Waad

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An unilateral promise. Promises are morally binding, whether they can be enforced is debated, but agreed widely among contemporary Islamic scholars of the Islamic finance industry. A synomym used is undertaking or Taht, which by its Arabic meaning is closer to an enforceable obligation.

Waad can be used if considered enforceable to replicate for example a Profit Rate Swap or any sort of Total Return Swap. These structures are however suggested primarily for risk management and not to swap impermissible returns to a Muslim investor, while technically this would be possible and is subject to an intense debate, causing widespread reservations.

The binding unilateral promise is more and more replacing contractual arrangements, especially addressing designated future transactions. This could be even unilaterally turn against the client.


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