PT - JOURNAL ARTICLE AU - Chady C. Atallah AU - Wafica A. Ghoul TI - The Wa’d-Based Total Return Swap:<br/> <em>Sharia Compliant or Not?</em> AID - 10.3905/jod.2011.19.2.071 DP - 2011 Nov 30 TA - The Journal of Derivatives PG - 71--89 VI - 19 IP - 2 4099 - https://pm-research.com/content/19/2/71.short 4100 - https://pm-research.com/content/19/2/71.full AB - Derivative securities and markets continue to proliferate around the world. A large swath of emerging market countries is largely Muslim and follows sharia precepts, which impose strict rules on financial transactions. Many basic features of financial markets in developed countries, such as the payment of interest on loans, are prohibited under Sharia. Common kinds of derivatives are subject to multiple constraints. These strictures have led creative bankers and others to design “sharia-compliant” alternative structures that try to accomplish the same basic functions as the prohibited derivative instruments. In this article, Atallah and Ghoul review the sharia rules applying to derivatives and examine closely one structure, the wa’d-based total return swap, which has been offered as a versatile way to sidestep the constraints. The authors conclude that such contracts obey the letter but not the spirit of sharia law. And when it comes to religious restrictions, the spirit of the law matters. They offer several ideas for sharia-compliant investment- and risk-management approaches that would not raise problems for observant Muslims.TOPICS: Derivatives, global, ESG investing