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Financial derivatives between Western legal tradition and Islamic finance: A comparative approach

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  • Bashar H Malkawi

Abstract

Islamic finance prohibits speculation, gambling, and mandates that income must be derived as profits rather than interest. The article discusses the legal rules underlying Islamic finance with a view towards developing equivalents to derivatives according to shari’ah principles. The article analyses the differences between conventional financial derivatives and Islamic financial instruments, evaluating those religiously acceptable. The article argues that Islamic finance already includes a number of contracts and instruments with derivative-like features that can help reduce risks and form the basis for designing shari’a-compatible derivatives. However, the absence of uniform principles affects the development of new shari’a-compliant instruments that can be used to manage risks.

Suggested Citation

  • Bashar H Malkawi, 2014. "Financial derivatives between Western legal tradition and Islamic finance: A comparative approach," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(1), pages 41-55, January.
    • Handle: RePEc:pal:jbkreg:v:15:y:2014:i:1:p:41-55
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    Cited by:

    1. Md Hamid Uddin & Sarkar H. Kabir & Mohammad Kabir Hassan & Mohammed S. Hossain & Jia Liu, 2022. "Why do sukuks (Islamic bonds) need a different pricing model?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2210-2234, April.
    2. S. B. Adam* & A. M. H. Al-Aidaros & S. B. Ishak, 2018. "The Moderating Effect of Islamic Work Ethics on the Relationship Between Corporate Governance and Performance of Islamic Financial Institutions in Nigeria: A Proposed Framework," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 1041-1048:6.

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