jesus?

A. He is a prophet who will accompany Allah on the Day of Judgement.

B. He was the result of a virgin birth.

C. He was the son of Allah.

D. He is a figure who died for the sins of mankind.

28. As reported in the Qur'an, the first user of the words ‘Islam’ and ‘Muslims’ was

A. Abraham.

B. Adam.

C. Mohammed.

D. Allah.

29. Which story is not in the Qur'an?

A. Adam and Eve.

B. Abraham's sacrifice of his son.

C. Noah's ark.

D. The crucifixion of Jesus.

30. The word Jihad means

A. The physical struggle necessary to make Islam the world's dominant religion.

B. Holy war.

C. To struggle and strive to practise Islam.

D. Victory for a Muslim against a non-Muslim.

31. Muslims worship

A. The Qur'an.

B. The Kaaba.

C. Mohammed.

D. Allah.

32. Under which of these names is Jesus known to Muslims?

A. Yunus.

B. Nuh.

C. Isa.

D. Azrael.

33. In contrast to Sunnis, Shiites do not believe in the Sunnah:

A. True.

B. False.

1.3 ANSWERS

1. Submission to the Will of God. Derived from Aslama – to give oneself to God.

2. Religious World and the Temporal World.

3. One who submits to Allah and can recite the Shahada – ‘There is no God but Allah and Mohammed is Allah’s Prophet’.

4. By reciting the Shahada.

5. Sunni Islam (90%) and Shia Islam (10%).

6. Similarities are belief in the Qur’an, the five pillars of Islam and the Islamic creed.

7. Differences are based on who should be the Caliph following the death of the prophet Mohammed. Shia Islam believes it should be a lineal descendant of Ali, the cousin and son in law of Mohammed. Sunni Islam believes that any righteous Muslim can be elected as Caliph.

8.

A. Shahada – profession of faith.

B. Salat – ritual prayer five times a day.

C. Zakat – Islamic tax to be given to charity.

D. Ramadan – abstention from food, drink and so on during daylight hours in the ninth month.

E. Hajj – pilgrimage to Mecca.

9.

A. Qur’an – revelation to the Prophet Mohammed.

B. Sunnah and Hadith.

C. Ijma – consensus.

D. Qiyas – analogical deduction.

10.

A. No interest (riba) is allowed.

B. Risk sharing.

C. Asset-backed activities.

D. Haram activities.

11.

A. One God – Allah.

B. Existence of angels.

C. Scripture revealed by Allah.

D. Message of Allah, the Prophet Mohammed who was sent to all people.

E. Day of Judgement.

F. Predestination.

12. B

13. B

14. C

15. A

16. A

17. A

18. A

19. B

20. B

21. B

22. B

23. D

24. E

25. D

26. D

27. A

28. A

29. D

30. C

31. D

32. C

33. B

2

Sources of Sharia'a Law and the Role of Sharia'a Boards

2.1 LEARNING OUTCOMES, SUMMARY OVERVIEW AND PROBLEMS

2.1.1 Learning Outcomes

After reading Chapter 2 you should be able to do the following:

Explain the role of Allah as the law giver.Define the Sharia'a.Describe the sources of Sharia'a law.Explain Ijtihad.Describe the role of the Qur'an within Islam.Define Qiyas.Describe the role of the Hadith within Islam.Contrast the role of the Qur'an and the Hadith within Islam.Define the Sunnah.Distinguish Qiyas from Ijma.Describe the role of promises within the Sharia'a.Define Ijma.Contrast the Qur'an with the Sunnah within the Sharia'a.Describe the role and importance of Sharia'a Supervisory Boards.Describe the role of the Sharia'a Supervisory Board within an Islamic financial institution.Test that you have fully understood the principles of Sharia'a law that drive Islamic banking and finance.

2.1.2 Summary Overview

According to Muslims, Sharia'a law is founded on the words of Allah as revealed in the Qur'an, and traditions (ahadith) gathered from the life of the Prophet Mohammed. Mohammed was born c. AD 570 in Mecca, a trading city in the Arabian desert. In addition to being a centre of trade on the caravan routes, Mecca was a place of pilgrimage for Arabs of many beliefs. The focus of religion in Mecca was the Ka'aba, a stone building believed to have been built by Adam at the beginning of time, and rebuilt by the Prophet Abraham and his son Ishmael.

Mecca was inhabited by the Quraysh, a pagan tribe with some Jews and Christians among them. Mohammed was orphaned at an early age, and came under the protection of an uncle. He grew up to become a trader and married his employer, a prosperous merchant named Khadija. It was in middle age that Mohammed began to speak of revelations received from Allah through the angel Gabriel. Mohammed told others of his revelations, and attracted followers who transcribed them onto available materials. In the 20 years following his first revelation until his death, Islam became the dominant force in the Arabian peninsula, and a serious challenge to the Byzantine and Sasanian empires.

After Mohammed's death, the revelations were collected and organised into the Qur'an, and accounts of his life eventually formed the basis for the Sunnah.

In pre-Islamic Arabia, bonds of common ancestry formed the basis for tribal association. The advent of Islam brought the tribes together under a single religion. As Islam is not just a religion, but also a way of life, a new common basis of law and personal behaviour, Sharia'a, began to take shape.

Sharia'a continued to undergo fundamental changes, beginning with the reigns of caliphs Abu Bakr (632–634) and Umar (634–644), during which time many questions were brought to the attention of Mohammed's closest comrades for consultation. During the reign of Muawiya (b. Abu Sufyan ibn Harb, c. 662), Islam undertook an urban transformation, raising questions not originally covered by Islamic law. Since then, changes in Islamic society have played an ongoing role in developing Sharia'a.

Sharia'a, which means ‘way or path’, is the sacred law of Islam. All Muslims believe that Sharia'a is God's law, but differences exist between groups as to exactly what it entails. Modernists, traditionalists and fundamentalists all hold varying views of Sharia'a, as do adherents to different schools of Islamic thought and jurisprudence. Different countries and cultures also have different interpretations of Sharia'a.

Muslims believe that all Sharia'a is derived from two primary sources: the divine revelations set forth in the Qur'an, and the sayings and example set by the Prophet Mohammed in the Sunnah. Fiqh (jurisprudence) interprets and extends the application of Sharia'a to questions not directly addressed in these primary sources, by including secondary sources. These secondary sources usually include the consensus of the religious scholars embodied in Ijma, and analogy from the Qur'an and Sunnah through Qiyas.

Where it enjoys official status, Sharia'a is applied by Islamic judges, or Qadis.

The imam has varying responsibilities depending on the interpretation of Sharia'a. Although the term is commonly used to refer to the leader of communal prayers, the imam may also be a scholar, religious leader or political leader.

Sharia'a deals with many topics addressed by secular law, including crime, politics and economics, as well as personal matters such as sexuality, hygiene, diet, prayer and fasting.

2.1.2.1 Traditional Perspectives on Sharia'a

The majority of Muslims regard themselves as belonging to either the Sunni or Shia sect of Islam. Within these sects, there are different schools of religious study and jurisprudence. The schools within each sect have common characteristics, although each differs in its details.

The Sunni Perspective

In addition to the ‘Basic Code’ of the Qur'an and Sunnah, traditional Sunni Muslims also add the consensus (Ijma) of Mohammed's companions (Sahaba) and Islamic Jurists (Ulema) on certain issues. In situations where no concrete rule exists in the sources, law scholars use Qiyas – various forms of reasoning, including analogy – to derive law from the essence of divine principles and preceding rulings. The consensus of the community, public interest and other sources are used as an adjunct to Sharia'a where the primary and secondary sources allow. This description can be applied to the major schools of Sunni Fiqh, which include the Hanafi, Shafii, Maliki and Hanbali.

The Shia Perspective

Shia Muslims also extend the ‘Basic Code’ with Fiqh, but strongly reject analogy (Qiyas) as an easy way to innovations (bid'ah), and reject consensus (Ijma) as not having any particular value in its own right.

During the period that the Sunni scholars developed those two tools, the Shia imams were alive, and Shia view them as an extension of the Sunnah, and so they view themselves as deriving their laws (Fiqh) only from the Qur'an and Sunnah.

In Imami-Shii law, the sources of law (usul al-fiqh) are the Qur'an, anecdotes of Mohammed's practices and those of The Twelve Imams, and the intellect (‘aql). The practices called Sharia'a today, however, also have roots in comparative law and local customs (urf).

Shia Jurists replace Qiyas analogy with ‘aql (reason).

Most Shia Muslims follow the Jaafari school of thought.

Muslim countries including Pakistan, Indonesia, Afghanistan, Egypt, Nigeria, Sudan, Morocco and Malaysia have legal systems strongly influenced by Sharia'a, but also cede ultimate authority to their constitutions and the rule of law. These countries conduct elections, although some are also under the influence of authoritarian leaders. In these countries, politicians and Jurists make law, rather than religious scholars. Most of these countries have modernised their laws and now have legal systems with significant differences when compared to classical Sharia'a.

Saudi Arabia and some of the Gulf states do not have constitutions or legislatures. Their rulers have, to some extent, limited authority to change laws, given that they are based on Sharia'a as it is interpreted by their religious scholars. Iran shares some of these characteristics, but also has a parliament that legislates in a manner consistent with Sharia'a.

Although there are many different interpretations of Sharia'a, and differing perspectives on each interpretation, there is consensus among Muslims that Sharia'a is a reflection of God's will for mankind. Sharia'a must therefore be, in its purest sense, perfect and unchanging. The evolution or refinement of Sharia'a is an effort to reflect God's will more perfectly.

Trade and Banking

Islamic law recognises private and community property, as well as overlapping forms of entitlement for charitable purposes, known as waqf (trusts). Under Sharia'a law, however, ownership of all property ultimately rests with God. Although individual property rights are upheld, there is a corresponding obligation to share, particularly with those in need.

The laws of contract and obligation are also formed around this egalitarian Qur'anic requirement, prohibiting unequal exchanges or unfair advantage in trade. On this basis, the charging of interest on loans is prohibited, as are other transactions in which risks are borne disproportionately to the potential returns between parties to a transaction. The limits on personal liability afforded by incorporation are seen as a form of usury in this sense, as is conventional insurance.

All these inequities in risk and reward between parties to a transaction, known collectively as riba, are prohibited. For this reason, Islamic banking and financing arrangements are partnerships between customers and institutions, where risk and reward are distributed equitably. Partnerships, rather than corporations, are the key concept in collective Islamic business. Financing and investments are accomplished in this manner, with equity shifting over time between the institution and the client as payments are made or returns recognised.

The Islamic financial and investment models have taken root in the West and begun to flourish. Classic Islamic law details the manner of contracting, the types of transactions, the assignment of liability and reward, and the responsibilities of the parties in Islamic trade.

2.1.3 Sharia'a Supervisory Board

Islamic banks and banking institutions that offer Islamic banking products and services are required to establish a Sharia'a Supervisory Board (SSB) to advise them and to ensure that the operations and activities of the banking institutions comply with Sharia'a principles.

In Malaysia, the National Sharia'a