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Commodity Derivatives: Shariah Alternatives in Risk Management?

Author

Listed:
  • Nadhirah Nordin
  • Normadiah Daud
  • Mahadi Mohammad
  • Hashim Jusoh
  • Mohd Shukri Jusoh
  • Faizol Ismail

Abstract

This study aims to examine the application of Shariah principles in the commodity derivative as an alternative to the conventional derivative contracts in risk management. The majority of Shariah scholars consider derivatives contracts are non-Shariah compliant because of selling something that does not exist, the deferment in the counter values, uncertainty, gambling, speculation and sale of one debt for another.This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in the derivatives market. This study reveals that the application of wa‘d, hamish jiddiyyah, bay‘ al-murabahah/musawamah are the most relevant and suitable principles to be adopted due to its flexibility and easy application in forward, futures, options and swap contracts to eliminates the Shariah issue in the contract.

Suggested Citation

  • 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.
    • Handle: RePEc:hur:ijarbs:v:7:y:2017:i:4:p:232-246
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    References listed on IDEAS

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    1. Nik Muhammad Naziman Ab Rahman & Abdol Samad Nawi & Yusrina Hayati Nik Muhd Naziman, 2012. "The Price Discovery of the Malaysian Crude Palm Oil Futures Markets," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(4), pages 1-3.
    2. Bacha, Obiyathulla I., 1999. "Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration," MPRA Paper 12752, University Library of Munich, Germany.
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