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Operative Principles of Islamic Derivatives; Towards a Coherent Theory

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  • Juan Sole
  • Andreas Jobst

Abstract

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.

Suggested Citation

  • Juan Sole & Andreas Jobst, 2012. "Operative Principles of Islamic Derivatives; Towards a Coherent Theory," IMF Working Papers 12/63, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/63
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=25752
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    References listed on IDEAS

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    1. Heiko Hesse & Andreas (Andy) Jobst & Juan Solé, 2008. "Trends and Challenges in Islamic Finance," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 9(2), pages 175-193, April.
    2. Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 07/117, International Monetary Fund.
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    Cited by:

    1. 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.
    2. Andreas A. Jobst, 2014. "The Islamic debate on derivatives," Chapters,in: Handbook on Islam and Economic Life, chapter 16, pages iii-iii Edward Elgar Publishing.
    3. Injadat, Ehab M. M., 2014. "Futures and Forwards Contracts from Perspective of Islamic Law," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 241-252.
    4. 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.
    5. Uddin, Md Akther, 2015. "Conventional Futures: Derivatives from Islamic Law of Contract Perspective," MPRA Paper 70147, University Library of Munich, Germany.

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