Use of W'ad and Tawarruq for Swaps in the Framework of Islamic Finance

This paper tries to analyse the use of w´ad (promise) and tawarruq for derivative products of swaps and its implications for Islamic finance. After briefly discussing the essential principles of Islamic finance and the evolution of derivatives in the conventional finance, the paper analyzes the sharī´ah status of w´ad and muwa´adah and how these are different from ´aqd (contract). Paper also discusses few famous swaps and hedging products based on w´ad with or without tawarruq and examines them specifically from the sharī´ah point of view. Sharī´ah view regarding tawarruq practices and Fatwa of OIC Islamic Fiqh Council have been discussed briefly. The objective of the paper is to reiterate that financial swaps are against the basic principles of Islamic finance; if the present practice of their increasing use is not discontinued; all hopes of gradual improvement in products and practices of the emerging discipline will be lost. Structured products not conforming to the fundamentals of