Understanding the nature of law requires legal reasoning, understanding of the legal institutions of a given region or country and digging deeper to understand the legal systems; the civil law, common law and religious laws. Civil law conceptually formulates the general principles by distinguishing substantive rules from the procedural rules; proceeds from abstractions and that are subordinate to the highest rank of a region or a country, and shaped by history it thus incorporates individual variations (Orucu, 6). Sharia law, as a moral code and religious law for Muslims; addresses various perspectives of human activities such as economics, crimes and politics, as addressed by secular laws, and it seeks to differentiate intentions, interactions and decisions between those that are good and those that are bad (MacEoin and Green, 2). Just like the secular laws, Sharia code of ethics touch on various interactions of the human race giving the prospects and punitive aspects whenever the codes are breached, though from the secular observation of Sharia being a religious law, it has provisions that make the laws holistic in guiding and governing human interactions making it fall under and satisfy individual legal systems. Economically, just like Christian finance, Sharia economics presents the economic systems that conform to the Islamic scriptures and traditions; behavioral norms and foundations, Zakat tax as the basis of Islamic fiscal policy and other economic provisions that holistically covers the economic and finance sector (Bonner, 397). Though close and similar to the secular and other traditional laws, in countries that there is no Islamic Legal System, disputes related to Islamic Financial Transactions can lead to outcomes that contradict Sharia Principles.
Sharia principles like the secular laws have provisions that govern the Islamic Investment Funds; where investors pool their surplus money for the purpose of its investments to earn profits, Halal, but governed and in strict conformity with Sharia laws, and the subscribers receive certification entitling their pro- rated profits accrued from the fund. The Islamic banking phenomenon is based on sector of profitable for investor that represents growth for positive reputation and responsible management, and by fueling growth that is necessitated by increasing demand stimulated by rising number of Muslims in common law and civil law countries (Imady, Omar and Hans, pp.4-6). The conflict is bound to occur especially on the business ethics provided for by Sharia laws in relation to these countries’ provisions whereby the Islamic economic systems are neither socialists nor capitalist, conflicting interests of natives and the economic outlook of these countries. For instance, Sharia provides for Zakat; a practice of charitable giving by Muslims based on the accumulated wealth, and obligatory to all that are able to do so, contravenes with capitalists economies where in most cases taxation is mandatory to all irrespective of economic background and/ or social class. This would further lead to conflicts especially if certain sections of Sharia have to be incorporated in these countries’ laws such as contractual agreements and financial transactions due to different expectations from both sides and the conflict to the national interests.
Capitalist societies/ economies rely on creation of value which can be tangible, for physical goods and/ or intangible for services; which involves transactions that mutually benefit the parties, the consumer gets the added value to the product/ service, and the retailer or the producer gets the entrepreneurial profits and royalties which may include interest on shares. To the contrary, the Sharia provisions for legal entity or a business that is Halal as a company that does not borrow money on interest and/or keeps their surplus in interest bearing accounts; and that one being a shareholder of such a company becomes a Sharik, agent for the partners in the matters of the joint business (Karim, pp.12-13). This provision will contravene with majority of capitalistic societies whereby economic hardships and inequalities are inevitable; necessitated by the national interests based on these economic ambitions of capitalism for competition and effective resource mobilization, and the personal responsibility of poverty eradication at individual level may not apply. For instance, majority of companies in socialist and capitalists’ societies are financed on basis of interest irrespective of the partnership and veto powers of the partners (Mishkin and Apostolos, 8), considered a major sin for the Islamic Legal System, and contravenes with the principles of equity fund as provided for by the system which classifies business entities that have grown based on interests as impure and they do not recommend their followers to invest in them.
Islamic transactions that involve interests at a larger scope have conditions that do not move along with the customary laws and ethics of businesses such as growth, expansion and limits and/or autonomy of charity. For instance, for companies that are in Halal business and they include interest account to their income statements, according to the Islamic Financial transactions 5% of the dividends should be channeled to charity (Krichene, pp.118-120), a contravention of the customary business ethics whereby the shareholders should receive their dividends in full and share their income in the channel of their choice. In addition, the complexities of Islamic law in utilization of commercial disputes make it susceptible to inter- state conflicts whereby for example, in commodity and Injarah funds, the ownership of certificate, Sukuk; shows the ownership of the tangible aspect of the fund and not the liquid or the debt aspects of the commodity, making the ownership and commercial aspects fully negotiable and opens the window for purchasing or selling in the secondary market (Askari, pp.2-3). Countries without Islamic Legal System may not incorporate all the clauses of these transactions and ownership in that whenever the Muslims in these countries want to practice this kind of exchange and the commercialization aspects, they will be barred by the institutional policies that are pegged on socialism and capitalistic goals.
Majority of these countries appreciate the importance of trade, just like the Islamic law, but the perspective and goals vary in that Islam encourages trade to reduce the gap between the poor and the rich whereas these economies may be involved in trade for individual financial gains. Islamic financial transactions prohibit Usury, practice of making unethical loans based on the interest rates factor; majority of the transactions are intended for trade but not for taxation, selfish interests on the business arena such as grabbing, and hoarding of wealth or food substances for the speculative purpose is prohibited (Malkawi, pp.11-13). Policies in majority of these countries will directly contravene with the Islamic Financial Transactions more so on the taxation aspects of trade for the development of the economy, loaning facilities for institutional growth and exploitation of natural resources (Tripp, 9), and implementation of these policies contradicts with majority of Sharia Principles.
Countries are governed by their own constitutions; designed to incorporate the needs and aspirations of the citizens irrespective of the gender, religion or race, and by incorporating Islamic Legal Systems in their constitutions or governance patterns will enhance holistic development of the society putting into account that the variations by Islamic law are significant in the short run but benefits are overwhelming in the long run for individuals and economy at large.
Krichene, Noureddine. Islamic Capital Markets: Theory and Practice. New York: Wiley, 2012. Internet resource.
MacEoin, Denis, and Green, David. Sharia Law or ‘one Law for All?’. London: Civitas, 2009. Print.
Karim, Shafiel A. The Islamic Moral Economy: A Study of Islamic Money and Financial Instruments. Boca Raton, Fla: Brown Walker Press, 2010. Print.
Örücü, E. Mixed Legal Systems at New Frontiers. London: Wildy, Simmonds & Hill, 2010. Print
Bonner, Michael. “Poverty and Economics in the Qur’an.” Journal of Interdisciplinary History. 35.3 (2005): 391-406. Print.
Imady, Omar, and Hans D. Seibel. Principles and Products of Islamic Finance. Halle (Saale: Universitäts- und Landesbibliothek Sachsen-Anhalt, 2009. Internet resource.
Tripp, Charles. Islam and the Moral Economy: The Challenge of Capitalism. Cambridge: Cambridge University Press, 2006. Print.
Malkawi, Mohammad. Fall of Capitalism: And Rise of Islam. Bloomington, IN: Xlibris, 2010. Print
Mishkin, Frederic and Apostolos Serletis. The Economics of Money, Banking and Financial Markets. Toronto: Pearson Addison Wesley, 2011. Print.
Askari, Hossein. The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future. Singapore: Wiley, 2010. Internet resource