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Islamic Derivatives – Stocks & the Islamic Capital Market 


A. Core Principle
  • All activities in the Islamic capital market must:
    • Fully comply with Shari’ah principles
  • Shari’ah acts as:
    • A complete guide for life
    • A legal framework for financial and commercial activities


B. Sources of Shari’ah Law
Shari’ah rules are derived from:
  • The Qur’an:
    • Holy book of Islam
    • Contains revealed word of God
    • Only a small portion (~3%) relates directly to legal rulings


  • The Sunnah of Prophet Muhammad (PBUH):
    • Sayings, actions, and approvals
    • Considered binding authority


  • Ijma (Consensus):
    • Agreement among qualified Muslim scholars
    • Helps address new financial issues


  • Qiyas (Analogy/Reasoning):
    • Applying existing rulings to new situations
    • Based on logical deduction


C. Role of Scholars & Industry Development
  • Collaboration between:
    • Shari’ah scholars
    • Business and financial experts
  • Purpose:
    • Develop practical and modern rulings
    • Adapt Shari’ah to new financial instruments


D. Impact of Ijma (Consensus Building)
  • Helps:
    • Reduce uncertainty and disagreement
    • Address criticisms and doubts
  • Even with differing opinions:
    • Some level of agreement (ijma) is achieved


E. Key Institutions Supporting Islamic Finance
  • Islamic Fiqh Academy
  • Accounting and Auditing Organization for Islamic Financial Institutions
  • Islamic Financial Services Board


F. Role of These Institutions
  • Provide:
    • Guidelines and standards
    • Shari’ah rulings (fatwas)
  • Aim to:
    • Unify and standardize practices
    • Strengthen global Islamic finance industry


G. Overall Impact
  • Development of:
    • More structured Islamic capital markets
  • Enhances:
    • Credibility and consistency
  • Supports:
    • Growth of Shari’ah-compliant financial systems


Final Takeaway
  • Islamic capital markets operate under:
    • Strict Shari’ah guidance
  • Built on:
    • Qur’an, Sunnah, Ijma, and Qiyas
  • Supported by:
    • Global institutions ensuring standardization and development

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