nep-isf New Economics Papers
on Islamic Finance
Issue of 2018‒03‒26
one paper chosen by
Halimatun Aris

  1. Options: From Conventional and Islamic perspectives Analyses on the Islamic solutions By Bengana, Mohamed; Khouildi, Mohamed Yassine

  1. By: Bengana, Mohamed; Khouildi, Mohamed Yassine
    Abstract: Purpose: As Islamic finance is growing there is a need for more innovative instruments to be used especially for risk management purposes. The main purpose of this paper is to analyze “option” as derivative instrument form conventional point of view, and to analyze it from Islamic perspective. Also the paper aims to replace the prohibited elements in option by alternative Islamic contracts. Design/Methodology: The methodology used in this paper is qualitative method in which it uses a combination of historical research and literature review based on some previously published articles and reports and library research. Findings: The study finds out the diverged shariah opinions about the impressibility of “option” as a derivative instrument, rather than this the paper found various permissible Islamic contracts that can be used as alternative. The first alternative is the usage of simple Waad (promise) with a fee, the second contract is a combination of Waad, Wakalah, and commodity Murabaha. The third alternative is the usage of Urbun (earnest money) as an Islamic alternative to call option as well as hamish al jediya. Furthermore the paper highlights the need of such instruments for hedging purposes rather than speculation. Originality/Value: The significance of this study is the way the topic was treated. A lot of previous research papers have identified the prohibited elements of options and the Islamic alternatives, but this paper tries to facilitate the understanding of options from Islamic perspective by using diagrams. Also this paper clarifies the main alternatives and compares the classical and the contemporary shariah scholars’ views.
    Keywords: Keywords: Options, Waad, Urbun, derivatives, hedging
    JEL: G23
    Date: 2018–02–12

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