The speech given yesterday by the Archbishop of Canterbury is interesting – to say the least. He goes in great depth into many of the issues confronted by those trying to give some effect to Sharia in Western jurisdictions. For those interested in the area a close read is worthwhile. While his focus, given his background, is on family and allied areas of law, he does touch on other issues.
This blog’s focus is on financial matters I would be interested in feedback on the questions of what real impediments are there in Western (and in particular Australian) law to allowing Sharia to govern financial arrangements? Given there is wide freedom of contract (within the regulatory limits) I am not aware of many contractual problems – provided the parties to a contract agree to the terms then generally the courts here will enforce it – regardless of whether it is founded on Sharia or not.
Regulatory and taxation issues seem to be the big ones – the banking regulatory system as it stands essentially does not cope with many Sharia compliant frameworks.
A good example of this is a Sharia compliant mortgage institution, which would not be allowed to treat its mortgages in the same way as interest bearing ones and would be effectively penalised with a much heavier capital load. This can be fixed, though – the IFSB regulatory framework could be allowed in the same way that the Basel II one has been.
Insurance would be another regulatory issue. A Takaful structure is also not coped with under current APRA standards – but there is no reason why they cannot be. In theory at least, because a Takaful insurance structure is truly mutual it should be less likely to fall over that a traditional Western insurer.
Funds management and superannuation I have dealt with previously, but as these can be dealt with under the “ethical” banner these should be the least trouble of all.
Taxation is an issue. Like the UK, the tax law is not set up here for many of the Sharia structures – with the bond-like instruments a particular example. Again, like the regulatory issues, and like the UK, these could be dealt with through fairly simple legislative changes.