Breach of Waʿd and Its Compensation Payment: A Critical Analysis of Islamic Profit Rate Swap

Abstract

Waʿd refers to an expression of commitment given by one party to another to perform certain actions in the future. It is neither a contract nor an agreement. It is a unilateral promise which is not binding in nature. The use of waʿd makes it possible for Islamic hedging products like Islamic Profit Rate Swap (IPRS), Islamic FX forward and Islamic FX option to perform the function of risk management. Though waʿd has become a common feature in Islamic hedging products, breach of waʿd remains a challenge to the Islamic finance industry, particularly the issue of compensation payment for it. A number of Sharīʿah resolutions or standards on waʿd have been issued by the local and international Sharīʿah bodies such as the International Islamic Fiqh Academy of the Organization of Islamic Cooperation (IFA-OIC), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Sharīʿah Advisory Council of Bank Negara Malaysia (SAC-BNM) and others.