Overcoming the Divergence Gap Between Applicable State Law and Sharia Principles and Enhancing Clarity, Predictability and Enforceability in Islamic Finance Transactions Within Secular Jurisdictions

With the emergence of Islamic finance, legal precepts of Islam gained momentum through voluntary adherence by market participants. Transactions are not governed by Islamic law as such. Rather they are structured within the framework of freedom of contract in a way that is coherent with Sharia principles. In absence of an authoritative judicial institution deciding on the Sharia conformity of a commercial transaction, individual Sharia scholars fill this gap. They interpret Islamic legal principles and exercise oversight of the products and operations of the Islamic finance industry. In Islamic finance transactions, there is frequently a dichotomy and tension between Sharia principles and perceptions underlying contractual agreements and their de jure qualification and treatment in secular jurisdictions. This paper investigates the divergence gap between Sharia precepts and the contractual design of Sukuk transactions as well as transparency issues under the German legal regime. Sukuk i