Legal and Sharīʿah non-compliance risks in Nigerian Islamic finance industry: A review of the literature

Mustapha, Zakariya and Kunhibava, Sherin Binti and Muneeza, Aishath (2021) Legal and Sharīʿah non-compliance risks in Nigerian Islamic finance industry: A review of the literature. International Journal of Law and Management, 63 (2). pp. 275-299. ISSN 1754-243X, DOI

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The purpose of this paper is to review the literature on Islamic finance vis-à-vis legal and Sharīʿah non-compliance risks in its transactions and judicial dispute resolution in Nigeria. This is with a view to putting forward direction for future studies on the duo of legal and Sharīʿah non-compliance risks and their impact in Islamic finance. Design/methodology/approach: This review is designed as an exploratory study and qualitative methodology is used in examining relevant literature comprising of primary and secondary data while identifying legal risk and Sharīʿah non-compliance risks of Nigeria’s Islamic finance industry. Using the doctrinal approach together with content analysis, relevant Nigerian laws and judicial precedents applicable to Islamic finance practice and related publications were examined in determining the identified risks. Findings: Undeveloped laws, the uncertainty of Sharīʿah governance and enforceability issues are identified as legal gaps for Islamic finance under the Nigerian legal system. The gaps are inimical to and undermine investor confidence in Nigeria’s Islamic finance industry. The review reveals the necessity of tailor-made Sharīʿah-based regulations in addition to corresponding governance and oversight for a legally safe and Sharīʿah-compliant Islamic finance practice. It brings to light the imperative for mitigating the legal and Sharīʿah non-compliance risks associated with Islamic finance operations as crucial for Islamic finance businesses, Islamic finance institutions and their sustainable development. Research limitations/implications: Based on content analysis, the review is wholly doctrinal and does not involve empirical data. Legal safety and Sharīʿah compliance are not to be compromised in Islamic finance operations. The review would assist relevant regulators and investors in Islamic financial enterprises to understand and determine the impact and potential ramifications of legal safety and Sharīʿah non-compliance on Islamic Finance Institutions. Practical implications: This study provides an insight into the dimensions and ramifications of legal and Sharīʿah non-compliance risks of Nigeria’s Islamic finance industry. This study is premised on the imperative for research studies whose outcome would inform regulations that strike a balance between establishing Islamic financial institution/business and ensuring legal certainty and Sharīʿah compliance of their operations. This study paves way for this kind of research studies. Originality/value: The findings and discussions provide a guide for regulators and researchers on the identification and mitigation of legal and Sharīʿah non-compliance risks in Islamic finance via a literature review. This study, the first of its kind in Nigeria, advances the idea that research into legal and Sharīʿah non-compliance risks of Islamic financial entities is key to mitigating the risks and fostering the entities and their businesses. © 2020, Emerald Publishing Limited.

Item Type: Article
Funders: Ministry of Higher Education Malaysia under the UM-INCEIF Islamic Finance Research Grant[MO010-2017]
Uncontrolled Keywords: Nigeria;Islamic finance;Legal framework;Sharah risk;Legal risk;Conflict of laws;Sharah non-compliance risk;Literature review;Judicial dispute resolution
Subjects: B Philosophy. Psychology. Religion > BP Islam. Bahaism. Theosophy, etc
H Social Sciences > HG Finance
Divisions: Faculty of Law
Depositing User: Ms Zaharah Ramly
Date Deposited: 28 Oct 2022 06:24
Last Modified: 28 Oct 2022 06:24

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