· Dr. Hussein Hamed Hassan: "Islamic finance and Shari'a scholars' active participation during the consultation period played a pivotal role in launching this comprehensive standard"
Dubai - Dubai Financial Market (DFM) today officially published the final version of its “Standard on Hedging against Investment and Finance Risks”, the first comprehensive standard of its kind, as part of the DFM’s constant efforts to further enhance the guiding framework of Islamic finance and capital markets. This standard is the newest addition to DFM’s Shari’a-compliant standards, which include Standard on Stocks and Standard on Sukuk issued in 2007 and 2014 respectively.
The draft of the “Standard on Hedging against Investment and Finance Risks” was posted on DFM’s website, www.dfm.ae, in October 2016, in order to obtain Islamic finance professionals’ feedback prior to the official launch.
“As the first of its kind standard on hedging of investment and Islamic finance activities, this standard is the outcome of DFM’s Fatwa and Shari’a Supervisory Board’s extensive effort. We have examined various aspects of hedging and related standards as well as Fatwas issued by reputable entities on the hedging concept,” Dr. Hussein Hamed Hassan, Chairman of Fatwa and Shari’a Supervisory Board, DFM said. “The Standard has attracted many Islamic finance and Shari’a scholars during the consultation period and they have provided us with numerous productive suggestions that played a pivotal role in launching a comprehensive standard that covers all types of Islamic finance and investments. It also defines all types of risks according to their relevance and nature as well as sets parameters for the valid hedging instruments,” he added.
1. Adding two types of risks, which are among the most significant risks in Islamic finance and investment. These are the property risk, which must be borne by the owner so that he becomes liable for the damage or loss of his property, and the reputational risk, which relates to Shari’a incompliance.
2. Emphasizing that when the remaining unpaid installments become due as a consequence of some failure in debt repayments, the nature of the finance originally given has to be taken into consideration, for the creditor is not allowed to receive more than the amount of debt owed.
3. Emphasizing the admissibility of the penalty clause only in Istisna, supply contracts and labor-lease contracts, excluding the contracts that result in a monetary debt owed by the debtor.
4. Emphasizing that the letter of guarantee and the documentary credit are meant to address the risk of non-payment.
5. Emphasizing the admissibility of the third-party guarantee in contracts of partnerships, Mudaraba and agency in investment, provided no link is made between this guarantee and the contract of partnership or Mudaraba.
Access the full text of the standard’s through this link: http://webadminv.dfm.ae/docs/default-source/Sharia/hedging-standards_en_v6_highres-5.pdf?status=Temp&sfvrsn=0.7564923753258264
About Dubai Financial Market:
Dubai Financial Market (DFM) was established as a public institution with its own independent corporate body. DFM operates as a secondary market for the trading of securities issued by public shareholding companies, bonds issued by the Federal Government or any of the local Governments and public institutions in the country, units of investment funds and any other financial instruments, local or foreign, which are accepted by the market. The DFM commenced operations on March 26, 2000 and became the first Islamic Shari’a-compliant exchange globally since 2007. Following its initial public offering in November 2006, when DFM offered 1.6 billion shares, representing 20 per cent of its paid-up capital of AED 8 billion, DFM became a public joint stock company and its shares were listed on 7 March 2007 with the trading symbol (DFM). . Following the IPO, the Government of Dubai retained the remaining 80 per cent of DFM Company through Borse Dubai Limited. www.dfm.ae
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