Futures and Forwards Contracts from Perspective of Islamic Law

Ehab M. M. INJADAT

Abstract


Futures and forwards contracts are considered of the main derivatives contracts, which offer many services and benefits, namely risk management (hedging), and speculation. However, these contracts from the perspective of Islamic experts are varying and non-uniformed, where there are those who see futures and forwards contracts as unacceptable and forbidden by Islamic law, and there are also those who see futures and forward contracts as acceptable and compatible with Islamic law. This paper attempts to clarify the Islamic law perspective of futures and forwards contracts, to give a clearer picture about the legitimacy of these contracts, in order to examine whether the using of futures and forwards contracts are permissible or prohibited. The study follows the inductive method and descriptive research by displaying texts, previous literature, opinions of futures and forwards contracts from Islamic law perspective and comparisons between them, including the balancing and elicitation in light of Islamic law standards, strength of the arguments relied upon by each party and commitment to offer the presentation matter scientifically. The study’s conclusion the current application of futures and forwards contracts in the financial markets are impermissible and are considered prohibited contracts. The study find futures and forwards contracts contain a number of forbidden elements in Islamic law, especially gambling and harm speculation additions to a number of pictures of some forbidden elements such as gharar (ambiguity), riba (usury) that are still in the circle of debate among Muslim scholars. However, the availability of a some terms and conditions that can dispose the prohibited elements in these contracts may make them compatible and consistent with the Islamic law.

Full Text:


References


Abdelwahab, O. (2007). Developmental Perspectives on Financial Innovation in Forward and Futures Derivatives: A Critical Discussion with Special consideration of Islamic Banks and Financial Institutions. (Doctoral Thesis). Berlin: Berlin University of Technology.

Abu Al-Nasr, I. (2006). The Securities Markets (Burse) in the Balance of Islamic Jurisprudence. Cairo: Dar al-Nasher lil-Jamea'at.

Ahmad, A. M. (1995). Securities markets and its development effects in Islamic economic. Saleh Kamel Series for University Theses.

Al-Albani, M. N. (n.d.). Eroa'a al-Ghalil Takhreij Ahadith Mnar al-Sabil. (2th edn). Beriut: al-Maktab al-Islami.

Al-Amine, M. A. M. (2005). Commodity Derivatives: An Islamic Analysis. In M. Iqbal, & T. Khan (Ed.), financial Engineering and Islamic Contracts, (pp. 58-98). New York: Palgrave Macmillan.

Al-Ashqar. M. S., Abo Rakhyah, M. M., Shubair., M. U., & Al-Ashqar, O. S. (1998). Jurisprudential Researches in Contemporary Economic Issues. Amman: Dar al-Nafa'es.

Al-Baghawi, H. (1974). Sharh al-Sunnah. Damascus: al-Maktab al-Islami.

Al-Bahooti, M. Y. (1997). Kashf al-Qena'a ala Matn al-Eqna'a. Mohammad Hassan Ismail al-Shafei (edn). Beirut: Dar al-Kutub al-Elmiah.

Al-Dardir, A.M.A. (n.d). al-Sharh al-Saghier ala Aqrab al-Massalik le-Mathhab al-Imam Malik. Matbat Issa al-Babi al-Halabi wa Shurakah.

Al-Dharir, S.M.A. (1967). Gharar and its Effect in Contracts in Islamic Jurisprudence. Cairo: Dar al-Nahdhah al-Thaqafiah.

Al-Ghoul, W. (2008). Risk Management and Islamic Finance: Never the Twain Shall Meet? (cover story), Journal Of Investing, 17, 96-104.

Al-Hashemi, M.A.M. (n.d). al-Irshad ila Sabil al-Rashad. Cairo: Moua'sasit al-Risalah.

Al-Husseini, S.H.A. (n.d). al-Rawdhah al-Nadiah Sharh al-Durar al-Bahyah. Dar al-Turath.

Ibn Al-Humam, K. (1970). Fath al-Qadier. Cairo: Mustafa al-Babi al-Halabi.

Al-Khattabi M. M. (1949). Ma'lem al-Sunan. (al-Fiqi M. H. edn). Cairo: Maktabat al-Sunnah al-Mohammadiah.

Al-Khalil, A. M. (1424H). Stocks and Bonds and their Provisions in Islamic Jurisprudence. Saudi Arabia. Dar Ibn al-Jawzi.

Al-Khalil, A. M. (1426H). Stocks and Bonds and their Provisions in Islamic Jurisprudence. (2th edn.). Saudi Arabia: Dar Ibn al-Jawzi.

Al-Masri, R. Y. (2007). Jurisprudence of Financial Transactions. (2th edn). Damascus: Dar al-Qalam.

Al-Mazni. (1321H). Mukhtasar al-Mazni be-Hamesh kitab al-Um lil-Imam al-Shafei. Boulaq:.

Al-Qaradawi, Y. (1998(. Murabaha Sale as Conducted by Islamic Banks. Beirut: Moassait al-Risalah.

Al-Qura Daghi, A. M. A. (2002). Researches in Islamic Economy. Beirut: Dar al-Bashaer.

Al-Sa'ati, A. A. (1999). Proposed Futures Consistent with the Shari'ah. Journal of King Abdul-Aziz University: Islamic economic, 11.

Al-Sa'ati, A. A. (2002). Shariah Compatible Futures. J.KAU: Islamic Economics, 15, 3-25.

Al-Sa'ati, A. A. (2003). Proposed Futures Consistent with the Shari'ah. Journal of King Abdul-Aziz University, Islamic economic, (15).

Al-Sa'ati, A. A. 2012. al-Illah al-Eqtisadyah li-Tahrim Riba al-Nasiah and al-Fadhl. Journal of King Abdul-Aziz University: Islamic Economic, 25(2), 33-75.

Al-Salous, A. A. (2006). Figh Al-Bai wa Al-Istithaq wa Al-Tatbig Al-Mua'ser. Beirut: Mo'asasit Al-Rayyan Lil-Nashir.

Al-Sanhoori, A. A. (2001). The Source of Right in Islamic Jurisprudence. Dar Ihia' al-Turath al-Arabi.

Al-Sanani, Subul M. I. (1353H). al-Salam Sharh Pologh al-Maram. Cairo: al-Maktabah al-Tejariah al-Kubra.

Al-Shafei, M. E. (1321H). al-Um. Boulaq: al-Dar al-Msriah lil-Ta'lif wa al-Trjamah.

Al-Shatnawi, Z. I. S. (2009). The Economic Effects Of the Securities Markets from the Perspective of Islamic Economics. Irbid: Dar al-Nafa'es.

Al-Shawkani. M .A. (1994). al-Sail al-Jarar al-Mutadafiq ala Hadaieq al-Azhar. Egypt: Maktabt al-Majlis-A'ala lil-Shou'an al-Islamiah.

Al-Shirazi, E.A.Y. (n.d.). al-Muhathab, Bierut: Dar al-Fekr

Al-Sarkhasi, M.A.S. (1986). al-Mabsout. Bierut: Dar al-Ma'rifah.

Al-Suwailem, S. I. (2007). Hedging in Islamic Finance. Jeddah: Islamic Development Bank- Islamic Institute for Research and Training.

Al-Sulayman, M. S. M. (2005). Provisions of Dealing in Contemporary Financial Markets. Riyadh: Dar al-Konoz Ishbiliah.

Al-Sywasi, M. A. (n.d.). Sharh Fath al-Qadier. Beirut: Dar al-Feker.

Al-Zarqa, M. (1985). al-Fatawa al-Shari'ah fi al-Massa'el al-Eqtisadiah. Kuwait: Kuwait Finance House.

Al-Zarqa, M. (1968). al-Madkhal al-Fiqhi al-A'am. Beirut: Dar al-Feker.

Al-Zuhaily, W. (2002). Islamic Jurisprudence and its Evidence. (4th edn). Damascus: Dar al-Feker al-Mua'sir.

Al-Zuhaily, W. (2006). Contemporary Financial Transactions. (3th edn.). Damascus: Dar al-Fikr.

Azzam, M. (1985). al-Fatawa al-Shari'ah fi al-Massa'el al-Eqtisadiah. Kuwait: Kuwait Finance House.

Bacha, O. I. (1999). Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration. International Journal of Islamic Financial Services, 1 (1), 9-25.

Bacha, O. I. (2007). Financial Derivatives Markets and Application in Malaysia. (2th edn.). Malaysia: McGraw-Hill (Malaysia).

Chance, D. M . (2004). An introduction to Derivative & Risk Management (6th edn.). united state of America: south-western.

Danila, N., & Jeffers, A. E. (2009). Derivatives: An Islamic Perspective. Journal Of International Finance & Economics, 9 (3), 83-90.

Dawabah, A. M. (2006). Toward Islamic Finance Market. Egypt: Darussalam.

Dawabah, A.M. (2007). Studies in Islamic Finance. Cairo: Darussalam.

El-Gari, M. A. (1993). Towards an Islamic Stock Market. Islamic Economic Studies, 1. (1), 1-20.

El-Gamal, M. A. (2008). Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering. Wisconsin International Law Journal, 25 (4), 605-623.

Fayyad, A. (1998). Stock Market in the Balance of Islamic Jurisprudence. Egypt: Dar al-Nasher lil-Jamea'at.

Fdad, A. (2000). al-Bay' ala al-Sifah lil-Ayn al-gha'ibah wa ma yathbut bil-Themah. Jeddah: Islamic Development Bank Islamic: Institute for Research and Training.

Gupta, S. L. (2006). Financial Derivatives: Theory, Concepts and Problems. New Delhi: Prentice-Hall of India Private Limited.

Hammad, N. K. (1994). Bay' al-Kali bil Kali fi al-Fiqh al-Islami, Jeddah: Center of Islamic economic researches.

Hamoud, S. (1976). The Development of Banking Business Consistent with Islamic Shari'ah. Amman: Maktabat al-Aqsa

Haneeni, M. W. (2010). Transforming the Financial Stock Exchange to Work According to the Provisions of Islamic Shari'a. Amman: Dar Al-Nfa'is.

Hattab, K. T. (2005). Toward Islamic Market. Third World Conference on Islamic Economics. (Working paper). Makkah: Umm al-Qura University.

Hattab, K. (2007). Futures Commodity From the Perspective of Islamic. (Working paper). Makkah: International Conference of the Financial Markets and Stock Exchanges, Umm Al-Qura University.

Hindi, M. I. (1997). Management of Markets and Financial Institutions. Alexandria: Munsha't al-Ma'arf.

Ibn Abdeen, M. A. O. (n.d). al-Muhtar ala al-Mkhtar ala Tanwyer al-Absar. Beirut: Dar al-Feker.

Ibn al-Qayyim. (n.d.). Majmo'at al-Ma'abod Sharh Senan abi Dawoud. Cairo: Mustafa al-Babi al-Halabi.

Ibn al-Qayyim., & Ibn Taymiyah. (n.d). Risalt al-Qyas fi al-Shar'a al-Islami. Beirut: Dar al-Affaq al-Jadidah..

Ibn- al-Qayyim, M. (1973). A'alam al-Moaqaien an Rab al-A'Alamin. Dar al-Jil, Beirut.

Ibn Qudamah, M. A. 1401H. al-Mughani. Maktabt al-Riyadh al-Hadithah.

Ibn Taymiyah, T. (1398H). Majmoa' al-Ftawa Shihk al-Islam Ibn Taymiyah. Beirut: Mouassait al-Risalah,.

Ibn Taymiyah, T. A. (1385H). al-Qyas. Cairo: al-Matbah al-Salafyah.

Ibn al-Munthir, M .I. (1405H). al-Ijmma'. Beirut: Dar al-Kutub al-Ilmyah.

Ibn Rushd, M.A. (n.d). Bedait al-Mujtahid wa Nehait al-Muqtasid. Abdieen: Dar al-Kutub al-Hdithah.

International Islamic Fiqh Academy. (1992a). Qararat al-Majma', Seventh Session, Resolution 1 Financial Markets. Jeddah: International Islamic Fiqh Academy.

International Islamic Fiqh Academy. (1992b). Qararat al-Majma', Seventh Session, Resolution 3 Istisna contract. Jeddah: International Islamic Fiqh Academy.

Islamic Fiqh Academy of Muslim World league. 1984. Fatawa al-Majma, Seventh Session-Financial Securities and Commodities Market. Mecca: Islamic Fiqh Academy of Muslim World league.

Iqbal, M., & Khan, T. (eds.). (2005). Financial Engineering and Islamic Contracts. New York: Palgrave Macmillan.

Jobst, A., & Sole. J. (2012, March). Operative Principles of Islamic Derivatives - Towards a Coherent Theory. Paper presented at the meeting of International Monetary Fund.

Kamali, M. H. (2001). Istihsan Or Maliyati Umoor. Islamabad: International Institute of Islamic Economics, International Islamic University.

Kamali, M. H. (2002). Islamic Commercial Law: An Analysis of Futures and Options. Cambridge: The Islamic Texts Society.

Kamali, M. H. (2005). Fiqhi Issues in Commodity Futures. In M. Iqbal, & T. Khan (Ed.), Financial Engineering and Islamic Contracts, (PP 20-57). New York: Palgrave Macmillan.

Kamali, M. H. (2007). Commodity futures: An Islamic legal analysis. Thunderbird International Business Review, 49 (3), 309-339.

Kamel, O. A. (2006). Major Jurisprudential Rules and their Effect in the Financial Transactions. Maktabt al-Turath al-Islami.

Khan, T., & A. Habib. (2003). Risks Management: Analysis of Issues in Islamic Finance Industry. Jeddah: Islamic Development Bank: Islamic Institute for Research and Training.

Muhammad, Y. S. (2000). Jami Al-Fiqh. Mansura: Dar Al-Wafa.

Mahmassani, S. (1983). al-Nadhariah al-Ammah lil-Mojebat wa al-Aqud fi al-Shariah al-Islamiah. Beirut: Dar al-Ilm lil-Mlaeyen.

Mansuri, M. T. (2005). Islamic Law of Contracts and Business Transactions. Shari’ah Academy, Islamabad: International Islamic University.

Nasbah, M. 2013. legitimate Appreciation for Futures and its Hedging role After Developed it in Consistent with the Islamic Shari'ah. Global Islamic economic magazine, 12, 25-28.

Obaidullah, M. (1999). Financial Options in Islamic Contracts: Potential Tools for Risk Management. Islamic Economics, 11, 3-26.

Obaidullah, M. (2002). Islamic Risk Management: Towards Greater Ethics and Efficiency. International Journal of Islamic Financial Services, 3 (4).

Radhwan, S. A. 2005. Financial Derivatives and its Role in Risk Management and the Role of Financial Engineering in Manufacturing it Instruments. Cairo: Dar al-Nscher lil-Jamatt.

Salehabadi, A., & Aram, M. (2002). Islamic Justification of Derivative Instruments. International Journal of Islamic Financial Services,4 (3).

Usmani, M. T. (1996). Futures, options, swaps and equity investments. New Horizon, Institute of Islamic Banking and Insurance, 59.

Usmani, M. T. (1999).What law Experts Say: Futures, Options and Swaps. International Journal of Islamic Financial Services, 1.

Usmani, M. T. (2005). An Introduction to Islamic Finance. Karachi: Maktaba Ma’ariful Qur’an.

Vashishtha, A., &. Kumar, S. (2010). Development of Financial Derivatives Market in India- A Case Study, International Research Journal Of Finance & Economics, 37, 15-29.




DOI: http://dx.doi.org/10.1453/jepe.v1i2.68

Refbacks

  • There are currently no refbacks.


Bookmark and Share


.......................................................................................................................................................................................................................................................................................................................................

Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE - www.kspjournals.org

ISSN: 2148-8347

Editor: [email protected]   Secretarial: [email protected]   Istanbul - Turkey.

Copyright © KSP Library