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Operative Principles of Islamic Derivatives : Towards a Coherent Theory

Author/Editor: Juan Sole | Andreas Jobst
Authorized for Distribution: March 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,234KB)
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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.
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Series: Working Paper No. 12/63
Subject(s): Financial instruments | Islamic banking
Author's keyword(s): Derivatives | Islamic risk management | Islamic finance | shari’ah compliance | sukuk | mudaraba | ijarah | murabaha | riba | istisna | gharar | maisir | maslaha.
    Published:   March 1, 2012        
    ISBN/ISSN:   9781463938406/1018-5941   Format:   Paper
    Stock No:   WPIEA2012063   Pages:   33
    Price:   US$18.00
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