Sharīʿah Law in South East Asian (ASEAN) Region: Business and Religion – An Exploratory Introduction

By Jeong Chun Phuoc

Jeong Chun Phuoc holds a Master of Laws (“LLM”) degree from the National University of Singapore, Singapore and Bachelor of Laws (Hons) (“LLB”) from IIUM University Malaysia. He focused on comparative Sharīʿah and Civil law studies. He is actively advocating “Big Compliance and Big Law” as part of his wider “Lawnomics” framework for a better business world with relationship to Sharīʿah Impact Factor on business. Among his pioneering scholarship was the publication of his book titled Personal Data Protection: Cases and Commentary (a CLJ publication) and Revenue Law in Singapore and Malaysia, 3d ed., a LexisNexis publication. In these two works, he included an analysis on Sharīʿah compliance aspects.

He has given lectures at seminars for Bar Council (Majlis Peguam Malaysia) and Non-profit Organisations (NGOs). He currently lectures, trains, and teaches Business Law & Ethics, Corporate Law and Intellectual Property Law for Global Entrepreneurship, Research Methodology at Graduate School of Management and Sciences, MSU University in Kuala Lumpur, Malaysia, with comparative reference to Sharīʿah Impact Factor. He also occasionally conducts special ‘Beyond 360 Compliance’ workshops for business networks and strategic compliance paradigm for a Better Business World (BBW) with reference to Sharīʿah Impact Factor on entrepreneurship.

He has published on personal data protection, occupational safety and health, whistle blower protection, environmental law, intellectual property, to name a few in mainstream newspapers focusing on ethical business and sustainable development within “Big Compliance” framework with comparative reference to Sharīʿah Impact Factor in ASEAN and Mid-East regions.

Published November/December 2017

1. Introduction

This article presents a general broad-based view on Sharīʿah law as practiced and observed in South East Asian (ASEAN) region. Sharīʿah world view introduced in this article is not exhaustive but represents a practical perspective as it is in ASEAN 10 countries. As an exploratory article, it looks at certain Sharīʿah precepts within the local community; and provide selected observation on contemporary view of Syariah. It does not go into certain specifics, but suffice to say, it will present a general world view that is sufficiently practical for an outside audience-academic or business- to achieve an adequate level of understanding and appreciation of Sharīʿah law.

Sharīʿah means the ‘way/path’ – as the way revealed to Prophet Muhammad (as the last prophet). It is stated in the Muslim holy book Al–Quran as: “Then We put thee on the (right) Way of Religion: so follow thou that (Way), and follow not the desires of those who know not.”[Al-Quran, Surah Al-Jathiyah 45:18].[1] It is defined as "Islamic canonical law based on the teachings of the Koran and the traditions of the Prophet (Hadith and Sunna), prescribing both religious and secular duties and sometimes retributive penalties for lawbreaking."[2] Sharīʿah refers to God 's law in its quality as divine. Loosely used, it can indicate Islam, God 's religion. It refers to God 's law as it is with him or with his Prophet, or as it is contained (potentially) within the corpus of revelation.[3] In Islam, and under Sharīʿah law, God refers to Allah.

2. Introduction to Sharīʿah Law in ASEAN Region

Sharīʿah law refers to the moral codes and laws exemplified in the Al-Quran and supported by Traditions (Hadith) as practiced by the holy prophet Muhammad as the last messenger of God. Al-Quran is the word of God ('Kalamullah') i.e. Allah, it remains to be the most revered book of all books. Because Islam is not merely a religion; but a "Way of Life", it encompasses all aspects of human perspectives including criminal law ('Hudud'), civil law, commercial law, economic activities (Mu'amalah'), etc. In order to carry out the right way of life, Muslims are mandated to follow the teachings, regulations and moral principles of Sharīʿah law as ordained in the Al-Quran and Hadith sources. Generally, in ASEAN region, Sharīʿah law is observed at State level, and federal law generally gives legal cognizance to Sharīʿah law as practiced in the Muslim-based local communities especially in ASEAN’s sociopolitical and business landscape.

In mid-eighth century, emergence of new school of jurisprudence/thoughts (‘Mazhab’) developed Sharīʿah jurisprudence in line with new development in business and community issues. Key founders are Abū Hanīfah (d.767), Mālik ibn Anas (d.795), Muhammad ibn Idrīs al-Shāfiʿī (d. 820), and Ahmad ibn Hanbal (d. 855). Abū Hanīfah founded the school of Hanafi (‘Mazhab Hanafi’); Mālik ibn Anas set up the School of Maliki (‘Mazhab Maliki’); Muhammad ibn Idrīs al-Shāfiʿī established Shafii School (‘Mazhab Shafii’); and followed by Ahmad ibn Hanbal’s Hanbali School (‘Mazhab Hanbali’) respectively. “As God's eternal and immutable will for humanity,” Sharīʿah law and Muhammad's example (Sunnah), forms the cornerstone of worldly guidance for all Muslims. See Oxford Islamic Studies Online, Shariah (last visited Nov. 1, 2017).

3. Sharīʿah Law View of the World

The implementation of Sharīʿah Law seeks to achieve Five Objectives widely known as “Maqasid al-Shari‘ah” (Five Objectives).[4] The overarching five objectives advocate for an integrated approach in social harmony and overarching public interests (maslaħah) to uphold administration and establishment of justice (al ‘Adl’); ethics education and morality (al-Akhlaq’) in public and private domains; prevention of hardship on individuals and community and elimination of oppression.

In many practices, Sharīʿah law seeks to minimize difficulties faced by Muslims in daily affairs (personal or business) subject to accepted Sharīʿah practices and norms i.e. Sunni requirements. This is based on the principle extracted from holy book Al-Quran: “Allah intends every facility for you; He does not want to put to difficulties (Al Quran, Surah Al-Baqarah: 185).[5]

Consensus by Muslim jurists and scholars (‘Ijmak’) states that the “Maqasid al-Shari‘ah” (Five Objectives)[6] are considered to be primary motivation in the implementation of Sharīʿah law as a way of life. In ASEAN as a whole, “Maqasid al-Shari‘ah” (Five Objectives) is the basis for almost all policies and decisions made within commercial sphere (‘Mua amalat’). These five objectives advocated by Abû Ishâq ash-Shâtibî (died 790) in “Al-Mwafaqat fi Usul al-Ahkam” in the science of Usul al-Fiqh. “Maqasid al-Shari‘ah”(Five Objectives) are:

Al-Ghazali (d.111) explained that the Shari’ah’s purposes of creation are to preserve five things: religion, souls, mind, offsprings, and wealth.”

4. Sharīʿah Law as a Personal Religion in ASEAN

ASEAN comprises of 10 countries, namely Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam. Due to multi-racial social background coupled with Islam historical presence in the local communities, a dual-track legal system is practiced in countries such are Malaysia, Singapore, Indonesia, etc.

Malaysia observed a dual-track legal system comprising of civil courts and Sharīʿah Courts (Mahkamah Syariah). Sharīʿah Courts (‘Mahkamah Syariah’) have jurisdiction over Muslim community and Islamic affairs, and Muslims may be charged and tried on religious, family and minor Sharīʿah criminal offences/charges only. On the other hand, non-Muslims are excluded from Sharīʿah Courts (Mahkamah Syariah) because they come under the jurisdiction of civil courts. As a general rule, Sunni[12] is the official Islam in ASEAN as representing mainstream Islam. In Malaysia, Shia sect is considered as deviant, although Shias sect is considered legal in United States and elsewhere in other parts of the globe.

ASEAN Charter (entered into force on 15 December 2008) serves as a firm foundation in achieving the ASEAN Community by providing legal status and institutional framework for ASEAN. ASEAN Charter recognized national law – including Sharīʿah law – as practiced in all member States. Similar to UK and US jurisdictions (as two examples of major countries having significant Muslims community presence), Sharīʿah law in ASEAN region, is observed as Personal Law by Muslims population, including Malaysia and Singapore for that matter.

5. An Inclusive Religion in Multi-Ethics ASEAN

Sharīʿah law recognizes the rights and obligations of other races and seeks to be considered as inclusive and advocates pluralism – so long as it does not contradict the teachings and precepts of ISLAM/Sharīʿah law. As a whole, ASEAN 10 legal structure comprises of both civil and common law fabric; and Sharīʿah law as personal law within family law domain at State level as permitted by Federal law. Matters under personal law are inheritance, marriage and divorce, morality (Muslims who misses Friday, smoking, drinking or eating in the fasting month of Ramadan, etc).

In Malaysia, one issue that has been seen much debates in family domain in Court are apostasy cases such as Tan Sung Mooi (f) v Too Miew Kim (1994) 2 AMR 35, 1799, Shamala Sathiyaseelan v Dr Jeyaganesh C Mogarajah & Anor (2004) 2 CLJ 416, Lina Joy v Majlis Agama Islam Wilayah Persekutuan & 2 Ors 2005 [CA], Subashini a/p Rajasingam v Saravanan a/l Thangathoray 2007 [FC],[13] Siti Fatimah Tan Abdullah case,[14] and others. These cases have shown perceived tension between Sharīʿah law vis-à-vis Civil law provisions. For example, the perceived conflict as reflected in Section 51, Law Reform (Marriage and Divorce) Act 1976 and Guardianship of Infants Act 1961, etc.

6. Administration of Islamic Affairs

Administration of the Muslim/Islamic matters in ASEAN comes under the Administration of the Muslim Law.

In Singapore, for example, Administration of Muslim Law Act (Chapter 3) (Original Enactment: Act 27 Of 1966- revised edition 2009 (AMLA) (with effect 1968) defined and regulates powers and jurisdiction of three main Islamic entities, such as the Islamic Religious Council of Singapore (MUIS), Sharīʿah Court (Mahkamah Syariah) and Registry of Muslim Marriages. Muslim marriages are specifically regulated by the Islamic Family Law and Administration of Muslim Law. In Singapore, Administration of Muslim Law Act (Chapter 3) (Original Enactment: Act 27 Of 1966- revised edition 2009) is the applicable law. Singapore’s Administration of Muslim Law Act (Chapter 3) is an Act relating to Muslims and it makes provisions for regulating Muslim religious affairs, and to constitute a council to advise on matters relating to the Muslim religion in Singapore and a Sharīʿah Court.

For Muslim-related matters pertaining to Muslim marriage, divorce, and other related matters, section 35 of the Singapore Administration of Muslim Law Act applies and the Sharīʿah Court in Singapore has jurisdiction. Apart from this, National law applies and remains dominant and paramount. For example, national criminal law applies to all citizens, residents and visitors of Singapore, regardless of whether they are Muslim or non-Muslims.

On Sharīʿah matters, section 55 of Singapore Administration of Muslim Law Act (AMLA) provides for Appeal Board to hear appeals from decision of the Sharīʿah Court, Kadi or Naib Kadi. On any appeal, an Appeal Board may confirm, reverse or vary the decision of the Sharīʿah Court, exercise any such powers as the Sharīʿah Court could have exercised, make such order as the Sharīʿah Court ought to have made or order a retrial, or award costs if it thinks fit.[15]

7. Teaching Islamic Education in ASEAN

In ASEAN, only qualified and certified teachers are permitted to propagate and teach Islamic education in the respective ASEAN member countries.

In Singapore, for example, Islamic teaching refers to the provision of Islamic instruction in any subject to one or more persons who are not his or her family members.[16] In Singapore, a person must be certified/registered under Singapore Asatizah Recognition Scheme (ARS)[17] to be able to teach Islamic teaching to others. For graduates of Islamic studies from non-local universities, they are required to attend Singapore’s Certificate in Islamic Thought in Context program administered by MUIS Academy (as part of a full recognition under the ARS).

In other ASEAN countries, similar requirements are expected. In Brunei, for example, national law is observed. However, recent enactment of Hudud law (Sharīʿah Criminal law) has provided a new perspective on Sharīʿah Impact Factor (SIF) on multi-ethnic society in Brunei. Similar to Singapore, Sharīʿah law, has no negative impact on ease of doing business and in carrying out commercial activities in Brunei. Business owners, both local and non-citizens in Brunei and Singapore, are required to observe Sharīʿah law and local customary sensitivities within their business processes and procedures. The same applies in Malaysia.

In Malaysia, in marriage law domain, Law Reform and Marriage Act 1976 applies only to non-Muslim parties. However, the occurrences of a civil spouse converting to Islam have caused unintended tension within the community; and especially so, in ancillary matters such as custody of children, division of matrimonial property and payment of nafkah iddah (maintenance) and mut’ah (consolatory gift pursuant to divorce), etc.

8. Federal Constitution

Federal Constitution of all ASEAN countries guarantees freedom of religion. In Malaysia, Article 11 of the Federal Constitution provides that "every person has the right to profess and practice his religion." However, this is subject to other compliance requirements and both State and federal governments are empowered to "control or restrict the propagation of any religious doctrine or belief among persons professing the religion of Islam."

Federal Constitution provides that federal law takes precedence over State law. Issues of Islamic law are State matters, rather than federal matters. Federal Constitution under article 121(1)(A) demarcates jurisdictions between Sharīʿah courts and civil courts which provides, "the Courts referred to in Clause (1) shall have no jurisdiction in respect to any matter within the jurisdiction of the [Sharia] courts." This amendment has been perceived to have created unintended ambiguity about Sharia versus civil law that has not been resolved clearly.

9. Prohibition of Deviant Teachings

In Malaysia, the Malaysian government listed 56 sects of Islam as “deviant".[18] These 56 sects are deemed to be threats to national security. Sunni’s Islamic precepts, principles and practices are observed and enforced by local religious authorities. The government does not recognize marriages between Muslims and non-Muslims. Same sex marriages, i.e. gay and lesbian marriages, are not permitted and not recognized in Malaysia, Brunei and Singapore.

10. Enforcement of Sharīʿah Law, Rulings, Religious Edicts (Fatwa)

Enforcement of Syariah law are by both Federal and State authorities. At Federal level, it is the Federal Religious authorities and bodies; and at state level, state religious authorities and bodies. In ASEAN, this appears to be the general norm. In civil matters, Federal law shall prevail over all State laws.

In Malaysia, jurisdiction of both Civil and Sharīʿah courts are prescribed by Article 121 of the Federal constitution. National Fatwa Council is empowered by law to issue religious edict (fatwa) relating to both business and religious practices impacting Sharīʿah law. Fatwa is legally binding for Muslims, but its enforcement is another matter altogether. Federal constitution provides that Islam is a State matter, hence, any decision to comply with National Fatwa Council’s edicts lies with the State religious authorities/bodies.

11. Religious Harmony

In ASEAN, Federal government often seeks consultation with other NGOs and religious bodies to seek their view prior to the implementation of certain Shariah issues. This is of course not a mandatory requirement. Federal government often seeks understanding from Malaysian Consultative Council of Buddhists, Christians, Hindus, Sikhs, and Taoists (MCCBCHST), and its recommendations in the majority of cases pertaining to Sharīʿah issues.

For instance, in Malaysia in the State of Selangor, a teacher/preacher cannot give any talks/lectures unless he/she is accredited by the State Religious authorities/bodies i.e. JAIS to do so according to Selangor Islamic Religious Administration Enactment of 2003.[19] This requirement is similar to the position in Singapore and Brunei.

12. Legal Position of ‘URUF’ (Local Custom)

Although it is a general rule that Sharīʿah law applies throughout ASEAN region, in certain Malay-based communities, Sharīʿah or Muslim law will be applicable and modified by existing Malay custom. This is particularly true in Malaysia, Singapore, Brunei, and Thailand, and other ASEAN member countries to a certain extent. In Indonesia, Malaysia, and Brunei, customs to a certain extent, have legal implication on Sharīʿah practices.

In Singapore, as a practical example, in inheritance, section 112 and 115 of Administration of Muslim Law Act state that estate of any Muslim person shall be distributed according to the Muslim law, and subject to possible modification, where applicable, by Malay custom in Singapore.[20]

In Malaysia, every state enforces Islamic criminal law within state jurisdiction. At the State Legislative Assembly (SLA), each state is empowered to enact Islamic criminal law by virtue of item 1 of List II (State List) of the Ninth Schedule to the Malaysian federal constitution.

Civil criminal law is listed in item 4 of List I (Federal List) of the Ninth Schedule to the federal constitution. Most of these offences are those offences against the precepts of Islam as provided for under the Sharīʿah Courts (Criminal Jurisdiction) Act 1965 and Sharīʿah Courts (Criminal Jurisdiction) (Amendment and Extension) Act 1989 which applies to all states in Malaysia. However, the exception to enforcement of Islamic law: Section 2 of Sharīʿah Courts (Criminal Jurisdiction) Act 1965 provides two limitations:-(i) that Islamic criminal law shall only be enforceable on persons professing the religion of Islam (the same limitation is also provided in item 1 of State List); and (ii) that such jurisdiction shall not be exercised in respect of any offence punishable with imprisonment for a term exceeding three years or with any fine exceeding RM5,000 or with whipping exceeding six strokes or exceeding any combination thereof. Hence, for example, the state of Terengganu legislative assembly has passed the controversial Sharīʿah Criminal Offence (Hudud and Qisas) Enactment 2002 but this could not be enforced. This tension is more focused on family law domain, but has perceived to create creeping jurisdiction as discussed at a forum by imminent personalities.[21]

13. Sharīʿah Law at the Federal and State Jurisdiction

At the Federal government level, i.e. "Federal List" or First List set out in the Ninth Schedule of the Federal Constitution of Malaysia 1957, provides for federal jurisdiction. Sharīʿah issues fall under State jurisdiction. At the State government level, this is especially true, on the basis that Sharīʿah law is a matter that falls within state jurisdiction under “State List”, or Second List of the Federal Constitution of Malaysia 1957. Implementation of Sharīʿah law, particularly those having criminal elements, have from time to time, caused tension along State-Federal parameters. The religious pronouncement (Fatwa) by the Majlis Fatwa Kebangsaan may or may not be adopted by the States in Malaysia. Sometimes, a particular Fatwa by a State may not be the same with the position found in adjacent States in Malaysia. This tension is further aggravated in family disputes involving a Muslim spouse and the other non-Muslim spouse, for example, a non-Muslim husband who embraced the faith of Islam and the wife who decided to remain true to her non-Muslim faith. (See Article 121 (1a) of Federal Constitution of Malaysia).

14. Islamic Banking and Finance Practice

14.1. Prohibition of Interest (‘Riba’) under Sharīʿah Law

Riba, or 'usury/interest' is prohibited by Sharīʿah Law. Sharīʿah scholars categorized Riba into two main types: Riba al-nasi’ah, and Riba al-fadl. Riba al-nasi’ah refers to interest imposed on loans, and Riba al-fadl refers to the excess over and above the principle loan. See Qur’an (4:161): “That they took usury, though they were forbidden; and that they devoured men’s substance wrongfully; – We have prepared for those among them who reject Faith a grievously penalty.”

Equity-based financial products and services are golden keys in transforming the current economy into Ummah Economic Community (UEC). Riba has never been a driver of economic freedom and progress since the emergence of Industrial Revolution, and certainly does not cater to the altruism of IBF. The solution to Riba is trade and any supporting mechanism such as IBF.

In contrast to Riba, Sharīʿah law strongly supports the use of mudharabah and musyarkaat concepts as sustainable financing tools in the financing of regional trade and global Halal market commerce. These two approaches predominantly grounded on a profit and loss sharing basis are widely encouraged especially in financing businesses and entrepreneurial activities because it supports the development of real economy. On Islamic banking and finance, see Leo Desmond Pointon & Jeong Chun Phuoc, Revenue Law in Singapore and Malaysia: Cases and Commentary (3d ed. 2011). See also, Davis, M. K. Entrepreneurship: An Islamic Perspective, 20 Int’l J. Entrepreneurship & Small Business 63–69 (2013).

14.2. Islamic Banking and Finance (IBF): Operational Reality and Practice

Ever since Islamic Development Bank was established in 1975, as a venue in providing funds for investment projects in member states, in ASEAN- lead by Malaysia- IBF is gaining strong growth in the financial sector and capital market practice. One of the key objective of Islamic Banking and Finance is to develop a sustainable social community i.e. Ummah Economic Community (UEC) that could drive a globally Inclusive Economy for all the people of the world, regardless of race, belief and background. Sharīʿah view in supporting entrepreneurship and commerce is the fact that IBF is based on social justice motivation guided by compliance with Maqasid Sharīʿah. On concept of Islamic entrepreneurship see, Ramadani, V., Dana, L. P., Ratten, V., & Tahiri, S., The Context of Islamic Entrepreneurship and Business: Concept, Principles and Perspectives, 15 Int’l J. Bus. & Globalisation 244–261 (2015).

The Speech by Tan Sri Rais Yatim at International Council of Islamic Finance Educators - ICIFE (ICIFE) 2nd AGM (ICIFE, 2016) in Kuala Lumpur, Malaysia was inspiring for IBF (Islamic Banking and Finance) World. The Islamic World especially Organisation of Islamic Cooperation (OIC) Countries (including ASEAN) and lead by Malaysia, must forge a new IBF Identity Framework in promoting Sharīʿah Disruptive Innovation for IBF(s-IBF) as a viable alternative to the current global financial chaos. A chaos brought about (not just by oil market crush) but by total reliance on RIBA centric theory of economic progress since the catastrophic Great Depression. Interest-based economic activities have been proven by Nobel Prize Winners, etc. to have created a vacuum of economic Black Holes within both developed and developing regions including 57 OIC Countries. OECD (and ASEAN) leaders are now still struggling to find that Financial Holy Grail to lift global financial malaise out of the RIBA darkening mess.

Under Sharīʿah law, all RIBA driven IBF endeavors are prohibited because it is deemed to be a great barrier to true Open Economies. Western World led by Yale, Oxford and Cambridge etc. acknowledged the pioneering works by Ibn Taimiyyah, Ibn Khaldun, Al Shatibinomics and the whole Ahli Sunnah wa Jamaat who are of the view that the current World’s Economic and Financial Chaos (not forgetting that 1998 crush) must be free from RIBA in order to develop a transparent and dynamic Economic Ummah for all. As a good working example, the Dinar based concept is a good solution to the destructive “printing money problem” (where paper monies are printed with no real asset back up).

IBF is therefore re-charting new course in financial innovation. Existing accounting standards i.e. IFRSs or local GAAP are Riba-centric based on conventional product structures and practices. These are perceived to be Shariah non-compliant and unable to account for and report present and future Islamic financial transactions. Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) have issued a new standard and four drafts are redefining the trends of future IBF practice and operation in old and new frontiers. See Deloitte, Islamic Accounting.

There is strong economic and trade motivation for ASEAN, USA, China and EU to drive pioneering efforts in pushing for a Sharīʿah Disruptive Innovation in IBF Education as a new green strategic solution to present RIBA Theorem of Destructive Economic and Financial Integrity. See Jeong CP, Economic & Financial Disruptive Innovation for Islamic Banking & Finance (IBF) Sustainability, Icife (2016).

14.3. Strategic Development in IBF landscape: Islamic Capital Market

IBF is for the world as viable option for financing. The Securities Commission’s (SC) advocacy for regionalization of ASEAN’s 10 capital markets is rather timely as keynoted at the recent ASEAN Fixed Income Conference 2017. In 2013, according to SC, ASEAN’s total capital markets stood at US$3 trillion (RM13 trillion) and the saving rate was around US$800 billion in 2015.As an add-on, capital market players may look towards the Islamic Capital Market (ICM) as a new Blue Ocean Wave for ASEAN capital markets. ICM plays a supporting role to the Islamic Banking and Financial (IBF) system in the enhancement of Islamic financial markets in Malaysia.

The advantages of ICM were emphasized in the “Islamic Capital Market Task Force of the International Organisation of Securities Commissions” report, which confirmed the role of ICM in the diversification of conventional capital market dimension at global platforms. ICM is anticipated to strengthen ASEAN in propelling collective regional financing, especially in the ASEAN Economic Community (AEC). Developing new ICM initiatives will therefore buffer ASEAN from Brexit, the United States’ protectionism and the European Union’s economic volatilities.

In realizing this initiative, there is a need to relook Islamic Banking Education and IBF as the twin towers of ICM growth. ICM has all the ingredients to create innovation in the AEC capital market, catering to real economic progress and regional trade integration. ICM, through innovative products, will not only supplement conventional capital market but will also provide a unique source of capital in AEC’s economic development agenda in terms of liquidity, scale and capacity. This will generate capital market diversification and maintain stability in terms of global shocks.

In Malaysia, ICM has seen enormous expansion in the Islamic equity sector and fixed income. According to a report, at the end of 2014, the total value of ICM was about RM1.5 trillion, accounting for 57 percent of the total market capitalization in Malaysia and represented a 10-year compound annual growth rate of 11.3 percent. On Bursa Malaysia, more than 70 per cent of the stocks are classified as Sharīʿah -compliant by the Sharīʿah Advisory Council of SC, and there are about 200-unit trust funds across asset classes. Notable innovative products of global sophistication are Malaysia’s first Islamic real estate investment trust (i-REIT), first Islamic stapled REIT, Asia’s first Islamic exchange-traded fund (i-ETF) and Asia’s first exchange-traded sukuk.

It is time for a wider diffusion and adoption of ICM by setting up an AEC Islamic Capital Market as a new capital space for AEC Community with US, EU and China as participating partners.

14.4. IBF Megatrends: Spearheading Equity for Business and Economic Harmony

14.4.1. Islamic Banking and Finance Rise in UK

In the UK, Sharīʿah compliant banks and conventional banks are offering IBF products and instruments as viable alternatives to conventional option. As of 2017, there are about 30 organizations in the UK offering Islamic financial services under the watchful eyes of UK Prudential Regulation Authority (PRA). PRA–led prosecution has create new emphasis in Sharīʿah compliant issues in the UK as it seeks to establish itself as IBF center of excellence. In the case of Qatar Islamic Bank (QIB) UK, Andrew Bailey of the Prudential Regulation Authority, said: ‘In failing to assess, maintain and report on its financial resources for over a year, QIB failed to meet some of the most basic regulatory standards.’ See Jill Treanor, Qatar Islamic Bank UK Fined £1.4m by PRA, The Guardian (Apr. 8, 2016).

14.4.2. The Case for Islamic Banking and Finance in USA

IBF is slowly seeing outcomes that shape the future of finance in US corporate and industrial sector. From allowing IBF to operate only as offshore alternatives, financial regulators and policy makers are beginning to realize that Sharīʿah Impact Factor in IBF can in fact enhance America’s Sustainable Future for the American people. "Islamic banks' capital grew from $200 billion in 2000 to close to $3 trillion in 2016," said Ibrahim A. Warde, professor of international business at the Fletcher School of Law and Diplomacy at Tufts University. See Aamer Madhani, Shariah Financing Growing Popular in the West, USA Today (Oct. 11, 2014). See also, Naureen S. Malik, Interest-Free Financing for U.S. Muslims, ABC News (last accessed on Nov. 15, 2017).

14.5. IBF Innovation and Governance

The establishment of the Malaysian Sharīʿah Index (Index puts Malaysia’s Sharīʿah compliance score at 75.42 per cent, NST, March 28) is another good development in Sharīʿah governance. The index uses Maqasid Sharīʿah (five areas) as a benchmark for eight fields of governance, namely Islamic law (which scored 87.19 per cent), politics (79.19 per cent), economy (65.27 per cent), education (82.5 per cent), healthcare (73.92 per cent), culture (66.47 per cent), infrastructure and environment (62.31 per cent) and social (68.52 per cent).

The purpose of Maqasid Sharīʿah is essentially to create a sustainable UEC based on trade. Sharīʿah rulings, according to the four mazhabs, were seen as supporting equity as a strategic driver to achieve Sharīʿah Economic Equilibrium. Since 1983, the focus was on equity-based financing Mudharabah and Musyarakah (Mudha-Syara), two dynamic methods of equity.

Over the years, there has been a departure from equity to debt engagement by both Islamic Banks and conventional banks having Sharīʿah windows. According to a report, “the size of the Islamic finance market ranges from US$1.66 trillion to US$2.1 trillion and expected to reach US$3.4 trillion by the end of 2018”. However, the majority of Islamic Finance engagements are focused on debt. IBF practice is disproportionately geared towards debt rather than equity, creating profound conflict of interests. Debt is attractive simply because of the Low Risk Exposure-Higher ROI (LRHR) factor. Take, for example, the popular murabahah vehicle of debt financing. Should it be debt all the way?

Within the Maqasid Sharīʿah framework applied to IBF’s LRHR it is, and should only be, a secondary component. This is not to delimit the function of debt. How do you strike a balance in promoting both debt and equity financial products? Debt should ideally play a supporting role in forging equity forward as prime optimus, and not the other way around. Hence, the need for reformation to equity structure and sectoral practice. To re-engineer a return to equity, it is imperative to refocus on Mudha-Syara by redesigning the structure to make it equity-centric, while allowing debt-based finance to play a supporting role. There is a need to reform Sharīʿah compliance governance to a level where transparency is achieved for both debt and equity. This calls for Sharīʿah Standardization for equity and debt. See Financial Accounting Standards Board, Accounting Standards Updates – Effective Dates (updated August 2017).

Regulation (statutory and self-regulation) in IBF compliance standardization for debt and equity has to be redefined. Disclosure of risks associated with debt and equity must be re-examined by a regulatory body to ensure a fair playing field. The quantum leap for strategy and policy in equity over debt framework is to adopt these measures: Tax holidays, exemptions and deductions for equity preference; incorporation of Equity Ventures Bhd, whereby Debt Ventures Bhd plays a supporting role; and, leveraging unity and solidarity for justice and peace. See 13th Organization of Islamic Cooperation as a new catalyst for economic activities using equity in support of UEC.

The rise of the ASEAN Economic Community (AEC) should be seen as a golden business opportunity to spearhead equitable economic using IBF in particular Mudha-Syara as the new vehicle for US-ASEAN and China – ASEAN global trade perspective. An ASEAN-US and China initiatives in this area are key drivers for global open market success for every nation – both developed and developing blocs in global economic prosperity. This is pivotal in realizing social-link business and trade justice objectives in compliance with 17 sustainable development goals (SDGs) by 2030 and beyond. See Jeong CP, Spearheading Equity for Community’s Economic Growth, New Straits Times (May 9, 2016).

15. Sharīʿah Law in Other ASEAN Member Countries

Thailand practices civil law system with common law influences. Sharīʿah law is recognized for local Muslim population). The government promote Islamic affairs and protect the status of Thai Muslims according to Islamic principles, and Sharīʿah traditions. See Royal Thai Embassy in Riyadh, Kingdom of Saudi Arabia, Muslim in Thailand. In Thailand, Administration of Islamic Organizations was enacted in 1997, thus creating Central Islamic Committee of Thailand to oversee the Sharīʿah law observation and affairs of Thai Muslims. Central Islamic Committee is presided over by a Chularajmontri (Grand Mufti), who is the State adviser on Islamic affairs to the government. Under the Central Committee set up, provinces with a sizeable Muslim population will be regulated by Provincial Islamic Committees. The provincial committee regulates Islamic affairs at provincial level and it is empowered to appoint members to the Mosque Committees. Currently, there are about 3,460 committees of the mosques nationwide in Thailand. See Royal Thai Embassy in Riyadh, Kingdom of Saudi Arabia, Muslim in Thailand.

Philippines practices a mixed legal system of civil, common, Islamic, and customary law. By virtue of Presidential Decree No. 1083 (A Decree to Ordain and Promulgate a Code Recognizing the System of Filipino Muslim Laws, Codifying Muslim Personal Laws, And Providing for Its Administration and For Other Purposes) (‘Degree’), regulated Filipino Muslim communities and matters pertaining to Sharīʿah law. This degree acknowledges local Sharīʿah customary law besides Sharīʿah law:

“WHEREAS, pursuant to the spirit of the provision of the Constitution of the Philippines that, in order to promote the advancement and effective participation of the National Cultural Communities in the building of the New Society, the State shall consider their customs, traditions, beliefs and interests in the formulation and implementation of its policies; WHEREAS, Islamic law and its principles of equity and justice, to which the Filipino Muslim communities adhere, provide an essential basis for the fuller development of said communities in relation to the search for harmonious relations of all segments of the Filipino nation to enhance national unity”. Chan Robles, Virtual Law Library, Philippine Laws, Statutes and Codes.

Indonesia adopts a civil law system based on Roman-Dutch model and are influenced in many Sharīʿah aspects by customary law (Uruf) either having Sharīʿah elements or indigenous underpinnings. The government required all religious groups to comply with these regulations to promote harmony among all religious sects and groups. The regulations are: Ministry of Religious Affairs and other ministerial directives, i.e. Revised Joint Ministerial Decree on the Construction of Houses of Worship (2006), Overseas Aid to Religious Institutions in Indonesia (1978), and Guidelines for the Propagation of Religion (1978). See US State Department, Indonesia Profile. The 1974 Marriage Law (See US State Department, Indonesia Profile) makes polygamy illegal for civil servants in Indonesia, subject to Sharīʿah requirements. It recognized Sharīʿah law of marriage that permits Muslims men to legally marry up to four wives subject to Sharīʿah requirements i.e. that he is able to support each equally (as one of the many conditions). A Muslim man who intend to marry a second wife (third, or fourth wife), I required to get a Sharīʿah court order together with the consent of the first wife. In practice, however, there is no unity in Sharīʿah enforcement and implementation. See US State Department, Indonesia Profile.

Another ASEAN member country that observes a mixed legal system is Brunei. Its legal system is based on English Common law similar to Malaysia and Singapore (due to English/British legal legacy) and Sharīʿah law. In May 2014, the first phase of Sharīʿah penal codes was instituted [22] comprising Shari’ah Penal Code Order, 2013, and supported by amendments to Islamic Religious Council Act, Shari’ah Court Act, and Shari’ah Court Classification Order, 2001.[23] This Sharīʿah penal codes [24] applies throughout Brunei in conjunction with existing civil law.

Burma Law Act 1898 provides for recognition of Sharīʿah law in Burma. Application of Islamic Family Law is by virtue of section 13 of Burma Law Act 1898. Personal Laws of Muslims relating to succession, inheritance, marriage, or any religious usage or institution is recognized by government. Islamic Family Law are not being codified and Islamic Family Law procedures in Myanmar are based on court decisions/rulings. For instance, issues relating to Waqaf as in the case of Daw Ein & Others v. Daw Chan Thar & Others and Saya Cair v. Daw Tin Tin & Others where the court acknowledged as valid certain Waqaf procedures. See Marlar Than Aung, Current Legal Framework of Islamic Family Law in Myanmar, Burma Library.org.The Constitution of Union of Myanmar adopted in 2008 provides that “Every citizen is equally entitled to freedom of conscience and the right to freely profess and practice religion subject to public order, morality or health and to the other provisions of this Constitution.” See Marlar Than Aung, Current Legal Framework of Islamic Family Law in Myanmar, Burma Library.org.

16. Concluding Remarks

ASEAN as a whole is undergoing mega economic transformation within the 21st Innovation-centric global economy. The advent of ASEAN Economic Community (AEC) will witness tremendous opportunity for regional cohesion and integration between ASEAN and United States in global trade and business sustainability. This will usher in new economic progress at all levels in light of dismantling trade barriers in view of myopic protectionist measures,[25] which are anti-thesis to ease of doing business. Muslim majority ASEAN countries such as Indonesia, Malaysia, and Brunei will see effective utilization of Shariah Impact Factor (SIF) to advance Halal supermarket between United States and ASEAN in new trade agreements and pacts. On the other hand, Syariah law with special focus on Shariah Impact Factor (SIF) is perceived as accommodating business growth (especially Halal marketplace[26]) and trade imperatives as AEC seeks to look not just at the One Belt One Road [27] initiatives but at future trade agreements with US for Asia-Pacific hemisphere in light of United Nations’ 17 Sustainable Development Goals (17 SDG). See US-ASEAN Business Council, Inc., Advancing U.S. Business in Southeast Asia.



[1] Translation by Sahih International: “Then We put you, [O Muhammad], on an ordained way concerning the matter [of religion]; so follow it and do not follow the inclinations of those who do not know”; and translation by Pickthall: “And now have We set thee (O Muhammad) on a clear road of (Our) commandment; so follow it, and follow not the whims of those who know not.” Tafsir At-Tabari Vol. 25, Page 146. For details, see http://corpus.quran.com/translation.jsp?chapter=45&verse=18.

[2] See https://en.oxforddictionaries.com/definition/sharia.

[3] See http://www.oxfordislamicstudies.com/article/opr/t236/e0473.

[4] M H Kamali. “Maqasid al-Shariʿah Make Simple” (London, Washington), London & Washington. The International Institute of Islamic Thought, Occasional paper Series 13, August 2008. See also Maqasid al-Shariah: The Objectives of Islamic Law, Islamic Studies, 38 (1999), 193209, http://www.hashimkamali.com/index.php/publications/item/84-maqasid-al-shariah.

[5] Al Quran, Surah Al-Baqarah: 185. http://corpus.quran.com/translation.jsp?chapter=2&verse=185.

[6] M H Kamali. “Maqasid al-Shariʿah Make Simple” (London, Washington), London & Washington. The International Institute of Islamic Thought, Occasional paper Series 13, August 2008. See also Maqasid al-Shariah: The Objectives of Islamic Law, Islamic Studies, 38 (1999), 193209. http://www.hashimkamali.com/index.php/publications/item/84-maqasid-al-shariah.

[7] “And whoever desires other than Islam as religion - never will it be accepted from him, and he, in the Hereafter, will be among the losers.” (3:85).

[8] As provided in verse: “And do not kill the soul which Allah has forbade [to be killed] except by [legal] right. This has He instructed you that you may use reason.” (6:33)

[9] “O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.” (5:90)

[10] “And do not approach unlawful sexual intercourse. Indeed, it is ever an immorality and is evil as a way. (17:32).

[11] “And do not consume one another's wealth unjustly or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful].” (2:188)
“And give to the orphans their properties and do not substitute the defective [of your own] for the good [of theirs]. And do not consume their properties into your own. Indeed, that is ever a great sin.” (4:2)

[12] For details on differences, see http://www.bbc.co.uk/religion/religions/islam/subdivisions/sunnishia_1.shtml.

[13] See also, "Child conversion: What the Federal Court previously decided

http://www.thestar.com.my/news/nation/2013/07/05/child-conversion-prvious-federal-court-decision/#ZY80kZI5xUwW0LBr.99".

[14] “Siti Fatimah case: Lawyers ticked off”, http://www.thestar.com.my/news/nation/2009/01/06/siti-fatimah-case-lawyers-ticked-off/. See also "Malaysia woman scores rare legal win to quit Islam". http://ca.reuters.com/article/oddlyEnoughNews/idCAKLR29947320080509.

[15] For details, see http://www.muis.gov.sg/Services/Appeal-Board/index.html.

[16] For details, see http://www.muis.gov.sg/ARS/Asatizah-Recognition-Scheme/What-constitutes-Islamic-teaching.html.

[17] Asatizah Recognition Scheme: ARS consists of two tiers: (1) Islamic Teachers (Asatizah) and (2) Quranic Teachers. For details, see http://www.muis.gov.sg/ARS/Asatizah-Recognition-Scheme/ARS-tiers-and-levels-of-teaching.html. ARS Registration Requirements: Applicant is satisfactorily trained to teach at an Islamic education centre (based on the qualifications stated in the ARS tiers and levels of teaching section); and the applicant is a fit and proper person to teach at an Islamic education centre. In considering whether a person is fit or proper person to teach, the following is considered:

“(i) any conviction for any offence involving dishonesty, moral turpitude, violence or harm to children; (ii) prior suspension or cancellation of recognition of ARS; (iii) any behaviour of the person that does not satisfy a standard of behaviour generally expected of a teacher at an IECP, or is otherwise disgraceful or improper.” For details, see http://www.muis.gov.sg/ARS/Asatizah-Recognition-Scheme/What-are-the-registration-requirements.html.

[18] "PDRM Pantau 56 Kumpulan Ajaran Sesat Berpotensi Ancam Keselamatan". See http://www.mstar.com.my/berita/berita-jenayah/2015/12/16/56-kumpulan-ajaran-sesat/ - 4wVBD8aRagrwRHFc.99

[19] Section 119 (1) of the Selangor Islamic Religious Administration Enactment of 2003.

[20] For details, see http://www.muis.gov.sg/faraidh/Faraidh/inheritance-certificate.html.

[21] "Sharīʿah in Malaysia: Experts weigh in" Sunday, 13 December 2015, by tan yi liang

http://www.thestar.com.my/news/nation/2015/12/13/syariah-in-malaysia-experts-weigh-in/.

[22] "Everyday life in Brunei under hudud," October 2, 2016. The Star.

http://www.thestar.com.my/news/nation/2016/10/02/everyday-life-in-brunei-under-hudud-the-people-even-nonMuslims-must-adjust-their-lives-drastically-t/.

[23] Press Release, Prime Minister’s Office, 30.04.14 Implementation of the Shari’ah Penal Code Order, 2013 (Apr. 30, 2014).

[24] Bruneians unfazed by 'sensationalism' of Sharia law". 10 Jun 2015.

http://www.channelnewsasia.com/news/asiapacific/bruneians-unfazed-by-sensationalism-of-sharia-law-8282528.

[25] "Asean, Japan to Strengthen Efforts against Protectionism, http://www.thestar.com.my/business/business-news/2017/04/07/asean-and-japan-to-strengthen-efforts-against-protectionism/#gMEGOsXHtkXgs4LL.99".

[26] "ASEAN Must Have a Standard Halal Cert", http://www.matrade.gov.my/en/149-news-clippings/news-clippings-2016/3609-asean-must-have-a-standard-halal-cert.

[27] "Southeast Asia Finds China Love as Xi Pushes 'One Belt, One Road' Dream".

https://www.bloomberg.com/news/articles/2017-05-30/southeast-asia-finds-china-love-as-xi-pushes-one-belt-one-road-dream; see also "China’s One Belt, One Road: Will it reshape global trade?", http://www.mckinsey.com/global-themes/china/chinas-one-belt-one-road-will-it-reshape-global-tradeht.