Sharia compatible futures

Abstract EN

A Sharia Compatible Future (SCF) is a contract that is designed to achieve the objectives of the conventional futures contract and to be in conformity with Islamic transaction restrictions, which means that the essence as well as the object of the contract must satisfy the Sharia code.

This implies the prohibition of interest futures.

Currency futures must observe the Islamic restrictions of currency transactions, and the institutional setting must enforce the Islamic ethics and must devise a means to prevent gambling in the Islamic futures market.

A future is one type of derivatives used to manage risk.

It is a very efficient instrument to hedge risks and is used by businesses as well as financial institutions to bring their exposure to risk to an acceptable level.

In this article, Sharia compatible futures are developed.

The economic functions of futures and the rationale for hedging is also discussed.

Islamic literature on futures and the Sharia position with regard to hedging are analysed.

Sharia compatible futures are then suggested.