| An Islamic finance research body backed by Malaysia's central bank is drafting rules to regulate the use of derivatives to strengthen the industry's risk management framework and repair the perception of poor sharia compliance among banks. The guidelines could help plug a yawning gap in an industry which has struggled to develop hedging tools that do not resemble betting instruments -- a major handicap that can expose Islamic banks to excessive swings in currency and interest rate movements. The International Sharia Research Academy for Islamic Finance's (ISRA) rules would prescribe the boundaries that sharia banks have to observe to ensure that the usage of derivatives complies with Islam's ban on gambling. ISRA's rules, which have to be approved by the Malaysian central bank to take effect, would ensure that Islamic lenders use derivatives only for hedging by showing proof of an underlying economic transaction. The guidelines would also tackle legal and sharia issues arising from the popular practice of using the waad and tawarruq concepts to structure Islamic derivatives. |
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