The Influence of Old Islamic Law Rules over the Contemporary Insolvency Procedures in Shari’a Countries

Abstract

This contribution outlines the main characteristics of insolvency rules under “classical” Islamic law, and then makes a comparison with the modern procedures in some Shari’a countries. The conclusion based on this comparison is, first, that nowadays rules are still heavily influenced by the classical concepts of Shari’a law, and, second, that this influence makes the system of insolvency highly outdated and ineffective. Thus, in general the insolvency procedure is hardly ever used in the Islamic world, with the parties preferring other means to resolve any issues arising from the default of one of them. Any modernization of the rules has to go through 'creative’ interpretation of the primary sources of Islamic law, an exercise that was already conducted with respect to the rules on Islamic finance.