The Concept of Hedging in Islamic Financial Transactions

  •  Azlin Alisa Ahmad    
  •  Mustafa Afifi Ab Halim    


Hedging is a method to safeguard or minimize loss from risk that constantly exists in the financial market. Nevertheless, hedging in conventional perspectives involves the usage of derivative instruments which are controversy in Islamic view. Thus, the noble purpose of hedging that is to manage risk has been misunderstood as only to gain profit. The concept of hedging needs a further discussion because of its various interpretations on the meaning of hedging. Hence, the aim of this study is to discuss the general concept of hedging and subsequently the concept of hedging according to Islam. The approach used in this study of content analysis is the qualitative research method of document analysis. The researcher highlights the literature materials such as academic books relating to hedging including contemporary and classic fiqh scriptures. The study finds that the concept of hedging according to Islam is different from the conventional concept of hedging. This means, the study has developed a new theory of Islamic hedging. The theory of Islamic hedging must be based on the hadith of al-kharaj bi al-daman and fiqh maxim of al-ghunm bi al-ghurm approaches. In addition, the objective of Islamic hedging to reduce risk must only be related to real economic activities.

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