7/28/2019 Derivatives Under Shariah

1/19

7/28/2019 Derivatives Under Shariah

2/19

7/28/2019 Derivatives Under Shariah

3/19

7/28/2019 Derivatives Under Shariah

4/19

7/28/2019 Derivatives Under Shariah

5/19

7/28/2019 Derivatives Under Shariah

6/19

Futures/Forwards under Shariah

The Futures transaction in stock and commoditiesmarkets today are not permissible for tworeasons:

1. According to Shariah that sale or purchasecannot be affected for a future date.

2. In most of the Futures transactions, delivery of

the commodities or their possession is notintended. In most cases, the transactions end upwith the settlements of difference of prices only,which is not allowed in the Shariah.

7/28/2019 Derivatives Under Shariah

7/19

7/28/2019 Derivatives Under Shariah

8/19

7/28/2019 Derivatives Under Shariah

9/19

7/28/2019 Derivatives Under Shariah

10/19

Istisna : under this contract the underlying asset isyet to be manufactured.

The buyer contracts a manufacturer for the

product with the specifications.

The price is agreed upon and fixed but not paid

The contract can be cancelled before production

starts.

7/28/2019 Derivatives Under Shariah

11/19

7/28/2019 Derivatives Under Shariah

12/19

7/28/2019 Derivatives Under Shariah

13/19

The embedded option is the right to choose tofix the price.

At the initiation the two parties agree on

1) pre-determined murhaba price which could bep* = Po (1+r), or an average of the price of 90days.

2) the upper and lower bounds of Po

7/28/2019 Derivatives Under Shariah

14/19

Jurists view points onconventional

derivatives

7/28/2019 Derivatives Under Shariah

15/19

Futures

Shariah advisory council of securities commission

Futures trading of commodities is approved aslong as underlying asset is halal

Crude Palm Oil Futures Contracts are approvedfor trading

Fatwa of Omam Al-Haramaini Al-Jauwaini

Futures Trading is Halal if the practice is basedon Darurah and the Needs or Hajaat of theUmmah

7/28/2019 Derivatives Under Shariah

16/19

Ustaz Ahmad Allam; Islamic Fiqh Academy

(14/5/1992)

Until and unless the underlying asset or basket ofsecurities in the SIF is all Halal; SIF trading is notapproved.

Mufti Taqi Usmani

Sale and purchase cannot be affected at a futuredate

In most futures transactions delivery orpossession is not intended.

Futures contracts are prohibited whether they

are used for speculation or hedging.

7/28/2019 Derivatives Under Shariah

17/19

7/28/2019 Derivatives Under Shariah

18/19

Mohd. Obaidullah

Dismisses the arguments of gharar and maisiraruguments.

Both buyer and seller take on a risk

7/28/2019 Derivatives Under Shariah

19/19

Conclusion

Conventional derivative instruments are notacceptable under Shariah due to presence of

speculation and unnecessary risk present.