Hedging market risk in Islamic Treasury still thorny issue. New Islamic treasury techniques should derived from the fundamental tenets of Holy Qur’n and Prophet Muhammad’s traditions, the Sunnah .These tenets are embedded in what is defined as The Shariah – the framework of Islamic law.
Any Islamic treasury transaction should rely on four basic rules –linked directly to Islamic transaction -: (i) : Avoiding Riba :receipt and payment of Interest . (ii) : Avoiding Uncertainty (Garar) .(iii) Avoiding Gambling & Speculation (Maysir) .(iv) : Avoiding Haram Activities according to sharia rules .Sharia contract can represented by the three main types : Contracts of sale : (eg, Murabaha , Istisna , Salam ). Contract of Lease (Ijara ) and Participation contracts (eg , Musharaka , Mudaraba ) . Traditional Islamic treasury products dependent mainly on Murabaha agreements such as International Murabaha Commodities & Wakala for Funds & Portfolios .
Hedging treasury products still different issue In Islamic Finance, Financial Experts introduced a lot of financial products. The questions here: Whether these products are compatible with shariah standard & rules or not?
European & Malusian Banks go further in Hedging Market Risk products introducing Islamic hedging products such as : Profit rate swap using murabaha structure , Forward FX Rate including : Back to back Interest Free loan , Murabaha Contracts & Wa’ad Conracts , Islamic Vanilla TRY Deposits Notes , Dual Currency Murabaha , Islamic cross currency swap , Islamic Repo , …etc . The basis for new products came from traditional banking feedback looking to be Founder in Islamic Hedging Products .
Most Shariah Supervisory Committee in Islamic banks in Middle East forbid such products as it have shape & formality transactions with no real economic or commercial transactions. Some Islamic banks in GCC permitted few Hedging products such as Islamic Forward FX Rate Agreement . However, Hedging market risk in Islamic Treasury not exceed 2-5% from investment transaction. The author suggests in- depth cooperation between financial experts & shariah scholars to reach common & solid ground in hedging islamic treasury products.
Nafith ALHersh Nazzal is an Islamic banking specialist, certified financial and investment advisor and statistical analyst (MBA , ACI Dealing & NLP) in Jordan. He can be contacted at email@example.com