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Towards restructuring the legal framework for payment system in International Islamic trade finance

Oseni, Umar Aimhanosi (2012) Towards restructuring the legal framework for payment system in International Islamic trade finance. In: 5th International Conference on Islamic Banking and Finance: Risk Management, Regulation and Supervision, 6th - 8th October, 2012, Amman, Jordan. (Unpublished)

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Abstract

Purpose – The purpose of this paper is to examine the current legal framework for payment system in international Islamic trade finance vis-à-vis the new regime introduced by the Uniform Customs and Practice for Documentary Credits (UCP) 600 as well as the Sharī'ah Standard on Documentary Credits issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and Sharī'ah Resolutions of selected Sharī'ah Boards of Islamic financial institutions. Design/methodology/approach – A partial comparison of both the UCP 600 and the Sharī'ah framework for documentary credit is given through the content analysis of relevant sources. Findings – The AAOIFI Sharī'ah Standard on Documentary Credits as well as other applicable Sharī'ah resolutions of Islamic financial institutions does provide a good framework for a Sharī'ah-compliant documentary credit system, which is unique to trade in Islamic finance products, but there is scope for further improvement taking into consideration the two possibilities proposed – harmonization or bifurcation of rules. Research limitations/implications – This study focuses only on UCP 600 and the Sharī'ah framework on Documentary Credits though bearing mind that there are other frameworks for documentary credit system such as the International Standby Practices (ISP98) and letters of credit issued under Article 5 of the New York Uniform Commercial Code. Practical implications – Islamic financial institutions should implement the provisions of the AAOIFI Sharī'ah standard on documentary credits but may require a different framework for international trade financing involving both Islamic banks and conventional banks. Originality/value – Though few studies have been conducted on Sharī'ah issues regarding the application of the documentary credits, this seems to be the first time where a more proactive step is taken to propose two different frameworks for transactions involving Sharī'ah compliant financing.

Item Type: Conference or Workshop Item (Full Paper)
Additional Information: 6807/31312
Uncontrolled Keywords: International trade finance, letter of credit, documentary credit, UCP 600, Islamic finance
Subjects: H Social Sciences > HG Finance > HG1501 Banking
H Social Sciences > HG Finance > HG3691 Credit
K Law > K Law (General)
K Law > KBP Islamic Law > KBP1 Islamic law.Shariah.Fiqh > KBP173.25 Islamic law and other disciplines or subjects
Kulliyyahs/Centres/Divisions/Institutes: Ahmad Ibrahim Kulliyyah of Laws > Department of Civil Law
Depositing User: Dr. Umar Aimhanosi Oseni
Date Deposited: 14 Aug 2013 18:10
Last Modified: 14 Aug 2013 18:10
URI: http://irep.iium.edu.my/id/eprint/31312

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