Welcome to the Islamic Finance Resources blog, a grassroots initiative started by industry professionals and supported by practitioners from around the globe.

We constantly update this site and its overall content, and encourage you to use the various navigation tools available and welcome your feedback and comments.
A few of the resources that you can find in this site:
- Funds@Work: Network Analysis Among Sharia Scholars v 4.0
- ISRA: Islamic Finance Knowledge Repository
- IFSB-IRTI-IDB Islamic Finance and Global Stability Report
- Sukuk Reports: I, II, III, and IV
Much more available under 'Industry Reports' and 'Academic Papers' (right hand side menus)

Islamic Finance in the News

Islamic Finance Gateway on Twitter


Sale at Market-Price (Bay' bi Sir' al Suq)

What the Scholars Say
While scholars have stated that price (thaman) must be fully determined at the time of contract, the means of this determination are subject to some disagreement. For many jurists, it is not valid to sell at "the market determined price" or "at the price at which people sell" or a the price "that so and so chooses" since the price is unknown. But this sort of sale, "market order" can have the price specified in such a way that there can be little chance of disagreement.

Imam Ahmad ruled for the validity of sale at the price to be determined by the market at a specified future time, without specifying that price at the time of the contract due 'Urf.

Ibn Taymiyyah states that a price may be determined in exact figures or it may be thaman al-mithl, the price that other people pay, or the market price, provided that only one price prevails, or it may be determined in an manner that the parties find agreeable and is clear enough to eliminate doubts. To avoid confusion, what is referenced in this case is a "market determined price at the item at the conclusion of the sale", not any future price.

He gives as example the ijma' of scholars on the validity of assigning a proper dower (mahr al mithl) in a contract for marage. The idea of proper price (thaman al mithl) is analogous to that of proper dower. He states that there is nothing in Quran or Sunnah against the concept and general custom has validated it.

Ibn al Qayyim hae also favored permitting this type of sale. Other scholars of note who permitted bay' bi sir' al suq include: Al Khatib al Shirbini (Shafii) Abu Ishaq a Shirazi (Shafii), Ibn Juzayy (Maliki), Al Dardir (Maliki), Mari Ibn Yusuf (Hanbali), Ibn Qayyim al Jawziyya (Hnbali), Ibn Hazm all have approved. Ahmad Ibn Hanbal issued an afirmative fatwa on it.

Md Yusuf Musa supported the Hanbali position by observing that specification of an exact figure is not a Shariah requirement. Specifying market prevailing price on a specific date is clear and does not leave room for disagreement and dispute. This view has found support from Ahmad Yusuf Sulayman and Ahmad Hasan. In this there is little chance of excessive gharar in this.

What it means
So, for most, the sale need not refer to a set or specific price in order to be valid. It is still valid and there is no excessive gharar as long as the price is set in a way that is acceptable to both parties and cannot lead to disputes. According to Kamali, this lends credence to his argument that Futures should be acceptable. The sheer fact that futures are extremely liquid and price determination is rarely (never?) an issue in any futures market does give them more justification, certainly but there are many more steps to the argument and many are more debatable.

The acceptability of Bay' bi Sir' a Suq has direct impact on Istijrar (please click for earlier post), of course, since in Istijrar, individual or Sub-Murabahas refer to prices only fixed at the time of execution of that Sub-Murabaha. No offer and acceptance or needed, and price is set only by reference to an underlying market.

It probably does not help with anything illiquid, say Tier 3 assets, priced by model. It appears that this price-referencing mechanism applies only to those fungibles for which there is a price.

Mostly paraphrased from:

Dr Wahbah al-Zuhayli, Financial Transactions in Islamic Jurisprudence, vol 1, translated by Md El-Gamal, Dar al Fikr, Damascus, 2002, p 107.

Md Hashim Kamali, Islamic Commercial Law: An Analysis of Futures and Options, Islamic Texts Society, 2000, pp95-96.

See also Islamic Law on Commercial Transactions, Prof Dr Razal Hj Nawawi, CT Publications, Malaysia, 1999, p 97. (Mustapha al Zarqa', Aqd al Bay', is quoted)


Sustainable Development from an Islamic Perspective

A recent discussion on our Linked group inquired on the potential convergence between Islamic finance and SRI. Socially responsible investing has evolved over the years - just the same as Islamic finance - and mostrecently much attention has been given to the concept of sustainable development. For the SRI industry this has meant a departure from its negative-screens comfort zone towards a more dynamic and positive-screened methodology. Such approach is also gaining momentum across Islamic finance (for instance Dow Jones having launched their Islamic Sustainability Index).

Here we include a paper from KAU's Islamic Economics Research Centre that provides an analysis of Sustainable Development as it relates to Islamic finance. This provides a broad overview that would be useful before taking on the specifics of SRI.

Sustainable Development from an Islamic Perspective: Meaning, Implications, and Policy Concerns
Zubair Hasan
Professor of Islamic Economics and Finance
International Islamic University of Malaysia, Malaysia
"This paper examines the debate on the meaning of sustainable development and
the policy implications of different approaches from an Islamic perspective.
It integrates mainstream and Islamic positions on the subject and argues that to
whatever definition of sustainable development one might subscribe, eventually,
each ends in an environmental concern."

"It argues that the Islamic approach is more agreeable to environmental protection and concludes that issues surrounding sustainable development have moral, ethical, social, and political complexities and that economics or economists alone cannot resolve the problem."



Regulatory Perspectives on Islamic Finance

An overview of various policy statements, speeches, initiatives, etc from
jurisdictions across the globe (as they relate to Islamic finance). We
have featured below the most pertinent texts as they relate to each
country/region, but for additional readings check the respective archives
links as well.

BCB (Bahrain) - Challenges for Islamic Finance
Text (link might not work, check this blog's summary of the speech) & Archives

CBK (Kuwait) - Development & Integration of Islamic Finance
Text & Archives

DFSA (Dubai) - The DFSA's Islamic Finance Regulatory Regime
Text & Archives

FSA (UK) - Islamic Finance in the UK: Regulation and Challenges
Text & Archives

HKMA (Hong Kong) - The Natural Gateway to Islamic Finance in Asia
Text & Archives

MAS (Singapore) - Singapore's Perspective on Islamic Finance
Text & Archives

MIFC (Malaysia) - A Primer on the MIFC Initiative
Text & Archives

QFC (Qatar) - Business Case : Islamic Finance
Text & Archives

SBP (Pakistan) - Pakistan Islamic Banking: Past, Present and Future Outlook
Text & Archives

Federal Reserve (US) - Islamic Finance 101
Text 1 - The Obama version - November 6, 2008
Text 2 - The Bush version - May 8, 2004 (yes, 2004)

The Employment of Shari'ah Scholars by Businessmen

Recently came across this article & discussion (in Arabic) from KAU's Islamic Economics Research Centre and wonder if anyone would have come across an English translation. Again we have some very interesting feedback within the Linkedin discussion forum.

The Employment of Shari'ah Scholars by Businessmen
Rafic Yunus Al-Masri
Islamic Economics Research Centre
King Abdul Aziz University, Jeddah, Saudi Arabia

The english excerpt raises some very interesting issues as they relate to agency costs and alignment of interests:

"Abstract. Can a Faqih work as an adviser for a businessman and get paid a salary from him? Why did the Shari'ah scholars prohibit taking a reward for fatwa? Is this salary similar to bribe? Is it permissible for a Faqih to absolutely defend his employer, whether the right is with him or with his opponent? Can a Faqih simply become a means to legitimize the work of the employer? Do the capital owners and businessmen really resort to scholars in order to commit themselves with the legal requirements or they do so just for promoting and marketing their products in religious communities? Is it permissible for the capital owners and businessmen to consult only with the scholars whose fatawa are expected to serve their benefits? For example, is it possible for a Faqih to pass a judgment or give an advice against his employer for the benefit of his employee? Is it possible for the employer to abide by the judgment of the Faqih if it is not in his favour? Do the members of the Shari'ah Boards in Islamic financial institutions work for the benefit of the institutions or for the benefit of the public? How can these bodies gain public confidence? This paper presents brief answers to these questions."



Buiter: Should you be able to sell what you do not own?

The economist and former MPC member discusses CDS and the promise of Islamic Finance.


Istijrar: How does it really work?

The Background

Although technically just a repeat sale or 'supply' arrangement, (see, eg.,
Md Ayub, pg 355), Istijrar is both a very sophisticated contract and in the form most quoted can have elements resembling 'Asianing' in options (i.e., average price), and barrier options, (although note that it is not really an Asian option, but a series of barrier options). See as well Thomas, Cox and Kraty, Structuring Islamic Finance Transactions, pp 71-2.

The modern use of the contract was begun by Mufti Taqi Usmani and this interesting payoff is described in some detail in papers by Md Obaidullah and Obiyathulla I. Bacha.
Istijrar: A Product of Islamic Financial Engineering
Dr Mohammed Obaidullah (New Horizon, no 68, Oct 1997). We are asking permission to reproduce this article in electronic format as IIBI has not yet finished scanning their back issues (expected time July 2009, Insh'Alah). (Please check this posting again soon to see if we have received permission)

It is also mentioned in some detail in Obaidullah's online book: part 4, p48ff (190)
. And, this lecture note by O.I. Bacha, Derivatives in Islamic Finance--An Overview, p 21ff or his paper Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration, see pp 23ff.

The Structure

The details of the arrangement are as follows (according supposedly to Dr. Muhammad Imran Ashraf Usmani), see MeezanBank Guide to Islamic Finance, section 19, or Istijrar as well. Please note that although this is a sale, after the execution of the Master Murabaha, no offer or acceptance is issued and sale is concluded merely by posession (bay al-ta'ati or al-mu'atah).

Master Murabaha facility or Istijrar facility agreement is signed between the bank and its client under which various Sub-Murabahas would be extended:

At Time T0:

The Master Murabaha agreement will describe the following formula for the price range an the Murabaha price P*:

  1. The upper and lower range around the cost price P0 is determined. This price range may be linked to a benchmark such as 'LIBOR+margin'. Hence the price bound would change when the benchmark shifts.
  2. The Murabaha price P* or the exercise price is set. This is the price which may be applied if the market price of the asset goes above or below the price range during time T0-T90.
The period during which the above two call options shall be valid is T0 -T90.

At T90:

  1. When the Sub-Murabaha or 'Declaration' is signed at T90, the sale is executed.
  2. The settlement price Ps is determined at this time.
Settlement price Ps may be one of the following two:

  • Avg price of asset during T0-T90
  • Exercise price fixed by either party afte the market price of asset during time T0-T90 has gone out of the rice range. This exercise price may be the murabaha price P* or some other price fixed by either bank or customer.
At Ts: On the settlement date, the settlement price Ps is paid as set at time T90.
  • If a number of Sub-Murabahas have been executed under the Master Murabaha Agreement, then each will be settled according t is own settlement price on the settlement date.
  • In order to decrease the price volatility between Declaration Date an the Settlement Date, the duration may be reduced.
Terms Used:
T0 - Time when Master Murabaha agreement or Istijrar agreement is signed.
T90 - Time when declaration is signed

Ts - Settlement Date
P0- Cost price
P*- Murabaha Price

Ps-Settlement price
Declaration -- Offer and Acceptance between Custeomer and Bank to sell the asset back to customer.


  • Murabaha Price P* is to be determined at the time of extending the Sub-Murabaha.
  • The Murabaha Price P* cannot be fixed as the settlement price Ps by the Bank or the Customer during the tenor of the sub-Murabaha T0-T90
  • Ps-settlement price may be the prevailing market price of an average of the price during the Istijrar period.
  • The price on the settlement date cannot be changed by either party even if the market price has gone out of the pri range during the tenor of the sub Murabaha.
Process Flow:
  1. Master Murabaha Agrement/Istijrar agreement is signed at T0
  2. Agency agrement is signed (if required) at T0.
  3. When the bank purchases the commodity the Declaration (Sub Murabaha) is signed at T90.
  4. Ps-the Settlement Price (Contract Price) is paid on the Settlement Date.
Short Discussion

While the features of this derivative contract/arrangement are described in some detail in these papers, the technicalities and legalities and Shariah aspects are less easily found. But the amazing thing is that this arrangement is merely a set of sales.

Islamic Law of sale is such that Istijrar is not considered a set of strange options, no wa'ad is necessary, no
khiyar is needed (although they can apparently also be used). In sales contracts there is flexibility according to the payment and settlement of price. Bay' bi Sirr al-Suqq (payment at market-determined price) is the subject of relatively rich discussion and we will go over this, Insh'Allah, in another post, but this is one area of fiqh which touches upon Itijrar. The fact that Istijrar is a repeat sale makes many scholars feel that this flexibility (delay of payment and price set according to market average) should be afforded to this arangement. Moreover, the embedded derivative elements help to reduce the risk, reducing the gharar of the arrangement to something considered to be 'acceptable'.

Please note as well that Istijrar is extremely flexible and can be used for many other types of contract (e.g., ijara, and mudaraba, supposedly) and can probably allow for a great many other payoff profiles. This, using Islamic Law of Sale, is something that has not been used to its fullest as yet in Islamic Finance, and we should probably expect much more future innovation in Islamic Finance using Istijrar.

As we mentioned above, we hope to write more on the notion of sale at market-determined price (bay' bi sirr as-suq) as well as the more conventional delay in payments and more details on conclusion of sale without offer/acceptance.

This is one of the hidden gems of Islamic Finance.



CBB Industry Reviews

The Central Bank of Bahrain's industry newsletters are quarterly publications that provide updates about the latest developments and opportunities in the Islamic finance, insurance, takaful and capital markets industries.

2008 Archive:
Capital Markets Review (September 2008)
Insurance & Takaful Review (August 2008)
Islamic Finance Review (July 2008)
Capital Markets Review (June 2008)
Insurance & Takaful Review (May 2008)
Islamic Finance Review (April 2008)
Capital Markets Review (March 2008)
Insurance & Takaful Review (February 2008)
Islamic Finance Review (January 2008)



Experimenting with New Layout

We are polishing the look & feel of the blog to make it easier to navigate, improve readability and its overall usefulness. Your comments & suggestions are very welcome (please let us know what you rather see more of or less of), as we hope to maximize the usefulness of this resource and minimize noise.


Malaysian Islamic Capital Market - Quarterly Bulletins

Please find below the Islamic Capital Market (ICM) Quarterly Bulletins, from the Securities Commission in Malaysia. This is only a small segment of information that is available on their website (which is itself an excellent resource with a very comprehensive archive of documents and information), we compile it here for easy reference:

Issues for 2009:

Issues for 2008

Issues for 2007

Issues for 2006


Islamic Banks Also to Blame for Meltdown

Islamic Banks Also Responsible for Global Financial Crisis: Experts. (Khaleej Times, 6 March 2009) ABU DHABI — Islamic banks must share equal responsibility with conventional commercial banks and financial institutions for the current global financial crisis, a professor specialising in Islamic economics said on Thursday....

From one of our most prolific naysayers in Islamic Finance, Prof Md el-Gamal (who generally has a point!). Also checkout the parallel commentary within our LinkedIn discussion forum.

Shariah Compliant Short-Selling: Mechanism 2

Short-Sale through Mutual Wa'ad (Muwa'adah)

Amiri Capital, as part of their effort to set up Shariah-Compliant Hedge Funds and Prime Brokerage services, introduced a short-selling mechanism which has had the sign-off of a number of internationally prominent muftis, while they also have some prominent advisors on their panel including Dr Daud Bakar and Sh Hussein Hasan among others.

Their short-selling method involves offsetting wa'ad (plurual: wu'ud) between the Islamic Investor (noted as their fund AEAS in the illustration below) and the bank/prime-broker.

The text in the boxes in the illustration above reads:
(upper box, Wa'ad 1) At some time t, on or before an agreed future date, if Pt us greater than P0, AEAS [Islamic Investor] promises to sell N Shares of Stock X to Counterparty at an adjusted price P1.
(lower box, Wa'ad 2) At some time t, on or before an agreed future date, if Pt is less than P0, Counterparty promises to buy N Shares of Stock X from AEAS [Islamic Investor] at an adjusted price P2. (which is different to the adjusted price in Wa'ad 1 above)

Key steps in the transaction

1) At t=0 two independent, unilateral promises concerning an equity are entered into with the conditions as set out above;
2) At close of transaction at t, due to the conditions in the promises concerning the market price of the equity only one of the two promises is in effect, that promise is exercised with the transaction price of P2 (assuming Pt < P0 ) and the stock is delivered from AEAS [Islamic Investor] to the Prime Broker and in return the Prime Broker makes a payment of P2.


P0, is price of equity in the market at time of entering into promises (t=0);
P1, is the initial price P0, adjusted for various fees;
P2, is the initial price P0, adjusted for various fees.

P1 and P2 are "adjusted strike prices".

Short Comment:
This is an interesting use of wa'ad or unilateral promise, especially because the transaction involves two wa'ad for counterparties facing one another. This muwa'adah or mu'ahidah (bilateral promise) is, I thought, disallowed, especially if it is in place of 'aqd (contract, always bilateral) where a contract would be disallowed.

The example I have heard to showcase exactly when muwa'adah is prohibited is using muwa'adah to synthesize a forward (Party I promises to buy from Party II for $P at time t=T. Party II promises to sell to Party I for $P at time t=T). The synthetic forward is explicitly mentioned as disallowed (see e.g., Md Ayub, Understanding Islamic Finance, p 115) since it is a bilateral exchange which manages to circumvent similar restrictions which would be in place in the case of contract.

Does the conditional wa'ad (i.e., only if Pt > P0, etc) make this structure different? Maybe yes, maybe no. How is it different from the forward transaction? Is it specifically point 2 above, that only one of the two promises is in effect at t=T due to their conditional nature. Note: not only are the two wa'ad conditional so that only one is in effect at one time, but the transaction prices are different. I suspect these isues are key to the Shariah-board's approval. We will look at Wa'ad in much more detail in future posts, insh'Allah.

I wanted to thank Richard Ellis and Bindesh Shah from Amiri Capital for generously allowing us to showcase their structure and for their efforts (irrespective of any constructive criticism which I or others may give!).

Please feel free to comment.



A Muslim’s Guide to Investing & Personal Finance

Virginia B Morris in Collaboration with Monem A. Salam
Introduction by Shaykh Yusuf Talal DeLorenzo

This newly updated and greatly expanded guide gives Muslims the knowledge and confidence they need to make informed investment decisions while conducting their personal finances in accordance with the principles of Shariah.

Exploring the intersection of traditional and modern Islamic finance, this 100-page guide explains:

  • Halal vs. Haram investments

  • Riba

  • Zakah

  • Purification

  • Shariah contracts

  • (ijara, murabaha, musharaka)

  • Sukuk

  • Stocks

  • Mutual funds

  • Home ownership

  • Takaful (insurance)

  • Retirement

  • Estate planning

A preview of the guide: A Muslim's Guide to Investing & Personal Finance



Vatican says Islamic Finance May Help

No comments needed.