IFLAS and Chapter 11 - Classical Islamic Law and Modern Bankruptcy

The article provides an introduction to the Islamic law of bankruptcy. We believe this is the first in depth examination of the classical Islamic law of bankruptcy, IFLAS, in the English language. The article discusses the basic elements and tenets of Shari'a, the body of classical Islamic law, that deal with creditor-debtor issues, and considers them in connection with the modern concerns of the Islamic Finance industry.We argue that the Islamic law of bankruptcy should be a key component for the development of modern Islamic Finance. The public discussion thus far has focused on profit-driven aspects of Islamic Finance. There has been no significant scholarly discussion whatsoever about the loss-driven scenarios. This inquiry is particularly timely in light of the global economic meltdown and the concomitant and continuing workouts of Shari'a-compliant financings. This inquiry is also timely because of the recognition by the legal community that the existing national bankruptcy laws in the Muslim world are built solely on colonial era constructs and therefore were not developed to deal with Shari'a-compliant instruments and transactions. The article attempts to provide a pathway to a modern Islamic law of bankruptcy that amalgamates the tenets of classical Islamic bankruptcy law with the progressive rehabilitation-oriented processes pioneered by Chapter 11 of the United States Bankruptcy Code. Our goal is to foster and assist the development of effective insolvency regimes in the OIC Member States that are increasingly interested in bringing their national laws closer in harmony with classical Islamic law