IDEAS home Printed from https://ideas.repec.org/a/ksp/journ1/v1y2014i2p241-252.html
   My bibliography  Save this article

Futures and Forwards Contracts from Perspective of Islamic Law

Author

Listed:
  • Ehab M. M. INJADAT

    (Universiti Sains Islam Malaysia, Malaysia)

Abstract

Futures and forwards contracts are considered of the main derivatives contracts, which offer many services and benefits, namely risk management (hedging), and speculation. However, these contracts from the perspective of Islamic experts are varying and non-uniformed, where there are those who see futures and forwards contracts as unacceptable and forbidden by Islamic law, and there are also those who see futures and forward contracts as acceptable and compatible with Islamic law. This paper attempts to clarify the Islamic law perspective of futures and forwards contracts, to give a clearer picture about the legitimacy of these contracts, in order to examine whether the using of futures and forwards contracts are permissible or prohibited. The study follows the inductive method and descriptive research by displaying texts, previous literature, opinions of futures and forwards contracts from Islamic law perspective and comparisons between them, including the balancing and elicitation in light of Islamic law standards, strength of the arguments relied upon by each party and commitment to offer the presentation matter scientifically. The study’s conclusion the current application of futures and forwards contracts in the financial markets are impermissible and are considered prohibited contracts. The study find futures and forwards contracts contain a number of forbidden elements in Islamic law, especially gambling and harm speculation additions to a number of pictures of some forbidden elements such as gharar (ambiguity), riba (usury) that are still in the circle of debate among Muslim scholars. However, the availability of a some terms and conditions that can dispose the prohibited elements in these contracts may make them compatible and consistent with the Islamic law.

Suggested Citation

  • Ehab M. M. INJADAT, 2014. "Futures and Forwards Contracts from Perspective of Islamic Law," Journal of Economics and Political Economy, KSP Journals, vol. 1(2), pages 241-252, December.
    • Handle: RePEc:ksp:journ1:v:1:y:2014:i:2:p:241-252
    as

    Download full text from publisher

    File URL: http://www.kspjournals.org/index.php/JEPE/article/download/68/196
    Download Restriction: no
    File URL: http://www.kspjournals.org/index.php/JEPE/article/view/68
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mohammed Obaidullah, 1999. "Financial Options in Islamic Contracts: Potential Tools for Risk Management الخيارات المالية في العقود الإسلامية: الأدوات الممكنة استعمالها في إدارة المخاطر," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 11(1), pages 3-26, January.
    2. Bacha, Obiyathulla I., 1999. "Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration," MPRA Paper 12752, University Library of Munich, Germany.
    3. Mr. Juan Sole & Andreas Jobst, 2012. "Operative Principles of Islamic Derivatives: Towards a Coherent Theory," IMF Working Papers 2012/063, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Uddin, Md Akther, 2015. "Conventional Futures: Derivatives from Islamic Law of Contract Perspective," MPRA Paper 70147, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Injadat, Ehab M. M., 2014. "Futures and Forwards Contracts from Perspective of Islamic Law," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(2), pages 241-252.
    2. Andreas A. Jobst, 2014. "The Islamic debate on derivatives," Chapters, in: M. Kabir Hassan & Mervyn K. Lewis (ed.), Handbook on Islam and Economic Life, chapter 16, pages iii-iii, Edward Elgar Publishing.
    3. Nadhirah Nordin & Normadiah Daud & Mahadi Mohammad & Hashim Jusoh & Mohd Shukri Jusoh & Faizol Ismail, 2017. "Commodity Derivatives: Shariah Alternatives in Risk Management?," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(4), pages 232-246, April.
    4. repec:abd:kauiea:v:26:y:2013:i:1:p:169-202 is not listed on IDEAS
    5. Sami Ibrahim Al-Swailim, 2014. "Salam-based System of Finance ابتكار نظام للتمويل على أساس عقد السلم استخدام عقد السلم كأداة لإدارة السيولة، والأصول والخصوم," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 25, pages 339-348, King Abdulaziz University, Islamic Economics Institute..
    6. Bengana, Mohamed & Khouildi, Mohamed Yassine, 2018. "Options: From Conventional and Islamic perspectives Analyses on the Islamic solutions," MPRA Paper 84499, University Library of Munich, Germany.
    7. Waemustafa, Waeibrorheem & Sukri, Suriani, 2015. "Theory of Gharar and its interpretation of Risk and Uncertainty from the perspectives of Authentic Hadith and the Holy Quran: A Qualitative Analysis," MPRA Paper 78316, University Library of Munich, Germany, revised 10 Jan 2016.
    8. Volker Nienhaus, 2013. "Method and Substance of Islamic Economics: Moving Where? منهج وموضوع الاقتصاد الإسلامي إلى أين المسير؟," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 26(1), pages 169-202, January.
    9. Jean-Baptiste Desquilbet & Fedi Kalai, 2013. "Contrat De Depot Et Partage Du Risque De Liquidite Dans La Banque Islamique :Une Approche A La Diamond Et Dybvig: Deposit Contracts And Liquidity Risk Sharing In Islamic Banks: A Diamond And Dybvig Ap," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 56(3-4), pages 389-412.
    10. Ebrahim, M. Shahid & Rahman, Shafiqur, 2005. "On the pareto-optimality of futures contracts over Islamic forward contracts: implications for the emerging Muslim economies," Journal of Economic Behavior & Organization, Elsevier, vol. 56(2), pages 273-295, February.
    11. Kenneth Baldwin, 2014. "Asset Liability Management for Islamic Banks: A Model to Quantify the Capital Required to Absorb Refinancing Risk إدارة الأصول والخصوم (ALM) في المصارف الإسلامية : نموذج لتحديد رأس المال المطلوب لمواج," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 23, pages 301-318, King Abdulaziz University, Islamic Economics Institute..
    12. Abderrazak Belabes, 2013. "Ethics, Norms and Finance: What Are We Talking About? الأخلاق والمعايير والمالية: ما الذي نتحدث عنه؟," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 1, chapter 16, pages 101-130, King Abdulaziz University, Islamic Economics Institute..
    13. Khan, Tariqullah, 2000. "Islamic Quasi Equity (Debt) Instruments And The Challenges Of Balance Sheet Hedging: An Exploratory Analysis," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 7, pages 1-31.
    14. Abdulazim Islahi, 2012. "Nineteenth Century Muslim Scholars on Banking and Interest آراء العلماء المسلمين في المصارف والفائدة خلال القرن التاسع عشر," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 12, pages 19-28, King Abdulaziz University, Islamic Economics Institute..
    15. Abdul Azim Islahi, 2014. "What did hold back the Middle East? The Thesis of the Long Divergence Revisited ما سبب تأخر الشرق الأوسط؟ عود على بدء أطروحة "البون الشاسع"," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 22, pages 269-300, King Abdulaziz University, Islamic Economics Institute..
    16. Munawar Iqbal, 2012. "Eurozone Crisis Viewed from Islamic Finance Perspective أزمة منطقة اليورو من منظور التمويل الإسلامي," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 13, pages 29-38, King Abdulaziz University, Islamic Economics Institute..
    17. Mr. Juan Sole & Andreas Jobst, 2012. "Operative Principles of Islamic Derivatives: Towards a Coherent Theory," IMF Working Papers 2012/063, International Monetary Fund.
    18. Sultan Abdulsalam, 2013. "To What Extent Mandatory Voting Requirement Enhance the Corporate Governance? ما هو مدى تأثير توسيع فكرة متطلبات التصويت الإلزامي في حوكمة الشركات؟," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 20, pages 223-244, King Abdulaziz University, Islamic Economics Institute..
    19. Hayat Khan, 2014. "Economics of Agents with Social preferences: The Third Fundamental Theorem of Welfare Economics تداخل المتغيرات الاقتصادية مع التفضيلات الاجتماعية: النظرية الثالثة الأساسية لاقتصاديات الرفاه," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 0, chapter 24, pages 319-338, King Abdulaziz University, Islamic Economics Institute..
    20. Gunther Capelle Blancard, 2013. "The Performance of Socially Responsible Investment: Evidence from Shariah-compliant Stocks by Erragraguy Elias أداء استثمار المسؤولية الاجتماعية: أدلة من الأسهم المتوافقة للشريعة الإسلامية " كتاب," Chapters of books published by the Islamic Economics Institute, KAAU or its faculty members., in: Islamic Economics Institute (ed.),Lectures in Islamic Economics and Finance, Selected From Wednesday Seminars-08 محاضرات في الاقتصاد والتمويل الإسلامي ، مختارة من حوارات الأربعاء - 08, edition 1, chapter 17, pages 131-174, King Abdulaziz University, Islamic Economics Institute..
    21. Nadhirah Nordin & Mahadi Mohammad & Azlin Alisa Ahmad & Mohamad Sabri Haron & Normadiah Daud, 2017. "Commodity Futures: A Maqasid Al-Shariah Based Analysis," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(8), pages 602-614, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ksp:journ1:v:1:y:2014:i:2:p:241-252. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bilal KARGI (email available below). General contact details of provider: http://www.kspjournals.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.