This archive report was first published on 11 August 2019.
Arbitration key to resolving Islamic finance disputes ¶
As the uptake of Islamic finance products increases in Kenya, so too will the number of Shariah commercial and financial disputes. To address this, the industry should adopt arbitration as a means of resolving disputes in a manner that complies with Shariah guidelines.
Compliance with Shariah principles is integral to Islamic finance. Shariah refers to a set of well-defined rules, teachings, and values that govern the lives of Muslims. The Islamic teachings encourage mutual dealings and exchange of commodities or other necessities through buying, selling, and other contractual obligations, provided these dealings are devoid of violence, misappropriation, dishonesty, and fraud.
One of the common challenges encountered in commercial and financial dealings is the inadequacy and inaccuracy of information between the parties involved in the transactions. Relevant and timely information is central to Islamic financial transactions and contracts. The absence of such disclosures and information is deemed to be a source of uncertainties, referred to as 'Gharar', which renders contracts and dealings non-Shariah compliant.
In Kenya, the lack of a comprehensive legal and regulatory framework that governs the application of Shariah principles to financial transactions and contracts between Islamic finance institutions and their clients hinders the industry's ability to attract quality investors. The absence of a well-developed ecosystem that promotes the application of Shariah from regulatory and legal perspectives undermines the efforts of Islamic banks to enhance the uptake of their products.
Arbitration is a process used by the agreement of the parties to resolve disputes outside the court system. It is a voluntary process, allowing the parties to control the process, including defining the applicable law, procedures, arbiters, and work schedule. Arbitration is gaining popularity due to its time and cost efficiency, and the ability to select reputable jurists and scholars as arbiters.
The Islamic finance players and their clients should ensure that arbitration clauses are factored into their contractual documentations to address the need for sound Shariah determination of commercial disputes, as our courts are not well-equipped to apply Shariah in dispute resolution.
The writer is an Islamic Finance Consultant.
