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Islamic Finance




Product Wad


A type of wad (promise) that constitutes, by nature and structure, a full-fledged Islamic finance arrangement which is used as a product, per se. It is a stand-alone product that is not made part of a broader structure (i.e., it not ancillary or supplementary to a host contract). It may also be used for hedging purposes (purely as a risk management product). A product wad may come in the guise of a single transaction or a series of transactions, whether at present time or in the future.

An example of product wad is a promise to enter into a sale contract (aqd al-ba’i)- a foreign exchange forward purchase or sale- or a promise to enter into an Ijarah transaction at a certain date in the future.

In terms of accounting effect, this wad (as opposed to a ancillary wad) gives rise to an asset or liability on the balance sheets of the parties involved.



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