"Islamic Finance Researches" (IFR)

Credit Default Swap: A Scrutiny of Differentiating its Nature from Credit Insurance and Sharia Feasibility Review

Document Type : Science - Research (Islamic Financing Tools)

Authors

1 Ph.D. Student, Department of Private Law, Faculty of Law, Shahid Beheshti University, Tehran, Iran

2 Associate Professor, Department of Private Law, Faculty of Law, Shahid Beheshti University, Tehran, Iran

Abstract

Credit risk as a possibility of a debtor’s default in its obligations has led creditors to acquire some tools to cover it. Credit default swap as a derivative is one of the most effective risk management tools, because in addition to risk management, it provides an opportunity for the spread of secondary markets and the deepening of the capital market. Credit insurance is another type of credit risk management tool that is often confused with default swaps. Finding some homologies between credit insurance and credit default swap geos back to our legal and jurisprudential system as well as the Western law. Due to the acceptance of insurance in Islamic jurisprudence, these similarities have been used to justify credit default swap contract. In this research, an attempt has been made to draw a border between these two institutions. It should be noted that recognizing the nature of credit default swaps will affect the assessment of the validity of such a contract from a jurisprudential point of view, and this discussion is crucial as it shows the possibility of accepting credit default swaps in the Iranian capital market.

Keywords

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Volume 10, Issue 2 - Serial Number 20
May 2021
Pages 573-602
  • Receive Date: 11 July 2021
  • Revise Date: 07 November 2021
  • Accept Date: 08 November 2021