- Published on
Islamic Derivatives – Prohibition of Maisir, Gharar & Dayn bi-Dayn
A. Core Shari’ah Principles Affecting Derivatives
B. Key Prohibited Elements
1. Maisir (Gambling / Speculation)
2. Gharar (Excessive Uncertainty)
3. Bai al-kali bil-kali (Dayn bi-Dayn)
C. Impact on Islamic Capital Market
D. Speculation in Markets
Conventional View
Islamic View
E. Risk and Return Relationship
F. Role of Regulators in Islamic Markets
Final Takeaway
A. Core Shari’ah Principles Affecting Derivatives
- Shari’ah imposes key restrictions that impact financial instruments:
- ❌ Cannot sell what you do not own → prevents short selling
- ❌ Only tangible/real assets can be traded → limits derivatives like options
B. Key Prohibited Elements
1. Maisir (Gambling / Speculation)
- Refers to:
- Trading based purely on chance and uncertainty
- In financial markets:
- Buying/selling securities for short-term speculative profit
- Problem:
- Profit depends on luck, not real economic activity
2. Gharar (Excessive Uncertainty)
- Occurs when:
- Outcome of transaction is highly uncertain
- Example:
- Entering contracts with:
- Unknown results
- High volatility
- Entering contracts with:
- Shari’ah rule:
- Transactions must avoid:
- Ambiguity and excessive risk
- Transactions must avoid:
3. Bai al-kali bil-kali (Dayn bi-Dayn)
- Means:
- Exchange of one deferred obligation for another
- Example:
- Payment delayed + delivery delayed
- Not allowed because:
- No real exchange at contract time
C. Impact on Islamic Capital Market
- These prohibitions make it difficult to:
- Develop instruments like:
- Futures
- Options
- Stock index derivatives
- Hedging tools
- Develop instruments like:
D. Speculation in Markets
Conventional View
- Speculation:
- Can improve:
- Liquidity
- Market activity
- Can improve:
- Two types of investors:
- Rational investors → use real information
- Speculators → trade based on market noise
Islamic View
- Speculation is problematic when it leads to:
- Maisir
- Gharar
- Especially when:
- Risk is excessive and unjustified
E. Risk and Return Relationship
- In markets:
- Higher risk → higher expected return
- Attracts:
- Investors seeking high gains
- But in Islam:
- Risk must be:
- Reasonable and justified
- Not excessive or speculative
- Risk must be:
F. Role of Regulators in Islamic Markets
- Responsible for:
- Monitoring:
- Market volatility
- Monitoring:
- Ensuring:
- Transactions remain within:
- Shari’ah limits
- Transactions remain within:
- May restrict:
- Trading during periods of:
- Extreme uncertainty
- Trading during periods of:
Final Takeaway
- Islamic finance prohibits:
- Gambling (Maisir)
- Excessive uncertainty (Gharar)
- Debt-for-debt transactions (Dayn bi-dayn)
- These rules:
- Limit speculative derivatives
- Emphasize:
- Real assets, ownership, and fairness
0 Comments