Derivatives in Islamic Finance Examining the Market Risk Management Framework

by Ayoub, Sherif

• ISBN13: 9780748695690
• ISBN10: 0748695699
• Edition: 1st
• Format: Hardcover
• Copyright: 2014-08-31
• Publisher: Edinburgh University Press

Summary

The Islamic finance industry faces the challenging task of attempting to reconcile the risk management demands of business entities with the difficulties posed by the seemingly rigid stance taken by some Shari'ah scholars over hedging practices.

Offering a fresh perspective, Sherif Ayoub confronts the challenge by reformulating how we might think about the theorisation of economic matters in the Islamic faith. He also considers the associated perceptions of permissibility that have until now been confined to the legal sphere, with a focus on contractual elements.

Ayoub sheds light on the way the Islamic finance industry conceptualises the role of financial instruments. Paying particular attention to derivatives in a market risk management framework that adheres to the objectives of Islamic jurisprudence, readers will come to understand the issues surrounding the avoidance of Riba (usury), Gharar (excessive uncertainty) and Maysir (gambling).

Author Biography

Sherif Ayoub works at Islamic Development Bank with an advisory responsibility over treasury, investments, and the development of the Islamic finance industry.

He acquired his PhD from the University of Edinburgh having been previously educated at Columbia University and Baldwin Wallace University. He has also served as a Visiting Fellow at Harvard University and a Visiting Scholar at INCEIF and IFSB.

Table of Contents

1. Introduction

2. Truth Formation in Mua'amalat
I. The Path to the Truth: The Role of Maslaha, Qiyas and Igma'a
II. Truth-seeking in the Scripture: The Reality Imposed by Critical Rationalism and Hermeneutics

3. Market Risks and Their Management
I. Risk and Its Management
II. Risk Identification
III. Risk Measurement
IV. Risk Strategy
V. Rationale for Hedging

4. Conventional Derivatives: Theory and Practice
I. Economics of Derivatives
II. Conventional Derivative Instruments

5. Derivatives in Islamic Finance
I. Resolutions by Standard-Setting Bodies in Islamic Jurisprudence
II. Theoretical Shari'ah Issues
III. Contractual Shari'ah Issues
IV. Contemporary Derivatives in Islamic Finance

6. Permissibility of the Underlying Variables and the Recognition of the Contract
I. Permissibility of the Underlying Variables: Interest Rate Benchmarks
II. Permissibility of the Underlying Variables: Currency Benchmarks
III. The Nature of Money in Islam
IV. Recognition of the Derivative Contract

7. Maysir, Hedging and Derivatives
I. A Conceptualisation of Maysir in Islamic and Western Thought
II. Maysir, Gharar, and the Indeterminacy of the Zero-sum Prohibition
III. Investment, Speculation, and Gambling: The Environment of Risk Management
IV. The Role of Financial Intermediaries as Speculators

8. Conclusion and Ending Remarks

References