Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security?
This paper evaluates current food commodity trading from the Shariah point of view, which is particularly relevant for the MENA region. It focuses on futures contracts as the main instrument for grain trading and analyzes the traders’ activities. Through a qualitative and multifaceted approach, the...
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| Format: | Article |
| Language: | English |
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Elsevier
2020-11-01
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| Series: | Heliyon |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2405844020321988 |
| _version_ | 1818382119829766144 |
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| author | Madina Kalimullina Mikhail (Shamil) Orlov |
| author_facet | Madina Kalimullina Mikhail (Shamil) Orlov |
| author_sort | Madina Kalimullina |
| collection | DOAJ |
| description | This paper evaluates current food commodity trading from the Shariah point of view, which is particularly relevant for the MENA region. It focuses on futures contracts as the main instrument for grain trading and analyzes the traders’ activities. Through a qualitative and multifaceted approach, the paper accumulates and evaluates the suggestions for 15 Shariah-based alternatives to futures by contemporary researchers. Sukuk, commodity funds and takaful programs are among potential structures that could be developed and broadly implemented. The research compares the current criticism of futures markets with the opinions of Islamic scholars and researchers, as well as Shariah standards. The paper also evaluates several recent suggestions by researchers to raise the efficiency of the international commodity trading market for the sake of food security. The results show that there is space for cooperation taking into account Islamic financial principles and conventional commodity exchange regulations, in combining existing best practices of the latter and the rulings of the former in engineering a sounder system of grain trading for the benefit of market players and the end consumers. This would require a joint effort and support from exchanges, standard-setting bodies, and regulators. Among the areas of cooperation are the approach towards corners (ihtikar), squeezes, speculation (gharar, maysir, and najash), and defining the border between reasonable and excess speculation; financial architecture using new technologies in developing a commodity trading contract conforming to the Shariah regulations and the exchange requirements. There is a need to develop the ideas for global food contracts and grain reserve systems, and to test the contracts based on existing exchanges. |
| first_indexed | 2024-12-14T02:45:25Z |
| format | Article |
| id | doaj.art-964078b169f64794b84f7fb1515bec15 |
| institution | Directory Open Access Journal |
| issn | 2405-8440 |
| language | English |
| last_indexed | 2024-12-14T02:45:25Z |
| publishDate | 2020-11-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Heliyon |
| spelling | doaj.art-964078b169f64794b84f7fb1515bec152022-12-21T23:19:54ZengElsevierHeliyon2405-84402020-11-01611e05355Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security?Madina Kalimullina0Mikhail (Shamil) Orlov1HSE-Skolkovo Institute for Law and Development, National Research University Higher School of Economics, Russia; Corresponding author.AGROFINMOST, HSE-Skolkovo Institute for Law and Development, National Research University Higher School of Economics, Russian-Egyptian Business Council, RussiaThis paper evaluates current food commodity trading from the Shariah point of view, which is particularly relevant for the MENA region. It focuses on futures contracts as the main instrument for grain trading and analyzes the traders’ activities. Through a qualitative and multifaceted approach, the paper accumulates and evaluates the suggestions for 15 Shariah-based alternatives to futures by contemporary researchers. Sukuk, commodity funds and takaful programs are among potential structures that could be developed and broadly implemented. The research compares the current criticism of futures markets with the opinions of Islamic scholars and researchers, as well as Shariah standards. The paper also evaluates several recent suggestions by researchers to raise the efficiency of the international commodity trading market for the sake of food security. The results show that there is space for cooperation taking into account Islamic financial principles and conventional commodity exchange regulations, in combining existing best practices of the latter and the rulings of the former in engineering a sounder system of grain trading for the benefit of market players and the end consumers. This would require a joint effort and support from exchanges, standard-setting bodies, and regulators. Among the areas of cooperation are the approach towards corners (ihtikar), squeezes, speculation (gharar, maysir, and najash), and defining the border between reasonable and excess speculation; financial architecture using new technologies in developing a commodity trading contract conforming to the Shariah regulations and the exchange requirements. There is a need to develop the ideas for global food contracts and grain reserve systems, and to test the contracts based on existing exchanges.http://www.sciencedirect.com/science/article/pii/S2405844020321988Islamic financeSpeculation on commodity marketsFood commodity tradingWheat reservesFood securityCommodity futures |
| spellingShingle | Madina Kalimullina Mikhail (Shamil) Orlov Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security? Heliyon Islamic finance Speculation on commodity markets Food commodity trading Wheat reserves Food security Commodity futures |
| title | Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security? |
| title_full | Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security? |
| title_fullStr | Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security? |
| title_full_unstemmed | Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security? |
| title_short | Islamic finance and food commodity trading: is there a chance to hedge against price volatility and enhance food security? |
| title_sort | islamic finance and food commodity trading is there a chance to hedge against price volatility and enhance food security |
| topic | Islamic finance Speculation on commodity markets Food commodity trading Wheat reserves Food security Commodity futures |
| url | http://www.sciencedirect.com/science/article/pii/S2405844020321988 |
| work_keys_str_mv | AT madinakalimullina islamicfinanceandfoodcommoditytradingisthereachancetohedgeagainstpricevolatilityandenhancefoodsecurity AT mikhailshamilorlov islamicfinanceandfoodcommoditytradingisthereachancetohedgeagainstpricevolatilityandenhancefoodsecurity |