Prospects of an online dispute resolution framework for Islamic Banks in Malaysia. An empirical legal analysis

Publication Date13 Feb 2017
AuthorUmar A. Oseni,Sodiq O. Omoola
SubjectAccounting & Finance,Financial risk/company failure,Financial compliance/regulation
Prospects of an online dispute
resolution framework for Islamic
Banks in Malaysia
An empirical legal analysis
Umar A. Oseni
Institute of Islamic Banking and Finance,
International Islamic University Malaysia, Kuala Lumpur, Malaysia, and
Sodiq O. Omoola
Department of Civil Law, International Islamic University Malaysia,
Kuala Lumpur, Malaysia
Purpose This study aims to examine the prospects of using an online dispute resolution (ODR) platform
for resolving relevant Islamic banking disputes in the usual banker–customer relationship in Malaysia. It is
argued that through proper regulation, such innovative dispute management mechanism would not only
address some legal risks associated with banking disputes but could also prevent reputational risks in the
Islamic nancial services industry.
Design/methodology/approach Based on an internet survey, responses were obtained from about 109
respondents in Malaysia. The data obtained were subjected to multivariate statistical analyses considering
factors such as access to justice, attitude of stakeholders, resolving disputes, practical issues and
understanding of ODR.
Findings The results obtained showed that “access to justice”, “attitude of stakeholders” and “resolving
disputes” are the most inuencing factors affecting the intention to use ODR among stakeholders, particularly
customers and bankers in the Islamic nancial services industry in Malaysia.
Practical implications This study provides a way in which the recently introduced Islamic Financial
Services (Financial Ombudsman Scheme) Regulations 2015 can be better enhanced to cater for internet
banking disputes which might require an ODR framework.
Originality/value Though there have been numerous studies on the dispute resolution framework in the
Islamic banking industry in Malaysia generally, the current study focuses on a less explored framework –
ODR– a new framework for handling banking disputes.
Keywords Malaysia, Islamic nance, Islamic banking, Alternative dispute resolution,
Dispute resolution, Online dispute resolution
Paper type Research paper
1. Introduction
With the growing inuence of information and communication technology (ICT) in all
spheres of life, the conceptions and cognitive perceptions of human interactions have forever
changed (Duca et al., 2012). Business and government services have resurfaced actively
through an online interface known in generic terms as e-services (Riedl et al., 2011). This
This study was carried out under the Exploratory Research Grant Scheme (ERGS) with the ID No.:
ERGS13-005-0038 awarded by the Ministry of Education (MOE), Malaysia. The authors acknowledge
MOE and the International Islamic University Malaysia for their immense nancial supports.
The current issue and full text archive of this journal is available on Emerald Insight at:
Online dispute
Journalof Financial Regulation
Vol.25 No. 1, 2017
©Emerald Publishing Limited
DOI 10.1108/JFRC-07-2016-0055
Web-delivered phenomenon can be identied as “internet based version of traditional
services” (Baida et al., 2004). Such global breakthrough in the service-delivery sector called
for the transposition of the technological advancement in such sectors involving active
human interactions to banking disputes. One of such sectors identied in this paper is
dispute resolution with specic reference to Islamic banking disputes under the extant laws
in Malaysia.
In the twenty-rst century, alternative dispute resolution (ADR) has become the preferred
process for resolving ofine commercial disputes in most advanced jurisdictions (Katsh and
Wing, 2006), while litigation is gradually being used to facilitate ADR processes such as
mediation and arbitration (Abu Backer, 2016). The widespread acceptance of ADR amongst
the legal players, businesses and the general public is not unconnected with the congestion in
the traditional court, resulting in high costs of justice, protracted lawsuits, backbreaking
technicalities and the lack of condentiality of court proceedings. This has been further
enhanced by the framework introduced by the United Nations Commission for International
Trade Law (UNCITRAL) for both domestic and cross-border commercial dispute resolution
in its Model Law and Arbitration Rules (Binder and Sekolec, 2005;Hoellering, 1986). To this
end, ADR has grown to become part of the formal administration of the justice system as
some courts now require parties to resort to ADR, typically mediation, before allowing them
to proceed for litigation, if necessary (Cortés, 2011). This is part of the general framework for
dispute management, particularly in commercial transactions, where parties are more
amenable to a negotiated settlement.
In a similar vein, the evolution and growth of ICT has changed the way the society
communicates, which had led to drastic changes in the society itself (Shirky, 2009). Most
things used in the society have been automated to ease human interactions in a fast-paced
and increasingly digitalized world. Therefore, the dispute-resolution sector of the modern
society got its fair share of innovative technology with the emergence of online dispute
resolution (ODR). Susskind (2010) was aptly referring to ODR and the role of lawyers when
he observed that:
The future of lawyers could be prosperous or disastrous […] lawyers who are unwilling to change
their working practices and extend their range of services will, in the coming decade, struggle to
survive. Meanwhile, those who embrace new technologies and novel ways of sourcing legal work
are likely to trade successfully for many years […].
Thus, automation of services with cutting edge technology was seen as a threat to labour in
the non-legal sector in the past decades replacing clerical jobs such as cashier, secretaries and
bookkeepers. In the administration of justice sector, the ODR paradigm has the potential of
automating the dispute resolution processes, which experts predict may soon threaten the
legal profession and change the way lawyers conduct their businesses (Rose, 2009).
Researchers have been inconsistent with the nomenclature of ODR in its early stage, as it
is variously known as electronic dispute resolution (EDR), internet dispute resolution (IDR),
online alternative dispute resolution (OADR), technology-mediated dispute resolution
(TMDR). However, regardless of the name used, most seem to have agreed that there is an
increasing convergence between dispute resolution and ICT (Haloush and Malkawi, 2008).
Studies on ODR were rst popularised in May 1996 at a conference devoted to the subject
organised and sponsored by the National Centre for Automated Information Research
(Katsh, 1996,2007). The conference produced the rst published literature on ODR (Lide,
Irrespective of whether the underlying dispute is generated by face-to-face or
electronically generated transactions, ODR has been used partly or wholly in different types
of disputes, ranging from family disputes, armed conict negotiation, business-to-consumer

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