Operative Principles of Islamic Derivatives: Towards a Coherent Theory
IMF Working Papers, March 1, 2012
Source details
- Canonical URL
- Operative Principles of Islamic Derivatives: Towards a Coherent Theory
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Bibliographic details
- Authors: Juan Sole, Andreas Jobst
- Published: March 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463938406.001
Overview and purpose
- Authors: Juan Sole, Andreas Jobst
- Publication date: March 1, 2012
- Series: Working Paper No. 2012/063
- Purpose: Explain fundamental legal principles underpinning Islamic finance and develop a cohesive theory of derivatives subject to shari'ah principles; critically review accepted contracts and scholastic debate; offer an axiomatic perspective on principle-based permissibility of derivatives under Islamic law.
Key findings and analysis
- Derivatives are few and far between in countries where compatibility with Islamic law requires development of shari'ah-compliant structures.
- Islamic finance is governed by the shari'ah, which:
- bans speculation and gambling (maisir);
- 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 (riba prohibited).
- The paper provides:
- an explanation of fundamental legal principles underpinning Islamic finance;
- a critical review of accepted contracts and the scholastic debate surrounding existing financial innovation in derivatives;
- an axiomatic perspective proposing principle-based permissibility of derivatives under Islamic law.
Concepts, instruments, and legal terms emphasized
- Subject areas: Currencies, Financial institutions, Financial regulation and supervision, Financial services, Futures, Hedging, Islamic finance, Money, Options
- Keywords and concepts preserved from the source:
- asset ownership, asset performance, asset transfer, capital market, cash settlement
- derivative element, derivatives, derivatives transaction, fair value, Futures, gharar
- 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
Structure and contributions
- Critical review of accepted contracts and scholastic debate surrounding financial innovation related to derivatives in Islamic finance.
- Axiomatic perspective: offers a principle-based framework for assessing permissibility of derivatives under Islamic law (shari'ah).