In the Name of Allah, the Merciful and Mercy-Giving
The Total Returns Swap and the
"Shariah Conversion Technology" Stratagem
By Yusuf Talal DeLorenzo
Summary
This study will look at Islamic values in financial decision-making by considering
whether or not Shariah Supervisory Boards will approve any financial product that is
delivered by ostensibly halal means, even if what is delivered by those means, the end
product, is derived from non-compliant investments. This may be characterized as a
quasi-philosophical question about means and ends. Yet, it is one that carries a myriad
of practical implications and far-reaching ramifications for the growing Islamic
financial industry.
This is a case study, and not a theoretical study. The focus of the study is a particular
means or process for the development of products sometimes called "Shariah
Conversion Technology". The reason for writing this paper is to draw the attention of
scholars and industry experts to the importance of making a distinction between
bringing returns from Shariah-compliant investments and bringing returns from non-
Shariah compliant investments. If care is not taken, this "technology" represents a
great danger to modern Islamic Finance. My own reaction to this threat, initially, was
to suggest recourse to sadd al-dhara`i, the instrument in Islamic jurisprudence that
blocks ostensibly legitimate means to illegitimate ends. On closer study, however, I
have concluded that there is no need to resort to this instrument as the matter is simply
one of distinguishing between what is truly lawful, halal, and what is truly unlawful,
haram. In what follows, I will explain exactly what led me to this conclusion, and why
I think it necessary to ...