The derivation of Shariah risk in Islamic finance: a theoretical approach

Nurul Syazwani Mohd Noor, Muhammad Hakimi Muhammad, Abdul Ghafar Ismail

Research output: Contribution to journalArticle

Abstract

Purpose: This paper aims to propose a derivation of Shariah risk from both the Islamic finance theory and theory of contracts in Islamic law. Specifically, it deliberates the derivation of Shariah risk following the contracts validity and apprises the readers of the Shariah risk issues currently under debate. Design/methodology/approach: This study reviews the relevant literature and presents an analysis of contract rulings through evidence derived from the Qur’an, Hadith and other secondary sources of Islamic law. Various theories of Islamic finance and Islamic law of contracts are identified, to examine the general principles and essential elements and conditions of a valid contract. Findings: This analysis asserts that any circumstances that may render invalidity of the contract will trigger Shariah risk. More importantly, this paper highlights the implications of invalid contracts, based on the opinion of Hanafi jurists, who concluded that Shariah risk may be derived from any void or voidable contracts due to the failure of the contractual parties to comply with Shariah contractual obligations. Research limitations/implications: This paper emphasises the derivation of Shariah risk over theoretical approaches. It does not include an explanation in the form of any empirical model. Originality/value: This is the first study that contributes to the field of derivation of Shariah risk, based on the theory from the Islamic law of contracts.

Original languageEnglish
Pages (from-to)663-678
Number of pages16
JournalJournal of Islamic Accounting and Business Research
Volume10
Issue number5
DOIs
Publication statusPublished - 14 Oct 2019

Fingerprint

Islamic finance
Islamic law
Design methodology
Empirical model
Trigger
Obligation

Keywords

  • Contracts
  • Financial transactions
  • Islamic finance
  • Legal
  • Shariah risk

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Strategy and Management

Cite this

The derivation of Shariah risk in Islamic finance : a theoretical approach. / Mohd Noor, Nurul Syazwani; Muhammad, Muhammad Hakimi; Ismail, Abdul Ghafar.

In: Journal of Islamic Accounting and Business Research, Vol. 10, No. 5, 14.10.2019, p. 663-678.

Research output: Contribution to journalArticle

Mohd Noor, Nurul Syazwani ; Muhammad, Muhammad Hakimi ; Ismail, Abdul Ghafar. / The derivation of Shariah risk in Islamic finance : a theoretical approach. In: Journal of Islamic Accounting and Business Research. 2019 ; Vol. 10, No. 5. pp. 663-678.
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