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

Bashar H Malkawi

Journal of Banking Regulation, 2014, vol. 15, issue 1, 55 pages

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.

Date: 2014
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