Islamic Fin Institutions: Balance of Shari'ah & Legis

ABSTRACTMany of the Islamic financial institutions operate under the environment that is governed with the consistent legislative system where there is a mixture of the legal system with the Shari'ah (Islamic law) co-exist with both the civil and common laws. In such a scenario, every transaction conducted, alongside the documents, products, and regulation has to be aligned with the Shari'ah principles and the relevant legislation, rules, and regulations. In the countries like Iran, Qatar and Saudi Arabia where the Islamic law is the ultimate legal authority, there are no occurrences of the Islamic banking cases. While in countries like Malaysia and Singapore where there is a mixed legal system, or those with the non-Islamic legal environment, like the UK, the legal issue is significant. This innate matter issue becomes more complicated if the Islamic finance disputes entailed the parties emerging from the various jurisdictions in cross-border transactions. This attracts the question of how the Shari'ah principles applied alongside the laws of the jurisdiction and how such cases are adjudicated in the court. In regards to such unresolved matters, this paper seeks to critically review and analyze the courts' verdict regarding the Islamic fiance disputes in the different jurisdiction, namely, Singapore, United Kingdom, and Malaysia. With the emerging of the Islamic litigation, this research firmly supports the idea that the decisive legal infrastructure and framework together with the ample provision of the legal fraternity are the basis for the improvement and momentous development of the Islamic finance industry.

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Comparative Analysis of the Islamic Finance Litigation in the United Kingdom, Singapore, and Malaysia

INTRODUCTIONIslamic financial institutions have experienced momentous growth based on the market hares, product development and total assets. Globally, there are a total of 1,407 Islamic financial institutions ranging from the investment banks to the retail banks. According to to the article, (Foster, 2014) in 2016 the Islamic finance industry had a worth of $2.2tn at a rate of 6% and it is further anticipated that the growth will hit $3.8tn of assets by 2022. Despite the expectation to see Islamic finance growing, there are some of the barriers and challenges that may be barriers to its development should be critically addressed. The critical issues that are raised when discussing issues involving the Islamic finance institution are when focusing on the proper legal regime and framework. Countries that lack standard regulation on regulating the Islamic financial institution have faced several court injunctions which are based on various jurisdictions. Some of the recent court decision on the Islamic finance disputes have attracted uncertainties for the market participants and investors on the matter of their investments' security. In the consideration of the Malaysia case, the ongoing bayN bi-thaman Ejil (BBA) saga has been perceived to have an adverse influence on the IFIs credibility and Image. The famous case of the Shamil Beximco and Blom Bank that attracted criticism on the polemics of governing laws together with the legality of SharENah as an authentic legal defense in the English court.

Default in the transaction of Financial Contract such as mortgage loan happens all the time which brings endless disputes if either of the parties opts to litigate in Court. Grounds for defaulter in such litigation cases could be "Buy-Back Agreement" (BBA) for property financing is interest charging in nature, which is contrary to the Islamic teaching of banning of usury. Hence, it could be void ab initio as it is neither shariah-compliant for the Financial Institution nor the customer. Other ground being put forward could be the application of future value in borrowing by the Islamic Finance is not claimable by the Financial Institution for the dispute of the present default of contract under the conventional law (Hasan, 2010). Hence, these incompatibilities of application of Islamic finance does exist in the jurisdiction of conventional law, especially the common law counties such as the United Kingdom, Singapore, and Malaysia.

The sole issue of this article dealing with is the litigation aspect of Islamic Finance cases in the court of three different countries which is the United Kingdom, Singapore, and Malaysia. These three countries share a common feature of Common Law Jurisdiction whereby the United Kingdom being the origin of this system of law. With the comparative analysis approach on the aspect of Islamic Finance Litigation in these three countries which is also the most dynamic international market of Islamic Finance, this article could provide a brief guideline for the Islamic Finance institutions, law-makers, regulators and scholars in accessing Shariah risk which is an issue arises due to Shariah compliance of the transaction within the Islamic Finance, and also defaulting risks caused by the consumer of Islamic Finance and hence those mentioned parties could formulate a proper approach to enhance the dispute resolution to reflect the true spirit of the Shariah compliance transaction of Islamic Finance and most importantly to safeguard the interest of the Islamic Finance institution.

As mentioned above, the emerging of the Islamic litigation is becoming common in most of the non-muslim countries, the following paper will proceed to critically analyze and review some of the ground-breaking court decisions involving the Islamic fiance issues in three different jurisdictions, namely, Singapore, Malaysia, and the United Kingdom. The Jurisdictions were selected based on the interest of the case studies provided, Malaysia is a country with the majority of the population being Muslims, while the rest of the Jurisdictions (UK ad Singapore) have Muslims as the minority group.

OBJECTIVE OF THE RESEARCH/ PROBLEM STATEMENTThe objective of this paper is to analyze the approaches adopted by the judiciary or any policies or laws implemented by the executive or legislature in dealing with such litigation to ensure the implementation of Islamic values in the financial products is being safeguarded against incompatibilities. A summary of such approaches, policies or laws could be a strategic reference and guideline for any other governments in developing their industry of Islamic Finance. This is investigated to determine whether the Shari'ah framework for the enforcement of financial contracts and dispute resolution is a legal risk or appropriate alternative mechanism to the world as a whole, individual countries, the business environment, organizations, and individuals. Keywords: Dispute resolution, Islamic finance. The research methodology employed in this study is an amalgamation of direct observation from legal and regulatory perspectives and case analysis of some landmark cases of the English and Malaysian courts. However, the Islamic legal framework remains the only hypothetical basis of the study.

METHODOLOGYIntroduction

Conflicts between the common law of the land and the Sharia law is not something new in many of the non-Islamic countries. Such issues arise when there is a breach between the financial institutions and the parties they serve or when entering into a contract which is later violated and require arbitrary solutions. Despite such challenges faced by the financial institutions, limited researches have been conducted to understand the situation and how it can be amicably managed for a long term solution; and for this reason, the following study will analyze the case studies of the different jurisdiction.

Research MethodDue to the nature of the research and the objective of the study the qualitative research method is considered. The reason for having the qualitative research method is because the study will aim at understanding the Islamic financial litigation by considering the type of jurisdiction that the cases influencing the Islamic financial institutions lie, nature of the cases, verdict made and the impact it had towards the Islamic financial institutions. The advantage of having the quantitative research method, unlike the qualitative one is because it offers a complete description together with the analysis of the research subject, without limiting the scope of research (Kelle, 2006).

The advantage of quantitative research, compared to a qualitative one, is the fact that it provides a complete description as well as analysis of the research subject, without restricting the scope of the research together with the nature of the response by the participants (Matveev, 2002).

The qualitative research is unsuitable for this study because it relies on the research's' skills and abilities, making the collected results not to be much reliable since the respondents' perception of the topic will be based on their understanding and judgment, hence it cannot be trusted ((Kelle, 2006).

Research Approach

The deductive strategy is applied research approach for this study. The approach is suitable since its focus will start from the generalization of the case, then ending with the decisive and precise conclusion of the objective of the study (Denzin & Lincoln, 2005). The research will start from the generalized point of Islamic Finance litigation in the United Kingdom, Singapore, and Malaysia before getting to the specific idea on how the sharia laws and customs laws clash in the arbitration of the cases in the selected jurisdictions.

Data Collection MethodWith qualitative research method, the study will concentrate on analyzing the real-life cases that were decided by different judges, under different jurisdictions. These will be industrial cases which the involved parties believe in different laws that govern the land as well as their operations. The cases are factual, unlike using non-credible articles, blogs, and interview which most are biased and lack reliability in their information. The articles that will be used do not have restriction in years or scope, as long as they focus on the main aspect of the research study.

LITERATURE REVIEWAccording to the Estate Planning & Probate Glossary, the Common Law Jurisdiction is "the system of law originated and developed in England and based on prior court decisions, on the doctrines implicit in those decisions, and customs and usages rather than codified written law" (Goetting, 1996). In a simple word, judges of common law system inherit higher authority whereby they could make a decision based on their legal reasoning while facing an unprecedented new legal issue and such decision could be passed on as a binding principle for the future cases. Based on this nature, it could be safe to assume Common Law jurisdiction could be quite contrasted to our Shariah law in which this Judge-made law is not the divine law by the revelation which is the core nature of the Shariah. Hence, whether litigation involved the dispute of Islamic Finance within the system of Common Law could truly reflect the gist of Shariah is wo...