Risk-Sharing Finance by Saad Bakkali Abbas Mirakhor

Author:Saad Bakkali, Abbas Mirakhor
Language: eng
Format: epub
Publisher: De Gruyter
Published: 2021-04-13T10:57:18.442000+00:00

3.2.2.2 Trading Risk

Risk cannot be the subject of exchange. Only insurance contracts based on the concept of Takaful and mutuality is risk allowed to be the subject of the contract. In the conventional space, risk can be a subject matter of trade for speculators whose intentions are not to manage the risk but to benefit from those who aim to manage it.67 In fact, risk-transferring techniques include, among others, use of derivatives for hedging, selling or buying of financial claims and changing borrowing terms. It is important to note that most of the conventional derivative instruments do not conform to Shari’ah.68 They are often used for speculation purposes, and as speculation is perceived as a form of gambling, it is forbidden in Islam.69 Risk in transactions can be managed through it being shared. In fact, risk management is often confused with risk sharing. Despite the seeming disregard towards risk sharing as risk management tool, it can in fact be a proactive tool to manage the risk of a transaction through mutual sharing amongst the parties in a contract. Risk management here takes the form of dissipating risk as opposed to merely taking on risk.70

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