Abstract
Purpose
The purpose of this paper is to discuss the concepts of hilah (legal stratagem or legal trick) and makhraj (legal exit) and to examine their relevance and application in the contemporary Islamic financial services and products.
Design/methodology/approach
This paper uses the qualitative research approach to provide a theoretical overview of hilah and makhraj literally and technically and to examine their practical applications in Islamic financial products and services. In particular, this paper evaluates several Islamic financial contracts and examines its practices in light of the implications of hilah or makhraj.
Findings
The paper finds that there is a glaring difference in perception and application of hilah and makhraj, as argued by some scholars. It has been found that the principle of hilah has been extensively used in the Islamic finance industry as a way to circumvent the riba prohibition. For example, Islamic financial instruments such as bay' bithaman al-ajil, bay' al-'inah, tawarruq, commodity murabahah, musharakah mutanaqisah and, in some cases, the sale and lease back sukuk are found to be tainted by hilah.
Research limitations/implications
Because this is a theoretical paper, it should be explored in more detail, and critical analysis of Islamic financial services and products should be reviewed in line with these two principles to ascertain if the products and services are in line with Shariah requirements and devoid of hilah practices or not and to align the industry with the maqasid al-Shariah.
Practical implications
This paper identifies a serious challenge that Islamic finance practitioners face in product development in their effort to provide more competitive services to their customers. As a result, it demonstrates the need to proactively use makhraj in innovating Islamic financial products and proffering more sustainable and competitive solutions.
Originality/value
This paper discusses a topic that attempts to dispel the suspicious perceptions of some analysts as to the genuineness of Islamic financial practices.