The Art of RF (Riba-Free) Islamic Banking and Finance: Tools and Techniques for Community-Based Banking, 2nd Edition

CHAPTER 3 The RF Valuation Disciplines of Commodity Indexation and Marking to the Market

This chapter presents the reader for the first time in the global RF (Islamic) banking and finance domain with two important and fundamental RF disciplines: the Commodity Indexation Discipline and the Marking-to-Market Discipline. In this chapter, the fundamentals of these two disciplines will be laid down and will be detailed later in Chapters 5 and 6, where these two disciplines will be applied using detailed historic stochastic data.

It is well known that Prophet Muhammad (pp), in addition to being God's commissioned Prophet, had been through many life experiences to prepare him for becoming the prophet that changed the course of history to bring the world forward on the courses charted by his predecessors, including Moses (pp) and Jesus (pp). He was a shepherd, a trusted conflict resolution arbitrator, a community leader, and a trusted manager of people's assets in caravan trading and investments. Involvement in business as a trusted, successful, and reputable business leader enabled him to see the world and taught him how the world works and how business is transacted. At the time he was commissioned as the Prophet of God, two major currencies were prevalent in business transactions: the dirham, used by the Persian Empire and made out of silver (it was also used by the Greeks and called drachma), and the denarius, used by the Roman Empire and made out of gold. At that time an important ...