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"Islamic Commercial Law: An Analysis of Futures and Options" by Mohammad Hashim Kamali

When people new to Islamic finance ask me to recommend a book, this one is always my choice, especially if they want to understand the religious background. The review below was posted on 19 July 2010 but originally written on 8 May 2004 for the Amazon website.

Review

Futures markets trade commodities as diverse as oil, gold, cotton, frozen orange juice and live cattle. Large volumes are traded every day, prices can fluctuate wildly and fortunes are made or lost as traders control huge inventories of commodities with a small upfront cash outlay. Two conclusions are easy to reach:

1. This is simply gambling, with no useful economic function, and in reality little more than an organised casino.
2. The activity is un-Islamic and prohibited to Muslims.

Both conclusions are wrong. The first is disproved by the number of active futures markets, encouraged and regulated by governments. The benefit to producers and consumers of being able to hedge against future commodity prices is the need for which futures markets are organised. Speculators who are neither producers nor consumers play a vital role in providing market liquidity. Students of economics will already be familiar with the benefits of futures markets. For others, the first part of Kamali's book provides a simple clear and understandable explanation of how futures markets work, and their economic benefits. Helpfully, Kamali uses illustrative examples taken from the Muslim world as well as from the West.

Demonstrating that futures markets are beneficial to society is not enough for a Muslim. It is also necessary to tackle the second “easy conclusion”, and show that they are not prohibited by Islam. Kamali tackles this vital question in part two of his book. He considers whether futures markets are prohibited for a number of possible reasons including:

• Gharar (Arabic for uncertainty and risk taking) i.e. are they just another form of gambling which is prohibited to Muslims?
• Is the subject matter of sale acceptable? He analyses the Islamic prohibition against selling non-existent objects, against the sale of the unseen, and the need for the subject matter to be deliverable at the time of sale.
• Can you sell goods which you do not own, or prior to taking possession?

With carefully developed legal analysis, Kamali proceeds to demonstrate that futures markets are not prohibited by Islam. Reading this step-by-step analysis will be valuable for everyone interested in Islam, as an example of how Muslims should analyse religious questions arising from modern developments. It is far too easy to decide quickly that something new must be prohibited in Islam, without doing a proper legal analysis. This does Muslims a double disservice:

1. Islamic societies thereby exclude themselves from new developments.
2. Muslims forget that theirs is a religion built upon deep thinking and careful analysis, and not knee-jerk reactions.

Kamali's book is a model of Islamic analysis that I would commend to everyone.