At the heart of how much of the Muslim-majority world regulates its financial and banking laws, Islamic contract and commercial law extends globally. In 2008, Islamic banks globally held about $250 million dollars (1). Less than half a decade later, Islamic banks held over $1.50 trillion. Indonesia, Qatar, Malaysia, Saudi Arabia and Turkey made up 78% of the international Islamic banking assets within commercial banks (2). Driven by the need for businesses, law firms, and banks to diversify their client portfolios, generate profits and expand internationally, the Shari’ah has a cross-jurisdictional private life of its own. However, Islamic financial laws are not limited to businesses and banks. A growing number of wealthy Muslim private individuals have entered into Islamic commercial real estate contracts within western states, both to ensure that their contract is halal – morally permissible – and to ensure it does not unjustly enrich any of the parties involved. The legal plurality of Islamic law and the common law of western states within international commercial law is inevitable, necessary, and mutually beneficial for the parties involved. With rising tides of Islamophobia around the world, from China’s imprisonment of the Muslim Uighur population to Donald Trump’s “Muslim-ban,” Islamic financial law is taking precedence in the interests of the world’s largest banks, businesses, and law firms.
This article assesses this commercial behaviour against the unspoken backdrop of rising global Islamophobia. Indeed, while Islamophobia stands against Islam as a religion, and against Muslims as human beings, the Shari’ah exists as a private contractual entity within almost every jurisdiction of the world.
International Commercial law: A de-brief
International commercial law is best understood as a body of legal rules, treaties, domestic legislation, trade customs, and conventions (7). International commercial contracts are simply sales agreements made between parties from one or more different countries. There are various methods a party can use when entering a foreign market. Some license goods and services to local producers, some manufacture their goods within their chosen foreign country, and some directly export to foreign nations. Thousands of businesses partake in this behaviour globally. Indeed, many Islamic businesses across the MENA are parties to this international behaviour. Many aspects of private Islamic banking, finance, and contract law pluralistically co-exist with the laws and processes of common law jurisdictions with relative ease.
What is Islamic Finance?
In order to coherently visualise Islamic finance, we must begin by addressing what the “Shari’ah” is. The Arabic linguistic definition of Shari’ah is the “path” to water. Shari’ah is the immutable divine will of God, and a comprehensive metaphysical philosophy to Muslims. Fiqh, law, is a tool that Islamic jurists utilised to discern the divine will of God. To Muslims, the Shari’ah governs every aspect of life; from the Muslim cardinal virtues, to prayer, taxation and finance (3). However, comprehensive, international, and asset-heavy banks did not exist in the time of the Prophet Muhammad (PBUH) over 1,200 years ago. Islamic banking and finance law expressly prohibit two concepts: riba (usury/interest) and gharar (excessive risk) (5). Historically, scholars were not certain as to riba’s exact purpose. However, in the modern world, the following hadith is cited to explain the prohibition of interest as a path to ensure equitable and fair exchanges,
[t]he [sale] of wheat for wheat is riba except if it is exchanged from hand to hand and equal in amount. [The] selling of barley for barley is riba except if it is from hand to hand and equal in amount, and dates for dates is riba except if it is from hand to hand and equal in amount (4)
Indeed, this hadith refers to a wider constraint on commercial exchanges, requiring them all to be equal in value to ensure equitable and fair exchanges. From a Qur’anic point of view, this hadith reflects Allah’s command in verse 3:130,
[y]ou who believe, do not consume usurious interest, doubled and redoubled
Within the modern context of Islamic commercial dealings, there are only “win-win” or “lose-lose” scenarios between contracting parties, avoiding unjust enrichment and, as best as one can, ensuring equitable dealings between the individuals involved.
In addition to riba, gharar is prohibited just as uncertainty and gambling are. Within Islamic contract law, the ideals of fairness and communal harmony lead against excessive business risk and usury. In the modern context of Islamic banking and finance law, the prohibition of gharar does not impede profit or commercial growth. The Shari’ah does not forbid risk in its entirety–it simply prohibits excessive risk. For example, if one were to lease an asset to someone, there is an inevitable risk attached to its return. However, such a rent-lease agreement does not automatically entail gharar. Under Islamic contract law, the details of an agreement must be express and specific to avoid these prohibitions. Indeed, what is clear is that Islamic contract law encourages commerce, fundamentally upholding the agency of freedom of contract. Indeed, the contract and the banking and finance laws of the Shari’ah pluralistically overlap with many of the business values and processes of Western common law jurisdictions.
The private life of the Shari’ah: Across borders
A growing number of Western law firms, investment banks, and financial institutions have created a bridge between the Shari’ah and British law by providing recognised Shari’ah-compliant financial solutions to British Muslims and Gulf-state investors. A rapidly expanding market, worldwide Shari’ah assets are forecast to be worth $3.2 trillion by 2020 by Thompson Reuters (9). The Murabaha contract, a mark-up and resale contract, is one of the most common Islamic financial solutions sought after. They are a way in which a Muslim may contract to borrow money to repay in instalments over a specific time period to purchase something they cannot afford, without accruing a debt and unjustly enriching another. British Muslim venture-capitalist Asif Aziz sought a Murabaha contractual financial solution from Gatehouse Bank, who successfully funded his London-wide real estate project in 2015. His primary need as a client seeking a Shari’ah financial instrument was to ensure his money was transferred in a morally permissible – halal – manner. Gatehouse Bank inform their Islamic finance services on the advice of their Shari’ah Supervisory Board, composed of three experts in Islamic banking and finance law, most notably Sheikh Nizam Yaquby, an internationally acclaimed Islamic banking and finance scholar. Within the United Kingdom, the special presence of Shari’ah supervisory boards (SSBs) is recognised by the Financial Services Authority (FSA), who do not interfere with their special position within British banks so long as they are “purely advisory.” The FSA has outlined that if SSBs are involved in the internal management of banks, they will become subject to the same FSA approval process that establishes the legal validity of third-party advisors. However, despite FSA regulations, what is clear is the presence of a jurisdictional overlap between Islamic financial law and British commercial law. Western banks are increasingly adapting to the emerging needs of Muslim clients who live under personal observation of the Shari’ah, or under an Islamic jurisdiction.
The sellers of the Shari’ah compliant AUB UK Student Accommodation Fund were advised by Burges Salmon LLP on the sale of the fund’s entire portfolio of properties located throughout the UK for £271 million (10). In their approach, the firm brought together lawyers from the firm’s Islamic law, Corporate, Banking, Tax and Construction teams. What is crucial to note is how expert knowledge of Islamic financial and contract law informed the firm’s due diligence. By doing so, the firm made sure the sale was not only sharia-compliant, but that it was in the interests of AUB’s MENA investors and in accordance to their SSB. The existence and use of Shari’ah supervisory boards are not new innovations; Faisal Islamic bank of Egypt established theirs in 1976, and the Kuwaiti House of Finance established theirs in 1979. Their presence within these banks breathes life and profits into commercial trade with the West. However, their legitimate presence within Western banks and law firms strengthens the pluralistic legal bridge between private Islamic banking and finance law and Western common law jurisdictions.
Challenges: the future of international commercial law and the Shari’ah
Dynamic, global, and at the centre of some of the largest commercial transactions of the decade, there are many who criticise the Islamic banking industry as having a “rubber stamping” management policy of being solely profit-motivated (8). Indeed, others claim that due to individuals seeking out the most favourable fatwa on a given financial product, the industry is moving closer to the practices of non-Islamic banking (9). Despite these challenges, the industry is set to be worth $3.2 trillion by 2020 and integrate even further within international trade law and custom (9). The ex-Archbishop of Canterbury Rowan Williams once stated that the incorporation of the Shari’ah into British law was unavoidable. Indeed, this is clear to see. However, after stating this publicly, he was denounced by the then-Cabinet of the UK, who stated that British law was based on British values. Then, and now, the contrary is closer to fact. In the age of Donald Trump’s “Muslim-ban” and the Chinese Government’s mass-detention of the Muslim Uighurs into concentration camps, Islamophobia has integrated into the daily realities of Muslims around the world. The beneficial relationship between Islamic private businesses, banks, and individuals and the West stand as an unspoken fact of legal plurality that a Muslim-ban can never dissolve. As Lord Chief Justice Phillips said in 2008: the Shari’ah is here to stay (11). It serves the beneficial interests of some of the world’s wealthiest individuals, banks, and law firms and has a ceiling of growth that will breach the tens of trillions of dollars.
- Global Islamic finance report, BNM Islamic UK limited p.210-14, (2010)
- Ahmad Atif Ahmad, Islamic Law, cases, authorities and worldview, Bloomsbury, (2017)
- Jonathan G. Burns, Introduction to Islamic Law, Principles of Civil, Criminal and International Law under the Sharia, (2014)
- Sahih al-Bukhari, Book 34, Hadith 121
- Khan, “What Is Wrong with Islamic Economics?” P 318 (2013)
- Foster, “The Failure of Islamic Finance”. (2015)
- John S, International Commercial Law, (2003,) P1
- Zawya Press Release, “Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey represent 78% of global Islamic banking assets: EY” (2013): https://www.zawya.com/mena/en/press-releases/story/Qatar_Indonesia_Saudi_Arabia_Malaysia_UAE_and_Turkey_represent_78_of_global_Islamic_banking_assets_EY-ZAWYA20131204100101/
- Arabian Business, “Islamic finance assets forecast to be worth $3.2trn by 2020”, (2016): https://www.arabianbusiness.com/islamic-finance-assets-forecast-be-worth-3-2trn-by-2020-641156.html#.V6pSt2UdDdl
- “Burges Salmon advises AUB UK on sale of UK Student Accommodation Fund to USAF” (2015): https://www.burges-salmon.com/news-and-insight/press-releases/burges-salmon-advises-aub-uk-on-sale-of-uk-student-accommodation-fund-to-usaf/
- Wintour & Butt: “Sharia law could have UK role, says Lord Chief Justice”, The Guardian, (2008): https://www.theguardian.com/uk/2008/jul/04/law.islam
About the author: Bharath Syal is a guest contributor. He holds a degree in Law (LLB) from the University of Exeter. His interests range from law, history, business and economics, Islam, global politics and theology. You can follow him on Twitter here.