Islamic Finance and Law: Theory and Practice in a Globalized World (International Library of Economics)

Many of the principles prevalent in modern Islamic contract law and commercial practice remain the same as those outlined by the Qur'an and the Prophet Muhammad, and expounded by scholars of jurisprudence as far back as the 13th century, despite the advancement in time and sophistication of commercial interaction. Hanaan Balala here provides an analysis of the fundamental principles underlying Islamic law and commerce in comparison with their common law equivalents in the English-speaking world. She seeks to draw parallels (and differences where appropriate) to facilitate the growth and development of Islamic commercial and financial law worldwide. Contents 8 List of cases 12 Acknowledgements 16 Preface 18 1. ISLAMIC LAW AND THE ROLE OF INTERPRETATION 20 1.1 Form versus substance in the Quran 23 1.1.1 Form versus substance in Islamic finance transactions 24 1.2 The role of interpretation under the common law 27 1.3 Form versus substance under the common law: the Exfinco scenario 30 2. SCOPE, METHODOLOGY AND OBJECTIVE 34 2.1 Scope 34 2.2 Methodology 35 2.3 Objective 36 2.4 Approach 38 3. ISLAMIC FINANCE: AN INTRODUCTION 41 3.1 Principles governing contract and finance in Islam 42 3.2 Specific rules of the sharia governing contract and finance in Islam 43 3.2.1 Riba 43 3.2.2 Gambling (maysir) 44 3.2.3 Prohibited transactions/investments 45 3.2.4 Predetermined profit 45 3.2.5 Gharar 45 3.2.6 Hoarding 45 3.2.7 Financial assets 45 3.3 Transactions in Islamic finance 46 3.3.1 Musharaka 46 3.3.2 Mudharaba 46 3.3.3 Murabaha 47 3.3.4 Ijara 48 3.4 Sukuk (Islamic bonds) and the development of a sukuk market 48 3.5 Distinguishing sukuk from conventional bonds 50 3.6 The four madhahibs (schools) of Islamic jurisprudence 51 4. GHARAR IN ISLAMIC LAW 54 4.1 Origins of the prohibition 54 4.2 Defining gharar and the 'gharar sale' 56 4.3 The principle behind the prohibition of gharar 59 4.4 The effect of gharar and the differing opinions within Islamic jurisprudence 61 4.5 Gharar: conceptual or evidential? 62 4.6 Certainty under English common law: conceptual or evidential? 64 4.6.1 Curing contracts of uncertainty under the common law 75 4.7 Historical context and the rules of gharar 78 4.8 Present context application of Islamic law of transaction 79 5. RIBA 81 5.1 Riba redefined 84 5.1.1 Riba according to the Quran 87 5.1.2 Riba according to Muhammad 91 5.2 The principle behind riba and its implications for Islamic finance 93 5.2.1 Riba: the what or the how? 95 5.2.2 Principles of Islamic law on matters of commerce vis-a-vis rituals 96 5.3 Social justice and implications of the redefinition for Islamic finance 99 5.4 Riba and the common law doctrine of consideration 102 5.4.1 Equitable transaction versus adequate consideration 104 5.4.2 Raison d'etre behind riba and the doctrine of consideration 107 5.4.3 Riba as a vitiating factor versus consideration as a distinct element of a contrac formation 109 5.5 Riba, consideration and intention to create legal relations 109 6. THE NATURE OF DEBT AND THE LEGALITY OF ITS SALE 115 6.1 The concept of debt 117 6.2 The relationship between debt and money under Islamic law 118 6.2.1 Is debt money? 119 6.3 The relationship between debt and money under English law 122 6.3.1 Defining money 122 6.3.2 Debt 122 6.3.3 Legal characteristics of physical money 123 6.3.4 The distinction between physical money and intangible money 124 6.4 What is property? 125 6.4.1 Distinguishing personal from proprietary rights 127 6.4.2 Property: a right or a thing? 131 6.5 Debt vis-a-vis property under Islamic law 132 6.5.1 Is Debt property? 133 6.5.2 Transferability of debt under Islamic law and the contextual evolution of property rights 134 6.6 Future (debt) contracts under Islamic law and practice 137 6.6.1 Future (debt) contracts and gharar 139 6.6.2 Deferred 'sale of debt' transactions 140 6.7 The common law attitude to sale of future debts 141 6.8 The 'asset-backed' requirement under Islamic law 143 6.9 Judicial support in acknowledging the proprietary nature of debt 145 7. SECURITISATION 148 7.1 Defining and outlining securitisation 148 7.2 Securitisation of receivables 149 7.3 Requirements of securitised transaction 150 7.4 The benefits of securitisations 151 7.5 The drawbacks of securitisations and issues in application 153 7.6 True sale: the re-characterisation of a 'sale' as security interest 156 7.7 True sale: bankruptcy remoteness 157 8. STRUCTURING A SECURITISATION TO BE COMPATIBLE WITH BOTH THE SHARIA AND COMMON LAW 159 8.1 Issues involving gharar, riba and bay al dayn 160 8.2 General issues arising from dual compatibility structuring 163 8.2.1 True sale and the risk of re-characterisation 164 8.2.2 Bankruptcy remoteness 166 8.2.3 Security interest 166 8.2.4 Tax 167 8.2.5 Uncertainty regarding choice of law and enforcements of judgements 168 8.2.6 Asset selection 173 8.2.7 The use of the London inter-bank offered rate (Libor) 174 8.2.8 Late payment and penalty charges 174 8.2.9 The creation of a trust within a civil law framework 175 8.2.10 Interpretation of commercial laws and contracts in sharia jurisdictions 177 8.2.11 The role of the sharia committee 178 9. ISLAMIC FINANCE IN MALAYSIA: A MODEL TO EMULATE 180 9.1 Genesis and growth of Islamic finance in Malaysia 180 9.2 Malaysia's distinct structural and institutional advantages over other Islamic finance participants 183 9.2.1 A common law jurisdiction 184 9.2.2 Dual banking system 186 9.2.3 Multifaceted approach to Islamic banking 187 9.2.4 Labuan international offshore financial centre 188 9.3 Making a difference throught Islamic finance 190 10. THE WAY FORWARD 194 Notes 198 Bibliography 222 Index 228 9781848850767 I.B. Tauris "Islamic commercial and financial practice has not experienced the trial-and-error style of development that has characterized the development of the common law in the English-speaking world. Many of the principles, rules and practices prevalent in the Islamic law of contract, commerce, finance and property remain the same as those outlined by the Quran and the Prophet Muhammad, and expounded by scholars of jurisprudence as far back as the 13th century, despite the advancement in time and sophistication of commercial interaction. Hanaan Balala here demonstrates how, in order to bridge the gap between the principles outlined by the Quran and the Prophet in the 7th century and commercial practice in the 21st century, Islamic finance jurisdictions need to open themselves to learning from the experience (including the mistakes) of the English common law. "Islamic Finance and Law: Theory and Practice in a Globalized World" provides an analysis of the fundamental principles underlying the Islamic law of contract and commercial practice in comparison with their equivalents in common law in the English-speaking world. It seeks to draw parallels (and differences where appropriate) to facilitate the growth and development of Islamic commercial and financial law globally."--Bloomsbury publishing. Islamic commercial and financial practice has not experienced the trial-and-error style of development that has characterised the development of the common law in the English-speaking world. Many of the principles, rules and practices prevalent in the Islamic law of contract, commerce, finance and property remain the same as those outlined by the Quran and the Prophet Muhammad, and expounded by scholars of jurisprudence as far back as the 13th century, despite the advancement in time and sophistication of commercial interaction. Hanaan Balala here demonstrates how, in order to bridge the gap between the principles outlined by the Quran and the Prophet in the 7th century and commercial practice in the 21st century, Islamic finance jurisdictions need to open themselves to learning from the experience (including the mistakes) of the English common law.'Islamic Finance and Law: Theory and Practice in a Globalized World'provides an analysis of the fundamental principles underlying the Islamic law of contract and commercial practice in comparison with their equivalents in common law in the English-speaking world. It seeks to draw parallels (and differences where appropriate) to facilitate the growth and development of Islamic commercial and financial law globally. Islamic commercial and financial practice has not experienced the trial-and-error style of development that has characterised the development that has characterised the development of common law in the English-speaking world. Many of the principles, rules and practices prevalent in the Islamic law of contract, commerce, finance and property remain the same as those outlined by the Quran and the Prophet Muhammad, and expounded by scholars of jurisprudence as far back as the 13th century, despite the advancement in time and sophisticaiton of commercial interaction. Maha-Hanaan Balala here demonstrates how, in order to bridge the gap between the principles outlined by the Quran and the Prophet in the 7th century and commercial practice in the 21st century, Islamic finance jurisdictions need to open themselves to learning from the experience (including the mistakes) of the English common law Islamic Finance and Law: Theory and Practice in a Globalized World provides an analysis of the fundamental principles underlying the Islamic law of contract and commercial practice in comparsion with their equivalents in common law in the English-speaking world. It seeks to draw parallels (and differences where appropriate) to facilitate the growth and development of Islamic commercial and financial law globally. --Book Jacket Islamic Finance and Law: Theory and Practice in a Globalized World provides an analysis of the fundamental principles underlying the Islamic law of contract and commercial practice in comparsion with their equivalents in common law in the English-speaking world. It seeks to draw parallels (and differences where apporpriate) to facilitate the growth and development of Islamic commercial and financial law globally. --Book Jacket