ISLAMIC FINANCE - Unconventional exposure

14 Mar 2007

Derivatives seem an anathema to Islamic finance: they exist only on balance sheets, are dependent on other product movements and are frequently used for speculation. But they are also vital for hedging – provided that banks understand them and that scholars agree on what structures are permitted. Chris Wright sneaks a peek at the contentious issue of interest in Islam.

The financial tools available under Islamic shariah law have been growing in complexity and abundance. Most market participants understand that a Shariah-compliant bond can work, and that a home loan also makes sense. But when it comes to shariah-compliant derivatives, it's a different matter.

Derivatives appear to be more ...

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