National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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There are no separate courts that adjudicate disputes arising out of Islamic financial
transactions. Hence, federal or the local (Emirate) courts handle the disputes related to Islamic
finance just like any other dispute and treat them as other cases and adjudicate them under the
existing laws of the country. Since there is no fully-fledged Islamic banking law, and the
Banking Law has only a very brief mention of Islamic banking, the courts utilize whatever
relevant laws are available. Specifically, courts are likely to disregard Sharia elements in
contracts and instead apply the applicable UAE law. However, the courts can refer to the
Shari’a only when clear legislation and established customary business practices are absent
(Ahmed, 2016).
The UAE Civil Procedure Code, Federal Law No. (11) of 1992 governs arbitration related issues
under the following sections: Chapter (III) “Arbitration” - Articles 203 – 218; Chapter (IV)
“Execution of Foreign judgments” - Articles 235 – 238; and Chapter (V) “Execution procedures”
- Articles 239 – 243 (DIAC 2006). The major arbitration institutions administering arbitrations
in the UAE are: Dubai International Arbitration Centre (DIAC), The Abu Dhabi Commercial
Conciliation and Arbitration Centre (ADCCAC) and The International Islamic Centre for
Reconciliation and Commercial Arbitration (IICRCA). There are other regional arbitration
centres, in Sharjah and Ras Al-Khaimah, such as the Sharjah International Commercial
Arbitration Centre and the Ras Al-Khaimah Centre of Reconciliation and Commercial
Arbitration.
The DIAC was established by Dubai Chamber of Commerce and Industry in 1994 as the “Centre
for Commercial Conciliation and Arbitration” (Ali and Massey, 2013). DIAC has become the
busiest arbitration centre in the Gulf registering 413 new disputes in 2010 which leveled off to
390 cases in 2012 (Mohtashami, 2013, 1). However, no statistics could be found on the
percentage of the cases that are related to Islamic banking and finance. The Dubai based
IICRCA is dispute resolution forum specifically for the Islamic finance industry. It was
established to resolve financial and commercial disputes arising between financial or
commercial institutions or between such institutions and their clients or third parties through
reconciliation or arbitration in accordance with the principles and rules of the Islamic Sharia
(Ali and Massey, 2013, 7). While the IICRCA handles commercial disputes in the Islamic finance
industry from across the GCC as well as Malaysia, there is no information on how many cases
have been handled by it.
Bankruptcy and Resolution of Banks
There is no specific insolvency (bankruptcy) law in UAE and the government is planning to
introduce it year. Article 306 of the Federal Law No. 2 of 2015 on Commercial Companies
(Companies Law 2015) stipulates that companies can provide the methods of liquidation in
their Memorandum of Association. In case this is not done, then Chapter 2 of the law provides
the process of liquidation of a company. There is no separate framework of resolution of banks
if they declare bankruptcy which includes Islamic financial institutions.
Currently, there are no sound bankruptcy and insolvency regimes to deal with sukuk
instruments. Furthermore, the judiciary is, in its current state, not fully capable of dealing with
defaults in sukuk that are international in nature and require cross border resolution.