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The Islamic debate on derivatives

In: Handbook on Islam and Economic Life

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  • Andreas A. Jobst

Abstract

Despite their demonstrable importance for financial sector development, derivatives are few and far between in countries where capital market transactions are governed by Islamic law (shari’ah). This chapter explores the validity of the risk shifting proposition of derivatives in accordance with fundamental legal principles of the shari’ah and summarizes the key issues related to the prohibition of excessive uncertainty (gharar), speculative behavior (maisir) and unilateral enrichment without the creation of real values under Islamic jurisprudence (fiqh al-muamalat) which have circumscribed the use of derivatives. The chapter also presents a classification scheme of existing shari’ah-compliant derivatives, whose characteristics inform general axioms for the permissibility of certain types of contracts.

Suggested Citation

  • 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.
    • Handle: RePEc:elg:eechap:16009_16
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    References listed on IDEAS

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    1. Andreas Jobst & Peter Kunzel & Paul Mills & Amadou Sy, 2008. "Islamic bond issuance: what sovereign debt managers need to know," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 1(4), pages 330-344, November.
    2. Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 2007/117, International Monetary Fund.
    3. Bacha, Obiyathulla I., 1999. "Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration," MPRA Paper 12752, University Library of Munich, Germany.
    4. Mr. Juan Sole & Andreas Jobst, 2012. "Operative Principles of Islamic Derivatives: Towards a Coherent Theory," IMF Working Papers 2012/063, International Monetary Fund.
    5. Andreas A. Jobst, 2009. "Islamic derivatives," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 2(3/4), pages 254-260.
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