legal guide09.indd - Islamic Finance News

Global Legal Islamic Finance Industry: Present
State and Prospects
By S Sivaselvam
When the US financial crisis went global and then
permeated non-financial economic activities as well,
there were certain sectors that found prospects
for their business improving instead. The legal
community is a case in point. Non-fulfillment of
contracts, companies going belly up — such instances
meant work for lawyers.
Hence, even when the Islamic finance industry began
to feel the impact of the spillover from the economic
crisis, lawyers in that sector continued to be kept
busy. And it appears that this trend will continue for
some years to come at least.
Why? Simply because the nascent industry has
numerous legal issues to be sorted out. Some lawyers
have even taken to questioning pronouncements by
Shariah scholars, such as whether the sale of debt is,
to certain extent, permissible in Muamalat.
There is, of course, an important aspect of Islamic
finance in which the legal practitioners are taking
the lead: how best to make it compatible with
conventional financial practices without impairing
Shariah principles and requirements. Islamic finance
operates in the same tax, regulatory and legal
environment, and experiences similar susceptibilities
and challenges as the conventional sector.
The collapse of the real estate sector in the Gulf Cooperation
Council in the wake of the credit crunch
has stimulated the creative juices of those in the
legal fraternity on other asset classes that Islamic
financial institutions can diversify into. The drop in
the values of investments and deposits has prompted
clients to seek legal advice on not just recovery
paths but also new growth strategies.
They are looking at areas such as Islamic private equity
and venture capital activities. According to a report,
Islamic venture capital is a virtually unexplored
region of Islamic investment banking and could be
set for quick growth when the turnaround comes.
A major issue is evolving that is bound to set the
agenda for the next few years: Can the religious
aspects of Islam be kept apart from the practice
of Islamic finance, other than adherence to the
relevant aspects of Shariah law? Legal interpretations
concerning this are bound to proliferate as those who
are opposed to Islam as a religion, for one reason or
another, also oppose the practice of Islamic finance,
arguing that it is just another aspect of the religion
and not a standalone financial system.
Hence, a closely-watched court case will be that in
Michigan, over the US federal bailout of American
International Group (AIG) because it has subsidiaries
that sell Takaful. Federal judge Lawrence Zatkoff
contends that the US government’s majority
ownership of AIG raises the question of whether
the government is promoting religion, contrary to
the First Amendment to the US Constitution. With
AIG trying to offload all its insurance units, the case
could become a non-starter. It has nonetheless set
the scene for a long drawn out debate over the link
between religion and financial system.
Another issue in similar vein: The British government
is co-sponsoring the Islamic Finance and Trade Conference
in October, but has distanced itself from one of
the co-organizers, the Muslim Council of Britain, because
one of its officials signed a statement supporting
violent jihad in Israel. It is being propagated that
the promotion of Shariah financial services in the UK
is “part of an overall program to implement Shariah
law on Muslims in Europe and to send the message
that it is the duty of all Muslims to bank in such a way
if they wish to be considered proper Muslims.”
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