Dual Legal Framework in Islamic Capital Markets: Issues and Problems

Introduction

Almost all the major religions of the world condemn the transactions based on interest which promotes self-centered and materialistic thinking. Still, it is amazing to note that it has become the tradition of transaction at world level. It supports the economic development and not the welfare of humankind. However, Islamic economists and Islamic financial experts have succeeded in providing viable alternative system to this system.

Although many countries have tried to create financial infrastructure and system, still the Malaysian Islamic financial system has got its own peculiarity. It has made tremendous progress in creating sound Islamic Financial system. However, the historical aspect of this country which has passed through Islamic and traditional financial system has got its own advantages and disadvantages. The advantageous factor is that, despite having mix and heterogeneous culture, it has succeeded in creating Islamic Financial System based on dual legal system to satisfy the needs of multicultural factors. This fact has proved that Islamic Financial System does not need purely Muslim population. However, due to adoption of dual legal system, several legal issues have arisen.

According to this system the scope of applying Islamic Law is limited only up to resolving some domestic and religious issues. The rest of the matters are being dealt with under the traditional laws, the principles and practices of which are different than that of the Islamic Legal System. The matter becomes all the more complicated when the cases are partially or simultaneously concerned with traditional vis-a-vis Islamic Laws as it requires expertise in both the legal systems. However, the educational principles and systems are different in respect of both the systems. To face this problem, Shari’ah Advisory Council has been established. But the Multiplicity of Shari’ah authorities without judicial power has created confusion at various levels. Therefore, some experts have stressed the need for improving, empowering the Islamic financial legal system to make it more integrated and holistic.

In view of the above, an endeavor has been made in this chapter to throw some light on the matters related with the adoption of dual legal system. The chapter is conceptual in nature and the method adopted is the intensive survey of literature thereby all the information has been gathered from the secondary sources.

The materialistic economic theories stress more on economic development than comprehensive growth. On the platform of World Islamic Economic Forum (WIFE) Jakarta (2009), it has been noted that in the economic theories, a little difference between economic growth and economic development is made and these two terms mostly used synonymous focusing economic aspects of the transaction only. As such the system mainly considering economic aspects is being called traditional financial system which is stated to be 300 years old approximately.

While describing the features of traditional economic system, Schoon (2008) has elaborated that, the basis of this system is fixed interest rate which is prevalent almost all over the world. It emphasizes without surety economic growth which is considered essential for the sustainable economic development. Surprisingly enough this system emerged in Christian societies in the west contrasting the teachings of Christianity religion which forbids interest.

In this regard it is pertinent to note the description incorporated in Christian History Magazine, (1987), in which it has been stated that, interest was strongly opposed by the Christian scholars throughout church history. Ambrose has harshly equated the act of commitment of usury with robbery and the person committing usury no longer has life. Calvin was of the opinion to stop the professional money lenders from the church. Quoting Luther, who termed usurer and the miser as greater enemy of human on earth next to devil. These viewpoints denote that the original teaching of Christianity is in conformity with Islam so far as the question of Riba i.e. prohibition of interest is concerned.

However, as observed by Schoon (2008), despite all the negative views and directives the interest based traditional financial was unabatedly growing and no other financial system stood in front of it except the Islamic financial system which re-emerged in mid-1980.