The Use of wa’Dan in Islamic Contract FX Forward: Weighting between Maslahah and Mafsadah

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Abstract

Islamic foreign exchange forward contract widely use the principle of wa’d in order to fulfil the need of hedging. The contract is an alternative solution to conventional forward contract, whereby one party will promise to the other party to exchange currency at an agreed rate for a future date. The adaptation of wa’d (unilateral promise) or wa’dan (two unilateral promise) is seen as an exit mechanism or makharij to the impermissible conventional derivatives contract. Some opined that it is merely mimicking conventional products and labelling them as 'Islamic' in form alone. As a subsequence, it gives the same effect as conventional derivative contract and would create some economic problems. Hence, the objective of this paper is to examine the Islamic foreign exchange forward contract based on wa’dan in shariah perspectives, whether it will attain maslahah or mafsadah to the people. This study took the form of a qualitative study using the approach of content analysis method as a research design. Documents analysed in this study are al-Quran and some related maxims of jurisprudence. This study found that Islamic foreign exchange forward contract give some maslahah to the parties involved, including investors, financial institutions, corporate sectors, and Islamic economy at large. This is due to the urgent need of the Islamic economy to the Islamic hedging to solve the problem of price volatility in the market. Nevertheless, the adaptation of wa’dan principle in the Islamic foreign exchange forward contract would also lead to mafsadah as it would threaten the economy if the contract is misused for merely speculation purposes.

Original languageEnglish
Pages (from-to)332-342
Number of pages11
JournalAsian Social Science
Volume10
Issue number22
DOIs
Publication statusPublished - 30 Oct 2014

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weighting
foreign exchange
economy
Weighting
Forward contracts
Foreign exchange
speculation
jurisprudence
currency
investor
research planning
content analysis
Conventional
market
Hedging
Derivatives

Keywords

  • Islamic FX forward
  • Wa’d
  • Wa’dan

ASJC Scopus subject areas

  • Social Sciences(all)
  • Arts and Humanities(all)
  • Economics, Econometrics and Finance(all)

Cite this

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title = "The Use of wa’Dan in Islamic Contract FX Forward: Weighting between Maslahah and Mafsadah",
abstract = "Islamic foreign exchange forward contract widely use the principle of wa’d in order to fulfil the need of hedging. The contract is an alternative solution to conventional forward contract, whereby one party will promise to the other party to exchange currency at an agreed rate for a future date. The adaptation of wa’d (unilateral promise) or wa’dan (two unilateral promise) is seen as an exit mechanism or makharij to the impermissible conventional derivatives contract. Some opined that it is merely mimicking conventional products and labelling them as 'Islamic' in form alone. As a subsequence, it gives the same effect as conventional derivative contract and would create some economic problems. Hence, the objective of this paper is to examine the Islamic foreign exchange forward contract based on wa’dan in shariah perspectives, whether it will attain maslahah or mafsadah to the people. This study took the form of a qualitative study using the approach of content analysis method as a research design. Documents analysed in this study are al-Quran and some related maxims of jurisprudence. This study found that Islamic foreign exchange forward contract give some maslahah to the parties involved, including investors, financial institutions, corporate sectors, and Islamic economy at large. This is due to the urgent need of the Islamic economy to the Islamic hedging to solve the problem of price volatility in the market. Nevertheless, the adaptation of wa’dan principle in the Islamic foreign exchange forward contract would also lead to mafsadah as it would threaten the economy if the contract is misused for merely speculation purposes.",
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