Abstract

http://ssrn.com/abstract=2070574
 


 



Innovative Islamic Hedging Products: Application of Wa'd in Malaysian Banks


Saadiah Mohamad


Universiti Teknologi MARA, Malaysia

Azlin Alisa Ahmad


National University of Malaysia

Shahida Shahimi


National University of Malaysia - Research Center for Islamic Economics and Finance (EKONIS-UKM)

2011

Capital Markets Review, Vol. 19, No.1 & 2, pp. 33-51, 2011

Abstract:     
The principle of Wa’d or promise can be used to structure innovative shariah compliant hedging instruments. Conventional hedging products such as forward currency contracts and currency swaps are prohibited in Islamic Finance principally due to the issue of riba and to the violation of bay al-sarf rule which requires currency trading to be done on 'spot' basis only. The usage of wa’d has grown rapidly in recent years since it offers great flexibility and many of the world’s first shariah compliant derivatives such as Islamic cross currency swaps and Islamic profit rate swaps have been developed by Malaysian banks using wa’d. This paper discusses and examines wa’d applications in seven selected Malaysian Islamic banks, specifically in its application as an Islamic hedging instrument. Based on a survey of the banks’ official information disclosed to the public, the finding of this research indicates that all Islamic banks under study have used wa’d in structuring their Islamic hedging products. This paper represents an early study of wa’d applications in the Malaysian banks and the study shows that wa’d is a flexible mechanism and has the prospect to play a vital role in facilitating Islamic financial institutions manage their business risks and liquidity effectively.

Number of Pages in PDF File: 20

Keywords: Islamic hedging, wa’d, shari’ah compliant, Islamic banks

JEL Classification: E44, F31, G29, G13

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Date posted: November 9, 2012  

Suggested Citation

Mohamad, Saadiah and Ahmad, Azlin Alisa and Shahimi, Shahida, Innovative Islamic Hedging Products: Application of Wa'd in Malaysian Banks (2011). Capital Markets Review, Vol. 19, No.1 & 2, pp. 33-51, 2011. Available at SSRN: http://ssrn.com/abstract=2070574

Contact Information

Saadiah Mohamad (Contact Author)
Universiti Teknologi MARA, Malaysia ( email )
40450 Shah Alam
Johor
Dungun, ME Selangor 23000
Malaysia
+6013 346 4310 (Phone)
+603 5521 1442 (Fax)
Azlin Alisa Ahmad
National University of Malaysia ( email )
43600 Bandar Baru Bangi
Faculty of Islamic Studies
Bangi, MS Selangor 43600
Malaysia
Shahida Shahimi
National University of Malaysia - Research Center for Islamic Economics and Finance (EKONIS-UKM) ( email )
Malaysia
HOME PAGE: http://www.ekonis-ukm.my
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