Islamic Banks and Banking Law in the UK

Some points worth underlining from Aldohni’s analysis:

  • Islamic legal requirements for an institution to offer banking and financial services are compatible with English case law; lending/borrowing at fixed rate of interest which the former does not permit is not essential for banking business pursuant to the latter (209)
  • The main components of banking business at English law are those also offered by Islamic financial institutions: taking deposits, current accounts, and dealing with cheques and payment (209)
    • Current accounts in Islamic banks correspond to the case law: they start in credit, are general and flexible (209)
    • Overdraft can also be done in manner consistent with Islamic law (209)
  • ‘the legal description and classification of Islamic banks under the English law’ (chapter 4 title and contents)
    • Islamic banks more akin to commercial than merchant banks (77), but they still have distinctive characteristics making it an imperfect match
  • Indicates difficulties arise in regulatory/operational not the legal dimension
    • Deposit guaranty inconsistent with Islamic investment accounts (213); same is true with deposit insurance (214)
    • Lender of last result off limits to Islamic financial institutions (213)
  • compares Islamic legal system and common law (chapter 3)