What is a Fatwa in Islamic Finance? A Plain-English Guide

When you see a halal verdict for a stock or a ruling on cryptocurrency, you are often seeing the product of a fatwa process. Understanding how fatwas work helps you evaluate the reliability of different rulings.

Definition

A fatwa is a non-binding religious opinion issued by a qualified Islamic scholar or scholarly body in response to a specific question. In Islamic finance, fatwas are issued on the permissibility of specific financial products, contracts, or investment categories.

Who Issues Finance Fatwas

Individual scholars like Sheikh Taqi Usmani, Sheikh Yusuf al-Qaradawi, and others have issued influential finance fatwas. Institutional bodies like AAOIFI, the International Fiqh Academy, and national Sharia supervisory boards issue collective fatwas with broader authority.

Why Fatwas Sometimes Differ

Different scholars may reach different conclusions based on varying methodological approaches, different readings of classical texts, and differing assessments of the economic reality of modern financial products. This explains why Bitcoin is considered halal by some scholars and prohibited by others.

How to Evaluate a Fatwa

Look for the credentials of the issuing scholar or body. AAOIFI standards are generally considered the gold standard in Islamic finance. Consider whether the scholar has genuine expertise in both fiqh and modern economics. Check whether the fatwa addresses the specific product you are considering or is being applied by analogy.

Practical Approach

For everyday investment decisions, relying on established institutions like AAOIFI or the decisions of major Islamic finance bodies is reasonable. For unusual or novel products, seek a specific scholarly opinion or err on the side of caution until clear guidance is available.