Designing a hedging instrument for profit rate fluctuations in the Islamic capital market: Using an Islamic treasury bill portfolio futures contract

Introduction and Statement of the Problem: In the world, financial institutions active in money and capital markets use interest rate futures to hedge the risk of interest rate fluctuations. The value of investment portfolios of investment funds and bank loans are examples of cases that are affected by interest rates and need to hedge interest rate risk. Since receiving and paying interest is prohibited in terms of Islamic jurisprudence, the use of this tool is not permitted in Islamic capital markets. The problem of this research is: What alternative tool can be provided for managing interest rate risk (which in Islamic financial markets is similar to interest, except in terms of financial function) within the framework of Imamiyyah jurisprudence in Islamic financial markets?

Research Methodology: In this research, jurisprudential reasoning was used and the focus group method was implemented in order to validate the solution provided. The experts of the focus group include members of the Fiqh Committee and, members of the Fiqh Specialized Working Group of the Securities and Exchange Organization, and islamic finance and finance researchers.

Findings and Conclusions: Since the Islamic Treasury Bill rate can be considered the risk-free rate in the Iranian economy, the futures contract of the basket rate of Islamic Treasury Bills traded in the Iranian capital market can almost simulate the interest rate futures in the Western economy. Financial institutions can use a futures contract based on a portfolio of Islamic Treasury Bills to hedge the risk of interest rate fluctuations in the Iranian capital market. The focus group, while emphasizing compliance with the requirements for using this tool, approved the proposed solution from a jurisprudential perspective.