Download - Derivatives Under Shariah
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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.
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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.
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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
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Jurists view points onconventional
derivatives
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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
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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.
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Mohd. Obaidullah
Dismisses the arguments of gharar and maisiraruguments.
Both buyer and seller take on a risk
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Conclusion
Conventional derivative instruments are notacceptable under Shariah due to presence of
speculation and unnecessary risk present.