Sources and Methodology
The sources from which the law is derived, in order of importance and preference, are: the Qur'an, the authentic narrations of the Prophet (Hadith), Consensus (ijma), and analogical reasoning (qiyas), qiyas only being applied if direct material cannot be found in the Qur'an or Hadith. As the fourth Caliph, 'Ali, had transferred the Islamic capital to Kufa, and many of the companions of the Prophet had settled there, the Hanafi School had based many of its rulings on Prophetic narrations (Hadith) transmitted by companions residing in Iraq, thus it came to be known as the Kufan or Iraqi school in earlier times. Hence 'Ali ibn Abi Talib and 'Abdullah ibn Mas'ud formed much of the base of the school, as well as other personalities from the household of the Prophet from whom Abu Hanifa had studied such as Muhammad al-Baqir, Ja'far al-Sadiq, and Zayd ibn 'Ali. Many jurists and Hadith transmitters had lived in Kufa including one of Abu Hanifa's main teachers, Hammad ibn Sulayman.
According to Abdalhaqq Bewley:
"Hanafi methodology involved the logical process of examining the Book and all available knowledge of the Sunna and then finding an example in them analogous to the particular case under review so that Allah's deen could be properly applied in the new situation. It thus entails the use of reason in the examination of the Book and Sunna so as to extrapolate the judgments necessary for the implementation of Islam in a new environment. It represents in essence, therefore, within the strict compass of rigorous legal and inductive precepts, the adaptation of the living and powerful deen to a new situation in order to enable it to take root and flourish in fresh soil. This made it an ideal legal tool for the central governance of widely varied populations which is why we find it in Turkey as the legacy of the Uthmaniyya Khilafa and in the sub-continent where it is inherited from the Moghul empire." Essay by Abdalhaqq Bewley, "The Recovery of True Islamic Fiqh: An introduction to the work of Shaykh Abdalqadir as-Sufi". (Citation awaiting copy editing).
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