Recognition and Enforcement of Islamic Finance in the Middle East
Waugh, Jody, Al Awamleh, Ahmad, Business Law International
All Arab states - from Morocco in the west through to Oman in the east - are civil law countries and, with the exception of Lebanon, prescribe Islam as the religion of the state in their constitution. With the exception of Jordan, all to a greater or lesser degree prescribe Sharia as 'a' or 'the' source of legislation.
Arab states follow a civil law system because of the former French occupation of Egypt and the significant contribution made by Dr Abd ElRazzak El-Sanhuri, who drafted the Egyptian Civil Code in 1948 and came into force in 1949 with key assistance from French legal jurists.
The Egyptian Civil Code was not only the first codified law in the Arab part of the world, but it also provides for the principles of Sharia to be a legitimate source of law. It is worth mentioning that the Egyptian Civil Code examines only commercial and civil relationships (purely general principles of contract law), and does not address any provisions related to family law (ie, marriage and inheritance). Further, the Egyptian Civil Code does not provide for specific provisions that regulate Islamic finance products; rather it provides for provisions that regulate contract law in general terms.
Nevertheless, Middle Eastern jurisdictions measured the Egyptian Civil Code as an ideal model on which to base their own legal systems at that time. By the passage of time, all other Arab states have codified their own civil codes, which largely derive their origins from the Egyptian Civil Code.
It is important to bear in mind that as a result of the Ottoman occupation of Arab states and the application of Majalat Al-Ahkam Al-Adlia (A1 Majala), the Civil Code of the Ottoman Empire, Arab states, after their independence, continued to apply A1 Majala, until they enacted their own civil codes - which are, as earlier highlighted, based on the Egyptian Civil Code. Since A1 Majala is based on Sharia principles, the civil codes of all Arab states are based on Sharia principles. The influence of Sharia principles on the legal system of Arab states appears, mainly, in the civil codes, as the civil code of most Arab states explains that if there is no specific agreement between the contracting parties, the court has to comply with a specific order of legal sources being: (1) codified legislation; (2) commercial custom; and (3) if the judge is not able to find an answer in these sources, the judge should consider the principles of Sharia. Consequently, courts in the Arab states cannot rule against the principles of Sharia since Sharia principles are a source of legislation.
Each Arab state now has its own written constitution and an enormous number of codes regulating all areas of legal practice (eg, civil code, commercial code, companies code, tax code, etc), and therefore courts and judges are restricted to enacted legislation only. In other words, there is diminutive scope for judge-made law in civil, criminal and commercial courts.
Generally, Arab states fall into three categories when it comes to embracing Sharia principles:
1. states that transformed their internal financial system to an Islamic form such as Sudan and Saudi Arabia;
2. states that adopt Islamic banking as a national policy while sustaining duel banking systems, such as Kuwait, Bahrain and the UAE;
3. states that neither support nor oppose Islamic banking within their jurisdiction, such as Egypt and Jordan.
Nevertheless, although the laws of most Arab states, as highlighted above, are based on the principles of Sharia generally, the current legislation in place does not encompass specific codified legal provisions regulating Islamic finance products. Hence, Islamic finance practice, in most of the Arab states, is developed on general principles of contract law.
This article looks at the recognition and enforceability of Islamic finance products (with a focus on Ijara and Murabaha) in the Arab states, in particular in the UAE. …