National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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established the SAMA Committee in 1987 for resolving legal issues relating to banking
disputes. The establishment of the Banking Disputes Settlement Committee as an arguably
judicial body has since, in one way or another, avoided a confrontation with the question of the
legality of interest under Islamic Law.
In addition, the jurisdictions of these administrative committees are limited. For example,
SAMA is limited, according to Royal Order No 4/110 of 1988, to only covering disputes
concerning, for instance, letters of credit, various types of accounts, loans, and other purely
banking business activities. Its jurisdiction over banking disputes is exclusive, and at least one
party to the dispute must be a bank, whether foreign or national, and the nature of the bank
must fall within the term ’banking business’ as defined in Article 1 (b) of the Banking Control
Law (BCL). Thus, non-banking activities involving banks are subject to the jurisdiction of
courts and tribunals.
Both committees established under both Finance Companies Control Law (FCCL) and LSCIC
are new and no precedent cases have been presented recently. However, the Banking Disputes
Settlement Committee established under SAMA has been for a long time. In theory, the SAMA
Committee is obliged to apply the Shariah and its precepts to banking disputes, including the
prohibition of interest. However, in practice, the SAMA Committee has generally shown a
willingness to force recalcitrant debtors to honour the terms of their agreements which create
indebtedness, regardless of whether or not the agreement required the payment of monies in
the form of interest. It examines the various relevant documents and inquires if these
arrangements are in accordance with Saudi Arabian law. It will, however, take all reasonable
efforts to respect the agreement of the parties, even in the face of conflicts with the Shariah
(McMillen, 2000).
In terms of alternative dispute resolution, the Law of Arbitration issued by Royal Decree No
M/34, dated 24/5/1433 AH, has been improved and considers Shariah law as a corner stone
when issuing the decision. Also, there is the Saudi Center for Commercial Arbitration (SCCA)
established under the Council of Saudi Chambers.
Bankruptcy and Resolution of Banks
A separate insolvency and resolution framework for banks do not exist in Saudi Arabia (FSB
2105). The existence of Saudi insolvency comprises two statutory provisions: The Commercial
Court Law (CCL) issued by Royal Decree No. (M/2) Dated 15/1/1390H embeds clauses under
Chapter 10 to deal with insolvency cases and Royal Decree M/16 of 1416 deals with the Law of
Settlement Preventing Bankruptcy (LSPB). Both laws are applied on Banks, Finance and
Insurance companies. Recently, the regulator is working to introduce a new Insolvency Law
and has released the insolvency Law Policy (Ministry of Commerce and Industry). SAMA has
also interpreted Article 22 of Banking Control Law 1966 to deal with failing banks by either
merging a troubled institution with a sound bank or by shareholder recapitalization (FSB
2015).
According to a report issued by the World Bank, Saudi Arabia has reported a very low usage of
bankruptcy law systems (Uttamchandani, 2011). Furthermore, the insolvency laws are mainly
not compliant with international standards nor are they considered particularly effective by
the users. (Uttamchandani, 2011).