An Islamic Analysis of Forward Contracts from the Perspective of Participation Banking

Forward sözleşmelerin katılım bankacılığındaki fıkhî ve uygulamalı değerlendirmesi

Abstract

Derivative instruments are important tools used in financial markets for purposes such as hedging, arbitrage, and speculation. They have developed significantly since the 1970s, particularly after the collapse of the Bretton Woods system in 1971, which led to the transition from fixed to floating exchange rates and introduced exchange rate risk into international finance. One of the instruments used to manage this risk is the forward contract. Forward contracts involve the agreement to buy or sell a specific asset or financial instrument at a predetermined price on a specified future date. A key feature of these contracts is that no exchange of money or goods occurs at the time the agreement is made. From the perspective of Islamic finance, forward transactions are subject to differing scholarly interpretations. There is limited literature on how interest-free financial institutions implement these transactions. Therefore, this study aims to examine forward contracts from the perspective of participation banking, both theoretically and practically. Interviews conducted with participation banks helped analyze the volume of forward contracts over the years and identify the need for such instruments within the interest-free financial system. In this respect, the study aims to fill an important gap in the literature.