Beyond Interest: The Legal Development of Bayʿ al-Wafāʾ in Hanafi Legal Thought

Abstract

Credit relations in Muslim societies have attracted significant scholarly attention across disciplines due to the prohibition of interest. In the Ottoman Empire, renowned for its vast resources, the presence of sophisticated credit mechanisms alongside its strong Muslim identity has often been perceived as paradoxical. While this apparent contradiction has been extensively studied, the perception and legitimacy of these credit mechanisms within Islamic law, particularly in English-language scholarship, remains underexamined. This study addresses this gap by analyzing bayʿ al-wafāʾ, a significant financing mechanism in which asset ownership is temporarily transferred to a lender in exchange for a loan, with the understanding that the asset will be returned upon full repayment. This transaction, employed for centuries across diverse regions as an interest-avoiding solution, has been extensively debated within Hanafi jurisprudence. This research chronologically examines bayʿ al-wafāʾ’s integration into Hanafi legal thought from its emergence through the 18th-century Ottoman Empire, drawing on primary sources across various genres of Hanafi legal literature. The findings reveal that bayʿ al-wafāʾ could not be categorized within existing Islamic contract frameworks. Instead, it is recognized as a contract with unique provisions deriving legitimacy from custom and necessity. This study illuminates both how this transaction achieved legal and legitimate status within Hanafi jurisprudence and, more broadly, demonstrates the dynamic evolution of Islamic law within the Hanafi school from the 10th to 18th centuries. Through this analysis, this study demonstrates how the paradoxical challenge of providing interest-free financing was resolved within the framework of Islamic legal principles.