The Role of Wa'd in Risk Management: The Malaysian Experience

Abstract

Purpose

The objective of the chapter is to discuss the role of wa’d (promise) to mitigate risk in different Islamic banking products. The chapter will illustrate the element of wa’d in different Islamic banking products in Malaysia.

Methodology/approach

The study has adopted the document review method to get information on different banking products. Moreover, it conducted semi-structured interviews with bankers to get in-depth information.

Findings

The study finds out that wa’d plays a vital role in structuring several products including retail products, trade financing products, and treasury products. Along with the unilateral wa’d there is a usage of double wa’d (wa’dan) in some product structures. In most of the products, wa’d is included as a risk mitigation instrument along with other major underlying Shari’ah contracts. Some Shari’ah issues are involved with these products namely the Shari’ah rulings related to wa’dan, “form over substance,” etc.

Originality/value

This is an in-depth field study which adds new knowledge on wa’d-based products. The experience of Malaysia might be a lesson for other countries to minimize risk in their Islamic banking products.

Citation

Abdullah, M.F. and Ab Rahman, A. (2016), "The Role of Wa'd in Risk Management: The Malaysian Experience", Mutum, D.S., Butt, M.M. and Rashid, M. (Ed.) Advances in Islamic Finance, Marketing, and Management, Emerald Group Publishing Limited, Leeds, pp. 131-158. https://doi.org/10.1108/978-1-78635-899-820161008