Muwaadah (mutual promise)
An exchange of promises between two parties for the same future transaction, treated more restrictively than a unilateral wa'd.
Muwaadah is a mutual promise, in which each party promises the other to enter into the same future transaction. Because binding mutual promises can function like a forward contract, many scholars and standard setters restrict them, particularly in currency exchange, while accepting them where they are non-binding or in limited cases. Islamic hedging structures therefore often use two separate unilateral promises with different trigger conditions.
This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.
Related terms
Wa'd (promise)A unilateral promise to do something in the future; it can be made binding and is used in hedging, sukuk and lease-to-own deals.Islamic FX forwardA currency hedge built on a binding promise to exchange at an agreed rate on a future date, with the exchange itself done at spot.Bay al-sarf (currency exchange)An exchange of money for money, of the same or a different currency, which must be settled on the spot.