Islamic Finance and Dispute Resolution

The fundamental tenet of Islamic finance is that the expected outcome of such transaction is profit-loss-sharing based (i.e. returns to be linked to risks) as opposed to conventional finance which is interest based. Islam prohibits interest (i.e. riba- the payment of a fixed or determinable interest on funds)[1], hence any transaction based on riba or interest is not allowed in Islamic law or Shari'ah. Islam prohibits not only riba, but also other financial transactions that involve the concept / practice of gharar (deceptive uncertainty, asymmetrical information), maysir (gambling, speculation) and harām (prohibited behaviour). Above all, Islamic finance is geared to social purpose and community welfare, and it is socially inclusive unlike conventional finance. These principles are the drivers of Islamic finance not only on the religious but also on moral grounds.

The Islamic finance industry consists of Islamic banking, Islamic capital markets (e.g., sukuk and funds), takaful (Islamic insurance), Islamic microfinance, awqaf (endowments), Zakah and Sadaqah.

Disputes often arise and they have been traditionally referred to courts. The courts in the non-Muslim world have created confusions and controversies because of the lack of proper understanding of Islamic values and Shari'a principles and the right expertise of the judges in the field concerned. It has been acutely felt that these types of disputes should be bettered referred to international commercial arbitration equipped with appropriate expertise in the field concerned for fair justice to all the parties involved who have in the first place subjected themselves to the Shari'ah law in their transactions.

This TDM Special Issue focuses on the Islamic finance landscape in the OIC countries, in the main and then looks at various aspects of dispute resolution in Islamic finance. The Special Issue is organised thematically into three parts: Part I, Part II and Part III.