INCONVERTIBILITY LOSS AND MURABAHA: A RECOVERY OPTION FOR ISLAMIC POLITICAL RISK INSURERS

Authors

  • Mohamed El-Fatih Hamid Emeritus Professor, Faculty of Law, University of Khartoum, Khartoum, Sudan
  • Mirghani Hassan Legal Consultant, Violaweg 11/A, 1220, Vienna, The Republic of Austria

DOI:

https://doi.org/10.33102/mjsl.vol11no2.435

Keywords:

Murabaha Transaction, Political Risk Insurance, Currency Inconvertibility, Export Credit Insurance

Abstract

This paper attempts to illustrate the primacy of the Shari’a-compliant murabaha transaction as a means of inconvertibility loss recovery by Islamic political risk insurers.  In practical terms, the risk most likely to occur in an underdeveloped Muslim country is the risk of the local currency becoming inconvertible because of a certain action or inaction by the authorities of the host country which is the destination of an export trade transaction, or a foreign direct investment covered under a political risk insurance policy. The political risk insurance (PRI) operator most concerned with the subject of this paper is the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), a member of the Islamic Development Bank (IsDB) Group.  Where the PRI operator is established within the auspices of a lending agency which lends in local currency, and provided that the necessary legal arrangements are in place, the PRI’s local currency holdings could be passed on to the lending agency in the host country and the foreign currency equivalent thereof paid over to the PRI operator at its head office. In countries where a lender is not extending local currency financing and a speedy economic recovery is not expected, an attractive alternative for a PRI operator, as the authors argue, is the utilization of the local currency in murabaha transactions. PRI operators’ apprehension about the risk of inconvertibility finds expression in denial of the inconvertibility coverage altogether.  Where this is not the case, a PRI operator may impose recovery ceilings, demand the expiry of extended waiting periods, as well as compliance with a variety of other conditions prior to recovery. This paper argues that such measures are self-defeating. A Shari’a-compliant PRI operator is necessarily established to provide coverage against commercial and non-commercial risks in poor Muslim countries. To deny or restrict inconvertibility risk coverage in such countries is unacceptable. Murabaha is a panacea for currency inconvertibility: it is the most popular form of Islamic financing in the world, it is easy to structure, and its profits are almost certainly rewarding. While the risk of non-payment of the price by overseas buyers of Muslim country exports is minimal, risks associated with murabahacould be further minimized by means of export credit insurance coverage by local export promotion agencies.

Downloads

Download data is not yet available.

References

Abdelrahman, A. Y. (2019). Sukuk: A critique of experience and their possible developmental role in Muslim countries. International Journal of Islamic Economics and Finance Studies, 5(1) 1-19.

Abuserhan, A. (2016). The principles of subrogation in commercial and Islamic insurance: a comparative study. Dirasat: Shari’a and Law Sciences, 43(4), 1443-1454.

Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). (2015). Accounting, auditing and governance standards for Islamic financial institutions. Dar Al-Maiman: Manama.

Castellian v. Preston (1883) 11 Q.B.D. 380.

Caycedo, S. (2018). Foreign direct investment in developing countries: A blessing or a curse? Yale Environment Review. Retrieved from https://environment-review.yale.edu/foreign-direct-investment-developing-countries-blessing-orcurse (accessed 28 August 2020).

Claessens, S. (1995). The emergence of equity investment in developing countries. World Bank Economic Review, 9(1), 1-17.

Dudley, R. (2003). Fire insurance in Dublin 1700–1860. Irish Economic and Social History, 30(1), 24-51.

Financial Accounting Standard 11: Istisna’a and Parallel ‘Istisna’a’. (2015). In Accounting, auditing and governance standards for Islamic financial institutions. Dar Al-Maiman: Manama.

Globe and Rutgers Fire Insurance Company v. Truedell (1927) 60 Q. L. R. 227.

Harper, M. (1997). Partnership financing for small enterprise: some lessons from Islamic credit systems. London: Intermediate Technology

Harbhajan S. Kehal. (2004). Foreign Investment in Developing Countries. United Kingdom: Springer

Ibrahim Shihata. (1988). MIGA and Foreign Investment: Origins, operations, policies and basic documents of the multilateral investment guarantee agency. The Netherlands: Martinus Nijhoff Publishers.

International Centre for Settlement of Investment Disputes (ICSID). (2002). ICSID Annual Report. World Bank Publications: Washington, D.C.

International Finance Corporation (IFC). (2022). IFC Annual Report. World Bank Group Publications: Washington, D.C.

Islamic Development Bank (IsDB) and The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC). (2020). Building bridges’: A technical report submitted to the G20 Meeting by the International Financial Architecture Working Group (IFA-WG). Retrieved from https://www.isdb.org/publications/a-technical-report-g20-international-financial-architecture-working-group-ifa-wg-stock-take (accessed 28 August 2020).

J. Godlewski, Turk-Ariss, R., & Weill, L. (2013). Sukuk vs. conventional bonds: A stock market perspective. Journal of Comparative Economics, 41(3), 745-761.

John Birds. (1997). Modern insurance law. London: Sweet and Maxwell.

Luke, D. (27 July 2020). Why trade matters for African development. Africa at LSE. https://blogs.lse.ac.uk/africaatlse/2020/07/27/why-trade-matters-for-african-development/

Maghrebi, N., Akin, T., Mirakhor, A., & Iqbal, Z. (2020). Handbook of analytical studies in Islamic finance and economics. Berlin, Boston: De Gruyter Oldenbourg. https://doi.org/10.1515/9783110587920

Mansuri, M. T. (2005). Islamic law of contracts and business transactions. Adam Publishers and Distributors.

Miah, M. D., & Suzuki, Y. (2020). Murabaha syndrome of Islamic banks: a paradox or product of the system?. Journal of Islamic Accounting and Business Research, 11(7), 1363-1378.

Muhammad al-Amine, M. A. (2006). Istisna’ (manufacturing contract) in Islamic banking and finance. Kuala Lumpur: A. S. Nordeen.

Organisation for Economic Co-operation and Development. (2002). Foreign Direct Investment for Development: Maximizing Benefits; Minimizing Costs. Paris: OECD Publications.

Sa’ad, Adam, A., Mohd. Napiah, M. D., & Ibrahim, U. (2016). The structural development of istisna sukuk from a Shari’ah perspective. ICR Journal, 7(2), 231-241.

Salcic, Z. (2014). Export credit insurance and guarantees. London: Palgrave Macmillan.

Sottilotta, C. E. (2013). Political risks: Concepts, definitions, challenges, Working Paper Series. School of Government, Luiss Guido Carli, 6, 1-20.

Takatoshi Ito, & Anne O. Krueger. (2000). The role of foreign direct investment in East Asian economic development. United States of America: University of Chicago Press.

Tlemsani, I., Marir, F., & Majdalawieh, M. (2020). Screening of murabaha business process through Quran and hadith: A text mining analysis. Journal of Islamic Accounting and Business Research, 11(9), 1889-1905.

United Nations Conference on Trade and Development (UNCTAD). (2007). World investment report.

United Nations Conference on Trade and Development (UNCTAD).

Published

2023-10-05

How to Cite

Hamid, M. E.-F., & Hassan, M. (2023). INCONVERTIBILITY LOSS AND MURABAHA: A RECOVERY OPTION FOR ISLAMIC POLITICAL RISK INSURERS. Malaysian Journal of Syariah and Law, 11(2), 202–214. https://doi.org/10.33102/mjsl.vol11no2.435

Similar Articles

1 2 3 > >> 

You may also start an advanced similarity search for this article.