Islamic Finance: A Corollary to Legal Pluralism or Legal Diversity in South Africa and the Netherlands?

Abstract

In this contribution we discuss the position of Islamic finance in South Africa and the Netherlands in the light of legal pluralism and legal diversity in each legal system. Islamic finance is based on Islamic law, which is a set of moral and religious principles. According to Islamic law, the payment and receipt of riba (interest) and gharar (contractual uncertainty) are forbidden. Consequently, alternative Islamic finance contracts are structured where the financier makes a profit either through trade in tangible assets or through a profit-and-loss-sharing arrangement, instead of making profit through charging interest.

Keywords: Islamic finance, riba, gharar, legal pluralism, legal diversity

JEL Classification: K19, K34, E50