Prospects for an islamic derivatives market in Malaysia

Abstract If one were to single out an area of derivative trading which can find support in the relevant evidence of Shari'ah, it would unquestionably be the commodity futures. This is because futures and options that derive from commodities, especially agricultural commodities and food grains, can be used for a variety of beneficial purposes. Commodity futures can be used as hedging devices that protect farmers and the food production industry against the price risk over a period of time. Futures and options can also be used in the interest of effective planning by the market players in agricultural and industrial sectors that may wish to have the security of selling in advance instead of facing the uncertainties of marketing at short notice, especially for commodities that can only be stored over a period of months rather than years. The greatest benefit of trading in futures and options is that they facilitate risk management and risk reduction. All of these would fall, from the Shari'ah point of view, within the broad scope of public interest or maslahah , which is a recognized proof and basis of judgment in Shari'ah. However, the validity of maslahah in areas and issues which have given rise to controversy need to be established through valid Shariah evidence. This is the nature of the challenge that we face concerning trading in derivatives. © 1999 John Wiley & Sons, Inc.