My answer to a website reader's question illustrates how we should tackle religious issues.
Posted 18 January 2025
I am often asked for religious advice via my website. My response is always the same — each of us need to decide for themselves, but I am always willing to share my thoughts.
A reader's enquiry gave me the idea for my March 2024 column for the magazine "Islamic Finance News." You can read the article below.
From time to time, complete strangers ask me interesting questions since I deliberately make myself easy to contact via my website. I received another one in January.
“I am a professional trader and have a query regarding the permissibility of perpetual contracts. A lot of scholars say that they are not permissible because you don’t own the underlying asset and you're only betting on the movements of the price (Maysir). The second issue is the cash settlement because when the contracts are settled, there is no exchange of any underlying asset, only money is exchanged.”
My first task was to search for an explanation of perpetual contracts since I had never come across them before in this context.
I found the Investopedia article “Perpetual Futures: What They Are and How They Work” and my enquirer confirmed that I had tracked down the exact instrument that he was using, and that, as indicated by Investopedia, the underlying subject matter of his perpetual contracts mostly involved cryptocurrencies, and occasionally included other assets such as commodities.
I always emphasise that each of us has to reach their own religious decisions because each of us is individually accountable on the Day of Judgement. It will be inadequate to say: “X said that what I was going to do was religiously permissible.” However, I am always willing to share my thoughts.
In my opinion, many Islamic finance scholars fail to take into account the significant changes in the world over the last 1400 years. For example, in my 7 March 2018 column I said “Shariah scholars should stop analyzing corporations as if they were partnerships” since they are not partnerships.
Similarly, I consider much of the historic legal analysis of commercial contracts to need radical updating.
I replied to my enquirer that I didn’t see why a properly drafted perpetual contract written under the laws of a reliable jurisdiction should be prohibited. The rights and responsibilities of the parties will be clearly set out, along with enforcement mechanisms.
While the contracts involve a high level of financial risk, so do many other transactions since that is inherent in any dealings concerning something whose price fluctuates. While he himself had no use for the underlying subject matter of the contracts, markets need speculators to provide liquidity. (My 11 November 2015 IFN column explained how commodity speculators fulfil a valuable social function.)
While responding, I explained that I personally avoid such transactions because I see no social value in cryptocurrencies, and regard short-term trading as a time-consuming activity where I have no reason to believe that I possess any special skill. However, that was a personal choice for my enquirer, as long as he could manage his risks and exposures sensibly.
I then received the supplemental question “Is speculation different from gambling?” I found this question much more difficult.
I regard gambling to be the artificial creation of risk. For example, a roulette table exists only for the purpose of allowing people to place bets. Someone who puts on a stake is not a participant in any real economic activity.
I am dubious about the real-world uses of cryptocurrency. Accordingly, I see speculating in cryptocurrency as being much closer to gambling as opposed to being closer to commodity speculation.
I closed with:
“If you genuinely believe that cryptocurrency does serve a beneficial purpose for society, (disregarding any benefits to criminals) then you will come to a different answer from me.”
Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.