Dispute Resolution of Islamic Financial Institutions, Court Litigation and Negotiation

Abstract

Dispute resolution in the Islamic financial sector is one of the current debates among regulators and Sharia scholars. When Islamic financial institutions have a dispute with their customers, have to search for a solution. The first step for the Islamic financial institutions for resolving the dispute is to start negotiation with their clients. Islamic financial institution negotiates with the client through Shariah supervisory committee members. Sharia scholars of the committee are experts in Shariah law. These Shariah members have an excellent reputation and well-known in society. Hence, the negotiation starts with the client resolving the dispute in order to not go to court. The advantages of the negotiation are taking less cost and less time and it is confidential which is very important for the Islamic financial institution. However, the decision that is reached by negotiation maybe not binding on the parties which consider a disadvantage of the negotiation method. If the parties could not resolve the dispute by negotiation, then the case will go to court. Most of the courts either based on the civil or common law system. Therefore, the decision made by these courts maybe not the right decision as the judges decide on the Shariah case according to civil or common law. Despite the court process take long time and is costly, but the decision that is made by the court is binding on the institution and the client. Some countries decide on Islamic financial legal cases in Shariah courts, such as the Kingdom of Bahrain. In a country like the UK, the decision on the Islamic financial cases will be under the English law system. Therefore, the Bahraini approach is an ideal solution, and the Malaysian approach is one of the best solutions, as the court refers to Shariah Advisory Council when the case is about Islamic finance.  Purpose of This Paper: This paper purposes to observe the dispute resolution of Islamic financial legal cases and find solutions for the disputes between the Islamic financial institutions and their customer according to the current legal system in the world.  Research Method: This research applies a qualitative descriptive method and analysis legal cases related to Islamic finance.  the researcher describes the dispute resolution of Islamic financial institutions and then analyses the result of the research. The data collection for this research is from primary and secondary sources. Thus, court cases, books, journals, and related websites are the main source for data collection for this study. Findings: It is found that the current legal court system in many countries is not proper for resolving issues that arise between Islamic financial institutions and their clients. Thus, dispute resolution in the Islamic financial industry needs to be resolved by negotiation and mediation between the Islamic financial institutions and their customers. Furthermore, the courts have crucial rules in resolving these issues. However, lack of the Shariah courts in many countries in the world makes civil or common law courts decide on the issues, which judges are appointed on these courts do not have Shariah background.

Keywords: Dispute resolution, Civil law court, Common law court, Negotiation, and Court litigation.

DOI: 10.7176/IAGS/90-04

Publication date: March 31^st 2021