Wa'd (Unilateral Promise) in Hedging
Using wa'd structures as Islamic hedging alternatives
Unilateral promise (wa'd) structures can serve as Shariah-compliant hedging mechanisms. A single party's unilateral promise to buy or sell at a future price is binding on the promisor (per AAOIFI and majority view) and does not constitute a bilateral exchange contract, thereby avoiding gharar.
Accounting and Auditing Organisation for Islamic Financial Institutions
Full Ruling
Wa'd (a unilateral promise by one party) is distinct from a bilateral contract ('aqd). Key principles: (1) Only one party is bound — the promisor commits to buy/sell; the promisee retains discretion. (2) A promise becomes binding (waajib al-wafa') when the promisee has incurred a cost based on reliance on the promise. (3) Back-to-back wa'd structures (one promise from each party, exercised contingently) are permissible provided they are truly independent, not bilateral exchanges dressed as promises. (4) Wa'd-based FX forward structures are permissible for genuine hedging.
Rationale & Reasoning
The bilateral exchange contract (bay') requires certainty of subject matter and price at contract inception. A unilateral promise, by contrast, does not create a bilateral obligation and therefore does not attract the gharar prohibition. The promise is a moral/legal commitment, not a sale.
Rule Basis (Daleel)
- 01Distinction between wa'd (promise) and 'aqd (contract)
- 02AAOIFI position on binding wa'd
- 03Genuine hedging necessity
Conditions for Permissibility
- ✓Only one party binds themselves
- ✓Promisee must have acted in reliance on the promise
- ✓Used for genuine hedging, not speculation
- ✓Back-to-back wa'd structures must be truly independent
Citations & Sources
AAOIFI Shariah Standard No. 17 – Investment Sukuk
AAOIFI · 2003
Ref: SS-17