Sunday, September 12, 2010

Malaysia as a primary legal jurisdiction for Islamic finance, Islamic finance news

Malaysia wants to become a hub as the country where Islamic financial contracts are governed. Currently, most Islamic finance contracts are governed by English laws, because of its predictability. While Malaysia has a unique position having a Shari'ah advisory council at its central bank and could therefore provide governmental legitimacy to the process of litigating whether certain contracts were or were not Shari'ah-compliant, it would likely run into difficulty because the country's Shafi'i interpretation of Shari'ah is viewed as more liberal than the Hanafi and Hambali interpretations used in the GCC. Therefore, it may be unlikely that an Islamic finance institution would submit to the jurisdiction where a different interpretation of Shari'ah is prevalent.

The Shari'ah Advisory Council of Bank Negara Malaysia gave the go-ahead for wa'd (unilateral promise) to be used to hedge against currency fluctuations as long as there is no compensation paid for the wa'd, which would make it a bilateral wa'd. The promise is binding on the promisor.

Rusdhi Siddiqui's latest article tackles the area of Islamic finance news, which I agree does have too little depth behind it. Bloomberg articles (not to pick on them alone) give the bullet points and then re-spout market statistics with too little context. Other news outlets just string together a few quotes with generalities about "Islamic finance is designed to avoid interest, etc". If this blog does anything, I hope it provides a current and critical look at the Islamic finance industry. It certainly has an inherent bias towards the Islamic finance industry, but I have also been critical of the "party line" talking point (for a while at least) that Islamic finance was not harmed by the credit crisis. And thankfully, there are other reporters out there who take stands against things that are either ridiculous Panglossian ideas or products that too cynically avoid the restrictions that are the heart of the Islamic finance industry. However, it is always a good time to remind oneself to think critically.

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1 comment:

islamic finance certification said...

Malaysia was becoming one of the lone ranger in the area of Islamic finance - a secular state with a Muslim majority, the country does not agree with our brothers in the Middle East, and does not fit orthodox Islamic states, Pakistan and even in neighbouring countries Indonesia. At the other extreme, it does not jive neighbours, Singapore and Hong Kong.