Islamic banks in Indonesia recently discussed on the possibility of Tahawwuth (hedging) as an instrument of mitigating market risk in Islamic bank. It came up (again) following International Seminar on Islamic Finance in Bank Indonesia, 6th May 2014, coorganized by International Islamic Financial Market and Bank Indonesia.
Some people consider the instrument is not allowed based on DSN fatwa on Foreign exchange transaction, which allows spot transaction based on naqd principle while provides forward contract (as a part of hedging) only for hajiyat principle. Therefore, according to this assumption, forward contract is not allowed. It is allowed only within two conditions: it is in the form of agreement (not contract) and it has underlying transaction.
In Islamic banking terminology, contract differs from agreement. Contract in Sharia refers to aqd, tight between parties which leads to a binding right and duty of each party, while agreement is wa'd or promise that binds only people who give promise. The condition of Forward to be at agreement level only because of majority ulama's conclusion that the exchange of monies (gold against silver or rupiah against dollar) should be cash-and-carry in nature, i.e the same time at the day's price.
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My conclusion : Once we allow Islamic bank to be a foreign exchange bank then all foreign exchange bank products should be allowed to be their products as long as all risk management and other prudentiality measures are fullfilled. Sharia principle on this is already there, namely necessity or hajiyat.
Some people consider the instrument is not allowed based on DSN fatwa on Foreign exchange transaction, which allows spot transaction based on naqd principle while provides forward contract (as a part of hedging) only for hajiyat principle. Therefore, according to this assumption, forward contract is not allowed. It is allowed only within two conditions: it is in the form of agreement (not contract) and it has underlying transaction.
In Islamic banking terminology, contract differs from agreement. Contract in Sharia refers to aqd, tight between parties which leads to a binding right and duty of each party, while agreement is wa'd or promise that binds only people who give promise. The condition of Forward to be at agreement level only because of majority ulama's conclusion that the exchange of monies (gold against silver or rupiah against dollar) should be cash-and-carry in nature, i.e the same time at the day's price.
.................
(continue)
My conclusion : Once we allow Islamic bank to be a foreign exchange bank then all foreign exchange bank products should be allowed to be their products as long as all risk management and other prudentiality measures are fullfilled. Sharia principle on this is already there, namely necessity or hajiyat.
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