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Islamic Derivatives – Minority View & Warrants 


A. Minority View on Options
  • Some scholars (minority opinion):
    • Believe options can be approved
  • Reason:
    • Useful for:
      • Risk management (hedging)
      • Business needs


B. Role of Shari’ah Boards
  • Shari’ah boards in Islamic Financial Institutions (IFIs):
    • Adopt minority opinions
  • Aim:
    • Develop Shari’ah-compliant alternatives to conventional options
  • Approach:
    • Modify structure to:
      • Avoid Maisir
      • Avoid Gharar
      • Link to real assets and transactions


C. Warrants (Basic Concept)
Definition
  • Warrant = corporate security similar to a call option
  • Gives holder:
    • Right (not obligation) to buy company shares
    • At a fixed price
    • Within a specific time period


Key Features of Warrants
  • Specify:
    • Number of shares
    • Exercise price
    • Expiry date
  • Often:
    • Attached to bonds when issued
  • Buyer:
    • Can choose whether to exercise or not


Investor Perspective
  • Warrants are similar to:
    • Call options on shares
  • Benefit:
    • Buy shares at fixed (possibly lower) price


D. Difference Between Warrants and Call Options
1. Issuance
  • Call option:
    • Issued by individual investors/traders
  • Warrant:
    • Issued by the company itself


2. When Exercised
  • Call option:
    • Buyer purchases shares from another investor
    • Company is not directly involved
  • Warrant:
    • Buyer purchases shares directly from company
    • Company:
      • Receives money
      • Issues new shares


3. Effect on Company
  • Call option:
    • No change in company shares
  • Warrant:
    • Increases number of shares outstanding


E. Shari’ah Insight
  • Warrants may be viewed more favorably than options if:
    • Linked to real shares (underlying asset)
    • Not purely speculative
  • Still debated depending on:
    • Structure and usage


F. Final Takeaway
  • Minority scholars support developing Islamic alternatives
  • Warrants:
    • Function like call options
    • But differ in:
      • Issuer (company vs investor)
      • Impact on shares
  • Seen as a possible bridge toward Shari’ah-compliant option-like instruments

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