One of the major contentious areas within the Islamic finance industry is the sale or tradability of debt and debt-based instruments, the issue revolving around the principle of bay' al-dayn. Jurisdictions which permit bay' al-dayn have experienced tremendous growth, particularly with regards to transactions involving financing assets, and liquidity management and debt capital market instruments such as commodity murabahah sukuk. In other jurisdictions, the prohibition of bay' al-dayn has inevitably somewhat constrained the development of their Islamic finance industries.
This paper seeks to bridge the gap between the two contrasting views by introducing the pioneering concept of commodity hawalah. The proposed commodity hawalah mechanism is a combination of debt and commodity trading, which are underpinned by the principle of hawalah al-haqq (i.e., transfer of the rights to a debt). It is hoped that the proposed commodity hawalah mechanism could set the foundation or benchmark for the trading of debt and debt-based instruments across all Islamic jurisdictions.
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