Re-visiting Current Debate on Shar¯ı‘ah Position of Derivatives

Abstract

The current practices in Money, Capital, Foreign Exchange and Securities markets, based on interest and short selling, stress upon using hedging instruments for risk management. Nevertheless, there is disagreement among scholars and researchers regarding permissibility status of these instruments. Although majority of Islamic economists and scholars have expressed serious concern on the use of financial engineering products, a number of scholars insist on their use by the Islamic financial institutions. The present study aims to evaluate the permissibility status of derivatives in the light of the main features of Islamic law of contract. It is found that, while the hedging instruments may carry various advantages for individual institutions, their usage leads to fragility in the global financial system and markets owing to involvement of gharar, short selling and interest. In order to circumvent the Sharī'ah prohibitions their structures are extremely complicated that lead to deviance from real economic activity. Although some Muslim jurisdictions have allowed derivatives, their usage is not appropriate in the light of set principles for a valid contract, as envisaged by Sharī'ah. Muslim countries and scholars need to develop distinguished instruments for hedging risk in a Sharī'ah compliant manner. This study thus provides with an extensive overview of scholarly views and contemporary practices and offers objective evaluation of derivative contracts.

Modern derivatives in Islamic perspectives in Pakistan: Shari'ah issues on current Islamic derivative practices

“…Literature explored inevitability of market risk, and the Islamic banks need to reduce this exposure to price and rate volatility for by hedging instruments. The primary benefit of hedging is that it minimizes the risk of investment significantly (Anwer & Habib, 2019; Froot, Scharfstein, & Stein, 1993). Ayoub (2013) suggested that Islamic banking and finance industry can improve their growth by using hedging strategy, from this way Islamic finance industry share will increase due to stable and competitive pricing of a product of Islamic banking.…”

The Fat¯awá in Islamic Banking and Financial Industry: Explaining the Use of D. ar¯urah (Dire Necessity) and H. ¯ajah (Need) Maxims

“…H .ā jah can be employed only if there is no opposite explicit text, while there is a certain text (Sunnah) against it. Therefore, wa'dān based Islamic foreign exchange forward contracts should not be granted the license of permissibility using the h .ā jah maxim, particularly, because the IFIs have started using the same for investing in financial derivatives without the need for hedging and without fulfilling the conditions of underlying contracts (Anwer & Habib, 2019).…”

Eksplorasi Transaksi Derivatif Dalam Keuangan Islam

“…Meskipun hasilnya tidak definitif, mereka memberikan argumen untuk adopsi pembagian risiko, sebagai lawan dari transfer risiko (Kok et al, 2014). Anwer (2019) dalam penelitiannya mengevaluasi status kebolehan derivatif berdasarkan fitur utama hukum kontrak dalam Islam. Hasil penelitiannya menunjukan bahwa instrumen derivatif lindung nilai satu sisi dapat membawa berbagai keuntungan bagi institusi namun penggunaan derivatif menyebab kan kerapuhan dalam sistem keuangan global dan pasar karena keterlibatan gharar, short selling dan bunga.…”

“…Struktur derivatif ini sangat rumit yang mengarah pada penyimpangan dari aktivitas ekonomi nyata sehingga sulit juga untuk menghindari larangan Syariah. Negaranegara dan cendekiawan Muslim perlu mengembangkan instrumen-instrumen khusus untuk melindungi risiko dengan cara yang sesuai dengan Syariah (Anwer & Habib, 2019). Uddin (2020) (Chance & Brooks, 2015).…”

“…indeks dan risiko kredit). Derivatif melibatkan berbagai jenis kontrak dan struktur (Anwer & Habib, 2019) Transaksi derivatif merupakan bentuk instrumen keuang an yang dipakai untuk mengurangi risiko yang muncul akibat pergerakan harga. Dalam dunia finance derivatif adalah sebuah kontrak bilateral atau perjanjian penukaran pembayaran yang nilainya diturunkan atau berasal dari produk yang menjadi "acuan pokok" atau juga disebut "produk turunan" (underlying product) daripada memper dagangkan atau menukarkan secara fisik suatu aset, pelaku pasar membuat suatu perjanjian untuk saling memper tukarkan uang, aset atau suatu nilai di suatu masa yang akan datang dengan mengacu pada aset yang menjadi acuan pokok (Dimyati, 2015).…”