Islamic Structured Products: Innovation or Replication? A New Discussion on Contemporary Application and Shari’ah Issues

Dhiraj, Naeem Suleman; Nazarov, Ilhamiddin Ikramovich; Ahmat, Moustapha Chora; Arif, Muhamad

doi:10.2139/ssrn.3413622

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“…In a competitive environment, Islamic financial engineers seek to introduce alternatives to interest‐bearing products so that the Islamic financial institutions do not lag behind in the field of product innovation. Somewhere in this endeavour, the problem of inconsistency of Shariah principles arises and these efforts cast doubt on the Islamic financial product as a replica of the interest‐based product, as many researchers have pointed out (see Bananuka, Katamba, Nalukenge, Kabuye, & Sendawula, 2020; Dhiraj, Nazarov, Ahmat, & Arif, 2019; Ishak & Asni, 2020; Laldin & Furqani, 2016; Šeho, Bacha, & Smolo, 2020; Siddique, 2017). Currency salam is one of such controversial Islamic financial products.…”

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confidence: 99%

Reconciling the irreconcilable (talfeeq): The case of currency salam

Siddique

2021

Int. J Fin Econ

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Currency salam is a financial product in the basket of Islamic finance that facilitates dealings in discounting of bills. Moreover, it allows provision for speculative future currency trading. This article shows that currency salam is prohibited in the light of Islamic rules of riba. Researchers have held three positions about modern currencies. The paper shows that the permissibility of currency salam is derived by combining together these three irreconcilable views about modern currencies. In other words, currency salam is the outcome of a fallacious methodology known as talfeeq which is merely a device of creating legal artifices (hiyal) for satisfying one's desires. It is argued that the permission of currency salam must be rejected because it is riba and it opens up the flood-gate for financial speculations in the name of Islam. The paper also attempts to draw attention of the regulatory authorities to tackle this issue seriously as it will adversely affect the trust on Islamic banking regarding its Shariah compliance.

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