Khaleej Times – With Islamic equity investments growing at an unprecedented level, the days of Islamic hedge funds may not be far off, industry experts say.
Despite the fact that attempts to put together a Shariah-compliant hedge fund have so far failed to be successful, Islamic finance companies are optimistic as they managed to develop many other products that were also once thought irreconcilable to compliance.
According to Nicholas Kochan, director of London-based Cosmos Communications, the development of new structures to appeal both to Islamic and conventional investors is key to the expansion of Islamic finance.
The development of Shariah-compliant hedge funds had been earlier constrained by the strict rules of Islamic law, which prevent the use of those forms of derivatives where one is transferring risk for payment of something to another person.
Islamic law forbids short-selling because it involves the sale of something that one does not own. Forwards and futures contracts are equally forbidden because they are construed as “selling promises.”
Options, meanwhile, encompass payment for a future “right” to do something, but such a right, without obligation, makes it dependent upon future events and therefore creates uncertainty, an element also forbidden under Islamic law.
