Prevailing dispute resolution mechanisms in Islamic finance

Among the essentials of a sound and dynamic Islamic financial services industry are sophisticated financial products and services, strong financial infrastructure, a robust regulatory framework and a suitable dispute resolution mechanism. While Islamic finance has demonstrated progress in product innovations and in various other aspects, the same cannot be said of its dispute resolution mechanisms. The Islamic financial services industry is still searching for a suitable dispute resolution forum. This chapter highlights the use of litigation, arbitration and mediation in resolving disputes relating to Islamic financial transactions, as well as the attendant problems in resorting to the dispute resolution fora. The chapter also presents the key features and foundations of the three dispute resolution mechanisms from the Western and Islamic law perspectives. The chapter concludes by considering the idea of inserting mandatory arbitration clauses in Islamic finance agreements