IslamicFinance.de

A number of mechanisms have been developed to enable companies to execute Shariah compliant hedges. The most straightforward approach is through back-to-back loans – agreed separately – of different currencies, which do not carry any interest or any other benefit. However, this does not take into account forward FX rates and therefore tends to be used in day-to-day dealings between local traders and in small amounts. Another option is based on commodity murabaha whereby a financier or intermediary purchases goods from a supplier and sells them to an end-user at a deferred price that is marked-up to include the intermediary’s profit margin.