1 Invaluable assistance was provided during the preparation of the original version of this chapter by David Chasman, Ian Clark, Gerald Hawting, David Llewelyn, Craig Nethercott, Alexandre Sallavuard, Barry Schein, and especially Peter Ho. Particularly thanks goes to David.
2 Throughout this chapter bay’ salam and bay’ ‘urbun will with few exceptions be referred to respectively as salam and ‘urbun.
3 Ibn al-Mundhir, al-Ijma’ (Riyadh: Dar Tayyiba, 1982) p 54.
4 See David Oakley, ‘Hedge Funds: Scholars remain wary of speculative instruments’ The Financial Times, 11 May 2011 and Robin Wigglesworth, ‘Derivatives: “In need of robust architecture” ’ The Financial Times, 12 May 2010.
5 On the interchangeability of the terms salam and salaf in the hadith literature, with usage of the latter term favoured in works of classical jurisprudence of Iraqi provenance, see Badr al-Din Mahmud ibn Ahmad ‘Ayni, ‘ Umdat al-Qari: Sharh Sahih al-Bukhari (Beirut: Dar Ihya’ al-Turath al-’Arabi, n.d.) Vol XII, p 61, and Muhammad Ayub, Understanding Islamic Finance (Chichester: John Wiley & Sons, 2007) p 243.
6 Majlis al-’aqd can be more literally translated as ‘contractual session’ and under Islamic law is defined as the period during which both parties are physically present and which concludes when one or the other departs (see paragraphs 2.87–2.89).
7 Another forward contract under the Shari’a that benefits from a similar exception to the general rules of contract is istisna’. Istisna’ is a transaction where the buyer requests from the seller the constructing or manufacturing of something according to certain specifications and standards and the materials are provided by the seller in return for a defined price (see Chapter 9). More controversial is tawarruq, a transaction where a financial institution sells a commodity for a deferred payment at cost plus profit to a customer, who in turn sells it to a third party for cash at the spot price. See Chapter 7.
9 Q2:282. On the documentary protocol for a salam transaction see paragraph 8.23.
10 See JD Latham, ‘Salam,’ Encyclopaedia of Islam, 2nd edn, Vol VIII, p 914 and Joseph Schacht, An Introduction to Islamic Law (London: Oxford University Press, 1964) p 153.
11 See Mahmoud A El-Gamal, Islamic Finance: Law, Economics, and Practice (Cambridge: Cambridge University Press, 2006) p 82. On how risk was conceived during the medieval period and the indispensable contribution of Arabic mathematical writings to later theory see Peter L Bernstein, Against the Gods: The Remarkable Story of Risk (New York: John Wiley & Sons, Inc., 1996) pp 31–6.
12 See al-Sarakhsi, al-Mabsut (Cairo: Matba’‘at al-Sa’‘adah, 1906–1913) Vol XI, p 159. On al-Sarakhsi’s casuistic treatment of salam see Chibli Mallat, Introduction to Middle Eastern Law (Oxford: Oxford University Press, 2007) pp 55–6.
13 See al-Bukhari, Sahih (Beirut: Dar Ibn Kathir, 2001), Kitab al-Salam, No 443 and the variant traditions included in this hadith collection. A version of this tradition appears in all of the canonical hadith collections. For an analysis of the early sources, including the hadith collections of ‘Abd al-Razzaq al-San’ani (d. 827 CE/211 AH) and Ibn Abi Shayba (d. 849 CE/235 AH), see Hiroyuki Yanagihashi, A History of the Early Islamic Law of Property: Reconstructing the Legal Development, 7th-9th Centuries, Studies in in Islamic Law and Society, Vol 20 (Leiden: EJK Brill, 2004), pp 163–211.
14 On the later historical development of the salam contract in both theory and practice see the important article by Baber Johansen, ‘Le contrat salam: Droit et formation du capital dans l’Empire abbasside (XIe–XIIe siècle), in Annales. Histoire, Sciences Sociales, 61e Année, No. 4 (Jul.–Aug., 2006), pp 863–99, which cites extensively from classical sources, especially those produced by the Hanafi school of law. The perspective of jurists of the classical period, also with an emphasis on Hanafi jurisprudence, is discussed in considerable detail in Johannes Christian Wichard, Zwischen Markt und Moschee: Wirtschaftliche Bedürfnisse und religiöse Anforderungen im frühen islamischen Vertragsrecht, Rechts- und Staatswissenschaftliche Veröffentlichungen der Görres-Gesellschaft, N.F., Band 75 (Paderborn: Ferdinand Schöningh, 1995).
15 For the late Ottoman period, see Kenneth M. Cuno, ‘Contrat salam et transformations agricoles en basse Égypte à l’époque ottoman’, ibid, pp 925–40 and Beshara Doumani, ‘Le contrat salam et les relations ville-campagne dans la Palestine ottoman’, ibid, pp 901–24.
16 On maslaha see Chapter 2 ‘Sources and Principles of Islamic Law’, paragraph 2.51.
17 On the risks assumed by the buyer that militate in favour of the contract price being lower than the spot price see Frank E Vogel and Samuel L Hayes, III, Islamic Law and Finance: Religion, Risk and Return (The Hague: Kluwer Law International, 1998) pp 223–4.
18 Hence they describe the salam contract as ‘the contract of the insolvent’ (ʽaqd al-mafalis), on which see Johansen, ‘Le contract salam’, pp 889–92.
19 See AAOIFI, Shari’ah Standard No (10) Salam and Parallel Salam, Appendix B, adopted on 28 Safar-4 Rabu’il al-Awwal 1423 AH (11–16 May 2002 CE).
21 See Section IX of Chapter 2.
22 For an analysis of the differences between the doctrines of the various schools of law, including the Ibadi and Ja’‘fari madhahib, see Nabil A Saleh, Unlawful Gain and Legitimate Profit in Islamic Law, 2nd revised edn (London: Graham & Trotman, 1992) p 118.
23 Usufruct is exempted from the prohibition of bay’ al-dayn according to the reasoning of a pronouncement published by the AAOIFI, on which see AAOIFI, Shari’ah Standard No (10) Salam and Parallel Salam, 3/1/1 and Appendix B. Originally, the Hanafis and the Malikis excluded services and usufruct from the definition of mal, or tangible asset, because these lacked corporeal reality at the time of entering into a contract.
25 See Andreas A Jobst and Juan Sole, ‘Operative Principles of Islamic Derivatives—Towards a Coherent Theory’ IMF Working Paper No. 12/63 (Washington, DC: International Monetary Fund, 2012), pp 11–12.
26 Riba al-nasi’a occurs when articles either of the same the genus (eg, currency) or which are capable of being measured and weighed (eg, wheat) are exchanged with one to be delivered later than the other.
27 On riba al-nasi’a, see Chapter 2 ‘Source and Principles of Islamic Law’.
29 Muslim, Jami’ al-Sahih (Beirut: Dar al-Fikr, 1978), Kitab al-Buyu’, No 3853. In this particular version the tradition is narrated by a Companion of the Prophet, ‘Ubada b. al-Samit (d. 703 CE/84 AH). The different versions of this tradition are discussed in Abdullah Saeed, Islamic Banking and Interest: A Study of the Prohibition of Riba and its Contemporary Interpretation (Leiden: EJ Brill, 1999) pp 31–2.
30 For a detailed analysis of the various fatawa see Muhammad al-Bashir Muhammad al-Amine, Risk Management in Islamic Finance: An Analysis of Derivatives [sic] Instruments in Commodity Markets (Leiden: EJ Brill, 2008) pp 75–83.
31 On sarf see David Santillana, Istituzioni di diritto musulmano malichita con riguardo anche al sistema sciafiita (Roma: Istituto per l’Oriente, 1925–38) Vol II, pp 186–94, Schacht, Introduction, p 154, Wahbah al-Zuhayli, Financial Transactions in Islamic Jurisprudence, translated Mahmoud A Gamal and revised by Muhammad S Essa, 2 vols (Damascus: Dar al-Fikr, 2003) Vol I, pp 281–92 (for the Arabic text see the 4th edition of al-Fiqh al-Islami wa-adillatuhu, 11 vols (Damascus: Dar al-Fikr, 2004) Vol IV, pp 636–47 and A Zysow, ‘Sarf,’ Encyclopaedia of Islam, 2nd edn, Vol VIII, p 914.
32 The prohibition is based on a hadith of questionable authenticity in which the Prophet is reported to have declared unlawful bay’ al-kali’ bi-al-kali’, meaning literally the exchange of two things both delayed. Al-Bayhaqi, Sunan al-Kubra (Beirut: Dar al-Kutub al-’Ilmiyah, 1999) 5:290 and al-Daraqutni, Sunan al-Darqutni (Beirut: Dar al-Kutub al-’Ilmiyah, 1996) 3:71. See paragraphs 2.82 and 2.83, and also paragraph 1.43.
33 See Vogel and Hayes, pp 94–5.
34 Consent by the original debtor is not necessary according to the Hanafis, the Ibadis, or the Ja’faris while the other madhahib require it. On hawala in general and hawalat al-dayn in particular see Saleh, pp 102–5, and on the modern applications of hawala see AAOIFI, Shari’ah Standard No (7) Hawala, 12. It is similar to novation, on which see Abraham L Udovitch, Partnership and Profit in Medieval Islam (Princeton: Princeton University Press, 1970) p 80.
35 See Salih al-Fawzan, Min Fiqh al-Mu’‘amalat (Islamic Law of Transactions) (Riyadh: Dar Ishbiliya lil-Nashr wa-al-Tawzi’, 2001) p 193.
36 Ibn Rushd, Bidayat al-Mujtahid wa-Nihayat al-Muqtasid, 4 vols (Beirut: Dar Ibn Hazm, 1995) Vol III, pp 1297–8.
37 For the text of both the mas’ala (question) and the jawab (answer) for this fatwa see Mohammad Abdul Halim Umar, Shari’‘a, Economic and Accounting Framework of Bay ‘al Salam in the Light of Contemporary Application, Research Paper No 33 (Jeddah: Islamic Development Bank, 1995) pp 34–5.
39 To circumvent the problem of gharar inherent in such a transaction Ibn Qudama (d. 1223 CE/620 AH), the eminent Hanbali jurist, elaborated the doctrine of ‘ilm, or knowledge of the subject matter, which depended on a reasonably exact description of the subject matter, including genus and species and whether it is in good or bad condition, although he acknowledges that two of his most influential predecessors, Ibn Hanbal (d. 855 CE/241 AH) and al-Shafi’i (d. 820 CE/204 AH), insisted on additional criteria, namely colour, country of origin, and anything else that could affect the price. Ibn Qudama, al-Mughni (Beirut: Dar al-Kitab al-’Arabi, 1983) Vol IV, pp 310–11.
40 AAOIFI, Shari’ah Standard No (10) Salam and Parallel Salam, 3/2/3.
41 See Ayub, p 244 and al-Fawzan, p 163.
42 See al-Bukhari, Sahih, Kitab al-Salam, Nos 453 and 454, on which see the commentary in Ibn Hajar, Fath al-bari bi-sharh Sahih al-Bukhari (Beirut: Dar Ihya al-Turath al-’Arabi, 1988).
43 On Shafi’i doctrine regarding this point see Saleh, p 91.
44 See Ibn Qudama, al-Mughni, Vol IV, p 328 and for the perspective of a sixteenth century Shafi’i authority see Muhammad ibn Muhammad al-Khatib al-Shirbini, Mughni al-Muhtaj (Beirut: Dar al-Kutub al-’Ilmiyah, 1994) Vol II, p 105.
45 See Section VIII of Chapter 2 for a discussion of hila.
46 AAOIFI, Shari’ah Standard No (10) Salam and Parallel Salam, 3/1/1.
47 AAOIFI, Shari’ah Standard No (10) Salam and Parallel Salam, 5/6.
50 Opinion is divided among both classical and contemporary jurists as to whether it is permissible for the buyer to sell its right to the subject matter of a salam contract prior to delivery. A permissive view was articulated by two leading Hanbali authorities, Ibn al-Qayyim (d. 1350 CE/691 AH) and Ibn Taymiyya (d. 1328 CE/728 AH). The Malikis permit the buyer to sell goods other than foodstuffs to the seller at a price equal to or less than the price originally paid or to a third party at any price, provided the exchanged countervalues are not of the same genus. Ibn Rushd, Bidayat, Vol III, pp 1302–7.
51 Classical jurists decreed the proper ordering of the contents of a sale contract, including the formal acknowledgement (iqrar) given at the end of the witnessing clauses, because these provide documentary proof of the conduct of the transaction in the event of a dispute. While it was generally agreed that the seller initiates the sale and the buyer accepts it, this presumption was reversed with regard to a salam contract. Unless a notary verified that the buyer acted first, by paying the purchase price and specifying the delivery date, it was feared that a seller might allege non-payment by the buyer when the term expired or otherwise behave unscrupulously. See Jeanette A Wakin, The Function of Documents in Islamic Law: The Chapters on Sales from Tahawi’s Kitab al-Shurut al-Kabir (Albany: State University of New York Press, 1972) pp 40–2.
52 On the acceptability of LIBOR see Brian Kettell, Islamic Capital Markets (London: Brian Kettell Islamic Banking Training, 2009) pp 188–90. See also Chapter 7 at Section VII. For additional background on the use of both currency and interest rate benchmarks see Sherif Ayoub, Derivatives in Islamic Finance: Examining the Market Risk Management Framework, Edinburgh Guides to Islamic Finance (Edinburgh: Edinburgh University Press, 2014), p 145–60.
53 For the original proposal see M Fahim Khan, Islamic Futures and their Markets: With Special Reference to their Role in Developing Rural Financial Market, Research Paper No 32 (Jeddah: Islamic Development Bank, 1995), pp 58–9 and for relevant commentary see al-Amine, pp 167–8.
54 For the ramifications of this proposal see Vogel and Hayes, pp 250–3 as well as al-Amine, pp 168–71.
55 On rahn see Santillana, Vol II, pp 285–303 and Schacht, Introduction, pp 139–40.
56 On the etymology of this term see Edward W Lane, An Arabic-English Lexicon (London: Williams and Norgate, 1872) Book I, Part 5, pp 1191–2, where it is derived from both triliteral and quadriliteral roots. According to the entry for the triliteral root, in which several disparate etymologies are given, it is observed that the word was recognized within the lexicographical tradition as of foreign origin. In Hebrew ‘erabon is derived from the same triliteral root and has the same meaning, which is related to the Greek arrhabon (ἀρραβών), on which see SD Goitein, A Mediterranean Society: the Jewish Communities of the World as Portrayed in Documents of the Cairo Geniza, vol I: Economic Foundations (Berkeley and Los Angeles: University of California Press, 1967) p 199. For a survey of the historical development of this transaction from antiquity, through the Islamic Middle Ages, to the present see Gerald Hawting and David M. Eisenberg, ‘ “Earnest Money” and the Sources of Islamic Law’, in Behnam Sadeghi, Asad Q. Ahmed, Adam Silverstein, Robert Hoyland (eds), Islamic cultures, Islamic contexts: essays in honor of Professor Patricia Crone (Leiden: EJ Brill, 2015) pp 112–32.
57 See OIC Fiqh Academy Resolution No 72 (3/8). For the Arabic text see <http://www.fiqhacademy.org.sa/qrarat/8-3.htm> as well as Majalla al-Majma’ (Fiqh Academy Journal) (Issue No 1, p 641). On ijara see Wael B Hallaq, Shari’a: Theory, Practice, Transformations (Cambridge: Cambridge University Press, 2009) pp 256–8.
58 See Vogel and Hayes, p 157.
59 Malik, al-Muwatta (riwayat Yahya ibn Yahya al-Laythi) (Beirut: Dar al-Nafa’is, 1971), Kitab al-Buyu ‘, No 1. On this hadith, which is munqati’ (lit. ‘cut’), meaning the chain of transmission is broken, see Ibn Rushd, Bidayat al-Mujtahid, Vol. II, p 264. The meaning of bay ‘ al-’urban is not obvious from the text of the Muwatta, on which see the discussion in J Schacht, ‘Hiyal,’ Encyclopaedia of Islam, 2nd edn, Vol III, p 510, where it is linked to the hila of double sale (bay’ atayn fi bay’a). See paragraph 2.78.
61 See Vogel and Hayes, pp 156–67. On the classification of contracts under Islamic law see Section IX of Chapter 2 ‘Source and Principles of Islamic Law’.
62 Ibn Qudama, al-Mughni, Vol IV, pp 312–13.
63 See OIC Fiqh Academy Resolution No 72 (3/8). Support for this view was previously expressed by the prominent contemporary Egyptian jurist Yusuf al-Qaradawi in his Shari’at al-Islam (Cairo: Dar al-Sahwah, 1393 AH) p 114, in which it is argued that, because of the unreliability of the relevant hadiths, the issue should be decided on rational grounds.
65 AAOIFI, Shari’ah Standard No (20) Sale of Commodities in Organised Markets, 5/2/3/1, adopted on 26–30 Rabi’ al-Awwal, 1425 AH (15–20 May 2004 CE).
67 See Section IX of Chapter 2.
68 Modern writers have occasionally adopted different terminology. The most common term is ‘amaliyat al-shartiya al-ajila, which can be translated literally as ‘deferred conditional transactions’. See Mohammad Hashim Kamali, ‘Islamic Commercial Law: An Analysis of Options’ (Fall 1997) 14 The American Journal of Islamic Social Sciences 3, 24. Some opt for the (plural) term al-ikhtiyarat, which is etymologically cognate with the classical term khiyarat. On this terminology, in addition to Kamali, see Ahmad Yusuf Sulayman, ‘Ra’y al-Tashri ‘ al-Islami fi Masa’il al-Bursa’ (A Legislative Decision with regard to Trading Issues), al-Mawsua’ al-’Ilmiyya wal-’Amaliyya lil- Bunuk al-Islamiyya (Encyclopedia of the Science and Practice of Islamic Banking), (Cairo: al-Ittihad al-Dawli lil-Bunuk al-Islamiyya, 1982) Vol V, pp 384–410. For an overview of the treatment of options under Islamic law see SE Rayner, The Theory of Contracts in Islamic Law: A Comparative Analysis with Particular Reference to the Modern Legislation in Kuwait, Bahrain and the United Arab Emirates, Arab and Islamic Laws Series (London: Graham & Trotman, 1991) pp 305–51.
69 See Hallaq, p 249 and Schacht, Introduction, pp 152–3.
70 al-Nawawi, al-Majmu’: Sharh al-Muhadhdhab (Beirut: Dar al-Fikr, 1996) Vol IX, p 225.
72 See Section VI of Chapter 2.
73 al-Marghinani, al-Hidaya (Cairo: Mustafa Babi al-Halabi, n.d.) Vol III, p 27.
74 See Adnan Sidiqqi and Peter Hrubi, Islamic Investment Funds Versus Hedge Funds (Munich, Germany: Grin Verlag, 2008) p 125.
75 On istijarar, which involves the ongoing purchase of goods in variable quantities from the same seller, integrated with khiyar al-shart in the context of transactions involving exotic options, including Asian options, barrier options, and range forward contracts see Mohammed Obaidullah, ‘Financial Engineering with Islamic Options’ (November 1998) 6 Islamic Economic Studies 1, 94–6. See also Ayoub, Derivatives in Islamic Finance, p 117–18.
76 For a contrary view see Kamali, pp 30–3.
79 For a detailed overview of the arguments pro and contra see al-Amine, pp 237–65.
80 Such techniques are designed to produce an arbitrage-free valuation by accounting for a host of complex and dynamic variables, especially the possibility of continuous price fluctuation. See Euan Sinclair, Option Trading: Pricing and Volatility Strategies and Techniques, Wiley Trading Series (Hoboken: John Wiley & Sons, Inc, 2010) pp 41–62.
81 See Vogel and Hayes, p 227.
82 Daman literally means ‘transgression’ and in a legal context means liability in general and ‘tort’ in particular. Its original meaning was liability arising from non-performance of a contract. See Schacht, Introduction, pp 147–8. In contemporary usage its meaning has been extended from ‘liability’ to ‘guaranty’ or ‘surety’ and even ‘insurance’.
83 For a critique of Kamali, p 26, on this point see Obaidullah, pp 77–80.
84 See El-Gamal, 92–6, where two cases studies are provided.
85 See al-Amine, pp 254–6, who summarizes the approving views of ‘ Abd al-Razzaq al-Sanhuri (d. 1971 CE/1391 AH), who was a modernizing jurist of Egyptian origin, and Rafiq Yunus al-Masri, of King Abdulaziz University, as well as the dissenting view of Shaykh Muhammad al-Siddiq al-Darir, a member of the AAOIFI Shari’a Board.
86 See Vogel and Hayes, pp 228–9. On third party guarantees see AAOIFI, Shari’ah Standard No (5) Guarantees, 8/6, originally adopted on 25–27 Safar 1421 AH (29–31 May 2002 CE) and revised standard adopted on 28 Sha’ban–1 Ramadan 1435 AH (26–28 June 2014 CE).
88 The plural form of wa’d is wu’ud.
89 See Marjan Muhammad, Hakimah Yaacob and Shabana Hasan, The Bindingness and Enforceability of a Unilateral Promise (Wa’d): An Analysis from Islamic Law and Legal Perspectives, Research Paper No 30 (Kuala Lumpur: International Shari’ah Research Academy for Islamic Finance, 2011). Among classical jurists a contrary view was especially prevalent among the Malikis, on which see al-Qarafi (d. 684 AH/1285 CE), al-Furuq (Beirut: ‘Alam al-Kutub, n.d.), Vol IV, p 25.
90 On ‘aqd see Chafik Chehata, ‘‘Akd’, Encyclopaedia of Islam, 2nd edn, Vol I, p 318. See Section IX of Chapter 2. For an analysis leading to the conclusion that absent a lawful excuse or mitigating circumstances promises are binding under Islamic law with regard to both commutative (muʿawadat) and unilateral (tabarruʿat) contracts see Md. Faruk Abdullah and Asmak Ab Rahman, ‘The Theory of “Promise” (Wa’d) in Islamic Law’, Arab Law Quarterly 29 (2015), 168–89.
91 On oaths see Johannes Pedersen, Der Eid bei den Semiten in seinem Verhältnis zu verwandten Erscheinungen, sowie die Stellung des Eides im Islam (Strassburg: Verlag von KJ Trübner, 1914), to be read in conjunction with Roy P Mottahedeh, Loyalty and Leadership in an Early Islamic Society (Princeton: Princeton University Press, 1980), which explores the political and social dimensions.
92 Third parties, if referred to at all, are seldom more than ancillary to the content of an oath whereas they are usually within the purview of a vow (nadhr).
93 That a powerful religious stigma attached to oathbreaking in Western Europe well into the modern period is demonstrated by Friedrich Schiller’s Kabale und Liebe, which was first performed in 1782.
94 AAOIFI Shari’ah Standard No (5) Guarantees, 6/8/2; AAOIFI Shari’ah Standard No (8) Murabahah, Appendix D, adopted on 25–27 Safar 1421 AH (29–31 May 2002 CE) and readopted for the purpose of reformatting on 28 Safar – 4 Rabi’a I AH (11–16 May 2002 CE); AAOIFI Shari’ah Standard No (9) Ijarah and Ijarah Muntahia Bittamleek, 8/2, adopted on 25–27 Safar 1421 AH (29–31 May 2002 CE) and readopted for the purpose of reformatting on 28 Safar – 4 Rabi’a I AH (11–16 May 2002 CE).
95 OIC Fiqh Academy Resolution No 40–41 (2/5 and 3/5).
96 AAOIFI, Shari’ah Standard No (49) Unilateral and Bilateral Promise, adopted on 20–21 Safar 1434 AH (3–4 January 2013 CE).
97 AAOIFI Shari’ah Standard No (49) Unilateral and Bilateral Promise, 4/4.
99 See al-Amine, pp 103–9.
100 See AAOIFI, Shari’ah Standard No (1) Trading in Currencies, 2/9, adopted on 27 Safar, 1421 AH (31 May 2000 CE).
101 See Philip Alexander, ‘The Journey Towards Absolute Return’, The Banker, 10 March 2009.
102 See Deutsche Bank Academic Paper, Pioneering Innovative Shari’a Compliant Solutions, which can be accessed at <http://www.db.com/presse/en/download/White_Paper.pdf>, in which is deployed the full arsenal of modern analytic philosophy alongside the traditional procedures of Islamic jurisprudence. This particular transaction structure and others like it have been criticized because it swaps returns derived from a basket of assets that are halal with a basket of assets that are haram. For an informative and lively account of the genesis of this financial product see Harris Irfan, Heaven’s Bankers: Inside the Hidden World of Islamic Finance (London: Constable, 2014) pp 141–62.
103 Maslaha is repeatedly invoked as a justifying principle.
104 See Resolutions of Shariah Advisory Council of Bank Negara Malaysia (BNM/RH/GL/012-2), pp 33–7. Under the Central Bank of Malaysia Act 1958 the SAC is the country’s supreme authority for Islamic finance. Rulings by the SAC override any issued by a Shari’a body or committee constituted in Malaysia. Arbitrators and courts must in any relevant proceeding refer to such rulings, which shall be binding.
105 Founded by the Central Bank of Bahrain, the Central Bank of Indonesia, the Central Bank of Sudan, the Islamic Development Bank (Saudi Arabia), the Labuan Offshore Financial Services Authority (Malaysia), and the Ministry of Finance (Brunei Darussalam), the IIFM, like the AAOIFI, is a standards setting body for the global Islamic finance industry. Apart from its founders it is supported by the Dubai International Financial Center and the State Bank of Pakistan, as well as international and regional banks and other market participants.
106 ISDA is a global financial trade association whose membership includes most of the world’s major institutions that trade in over-the-counter derivatives.
107 In Arabic tahawwut means, among other things, ‘care’, ‘precaution’, or ‘prudence’ and hence has become the standard term for ‘hedging’.
108 On the background to the production of standardized documentation see Jonathan Ercanbrack, The Transformation of Islamic Law in Global Financial Markets (Cambridge: Cambridge University Press, 2015) pp 117–18, Irfan, Heaven’s Bankers, pp 163–70 and Jobst and Sole, ‘Operative Principles of Islamic Derivatives’, pp 23–5.
109 This terminology has been phonetically transliterated from the Arabic by the relevant standard-setting bodies. According to the conventions otherwise applied throughout this volume, such terminology would be transliterated as himaya min taqallub asʿar al-sarf, wiqaya min taqallub asʿar al-sarf and mubadala al-arbah, mubadala (muʿaddala) al-arbah.
111 The defined terms referred to in this paragraph have fairly transparent meanings in the ISDA/ IIFM Tahawwut (Hedging) Master Agreement. Readers should consult this agreement for the full text of such definitions.
113 Fully Delivered Terminated Transaction is defined in section 14 as ‘any Terminated Transaction under which all goods or assets falling to be delivered have been delivered, irrespective of whether any payments fall to be made’.
114 Non-Fully Delivered Terminated Transaction is defined in section 14 as effectively a residual category of transactions as ‘any Terminated Transaction which is not a Fully Delivered Terminated Transaction’. For example, it could apply to a situation where the commodities broker is insolvent.
115 Exceptionally in this regard the ISDA/IIFM Tahawwut (Hedging) Master Agreement follows the 1992 ISDA Master Agreement rather than the 2002 version.
116 Where an event of default has occurred, the party exercising the wa’d could be either the defaulting or the non-defaulting party. If the defaulting party, it not improbable that it is at the same time subject to an insolvency proceeding. So that an insolvency officer has sufficient time to assess the situation of the defaulting party the right may be exercised within a period of up to one year.
119 Irfan, Heaven’s Bankers, p 170–6.
120 IIFM Guidance Memorandum and Product Description for Master Terms and Conditions for an Islamic Foreign Exchange Forward (Himaayah Min Taqallub Asʿaar Assarf) (IFX), p 3. As its official policy, the IIFM disclaims responsibility for any loss caused by reliance on such guidance.
121 Rather than recapitulate all relevant terms and conditions in this chapter, an exercise which would involve considerable repetition, the reader is advised to consult such standardized documentation on the website of the IIFM at http://www.iifm.net/published-standards.
122 In its Guidance Memorandum and Product Description for this template the IIFM rather confusingly refers to the double wa’d structure in Arabic transliteration as Waʾ ʿadan, when a more precise rendering of the dual form in Arabic would be wa’dan.
123 This terminology can also be transliterated in accordance with the conventions otherwise applied throughout this volume as mubadala (muʿaddala) al-᾿arbah and literally translated as profit (rate) swap.
126 See Jobst and Sole, ‘Operative Principles of Islamic Derivatives’, passim.
127 On Islamic legal theory see Chapter 2 ‘Source and Principles of Islamic Law’.