RT Journal Article
SR Electronic
T1 Derivatives in Islamic Finance: There is
No Right Way to Do the Wrong Thing—Opportunities
for Investors
JF The Journal of Investing
FD Institutional Investor Journals
SP 7
OP 21
DO 10.3905/joi.2013.22.1.007
VO 22
IS 1
A1 Andreas A. Jobst
YR 2013
UL https://pm-research.com/content/22/1/7.abstract
AB 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. However, as Islamic finance continues to develop rapidly, the rising opportunity cost of limited shari’ah-compliant risk transfer mechanisms has raised questions about the scope of religious restrictions on the use of derivatives, and the scope for efficient risk management techniques for investors. 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 article explains the fundamental legal principles underpinning Islamic derivatives by reviewing accepted contracts and the scholastic debate surrounding existing financial innovation in this area, in order to generate an axiomatic perspective on a principle-based permissibility of derivatives under Islamic law. An overview of recent standardization efforts also is provided.TOPICS: Derivatives applications, ESG investing