Islamic Principles Governing International Trade Financing Instruments - A Study of the Morabaha in English Law

Abstract

This article highlights and examines the difficulties Islamic banks and traders have when attempting to apply Islamic principles to a cross border financing transaction which falls to be dealt with by English law. It is not unusual for many an Islamic financing institution to provide for a choice of law clause in the following manner "this contract shall be governed by English law subject to the Glorious principles of Sharia." In Bank Shamil of Bahrain v. Beximco [2004] 4 All ER 1072 which involves the use of a Morabaha agreement, the English Court of Appeal had occasion to deal with just such a clause. This article examines the English court's approach to the interpretation and application of such a clause. The article also explore critically, in an English legal perspective, the problems an Islamic bank could face when attempting to protect itself from being exposed to the risks not customarily attendant in a conventional letter of credit arrangement. It critiques the English court’s approach to dealing with the wider issue of whether and to what extent, Islamic principles could and should be accommodated in an international trade finance context.

Keywords: Islamic Finance, International Business Law, English law, Morabaha, choice of Islamic law