KUALA LUMPUR, Mon: The first session after the much awaited opening
address by HRH Sultan Azlan Shah, Sultan of Perak during the inception of the
14th Malaysian Law Conference held in the Kuala Lumpur Convention Centre today
was the talk on “Opportunities and Challenges in Islamic Commercial Law”.
Notwithstanding its tender age, Islamic commercial law is rapidly gaining its
popularity with local and global financial institutions. With focus on the
growth and potential of the Islamic finance industry, the first speaker, Ms
Baljeet Kaur Grewal, Group Chief Economist and Global Research chief of the
Kuwait Finance House, segregated her talk into two sub-heading: Overview of
Islamic finance industry and its challenges and prospects.
The overview of the Islamic finance industry is highly promising. “The potential
is huge,” the economist pointed out, followed by presentation of facts and
figures which show accelerated growth in this industry. Among others, Syariah-compliant
financial products have been enjoying annual growth rate of 23.5% over the past
five years. Islamic banks are expected to manage 40% to 50% of total savings of
the Muslim population worldwide in eight to 10 years, which brings an estimated
potential for the Islamic financial services market to USD4 trillion by the year
2020.
Among the significant challenges of the industry is the lack of uniformity in
Syariah views hence the legality governing the industry is not concurrent with
its commercial growth. Another imminent challenge highlighted by Ms Baljeet is
human capital. There is much need for skilled workers and experts in this
industry.
Ms Baljeet concluded her talk by stressing that the law remains a crucial
prerequisite to the success of the global Islamic finance industry, as it has a
profound impact on future Islamic finance, especially to the nature of the
structure of transactions and the shape of capital markets; and thus to the
configuration of the entire Islamic industry.
The law of the Islamic finance industry is guided by a cardinal principle; that
it has to be Syariah-compliant. Malaysia has long established the Syariah
Advisory Council to regulate and monitor the standard of compliance, which is
rooted in the relevant provisions of Al-Quran and Sunnah and Habits (sayings and
actions of the Prophet of Islam). Globalization of the industry is inevitable,
which raises an issue of potential concern and even apprehension among the
non-Muslims. Addressing this issue is a prominent Malaysian lawyer and a pioneer
in the Islamic banking legal documentation, Mr. Mohamed Ismail Mohamed Shariff.
Mohamed Ismail enlightened the session moderated by Dato Dr Nik Norzrul Thani
with a fact that many have failed to notice: Islamic commercial law has been a
part of Malaysian law through an uncommon source – the English common law. Very
different from personal law such as marriage and divorce, the Islamic law of
transaction (fiqh muamalat), which in essence is the commercial
transaction, is of general application for the Muslims and non-Muslims alike and
is basically fair and essential by any standard.
To support his observation that much of the common law of England relating to
commercial transaction can be traced to the roots of Islamic commercial law,
Encik Mohamed Ismail quoted the relevant verses of Al-Quran and Sunnah.
The passages and quotes clearly and specifically provide for, among others, the
need for a written contract and witnesses in a contract, the call for a fair
trade between the two parties, the prohibition of uncertainty in a contract and
a strict reprimand against cheating and gaining unfair or undue advantage in a
commercial transaction. The same is sound advice to anyone who has to enter into
a business dealing with one another and it does not favour a Muslim over a
non-Muslim and can be found in Malaysian statutes which are largely based on the
English law such the Contracts Act and the Sale of Goods Act, he clarified.
Another example given is Article 3(1) of the Malaysian Federal Constitution –
“Islam is the law of the Federation”. The differences and the different
application and effect of Islamic personal law and Islamic commercial law should
be distinguished properly in practice: it is inherent in the provision Islam as
the religion of the Federation. He concluded that there is no bias in Islamic
commercial law in favour of a Muslim party in the transaction and the values
that it espouses are universal and transcend all boundaries of religion,
nationality or race.
To complement and support the need for a standard regulatory body of experts
serving the Islamic banking and financial service community, the Rules of
Arbitration of the Kuala Lumpur Regional Centre for Arbitration (Islamic Banking
and Financial Services) (“IBFS Arbitration Rules”) was launched on 27th March
2007, with guidance and support from the Malaysian Central Bank and the
Securities Commission of Malaysia.
Dato’ Noorashikin Tan Sri Abdul Rahim, Director of the Kuala Lumpur Regional
Centre for Arbitration (KLRCA), was the last speaker for the day. In an effort
to familiarise the legal fraternity with IBFS Arbitration Rules, the KLRCA has
distributed the Rules to all conference participants. Dato’ Norashikin
highlighted the uniqueness of IBF Arbitration Rules, that it lies within Rule
33, which outlines the Procedure for Reference – whenever the arbitrator has to
form an opinion on a point related to principles, he or she shall refer the
matter to the Syariah Advisory Council.
The KLRCA is independent of the Malaysian government. It administers arbitration
under the auspices of the Asian-African Legal Consultative Organisation (AALCO),
comprising 48 member states. The Kuala Lumpur Regional Centre for Arbitration
(Privileges and Immunities) Regulations 1996 provides for the privileges and
immunities of certain organizations, including the KLRCA.
Malaysia is internationally known as the pioneer in global Islamic banking and
finance. The speakers find consensus on one main point: the law on Islamic
commercial finance still requires further fine-tuning and all parties are
instrumental to make it happen.