New centre in Dubai to settle Islamic financial disputes
BY JAMILA QADIR

10 April 2005

DUBAI — International Islamic Centre for Reconciliation and Commercial Arbitration for Islamic Finance Industry was launched in Dubai yesterday. The UAE has contributed $250,000 to the establishment of the new centre, half of the total investment, the remaining of which was provided by Islamic Development Bank (IDB).

The centre, whose headquarters will be situated in Dubai, will settle financial and commercial disputes between financial or commercial institutions that have chosen to comply with the Shari’a to settle disputes. It will also settle disputes between these institutions and third parties through reconciliation and arbitration. Dr Ezzedine Khoja, secretary-general of the General Council for Islamic Banks and Financial Institutions (GCIBFI), the organisation, which along with IDB, are the promoters of the centre, said at the launch that there was an urgent need for such an institution.

According to Ernst & Young, which conducted the feasibility study of the project on the basis of the promoters objectives, over the years, Islamic finance has rapidly grown from a highly specialised niche market into a multi-billion dollar global industry, estimated to have assets in excess of $230 billion worldwide and expected to experience double-digit growth in the coming decades.

The growth and evolution of the Islamic financial services, which exist in over 75 countries, urged the need for strong support institutions, with one of them being a framework for resolving disputes that may occur between industry participants as well as their counter parties.

Dr Khoja said that Islamic financial institutions pursue litigation for nearly five per cent of their disputes, above $30,000, while the rest of their disputes are settled out-of-court. Litigation, on average, costs nearly 20 per cent of the value of the disputed amount and even if the decision of the court is in favour of the financial institution, only 80 per cent of the value of the disputed amount is recovered, he said, adding that the duration of the settlement period in cases when litigation is pursued is generally in excess of five months.

The cost of an out-of-court settlement is nearly 17 per cent of the disputed amount and in a few cases the cost of the out-of-court settlements was found to be greater than the cost of litigation. He attributed this to the absence of institutions providing alternate dispute services specifically to Islamic financial institutions.

According to Ernst & Young although the need for the centre is clear, there are many hurdles in the path to its success. The success of the centre will be measured in terms of the acceptance of the centre as the first port of call in dispute resolution.

This was echoed by some of the bankers interviewed by this correspondent yesterday. A senior official from a Dubai-based bank said that the centre is not going to work unless its resolutions are strictly enforced. He said: “There should be a strict enforcement of the centre’s resolutions, otherwise it is not going to work. If the parties do not abide by the centre’s resolution, the case will have to go to court any way.”

The General Assembly of the centre yesterday also elected the Board of Trustees, which includes the UAE Ministry of Finance and Industry, IDB, GCIBFI, Abu Dhabi Islamic Bank, Bahrain Islamic Bank, Al Jazeera Bank (Saudi Arabia), Kuwait Financial House, Qatar Islamic Bank, E N Bank (Iran), Family Finance Institution, Bank Islam Malaysia, Saudi-Tunisian Finance House (Tunisia), Association of Sudanese Banks, Jordan Islamic Bank, Dubai Islamic Bank, Bangladesh Islamic Bank.