A Critical Analysis of the Dispute Resolution Mechanisms in the Islamic Finance Industry in Malaysia

Book excerpt: With the increasing boost to the Malaysian Islamic finance industry and the sophistication experienced in the industry with regards to product development, there is a consequential downside of such enviable achievements, which is the gradual surge in the number of disputes involving Sharī'ah compliant transactions. In order to propose a consolidated framework for dispute resolution in the Islamic finance industry in Malaysia, it is important to critically analyse the existing dispute resolution mechanisms in the Islamic finance industry in Malaysia. There seems to be over-dependence on civil law institutions, no thanks to the Malaysian colonial heritage, in issues involving Islamic finance law and regulation. It thus appears that there is a systematic neglect of some important principles of Islamic dispute resolution. Thus, even as other mechanisms have been identified by many researchers and efforts are being geared currently towards standardising these mechanisms, their use is still very much at the minimal level. This has led to the belief in some quarters that litigation is the only model of dispute resolution in the Islamic finance industry in Malaysia. This study adopts a doctrinal legal method in examining the relevant Islamic dispute resolution mechanisms that are unique to Islamic finance disputes as well as a SWOT analysis in analysing the strengths, weaknesses, opportunities and threats of the existing mechanisms for dispute resolution in the Islamic finance industry in Malaysia. Finally, the research proposes for the consolidation of the mechanisms for a sustainable industry that will make Malaysia a choice forum for dispute resolution. The findings of this research reveal that the preference of Malaysian Islamic financial institutions for litigation as a means of dispute resolution has relegated other sustainable processes of dispute resolution to the background and made them irrelevant in the Islamic finance industry. This is in line with the hypothesis of the research that the continued preference for litigation as a means of settling disputes in Islamic finance industry is not sustainable due to the paradigm shift in dispute resolution involving financial matters globally. The research is therefore unique in its content value because although a lot of research has been conducted on the different dispute resolution mechanisms available in the Islamic finance industry in Malaysia; none has conducted a SWOT analysis on any of the mechanisms. It is believed that the SWOT model will help the Islamic finance industry understand the relative relevance of other ADR processes and make them relevant as mechanisms for resolving Islamic finance disputes. In the end a consolidated dispute resolution mechanism model is proposed for a better handling of Islamic finance disputes.