The cross jurisdictional challenges of standardizing Shariah compliant documents

Joe Bradford

| 03/28/2010

Many hurdles are faced if Shariah compliant documentation is to be standardized. Of these are the jurisdictional challenges of drafting legal documentation to comply to basic shariah principles, comply to local and national laws, and still remain commercially viable. One major consideration for those that work on the drafting is the ability to craft into the documentation the remedies that are natural to an independent and functioning Islamic legal system, things such as misconduct, negligence, damages etc.

For example, some forms of compensatory damages, while applicable under the common law, may not be acceptable under Islamic law. Awards for liquidated damages are similar, especially in wakala agreements where an agent (wakeel) can not be held liable for losses except in the case of wilful misconduct and negligence. Another point of contention comes up with lost opportunity costs, something that has not been hashed out yet by tradtionalist Islamic scholars giving fatwa in Islamic finance.

To be able to incorporate all principles inherent to Islamic law, along with (and most importantly) being enforceable in the jurisdiction in which the contract is governed, is a challenge that unless faced, will continue to plague Islamic Finance deals for some time.


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