Court referral and Nigeria's Financial Regulation Advisory Council of Experts (FRACE)

Abstract

Purpose -This paper aims to highlight resolution of Islamic finance dispute by common law-oriented courts in Nigeria with respect to Sharīʿah non-compliance and legal risks thereof, as well as the lesson to learn from Malaysia in that regard. This is with view to ensuring Sharīʿah compliance and legal safety of Islamic finance practice as prerequisites for sustainability of the Nigerian Islamic finance industry.Design/methodology/approach -A qualitative method was used; interviews were conducted with different categories of experts and primary data collected in relation to Sharīʿah non-compliance and legal risks in adjudicating Islamic finance dispute by civil courts and the role of expert advice as basis for court referral to Financial Regulation Advisory Council of Experts. A doctrinal approach was adopted to analyse relevant legislative provisions and content analysis of secondary data relevant to applicable provisions in matters of finance before civil courts.

Legal and Sharīʿah non-compliance risks in Nigerian Islamic finance industry: a review of the literature

“…A key legal risk here is the unenforceability of FRACE/ACE decision or ruling before court of law and the fact that rulings of the Sharīʿah governance bodies are immaterial before the courts. This risk could result in reversing an Islamic finance business already sanctioned as Sharīʿah compliant by FRACE and, in the worst case, even declaring a non-Sharīʿah compliant transaction as enforceable and vice versa (Mustapha et al, 2019). This inimical to end-to-end Sharīʿah compliance, which is essential for Islamic finance to be truly Islamic in accordance with its principles.…”

“…By law, therefore, Islamic law or Sharīʿah issue is always considered a fact to be proved before these courts by expert evidence or witness [10]. This is always subjective and adds to the uncertainty and enforceability issue of Sharīʿah rules or Islamic finance principles before the courts (Mustapha et al, 2019). Apparently, taking this into account, the Federal and State High Courts would attempt to resolve or determine the Sharīʿah issue in Islamic finance matters in accordance with the rules of statutes or common law and equity that govern practice and procedure before them.…”

“…However, it is discretely asserted that Islamic banking (a component of Islamic finance) has been supposedly envisaged by Nigeria's principal banking legislation, the Bank and other Financial Institutions Act (BOFIA) 1991, under Sections 23 and 66 thereof, in the guise of a "profit-loss sharing" type of bank (Central Bank of Nigeria, 2011;Ishaaq El-Mubarak and Mohamed, 2019;Ishaaq El-Mubarak et al, 2020). Even though "profit-loss sharing" is an important feature of Islamic finance business, it is argued that the BOFIA does not contemplate this "bank" as an Islamic one (Mustapha, 2015;Mustapha et al, 2019). So far, there is no court interpretation or legislative amendment of the provision to the effect that the "profit-loss" sharing bank provided by ss.…”

“…They would not establish legal standards necessary for optimal operations of Islamic financial services industry in a nation's financial system (IMF, 2017, p. 40;Aliyu et al, 2017, p. 458;Augustine, 2017). Moreover, guidelines are not as potent as substantive statutes in giving weight to and addressing the idiosyncrasies of Islamic finance business practice (Oladimeji et al, 2015;Aliyu, 2014), Mustapha et al, 2019;Ishaaq El-Mubarak et al, 2020). Laws are primarily to provide a legal basis for the system and thereafter details on the operations of the laws on its practical subjects can be addressed through guidelines if the law so provides.…”

Shariah Compliance in Islamic Economics: A Bibliometric Analysis

“…Second is shariah compliance in the non-bank financial industry. Several issues were discussed, such as (1) it is the foundation of the assumption, (2) it is the measurement for Islamic values, and (3) it is the co-factor that affects the performance of non-bank financial institutions (Ahmed & Farooq, 2018;Hazny et al, 2020;Kasim, 2012;Mustapha et al, 2019). Third is shariah compliance in the industry in general, which includes sets of issues as follows:…”