Compliance of South African Legal and Financial Instruments with Shariah Law
Date
2012-01-19
Authors
Surtee, Taariq
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Abstract
Islam, one of the major religions in the world, forbids the use of interest as a
wealth generation mechanism. Instead, Islam promotes the idea of trade where
wealth is created via profit or for services rendered. As a result of these
teachings, banking and finance models based on Shariah Law were developed
in countries ruled by Shariah Law.
Regardless of which country Muslims live in, they all ascribe to the need of
shariah compliant banking services. This need has expanded shariah banking
services to many countries including South Africa. In South Africa, studies have
shown that while a large percentage of the population know about shariah
banking, a far smaller percentage are willing to use the services. This paper
reviews the products for compliance in South Africa.
Since Shariah Finance is based on a foreign judicial system, a full investigation
of the legal system was conducted. This system was then compared to South
Africa’s legal system to assess the similarities and differences concerning
business transaction law. Once compliance was established, the research
turned to in-depth interviews to discuss the differences found in the
implementation of Shariah Finance in South Africa.
The key findings of the paper are that South African business law allows for
stricter shariah observance. However, in implementation, a few practises seem
to contravene Shariah Law. While fractional reserve banking is an
internationally adopted model that cannot easily be replaced other
contraventions may be addressed by observing international trends and revising
current business models. Transparency of operations and review of business
models could support an increased acceptance of Shariah Finance in South
Africa.
Description
MBA thesis - WBS
Keywords
Shariah compliant banking services, Banks and banking, Shariah law