Shari'ah Non-compliance Risk Management and Legal Documentations in Islamic Finance

Introduction

Sharī`ah non-compliance risk is a unique aspect of Islamic finance that deserves specific focus. Research and studies should be dedicated to this topic in order to further expand its scope and depth, as it is still at its early stage and there is not much written about it. This book tries to lay down the first pillars and foundation in this emerging area of Islamic finance. Sharī`ah non-compliance risk means that the terms, conditions, and other related aspects agreed on in the contract do not effectively comply with the Sharī`ah rules and principles. In other words, the terms and conditions in the financial contract do not fulfill the Sharī`ah requirement, hence making the existing contract concluded invalid, or in need of rectification. It is very important to note that the risk management cycle and process should start from this point, because Sharī`ah non-compliance risk might be challenged at any point of the Islamic banking business activities, which may lead to legal conflicts, disputes, or litigations. Sharī`ah non-compliance risk may increase the risk portfolio of the Islamic Finance Industry (henceforth IFI), which may result in financial losses and reputational damages. In the context of this scenario, the present book tries to address this issue by discussing a few aspects related to the subject of Sharī`ah non-compliance risk management, which include but are not limited to the examination of legal documentations used in Islamic finance to make ...