Operative Principles of Islamic Derivatives: Towards a Coherent Theory

March 1, 2012

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Format: Chicago

Juan Sole, and Andreas Jobst. Operative Principles of Islamic Derivatives: Towards a Coherent Theory, (USA: International Monetary Fund, 2012) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Derivatives are few and far between in countries where the compatibility of financial transactions with Islamic law requires the development of shari'ah-compliant structures. Islamic finance is governed by the shari'ah, which bans speculation and gambling, and stipulates that income must be derived as profits from the shared generation of goods and services between counterparties rather than interest or a guaranteed return. The paper explains the fundamental legal principles underpinning Islamic finance with a view towards developing a cohesive theory of derivatives subject to shari'ahprinciples. After critically reviewing accepted contracts and the scholastic debate surrounding existing financial innovation in this area, the paper offers an axiomatic perspective on a principle-based permissibility of derivatives under Islamic law.

Subject: Currencies, Financial institutions, Financial regulation and supervision, Financial services, Futures, Hedging, Islamic finance, Money, Options

Keywords: Asset ownership, Asset performance, Asset transfer, Capital market, Cash settlement, Currencies, Derivative element, Derivatives, Derivatives transaction, Fair value, Futures, Gharar, Global, Hedging, Ijarah, Islamic finance, Islamic law, Islamic risk management, Istisna, Maisir, Maslaha, Mudaraba, Murabaha, Options, Purchase price, Reference asset, Riba, Shari’ah compliance, Sukuk, Terms agreement, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/063
Stock No:

WPIEA2012063
ISBN:

9781463938406
ISSN:

1018-5941

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