The Challenges and Prospects of Islamic Finance in Australia: A Case Study of Murabaha Contract By Abdulwahid Hassan Thesis submitted in fulfilment of the requirement for the degree of Doctor of Philosophy Victoria University College of Law and Justice February 2020 I. DEDICATION This dissertation is dedicated to my parents, my wife Nura and children, Taha, Najib, Zakaria and Yusra, without whose contribution and patience I could not have completed this thesis. II. ACKNOWLEDGEMENTS I would like to express my profound thanks to my Principal Supervisor Dr Matt Harvey and my co-supervisor Dr Kumi Heenetigala at the College of Law and Justice, for patiently supervising this thesis and providing constructive suggestions throughout my study. I owe my greatest debts and thanks to my dearest wife, Nura, my children Taha, Najib, Zakaria and Yusra for their extraordinary patience and emotional support. I am also greatly indebted to Victoria University for providing me with the opportunity to undertake this study. III. STATEMENT OF AUTHENTICATION I, Abdulwahid Hassan, declare that the PhD thesis entitled (The Challenges and Prospects of Islamic Finance in Australia: A Case Study of Murabaha Contracts) is no more than 100,000 words in length including quotes, tables, figures, appendices, bibliography, references and footnotes. This thesis contains no material that has been submitted previously, in whole or in part, for the award of any other academic degree or diploma. Except where otherwise indicated, this thesis is my own work. Signed___ ___ Date______5/02/2020_____________ IV. TABLE OF CONTENTS CHAPTER 1: INTRODUCTION ........................................................................................................... 1 1.1 Introduction................................................................................................................................ 1 1.2 Brief History of Islamic Finance ............................................................................................... 2 1.3 Islamic Finance Theory ............................................................................................................. 5 1.3.1 Definition of Murabaha .............................................................................................. 5 1.3.2 Legality of Murabaha .................................................................................................. 6 1.3.3 Structure of Murabaha Contracts ............................................................................... 7 1.4 Problem Statement ................................................................................................................... 15 1.5 Methodology ............................................................................................................................ 17 1.6 Significance of the Study ......................................................................................................... 19 1.7 Limitations of the Study .......................................................................................................... 20 CHAPTER 2: SOURCES Of ISLAMIC LAW ..................................................................................... 21 2.1 Introduction.............................................................................................................................. 21 2.2 Primary Legal Sources for Islamic Law .................................................................................. 21 2.2.1 The Quran and the Sunnah ....................................................................................... 21 2.2.2 Ijma ........................................................................................................................... 22 2.2.3 Qiyas .......................................................................................................................... 22 2.2.4 Ijtihad ........................................................................................................................ 23 2.3 Secondary Legal Sources for Islamic Law .............................................................................. 23 2.3.1 Istihsan ...................................................................................................................... 23 2.3.2 Maslaha .................................................................................................................... 24 2.3.3 ʿUrf ............................................................................................................................ 24 2.4 Islamic Schools of Law ........................................................................................................... 24 2.5 Contracts in Islamic Law ......................................................................................................... 25 2.5.1 The Definition of Contracts of Sale Under Islamic Law ............................................. 26 2.5.2 Essential Elements in Sale Contracts Under Islamic Law .......................................... 27 2.5.3 Disputed Contracts .................................................................................................... 33 2.6 Financial Regulatory System ................................................................................................... 35 2.6.1 Overview of the Islamic Financial Regulatory System .............................................. 36 2.6.2 Accounting and Auditing Organisation for Islamic Financial Institutions ................. 38 2.6.3 Islamic Financial Services Board ................................................................................ 39 2.6.1 Shariah Supervisory Boards ...................................................................................... 42 2.7 Concluding Remarks ............................................................................................................... 43 CHAPTER 3: THEORY OF ISLAMIC FINANCE ............................................................................. 45 3.1 Introduction.............................................................................................................................. 45 3.2 Principles of Islamic Finance ................................................................................................... 45 3.2.1 The Prohibition of Riba ............................................................................................. 46 3.2.2 The Concept of Riba .................................................................................................. 49 3.2.3 The Scope of Riba ...................................................................................................... 50 3.2.4 Time Value of Goods ................................................................................................. 51 3.2.5 Increasing the Prices of Sale on Credit ...................................................................... 52 3.3 Ownership of the Subject of Sale ............................................................................................ 56 3.4 Promises and Murabaha .......................................................................................................... 57 3.4.1 Responsibilities of the Promiser from Religious and Legal Perspectives .................. 57 3.5 Gharar ..................................................................................................................................... 59 3.6 Approaches to Islamic Finance ................................................................................................ 61 3.6.1 Socioeconomic Approach .......................................................................................... 61 3.6.2 Legalist Approach ...................................................................................................... 62 3.7 Concluding Remarks ............................................................................................................... 63 CHAPTER 4: MURABAHA AS A SALE CONTRACT ..................................................................... 65 4.1 Introduction.............................................................................................................................. 65 4.2 Definition of Sale Contract under Australian Law .................................................................. 65 4.3 Essential Elements in the Sale Contract .................................................................................. 66 4.4 Performance of the Contract of Sale ........................................................................................ 74 4.5 Concluding Remarks ............................................................................................................... 91 CHAPTER 5: MURABAHA AS A CREDIT CONTRACT ................................................................ 94 5.1 Introduction.............................................................................................................................. 94 5.2 Part One: Practice of Islamic Financial Institutions ................................................................ 94 5.2.1 The Issue of Ownership for the Financed Asset ........................................................ 94 5.3 Concluding Remarks ............................................................................................................. 117 CHAPTER 6: MURABAHA UNDER LITIGATION ........................................................................ 118 6.1 Introduction...........................................................................................................................