Insolvency & Debt Restructuring in Islamic Finance: A Short Report

The global financial crisis that started in 2008 did not only affect mainstream finance but also niche segments such as Islamic finance. Many prominent institutions in the Islamic financial sector experienced difficulties meeting their obligations and some faced bankruptcy. In this context, the Islamic Finance Project (IFP) of the Islamic Legal Studies Program (ILSP) of Harvard Law School (HLS), along with the London School of Economics and Political Science (LSE), co-hosted their seventh annual workshop to discuss the issues of insolvency and bankruptcy under shari‘a and their possible consequences on Islamic financial institutions working under different legal jurisdictions.  The objectives of the workshop were as follows: 1. Reviewing the understanding of the Islamic insolvency and debt restructuring with respect to creditors’ and debtors’ rights; 2. Understanding how modern regulatory regimes have handled financial defaults and how they have applied Islamic legal concepts and principles; 3. Discussing and applying Islamic financial insolvency concepts; 4. Discussing potential economic, legal, and regulatory reforms required to better deal with the complexities involved in defaults of contemporary Islamic finance products and institutions; and 5. Exploring any new guiding principles or processes that might help the Islamic finance industry industry in its quest for sustainable future.