The Law of Islamic Finance in the United Kingdom: Legal Pluralism and Financial Competition

Jonathan G Ercanbrack
2011
The extant literature concerning the Law of Islamic Finance (LIF) is dominated by illustrations of Islamic financial contracts and critiques of the way in which the sharia has been circumvented. Much less emphasis has been placed on understanding the regulatory and financial environment in which the LIF is formed and practiced. This thesis considers the challenges in formulating and implementing a modern, transnational LIF in the conventional financial and legal environment and offers solutions
more » ... to these problems. It demonstrates the way in which the classical sharia is transformed by these challenges into a LIF, a hybrid law resulting from pluralistic legal interaction and financial competition. In assessing the manner and impact of implementing the LIF in the United Kingdom, the thesis considers the interaction of the sharia with English law, UK financial services law and international regulatory standards. Comparative law methodology, with a particular emphasis upon legal pluralism and legal transplants, are employed. The sharia, a relatively stateless law, is the inspiration behind Islamic financial contracts. Dominated by transnational corporate interests, Islamic financial ijtihād represents the strategy to adapt conventional financial contracts to sharia criteria. The results are hybrid structures that conform to Islamic legal theory but which generate municipal legal challenges in practice, as well as sharia-compliance risks. Such structures have been integrated in English law with the creation of tax exemptions and novel regulatory classifications that treat these structures as loan arrangements and debt-based instruments. Furthermore, Islamic financial transactions are subject to UK financial services regulation, which itself incorporates European Union financial directives and Basel Capital Adequacy Standards. Finally, Islamic financial contracts, which are often governed by English law, face challenges in English courts concerning parties' choice of
doi:10.25501/soas.00013598 fatcat:2pj3insawnafxplsf3s4fada4u