Islamic banking is not banking in the traditional sense of the word.1 It is an alternative to western banking and is still in the initial stages of its development. A review of the development so far indicates that too much emphasis has been placed on transplanting substantive norms from customary Islamic law and almost no attention has been paid to the legal process of developing new rules suitable for modern times.2 This approach is responsible for the many unresolved legal issues and practical problems faced by Islamic banks today.The purpose of this paper is three-fold: To (i) broadly review and analyze the developing regulatory system of Islamic banking critically, (ii) identify the conceptual legal framework of Islamic banking, and (iii) suggest the establishment of a law commission to draft and a modern uniform banking code, in line with the fundamental principles of finance prescribed by Shari'ah3 for adoption by Islamic banks and financial institutions internationally.
Developing Regulatory System
At present, Islamic banks and financial institutions operate under three different regulatory regimes:
(i) Self-regulation through constitutional limitation;
(ii) Private regulation through governmental private legislation;
(iii) Public regulation through governmental national legislation.
A. Self-Regulation
Most so-called Islamic banks are not banking companies but financial institutions that have been incorporated as limited companies empowered to transact the business of investment, trade or finance. Some, of course, have been formed purely as banking companies. All these companies have been registered not only in Islamic countries but also in some Western countries. Their share-holdings are varied: while some, like Dar Al-Maal Al- Islami Trust ("DMI”) and Al Baraka International Bank Limited ("Al Baraka"), are privately held companies others, like Bahrain Islamic Bank and Kuwait Finance House, are publicly held companies. Among the publicly held companies there are some which have shares held by their national government agencies and others which have shares held by foreign government agencies and international financial institutions as well.
Depending on the national regulatory regime within which they are registered, the Islamic banks and financial institutions operate either as banks or finance, investment and trust companies. They operate under license from the host government and are as such subject to normal banking, financial, investment or trust regulations, as the case may be, applicable thereto. Additionally, and most importantly, they are subject to a self-imposed regulation in their constitution requiring them to undertake and carry on their business in accordance with shari'ah principles.
For example, Al Baraka, a banking company organized and existing under the laws of England, has in its Memorandum of Association limited the scope of its banking business by undertaking to conduct the same within the "concept of Islam" provided, however, that the same is permissible under the prevailing local law and / or any local legal, statutory or regulatory requirement or prohibition and / or does not contravene any request of any authority competent to regulate the business of the Bank.4 The concept of Islam in this context is required to be defined and decided in relation to any matter by the relevant Committee of Advisors appointed by the Board of Directors of the Bank.
Similarly, DMI, which has been organized and constituted as a trust pursuant to a Trust Indenture executed in the Commonwealth of Bahamas,5 has placed a constitutional limitation upon itself to conduct its business affairs in conformity with Islamic laws, principles and traditions. The main object of DMI is to promote, foster and develop the application of Islamic principles, laws and traditions to the transaction of financial, banking and related business affairs including the investment of funds for the purpose of compensation for the financial consequences of defined risks or losses, and to promote investment in companies, enterprises and concerns which shall themselves be engaged in business activities as are acceptable and consistent with Islamic principles, laws and traditions and in no event engaged in the alcoholic beverage trade, the business of borrowing or lending money at interest, the gambling industry or the pork meat industry.
The interpretation and enforcement of the application of Islamic laws, principles and traditions is entrusted to a Religious Board established pursuant to the provisions of the Trust Indenture. The Religious Board is composed of at least five persons who are acknowledged experts in Islamic principles, laws and traditions. The Religious Board has the general responsibility to ensure that DMI's investments and activities, including those of its subsidiaries or controlled affiliates, conform to Islamic principles, laws and traditions. The management is required to adopt operating procedures to ensure that all types of investments and all other categories of business affairs are submitted to the Religious Board for approval of such type before such investments are made or such business affairs are submitted to the Religious Board for approval of business affairs are undertaken by DMI or any of its subsidiary or controlled affiliate. The Religious Board is empowered to make determinations concerning Islamic principles, laws and traditions and DMI's managers, administrators and employees are required to conform to and entitled to rely upon such determination. The determination by the Religious Board is also binding on all bearers of Trust Certificates issued pursuant to the Trust Indenture. The Trust Indenture precludes third parties transacting business with DMI to inquire into the conformity of DMI's business to Islamic laws, principles and traditions.
Each Islamic financial institution and bank like DMI and Al Baraka has, in the absence of a supervisory authority insofar as its self-imposed regulations are concerned, constituted a Religious Board or similar authority ("Religious Board") to monitor its activities. The Religious Boards are formed internally and individually perform a mixture of advisory and supervisory functions. This individual approach is certainly not conducive to the overall development of Islamic banking and financial norms. It is likely to produce diverse practices and conflicting policies among various Islamic banks and financial institutions. The International Association of Islamic Banks has recently announced the formation of a Supreme Religious Board to advise Islamic banks on shari'ah matters. This is indeed a commendable step at least insofar as it provides an opportunity for a collective approach in this regard. It is however doubtful as to whether the Supreme Religious Board consisting of religious scholars will be able to resolve the numerous legal issues that arise in the context of modern secular banking and financial practices.
B. Private Regulation
Certain Islamic banks and financial institutions such as the Bahrain Islamic Bank,6 Faisal Islamic Bank (Egypt)7 and the Jordanian Islamic Bank for Finance and Investment ("Jordan Islamic Bank") have been chartered by Royal/Governmental decrees or established pursuant to private legislative enactments. The decrees or legislative enactments do not have general application and regulate each Islamic bank or financial institution specifically.
For example, the Jordan Islamic Bank was established as a "bank specializing, in non-usurious dealings" pursuant to the Jordanian Islamic Bank for Finance and Investment Law of 1978 ("Jordan Islamic Bank Law").8 It is registered as a public share-holding company under Jordanian Companies Law. As such, it is subject to a three tiered system of regulation: (i) the Jordan Islamic Bank Law, (ii) the Jordan Companies Law, and (iii) its own Articles of Association.
Under the Jordan Islamic Bank Law the obligation of Jordan Islamic Bank to avoid usury—whether in taking or giving—is absolute in all cases and activities. Any regulations, rules or instructions which Jordan Islamic Bank may issue in violation of this obligation have no legal effect. The Jordanian Islamic Bank Law is one of the few legislations which has attempted to describe the term "usury":
Usury: Includes, in the context of banking activities, two types of dealings, relating to debts and sales respectively:-
Usury in debts: includes, the receipt or payment of interest in the various types of lending and borrowing, and includes also the payment of any fee by the borrower where no effort which results in a substantive benefit in accordance with accepted doctrinal opinion,9 is expended in consideration for such fee.
Usury in sales: includes, in the framework of banking, the exchange of various currencies on forward basis.
The Jordan Islamic Bank Law contemplates the appointment of an Islamic Legal Consultant ("Consultant") who is learned and specialized in the field of practical application of the Provisions of Islamic law. The Consultant's independence is sought to be ensured somewhat under the Jordan Islamic Bank Law which provides that the Consultant "not be dismissed except on the basis of a Board resolution adopted by a two-thirds majority of the members at least, and giving grounds for such dismissal." The functions of the Consultant are determined by the Board of Directors of the Bank which is obliged to request the opinion of the Consultant regarding the following matters:
(i) Studying the practical regulations and rules applied by the Bank in its dealings with others, with a view to ensuring that they do not contain any form of usurious dealings which the Bank is obligated to avoid.
(ii) Studying the causes which require the Bank to bear any investment loss, with a view to finding the legal doctrinal (Fiqhi) basis to support the resolution of the Board in this regard.
The consultant performs an advisory role in respect of the banking operations and determination of Islamic doctrinal principles to be adopted by the Jordanian Islamic Bank. He appears to have the role of an in-house counsel of a company. As such his function is to assist the management of the Jordan Islamic Bank to conduct the operations of the Bank in accordance with the internally applicable laws and Articles of Association of the Bank. This may be contrasted with the larger role played by Religious Boards of guiding Islamic Banks and financial institutions through the interpretation of externally applicable laws and regulations.
The Jordan Islamic Bank Law appears to be a practical piece of legislation. It is, however, a private legislation and applies specifically to the Jordan Islamic Bank. Public laws have been enacted only in countries where Islamic banking has been introduced at the national level.
C. Public Regulation
Governmental public regulations have been prescribed in some Muslim countries to promote the establishment and administer the activities of Islamic banks and financial institutions. These regulations are parallel to existing banking and financial regulations applicable to traditional banks and financial institutions operating in these countries. Governmental public regulations have also been enacted in some Muslim countries which have the effect of transforming the traditional banking and financial system into a new system altogether.
Parallel system
A parallel regulatory system of Islamic banking and finance has been introduced in Malaysia and Turkey.
a. Malaysia. Malaysia has enacted the Islamic Banking Act, 198310 (the "MIB Act") to provide for the licensing and regulation of Islamic banking business in the country. The MIB Act contains extensive regulations regarding financial requirements, duties, ownership, control and management of Islamic banks, restrictions on business, powers of supervision and control over Islamic banks. It empowers the Central Bank to make such regulations, with the approval of the Minister incharge, as may be required from time to time for carrying into effect the objects of the Act.
The Malaysian Islamic Banks are subject to a three tiered system of regulation: (i) the MIB Act (ii) Malaysia Companies Act, 1965, and (iii) their own Memoranda and Articles of Association. The term "Islamic banking business" has been very broadly defined in the MIB Act to mean "banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam."11 The MIB Act does not attempt to introduce a new banking system but merely seeks to apply Islamic principles to traditional banking business. It does not, however, identify the elements which are not approved by Islam.
The MIB Act prohibits Islamic banking business from being transacted in Malaysia except by a company licensed to carry on such business. It is interesting to note the negative formulation of the provision relating to the licensing of Islamic banks: "Islamic banking business shall not be transacted in Malaysia except by a company which is in the possession of a license in writing from the Minister authorizing it to do so."12 It has the awkward effect of being restrictive rather than permissive. The license is grantedby the Minister in-charge upon the recommendation of the Central Bank of Malaysia. The grant of a license is not recommended by the Central Bank and the license is not granted by the Minister in-charge unless the Central Bank and the Minister are respectively satisfied that (i) the aims, and operations of the banking business which the concerned bank desires to carry on will not involve any element which is not approved by the religion of Islam, and (ii) there is, in the articles of association of the bank concerned, provision for the establishment of a shari'ah advisory body to advise the bank on the operations of its banking business in order to ensure that they do not involve any element which is not approved by the religion of Islam.
The role of the shari'ah advisory body is merely to advise the bank 01 the operations of its banking business and not to supervise its activities. The power of supervision remains with the Central Bank and the Minister in-charge may, on the recommendation of the Central Bank, revoke any license issued by him to any Islamic Bank if such bank, inter alia, pursues aims or carries on operations, involving any element which is not approved by the religion of Islam.
The requirement for an Islamic bank to have, in its articles of association, a provision for the establishment of a shari'ah advisory body appears to be totally unwarranted and unnecessary. Unnecessary, firstly, because a determination has already been made by the Central Bank and the Minister in-charge at the time of the grant of the license that the operations of the banking business will not involve any un-Islamic element and, secondly, in view of the fact that the Islamic banking business is a licensed activity which is dependent upon the continued satisfaction of the Central Bank and the Minister in-charge that the operations of the banking business do not involve any element which is not approved by the religion of Islam. Unwarranted because there might be a difference of opinion either between the view taken by the Central Bank or the Minister in-charge and the advice rendered by a shari'ah advisory body or between the opinions held by different shari'ah advisory bodies of various Islamic Banks. The law introduces private rule making within the system of public regulation without providing any mechanism to overcome any possible conflict between the two.
The effect of the MIB Act has been to allow a parallel system of Islamic banking to work along with the traditional banking system. It has, however, made no contribution whatsoever in identifying the elements of Islamic banking and has left the determination thereof to the Central Bank and the Minister in-charge. As to what the Central Bank and the Minister in-charge may base their determination on is quite unclear.
b. Turkey. Turkey has established interest free financing in the country pursuant to Article 96 of the Banking Law No. 3128 and Law No. 1567 relating to the Protection of the Exchange Value of Turkish currency.
The methods and procedures for the foundation, operation and liquidation of "Special Finance Institutions" and "Special Finance Houses" (hereinafter referred to as "SFI’s” and "SFH's" respectively) are regulated by Decrees No. 83/7506, dated 16 December 1983 and No. 84/7833, dated 15 March 1984 issued by-the Council of Ministers, and the communiques (the "Communiques") issued by the Under-Secretariat of Treasury and Foreign Trade13 and the Central Bank of Turkey.14
The Communiques, inter alia, provide for the establishment, licensing and commencement of operations of SFI's and SFH's. They authorize SFI's and SFH's to accept deposits in two kinds of accounts: (i) Current Account: Special Current Account involving demand deposit bearing no interest or profit, and (ii) Participation Account: Profit and Loss Participation Account giving the right to participate in profit and loss pursuant to a contract for Profit and Loss participation Account. The Contract for Profit and Loss Account is a uniform, written contract regulating legal and financial relations between the SFI and the account holder who deposits funds in the Profit and Loss Participation Account. The fundamental provisions to be included in this contract, have been laid down by the Turkish Central Bank. These, inter alia, include statements to explain that
(i) SFH has the right to place funds, accumulated, in different pools with different maturity, together, in which case the profit share of each pool is determined according to its contribution and the claim of the account holder is limited to his share in the profit of the pool in which the fund is deposited.
(ii) All expenses occurring from utilization of funds will be borne by SFH.
(iii) In this account, besides the profit and loss sharing, no other advantage to the account holder can be given.
(iv) SFH's share from profit and loss occurring from the placement of the funds accumulated in this account is.....% in case of profit and.....% in case of loss; the amount the account holder can lose may not exceed the amount he deposited.
(v) The earnings of the account shall be considered as interest earnings and are subject to withholding tax.
(vi) Funds accumulated in these accounts are not covered by the Savings Deposit Insurance Fund.
The above noted statement (v) is in the nature of a deeming provision which is perhaps intended to comply with the withholding tax requirement under the existing tax law in the country. It would perhaps have been better if the tax law had been amended to impose withholding tax on profit earnings instead of requiring that such earnings be considered as interest earnings and as such be subject to withholding tax.
The Turkish Central Bank has also listed certain minimum requirements for the Contract for Special Current Account and laid down fundamental provisions to be included in the Contract for Profit and Loss Investment which is a uniform, written contract regulating legal ant financial relations between the SFI and a person who is placed with funds for certain periods by the SFI with the intention of participating in hic profit and loss. Accordingly, the amount required to be paid by a SFH in case of a loss may not exceed the amount placed by SFH.
The Communiques also deal with Sale, Purchase and Rent (Leasing) Contracts but do not prescribe any detailed regulations in respect thereof as in the case of other contracts.
The regulatory regime of the Turkish interest free financing system is rather simple. It lays down the basic structure and institutional framework of SFI's/SFH's and administers their financing activity which is generally based on contractual arrangement upon which the Turkish Central Bank imposes certain fundamental requirements to ensure interest free operations. All the administrative, legal and judicial proceedings pursuant to the Commumques are secular and there is no reliance upon religious authorities of any kind whatsoever.
Transformed System
The whole system of traditional banking has been transformed into an "Islamic" system in Iran and Pakistan.15 Government public regulations applicable generally to the entire banking and financial sectors have been introduced in both these countries. In their zealousness to introduce a new regulatory system, both governments have transplanted substantive rules of customary Islamic law instead of just applying the fundamental principles of financing prescribed by shari'ah.
a. Iran. Iran has taken a quick approach of adopting a new system of banking almost instantaneously through the promulgation of the Law for Usury (interest) Free Banking ("Usury Law") in August 1983. The Usury Law, inter alia, lays down the objectives and duties of the banking system and regulates the mobilization of monetary resources and banking facilities. A number of detailed regulations in respect of the various provisions of the Usury Law have been prescribed: (i) Regulations Relating to the Mobilization of Monetary Resources (18 December 1983).16 (ii) Regulations Relating to the Granting of Banking Facilities (4 January 1984),17 (iii) Regulations Relating to Chapter IV18 of the Law for Usury-Free Banking (7 March 1984), and (iv) Regulations Relating to Chapter V19 of the Law for Usury-Free Banking (7 March 1984). These regulations, inter alia, apply to deposits (Gharz-al-hasaneh deposits and Investment Term Deposits) and prescribe various modes of financing: (i) Gharz-al-hasaneh (ii) musharaka (consisting of two kinds of partnerships: civil and legal); (iii) direct investment; (iv) mozarebeh (modaraba transactions); (v) salaf (forward delivery) transactions; (vi) sales by instalment (credit sales); (vii) hire-purchase; (viii) joaalah (service charge); (ix) mozaraah; and (x) Mosaghat.
b. Pakistan. Pakistan, unlike Iran, has followed a gradual approach in adopting the Islamic banking system.20 The transformation of the banking system took almost four years. It commenced in 1980 by the introduction of certain amendments in the existing banking law where under the State Bank of Pakistan ("State Bank") was empowered to prohibit interest and to control advances including finances provided on the basis of participation in profit and loss, mark-up in price, leasing and hire-purchase by banks. Subsequently in 1984, the State Bank, through a Policy Statement, prohibited interest and prescribed various interest free modes of financing. A complete framework of interest free banking was introduced in Pakistan with the promulgation of the Banking and Financial Services (Amendment of Laws) Ordinance, 1984 ("BFS Ordinance") and the Banking Tribunals Ordinance, 1984 ("BT Ordinance").
Whereas the BFS Ordinance deals with the provision of finance, the BT Ordinance provides the machinery for the recovery of finance provided by banks and specified financial institutions under an interest free system. The BFS Ordinance was merely, an amending act by virtue of which various laws were amended to make provision for-the new modes of financing permitted by the State Bank. These modes are specified in the term "finance" defined in the BT Ordinance. This term includes an accommodation or facility under a system which is not based on interest and specifies thirteen different modes of financing: (i) Participation in profit and loss; (ii) mark-up or mark-down; (iii) hire-purchase; (iv) leasing; (v) rent-sharing; (vi) licensing; (vii) charge or fee of any kind; (viii) purchase and sale of any property (industrial, intellectual or real) with or without buy back arrangement by a seller; (ix) Participation Term Certificate; (x) Musharika Certificate; (xi) Term Finance Certificate; (xii) guarantees; and (xiii) indemnities. This list is not exhaustive and includes any other mode other than an accommodation or facility based on interest. Although the definition of the word "finance" is premised on the exclusion of interest, the term "interest" has not been defined in either the BT Ordinance or the BFS Ordinance.
The bar on interest bearing transactions has been extended to investment finance companies in Pakistan.21 A company licensed to undertake and carry on the business of an investment finance company is prohibited to transact any business on the basis of interest. For the time being, however, transactions relating to foreign loans and credits have been exempted. All other transactions are required to be in accordance with the Islamic modes of financing.
Although there is no statutory bar on interest based transactions in general corporate transactions, a new mode of participatory financing, in the shape of Participation Term Certificates/Term Finance Certificates as an alternative to debenture financing, has been introduced in the field of corporate finance in Pakistan. Furthermore, modaraba business has been introduced as an instrument of corporate finance in Pakistan. The Modaraba business is regulated by a separate Modaraba law.22 The Modaraba Law, inter alia, requires the Federal Government to constitute a Religious Board whose main function is to certify in writing that the modaraba business is not a business opposed to the injunctions of Islam.23 There appears to be no apparent justification for the constitution of a Religious Board in the context of a statutory law which provides an adequate machinery for the supervision and enforcement of its provisions.
Conceptual Legal Framework
The developing regulatory system of Islamic banking indicates that more emphasis is being placed on form rather than substance. Detailed regulations are being prescribed without any clear identification and interpretation of fundamental principles. Islamic banks undertake to carry out their business activities in conformity with "Islamic laws, principles and traditions" or within the "concept of Islam" or not contrary to the "religion of Islam". These terms have not been defined but may be presumed to mean shari'ah.24 However, the developing Islamic banking regulations instead of identifying the applicable provisions and interpreting the relevant principles of shari'ah often extend beyond to customary Islamic laws and accordingly prescribe various modes of financing generally applicable to non-banking activities traditionally. Instead of leaving the identification and interpretation of shari'ah principles to Religious Boards, as most Islamic-banks and financial institutions appear to do, it would be expedient for the sake of conceptual clarity and legal certainty to outline these within the prescribed regulatory framework.
Fundamental Principles
Islamic banking has not been ordained by shari'ah. Shari'ah does, however, impose certain restrictions on the business of banks. It proscribes usurious/interest based transactions25 but does not prohibit lending. In fact, it favours the grant of consumption loans known as qarz hasana (i.e., charitable loans).26 Commercial loans are allowed27 but repayment of such loans is restricted. No usury/interest is allowed to be charged. Shari'ah recognizes the concept of secured transactions. For example, it allows the pledge of goods to secure a contracted debt especially in a case where a scribe cannot be found.28 It, however, further provides that if a debtor is in difficult circumstances he should be dealt with leniently, and if he is unable to pay, the lender is advised to remit the debt.29
These in essence constitute the fundamental principles of Islamic banking. It is thus evident that in theory Islamic banking is simple and general in nature. In practice, however, it is being developed into a complex and rigid system. What is needed is an identification of applicable principles of shari'ah and a clear definition of the term "usury" or “interest” proscribed thereby. Rules and principles of financing derived from customary Islamic law may serve as guidelines and be used as tools of interpretation rather that application.30
Proposed Legal Prooess
It is suggested that instead of developing Islamic banking norms through administrative reviews by Religious Boards a uniform banking code be developed through the process of ijma (consensus of opinion among Muslim jurists).
A. Religious Boards
Shari'ah does not mandate the supervision of commercial activities by any religious authority. There does not, therefore, appear to be any justification for establishing Religious Boards for the supervision of banking and financial transactions. The need to establish Religious Boards perhaps arose largely because of the absence of a supervisory authority in the case of self- regulated Islamic banks and financial institutions and the desire in other cases to emphasize the separate identity of Islamic banks and financial institutions and to sanctify their business dealings. The role of Religious Boards is limited and they have apparently served their purpose. In any event, there is no apparent justification for requiring the establishment of Religious Boards in the scheme of national legislations as has been done, for example, in the case of Malaysia and Pakistan.31
What is needed is a modern and comprehensive analysis and interpretation of shari'ah principles in relation to various banking practices and not a traditional and ad hoc adjudication of the validity of individual transactions which is in essence what the Religious Boards appear to do. It is, therefore, proposed that instead of giving them a more prominent role, as the International Association of Islamic Banks seems to have done, they be phased out gradually.
B. Uniform Banking Code
It is proposed that an Isls.mic Banking Law Commission ("IBLC"), consisting of shari'ah, scholars and modern Muslim jurists well versed in financial matters, be established by the International Association of Islamic Banks for purposes of (i) identifying, reviewing and interpreting the shari'ah principles regarding interest free financing (savings, deposits, trusts, lending, investment and trade), (ii) outlining and analyzing the customary rules of Islamic financing, (iii) determining the policies and practices of national, multinational and international Islamic banks and financial institutions, and (iv) drafting a uniform banking code for adoption by the International Association of Islamic Banks and/or individual Islamic banks and financial institutions. The proposed code would provide legal certainty and lead to the development of common banking practices. It would thus enhance business opportunities through increased cooperation and coordination not only between different Islamic banks and financial institutions but also between them and traditional banks and financial institutions.
Conclusion
At present Islamic banking is regulated at three levels; (i) Individual private rule making, (ii) national specific rule making, and (iii) national general rule making. The individual private rule making serves to identify and develop individual banking policies but has a tendency to lead to divergent practices amongst various Islamic banks and financial institutions in the absence of general guidelines or a national regulatory system. The individual private rule making is subject to the traditional banking regulatory scheme applicable nationally. The national specific rule making precludes the application of a dual system of regulations but creates a parallel system juxtaposed to the traditional banking regulations. The national rule making processes have been divergent as is evident from legislations in force in Iran, Pakistan, Turkey and Malaysia. The main thrust of legislations in Iran and Pakistan has been to prescribe different modes of financing. Similarly, in Turkey the emphasis has been on contract regulation rather than prescription of specific and substantive rules of Islamic financing. The Malaysian law is also over-extended and somewhat confusing.
The development of confused, over-extended and divergent Islamic banking laws and practices is attributable to the lack of common understanding about the doctrinal basis and identification of fundamental principles of Islamic finance. It is, therefore, essential for the success of the Islamic banking system that a common understanding about the basic principles be developed and the Islamic banking objectives and functions defined accordingly. The International Association of Islamic Banks can and should, as suggested above, play an important role in this regard.32
The author is Partner, Hassan & Hassan (Advocates), Pakistan; Consultant, International Legal Consultants, London.
1. See generally, Hassan, "Islamic Banking and Finance", in CURRENT ISSUES OF INTERNATIONAL FINANCIAL LAW 93-109 (D.G. Pierce etai eds.. 1985).
2. See, e.g., Hassan, "Legal Process for Establishing Rules for Murabahah Contracts" 4 JOURNAL OF ISLAMIC BANKING AND FINANCE (No. 4) 71 (1987).
3. The injunctions of Islam as laid down in the Holy Qur'an and Sunnah. This definition of Shari'ah can be found in Sec. 2(e), Enforcement of Shari'ah Ordinance, 1988 (Pakistan Gazette Notification No. F. 17(2) / 88 Pub. dated 15 June 1988 published in The Gazette of Pakistan (Extraordinary) (15 June 1988) at p.21). Shar’iah is the primary source of Islamic law and does not include injunctions imposed by customary Islamic law derived from various schools of Islamic jurisprudence.
4. Amended Clause 3(CC), Memorandum of Association of Al Baraka International Bank Limited.
5. The Trust Indenture is, therefore, to be construed according to and governed by the laws of the Commonwealth of Bahamas.
6. Incorporated in accordance with Bahrain Amiri Decree No.2 of 1979.
7. Formed in accordance with Egyptian Law No. 48 of 1977.
8. Jordanian Law No. 13 of 1978 (amended by Law No.62 of 1985). Non-usurious banking operations are defined in this legislation to mean "any activities which the Bank is able to carry out on a non-usurious basis in the field of banking services, financing and investment, applying such methods as are in compliance with the principles of moslem shari'a law". Sec 2, Jordan Islamic Bank Law.
9. Accepted Doctrinal Principles: "The Islamic doctrinal principles adopted by the Bank under its law and applicable rules, and which are chosen from the doctrinal tenets of the various moslem denominational sects on the basis of preponderant legal interest, with no obligation to adhere to the doctrinal tenets of any particular denominational sect." Sec. 2, Jordan Islamic Bank Law.
10. Act 276 of 1983.
11. Art 2, MIB Act
12. Art 3. (1), id.
13. Official Gazette No: 13323 dated 25 February 1984.
14. Official Gazette No: 13348 dated 21 March 1984.
15. For a comprehensive review and analysis of the transformation see, Iqbal and Mirakhor, "Islamic Banking", Occasional Paper 49 (International Monetary Fund, Washington, D.C., March 1987).,
16. Chap. II, Usury Law.
17. Chap. III, id.
18. This chapter relates to Bank Markazi Jomhouri Islami Iran and monetary policy.
19. This chapter relates to miscellaneous provisions of the Usury Law.
20. A complete background of the legal and policy developments in the field of Islamic banking and finance in Pakistan upto 1986 can be found in Hassan "Interest Free System of Banking and Finance in Pakistan", 3 JOURNAL OF ISLAMIC BANKING & FINANCE (No. 1) 7 (1986).
21. See, Sec. 3, Government of Pakistan, Statutory Notification S.R.O. 585 (I) 87 dated 13 July 1987.
22. The Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 ("Modaraba Law") and the Modaraba Companies and Modaraba Rules, 1981.
23. Sees. 9 & 10, Modaraba Law.
24. There is a specific reference to "the principles of moslem shari'a law" in the Jordan Islamic Bank Law. See, supra note 8. See also, supra note 3 which distinguishes between shari'ah law and customary Islamic law. The Jordan Islamic Bank Law recognises "accepted doctrinal principles" from customary Islamic law but does not obligate the Jordan Islamic Bank to adhere to the doctrinal tenets of any particular denominational sect. See, supra, note 9.
25. The prohibition is contained in several verses of the Holy Quran: Chapter 2, Verses 275-76 & 278-79; Chapter 3, Verse 130; Chapter 4, Verse 161; and Chapter 30, Verse 39.
26. See, Chapter 2, Verse 245; Chapter 57, Verses 11 & 18; Chapter 64, Verse 17; and Chapter 73, Verse 20, Holy Quran.
27. See generally Chapter 2, Verse 282, Holy Quran.
28. See, Chapter 2, Verse 283, Holy Quran,
29. See, Chapter 2, Verse 280, Holy Quran.
30. The Jordan Islamic Bank Law does somewhat serve as a good precedent in this regard.
31. The limited role played by the Islamic Legal Consultant under Jordan Islamic Bank Law appears to be reasonable as compared to the Religious Boards.
