A shari’a-compliant form of derivatives that is based on using contracts such as salam, back-to-back loans, etc, and applying tools and concepts like arbun (urboun), wa’ad, and khiyar. By so doing, Islamic scholars and Islamic financial practitioners aim to create products and solutions that bear a similar value and functionality by replicating conventional structures in a shari’a-compatible way.

However, some scholars maintain that blind replication techniques are used and applied for the sole purpose of copying conventional products without accounting for the idiosyncratic characteristics of Islamic finance. At best, they consider such techniques as ruses and tricks by which some Islamic institutions and those offering Islamic windows attempt to go around basic prohibitions usually noticeable in conventional products such as interest (a subset of riba), excessive uncertainty (gharar), gambling (maysir or qimar) and so on.

In any case, there is a dire need for Islamic derivative products especially in the arena of asset management and risk management. Some attempts have been made so far in order to contrive a workable form of derivatives and risk management solutions based on accepted Islamic financing modes, methods and concepts. The essential modes include Islamic contracts such as salam (equivalent to a conventional forward contract), ijarah (used to marginally adjust periodic repayment amounts associated with futures contracts), and back-to-back loans as a replacement for swaps. Among indispensable tools and concepts there are arbun (used to replicate option-type structures), khiyar (also used in structuring options), and wa’ad.