Mahyuddin Khalid firstname.lastname@example.orgISLAMIC FINANCIALLEGAL FRAMEWORKLEGAL DOCUMENTATION FOR ISLAMICBANKING AND FINANCE
CONTENT2 INTRODUCTION BASIS OF DOCUMENTING AN AGREEMENT RULINGS IN DOCUMENTING AN AGREEMENT THE IMPORTANCE OF LEGAL DOCUMENTATION CONCLUSION
INTRODUCTION3 The Islamic banking and finance industry has become more advanced and complex, the main basic safeguard is to transact all products in written form with all parties concerned. The Islamic fiqh also recognize written contract as valid although not as strong as its proponent to oral contracts. It is importance of have legal documentation or written contract drawn up, agreed a executed by all parties concerned to avoid conflicts and injustice not just to aggrieved party but to the industry, the people and Islam as a whole.
BASIS OF DOCUMENTING AN AGREEMENT4 In practice and by law, all agreements whether given in writing or by word of mouth, are within certain exceptions of equal. For the sake of evidence, however, it goes without saying that it is appropriate to have agreements drawn up in writing. Islam is also equal to the same principle and this type of document is called al-sakk. Al-sakk refers to documents involving the written documentation of a transaction involving the terms conditions of an agreement or the action of transferring a property by an individual. Documenting agreement is one of the principle in Islamic contract law. It derived its basis in having written contract in any transaction from Al-Quran
RULINGS IN DOCUMENTING AN AGREEMENT5 Allah SWT has commanded that all transactions involving future payment or future consideration must be reduced to writing. The Muslim jurists differed whether the word has the effect of obligatory (wajib) or voluntary option for parties in such transaction to put in writing on whatever agreed between them. It can observe the importance placed by Shariah in clearly expressing the intention of any party or parties to enter a contract and putting all that has been agreed in a written form of documentation which in return: Binding and has legal effect Enforceable in law Able to be referred back in the event of variation or determination of the transaction
RULINGS IN DOCUMENTING AN AGREEMENT6 Majority of Muslim jurists have placed the status of recommendation as to the writing of contracts in transaction of fixed future obligation. Later Muslim jurists have emplaced importance to documenting such transactions It is based from the observation that theres need to document those transaction due to the complex and sophisticated nature of the contract. This is line with the principle- as Islamic law or Shariah which has been upheld and proven as universal, appropriate and be fitting with any generation. Documentation is important to safeguard the IFI from being labelled injustice or equivalent to the conventional banking and financial practice.
THE IMPORTANCE OF LEGAL DOCUMENTATION7 The importance of documenting all transactions in Islamic and Finance is so crucial at this period of time. Opinion by the earlier majority Muslim jurists can only be employed only to those normal day to day transaction. With regard to Islamic Banking and Finance products, legal documentation is crucially required and it can be seen from the following reason: To Comply with Shariah Principle and Junction Laid Down in the Surah Al-Baqarah verse 282 To prevent doubt among parties Requisites of Being Shariah Compliant and the Malaysian Law
TO COMPLY WITH SHARIAH PRINCIPLE AND JUNCTION8 This injunction is interpreted as a recommendation by majority Muslim jurists. Later Muslim jurists have placed documenting future transactions as crucial and obligatory to parties involved. Islamic Banking and Finance has tremendously changed and become as complex and advanced. Muslim jurists has differed their views from the majority and placed importance in documenting the transaction. This current view should be followed and adhered to by all parties.
TO PREVENT DOUBT AMONG PARTIES9 Allah SWT’s verdict clearly stress on having a documentation as proof and evidence of an agreement to transact on certain terms and conditions which binds parties or their/successors in the future. When there is a written contract: Doubts as to the scope and limit of parties’ duties, obligations and liabilities may be dispelled. May be used and tendered by the parties in the court or arbitration proceeding, provided that it is valid according to the law, Any risk in a transaction can be minimized to the lowest extend as parties may wish and agreed to. Without legal documentation, aggrieved party may find themselves left in a lurch without getting back any redress, remedy or damages as they have nothing as proof to the existence of the contract.
REQUISITES OF BEING VALID AND ENFORCEABLE10 Key elements for validity and enforceability of the legal documentation are: Compliance with the Shariah principle to ensure that all the terms and conditions of the transaction has all the characteristics of being in line with the Shariah so that it ensures acceptance, validity and enforceability from the Islamic law. Compliance with the existing laws of the country The documentation must adhere to the laws of the country to determined the status of the document in the eyes of the law. Such document must get its validity to enable it to be tendered as evidence in any courts. Must be structured in manner to be enforceable in the courts The documentation should also comply with the Shariah principles In drafting Islamic contracts should avoid using terminologies which is conflicting with the Shariah principle The structure of the document must adhere to Shariah principles to avoid conflict as to the terms and conditions in the contract.
FUNDAMENTAL DIFFERENCES11 Islam has prohibited interest and permitted trade - no loan term in Shariah documents The Islamic finance legal documentation must emphasize the spirit of the transaction The lawyer must ensure: The contract free from any elements forbidden by Islam Exercise the ethics and integrity of and not to simplify things or try to cheat Must rank his obligation to Allah SWT above his obligation to his clients That legal documentation should reflect the contract as intended by the contracting parties This would give rise to evidence of the contractual intent and content by the parties involved and the agreed terms and conditions set forth.
FUNDAMENTAL DIFFERENCES12 The terms and conditions in the document must use past tense Muslim jurisprudents (fuqaha’) have agreed that the contract should be expressed in the past tense by both parties. There is no agreement on the use of other tenses, like the present indicative or the imperative. The importance in the language also signify whether it is a mere promise or a contract. The Mejelle provided that the use of future tense indicates mere promise is not binding on the party making it even if it is breached, the party cannot enforce it while the use of past or present tense leads to binding contracts. That there should be no jumbling together of multiple contracts This should be the way in drafting Islamic contracts to avoid dubiousness or uncertainty of the Shariah principles applicable in an Islamic Banking and Finance transaction.
RATIONALE13 Rationale of having legal documentation to bind parties in an Islamic Banking and Financial transaction is: To enable us to meet the religious requirements of Muslims. The documents evidencing the transaction of Islamic nature would be different in its principles and objectives and to enable all Islamic principles of justice and fairness is duly documented. To differentiate and make clear the principles of Shariah in Islamic banking and finance. All parties would focus on accuracy & integrity in the terms and conditions in the documentation process.
CONCLUSION14 It is important in documenting transaction of future debts or obligation. No matter the majority muslim jurists are in favour of placing the Quranic injunction as only an option to parties involved, in current Islamic banking and Financial practice, it is crucial that transaction be put in writing. It is wise and well prepared if parties reduce whatever terms and conditions they have agreed to writing.