Litigation or Arbitration for Resolving Islamic Banking Disputes

When investors decide to deal with Islamic banks, one of their main concerns is to ensure their businesses are protected in the case of disputes arising. For this reason, developing a good legal framework for resolving disputes is crucial to strengthen the position of Islamic banks in the global financial market. However, the unique nature of Islamic financial products and transactions requires that the disputes arising from this sector should not be dealt with by means of conventional laws and courts (litigation). It can be said that current practice, where Islamic banking and finance disputes are resolved by litigation with lopsided judgments is counterproductive to the practice of Islamic banking and finance. This article therefore explores the problems associated with resolving Islamic banking disputes through litigation and proposes arbitration as an alternative method for establishing a legal framework for dispute resolution in countries where Islamic banking is implemented.