before a special bankruptcy judge in court to present the reasons why the
person or the entity cannot meet their obligations by paying back what he/
she owes the bank or the financial institution. These bankruptcy laws are
called different names depending on the nature of the problem and the solu-
tion. If there is an economic slowdown and demand declines, resulting in
lower sales and hence lower net profits, the owner of the business can file
for a request to the court to protect him/her and his/her business against
foreclosure by creditors. The owner of the business would be requested to
present the court with a plan to reorganize that contains a reduction of the
monthly payment on a loan and/or partial loan forgiveness as well as a time-
table to get out of this dire situation. Another purpose of the bankruptcy
laws is to maximize returns under adverse conditions by providing an or-
derly distribution of assets and debts.
This facility is considereded animportant development and a fair
‘‘safety valve’’ in the business of giving credit and in financing. Very disturb-
ing situations and penalties have been reported regarding the failure of a
borrower to meet his/her obligations to a bank for good and justifiable
causes in other countries—including Islamic countries. Borrowers who do
not fulfill their credit obligations are systematically jailed by the govern-
ment, which resorts to throwing the business owner in jail and taking over
the facility. In most cases, the facility is pillaged, the employees are laid off,
and the facility is sold for next to nothing. Many developing countries prac-
tice such painful and unproductive ‘‘therapy.’’ I understand that this action
can be condoned, and that this approach should be applied for those who
defraud others by lying on an application for credit, intentionally misusing
and siphoning funds outside the company or country, and/or outright rack-
eteering. This must be done by following due process according to the law
and in the courts of law. On the other hand, the world has seen wonderful,
honorable business people end up in jail in one country or another in Africa,
Asia, or the Middle East, and their facilities—along with the households of
many of their employees—are shut down just because the economy is in de-
cline or a government official wants to settle a political grudge. That is an-
other area that needs pioneering and dedicated work among the RF
(Islamic) banking scholars who believe in applying the credible and attract-
ive Judeo-Christian-Islamic value system to the RF banking system that we
all aspire to grow. It is strongly recommended that similar provisions be in-
cluded in Shari’aa guidelines by which RF banks operate.
NOTES
- Source: American Bankers Association (ABA), Private Communication: As of
the end of 2007, there are 42,386 national (commercial) bank branches, 42,895
188 THE ART OF ISLAMIC BANKING AND FINANCE