The Scope and Application of Wa' Ad, Muwa'Adah and Wa'Dan in Islamic Finance

Abstract

Islamic laws cover all aspects of human behaviors and govern the Muslims ways of life. It is wider than the Western understanding of laws and they regulate Islamic transactions. Therefore, this paper demonstrates scope and application of Wa'ad (promise), Muwa'ada (promisor) and Wa'adan (two promises) in Islamic finance. Brief discussion on the definitions and legal principles of Wa'ad, Muwa'ada and Wa'adan from perspectives of Islamic law as well as the concept of wa'ad under common law were reported in the paper. Furthermore, the paper critically analyses the rules of wa'ad, muwa'adah and wa'adan in Islamic transaction (sales and purchase). Similarly, the concept and practice of wa'ad in Islamic banking system in Malaysia were also discussed. The applications of wa'ad also explain in Islamic banking products such as, use of wa'ad for foreign exchange option, Islamic financial market and foreign exchange option for a Multination bank. The paper ended with some illustrations about the use of wa'ad for short selling in Islamic finance.

Keywords: Islamic finance