Credit Derivatives: Shari'aa & Economic Feasible Study For Banks Credit Risk Improvement

Subject Areas : Journal of Investment Knowledge

Ali Rostami ¹ (Assistant Prof. of Pyam Nor Uni)
M. R. Ranjbar Fallah ² (Assistant Prof. of Pyam Nor Uni)
M. Khademolhoseini Ardakani ³ (MAs in Finance of Imam Sadiq Uni)
M. H. Habibi ⁴ (MAs in Finance of Imam Sadiq Uni)
A. Jamali Neishaboor ⁵ (MAs Finance Student of Tehran Uni)
M. Ali Mohammadi ⁶ (MAs Finance Student of Economic Science Uni)

Received: 2013-07-08 Accepted : 2014-01-10 Published : 2014-01-10

Keywords: credit derivatives, credit risk, General Terms of Contracts, Credit Event,

Abstract :

Credit risk is one of the most prevalent and most important risks in commercial banks. These banks have ever paid special attention to credit risk management and various approaches have been applied for; the use of credit derivatives is one of the methods and "Credit-linked Note" is the most common credit derivatives that used for this purpose. Given that some of problems in the banking system are regard with lack of appropriate financial instruments to manage credit risk, this paper investigates the juridical possibility of utilization this instrument in banking system and therefore credit derivatives is evaluated in according with general terms of Shia` jurisprudence perspective. The important result of this study is that Credit-linked Note is applicable according to principles and standards of Imamie jurisprudence. Also Credit-linked Note is considered as a new contract and shown its revision to comply with the general conditions for the validity of the transaction is possible in the form of innovative contract.