Shariah and Maqasid Analysis of Financial Derivatives and the Attempts to Islamize Them

Abstract

There have been increasing attempts recently to Islamize some financial derivatives. These attempts were initially meant to provide solutions to certain problems like the need to buy a currency or some commodity at a predetermined price on a future date for hedging purposes, but they later developed to include using the same strategies for speculation purposes. The later development involves serious effects on economics, for speculations have been proved to be a major reason behind the occurrence of financial crisis. The paper analyzes the Shariah reasons for the prohibition of derivatives in general, and it shows in the course of the analysis the Shariah objectives relating to the particular Fiqh rules of derivatives. This is in order to help outline the Islamization standards of such instruments, if possible at all, which include the acceptability of the instrument used as well as its purpose and effect. Having outlined the standards, the paper seeks to apply them to the recent attempts of derivatives islamization to determine their validity.