Abstract
Islamic foreign exchange forward contract widely use the principle of wa’d in order to fulfil the need of hedging. The contract is an alternative solution to conventional forward contract, whereby one party will promise to the other party to exchange currency at an agreed rate for a future date. The adaptation of wa’d (unilateral promise) or wa’dan (two unilateral promise) is seen as an exit mechanism or makharij to the impermissible conventional derivatives contract. Some opined that it is merely mimicking conventional products and labelling them as 'Islamic' in form alone. As a subsequence, it gives the same effect as conventional derivative contract and would create some economic problems. Hence, the objective of this paper is to examine the Islamic foreign exchange forward contract based on wa’dan in shariah perspectives, whether it will attain maslahah or mafsadah to the people. This study took the form of a qualitative study using the approach of content analysis method as a research design. Documents analysed in this study are al-Quran and some related maxims of jurisprudence. This study found that Islamic foreign exchange forward contract give some maslahah to the parties involved, including investors, financial institutions, corporate sectors, and Islamic economy at large. This is due to the urgent need of the Islamic economy to the Islamic hedging to solve the problem of price volatility in the market. Nevertheless, the adaptation of wa’dan principle in the Islamic foreign exchange forward contract would also lead to mafsadah as it would threaten the economy if the contract is misused for merely speculation purposes.
Highlights
Islam has outlined clear rules and regulations on every financial transactions carried out by market players
This study found that Islamic foreign exchange forward contract give some maslahah to the parties involved, including investors, financial institutions, corporate sectors, and Islamic economy at large
This paper concludes that Islamic FX forward contracts based on wa’dan capable of achieving maqasid al-shari’ah because it gives benefit to all parties
Summary
Islam has outlined clear rules and regulations on every financial transactions carried out by market players. This means that they are forbidden to do any activity that is against shariah guidelines as shariah compliance is an integral feature in the Islamic finance. As Islamic banks have to cater the clients’ need, they must be innovative in structuring any products offered. Islamic banks are allowed to structure Islamic derivative products that can provide the same effect as conventional derivatives, the possibility of restructuring involves techniques such as makharij. Since the exploration of a new product is a form of ijtihad, principle of wa’d which is sometimes seen as makhraj technique is allowed in Islam because its intended use is to achieve maqasid al-shari’ah. The jurist has to introduce some new contracts due to changes in time and need of people, as long as they do not conflict with shariah
Sign-in/Register to view highlights & summary 
Published Version (
Free)
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call