Islamic capital market
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Islamic capital market

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Islamic capital market Islamic capital market Presentation Transcript

  • Islamic Capital Market Islamic Investment funds Islamic Capital Market Bursa Malaysia
  • INTRODUCTION
    • In an Islamic capital market (ICM) market transactions are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam.
    • Here, there is assertion of religious law so that the market is free from activities prohibited by Islam such as usury ( riba ), gambling ( maisir ) and ambiguity ( gharar ).
  • INTRODUCTION
    • The ICM is a component of the overall capital market in Malaysia.
    • It plays an important role in generating economic growth for the country.
    • The ICM functions as a parallel market to the conventional capital market, and plays a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.
    View slide
  • INTRODUCTION
    • As the market became more complex and sophisticated, it needed supportive infrastructure so that the system could operate and function more efficiently and effectively.
    • The SC's early initiative in setting up a dedicated Islamic Capital Market Department (ICMD) within its Strategy and Development Business Group was to provide the much needed infrastructure support.
    • The mandate of the ICMD is to carry out research and development activities including formulating and facilitating a long-term plan to further strengthen the ICM in Malaysia.
    •  
    View slide
  • INTRODUCTION
    • The Shariah Advisory Council (SAC) was established in May 1996 to advise the Commission on Shariah matters pertaining to the ICM.
    • Members of the SAC are qualified individuals who can present Shariah opinions and have vast experience in the application of Shariah, particularly in the areas of Islamic economics and finance.
  • Islamic Capital Market
    • Today, various capital market products are available for Muslims who only seek to invest and transact in the ICM.
    • Such products include the SC list of Shariah-compliant securities, sukuk , Islamic unit trusts, Shariah indices, warrants (TSR), call warrants and crude palm oil futures contract.
  • Islamic Investment Fund
    • Islamic Investment Fund- the investors contribute their surplus money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shariah.
    • The investment documents are called " certificates" ,"units“, "shares" etc.
  • Overview
    • Islamic investment equity funds market is one of the fastest-growing sectors within the Islamic financial system.
    • Currently, approximately 100 Islamic equity funds worldwide.
    • The total assets managed through these funds currently exceed US$5 billion and is growing by 12–15% per annum .
    • Over the last few years, quite a number of funds have closed down. Most of the funds tend to target high net worth individuals and corporate institutions, with minimum investments ranging from US$50,000 to as high as US$1 million.
    • Target markets for Islamic funds vary, some cater for their local markets, e.g., Malaysia and Gulf-based investment funds .
  • Conditions for Islamic funds
    • 1. Instead of a fixed return tied up with their face value, they must carry a pro-rated profit earned or loss actually earned by the Fund. Therefore, neither the principal nor a rate of profit (tied up with the principal) can be guaranteed.
    • Unless the loss by the negligence or mismanagement, the management will be liable to compensate it.
    • 2. The pooled funds must be invested in a business acceptable to Shariah . It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles.
  • Equity Fund
    • The equity fund amounts are invested in the shares of joint stock companies.
    • The profits are mainly achieved through the capital gains by purchasing the shares and selling them when their prices are increased.
    • Profits are also achieved by the dividends distributed by the relevant companies.
  • Types of equity funds
    • Ijarah Fund
    • This fund is used to purchase assets like real estate, motor vehicles, or other equipment for the purpose of leasing them out to their ultimate users. The ownership of these assets remains with the Fund and the rentals are charged from the users. These rentals are the source of income for the fund which is distributed pro rated to the subscribers.
    • Commodity Fund
    • This fund is used in purchasing different commodities for the purpose of the resale. The profits generated by the sale are the income of the fund which is distributed pro rated among the subscribers.
  • Types of equity funds
    • Murabahah Fund
    • "Murabahah" is a sale where the commodities are sold on a cost-plus basis. The purchased the commodity were sold on the basis of deferred payment at an agreed margin of profit added to the cost. It should be a closed-end fund and its units can not be negotiable in a secondary market.
    • Mixed Fund
    • A mixed fund refers to the subscription amounts employed in different types of investments, like equities, leasing, commodities, etc. If the tangible assets of the Fund are more than 51% while the liquidity and debts are less than 50% the units of the fund may be negotiable. However, if the proportion of liquidity and debts exceeds 50%, its units cannot be traded in according to the majority of the contemporary scholars.
  • Shariah compliant shares
    • The Religious Supervisory Council of BIMB started the initiative to issue a list of Shariah -compliant securities since 1993.
    • May 1996-Shariah Advisory Council (SAC) was established to advise the Commission on Shariah matters in ICM.
    • Starting April 1999 -the task of preparing the list of approved securities has been transferred to the newly-formed Shariah Advisory Council (SAC) of the Securities Commission of Malaysia.
    • Investing in Bursa Malaysia is permissible if the investment are shariah –compliant.
  • Criteria for shariah compliant:
    • The list of Shariah -compliant securities identifies Bursa Malaysia-listed companies whose activities conform to the Shariah criteria established by the SAC . ( Source: Securities Commission handbook 2007)
    • Companies should NOT include:
      • Financial services based on riba (interest);
      • Gambling;
      • Manufacture or sale of non-halal products or related products;
      • Conventional insurance;
  • Criteria for shariah compliant:
      • Entertainment activities that are non-permissible according to Shariah ;
      • Manufacture or sale of tobacco-based products or related products;
      • Stockbroking or share trading in Shariah non-compliant securities; and
      • Other activities deemed non-permissible according to Shariah .
  • Additional criteria:
    • For companies with activities comprising both permissible and non-permissible elements, the SAC considers two additional criteria :
      • 1)The public perception or image of the company must be good ; and
      • 2) The core activities of the company are important and considered maslahah (public interest) to the Muslim ummah ( nation) and the country, and the non-permissible element is very small and involves matters such as ` umum balwa (common plight and difficult to avoid), `uruf (custom) and the rights of the non-Muslim community which are accepted by Islam.
  • Islamic Capital Market
  • Islamic Capital Market
    • The ICM is a component of the overall capital market in Malaysia.
    • It plays an important role in generating economic growth for the country.
    • The ICM functions as a parallel market to the conventional capital market, and plays a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.
  • Capital Market Products
    • Various capital market products are available for Muslims to invest and transact in the ICM.
    • The products include:
    • -Shariah-compliant Securities,
    • -Sukuk ( Islamic bond),
    • -Islamic unit trusts,
    • -Shariah indices,
    • -Warrants / Call warrants and
    • -Crude Palm Oil futures contract.  
  • Bursa Malaysia
  • Bursa Malaysia Stock Exchange (KLSE)
    • The main index for Bursa Malaysia is the Kuala Lumpur Composite Index (KLCI). In June 2006, Bursa Malaysia and FTSE Group jointly introduced a new index series.
  • History and Origin
    • In 1930, the Singapore Stockbrokers' Association was formed as the first formal securities business in Malaysia. In 1937, it was re-registered as the Malayan Stockbrokers' Association.
    • In 1960, the Malayan Stock Exchange was formed and began trading, while the Stock Exchange of Malaysia was founded in 1964. In 2004, the Demutualization Act was passed and the Kuala Lumpur Stock Exchange became a public company, known as Kuala Lumpur Stock Exchange Berhad.
  • Market Indices
    • Composite Index.
    • Industrial Index.
    • Consumer Products Index.
    • Industrial Products Index.
    • Construction Index.
    • Trading/Services Index.
    • Finance Index. Properties Index.
    • Mining Index.
    • Plantations Index.
    • Syariah Index.
    • Technology Index.
    • Second Board Index.
    • MESDAQ Market Index.
  • Introduction
    • A stock market index represents a group of counters performances that have been selected based on certain criteria set by the stock market officials.
    • Stock market indices are used as indicators for the performance of the stock market as a whole.
    • Bursa Malaysia computes an index for each of the main sectors traded on the exchange but the most widely followed, is the Kuala Lumpur Composite Index (KLCI).
  • Islamic Index
    • The Islamic index serves to guide Muslims investors especially to buy shares that are Shariah -compliant and approved securities. E.g.
    • KLCI Shariah Index (KLSI) -1999
    • Rashid Hussin BHD Islamic Index (RHB Islamic Index)-1996
    • Dow Jones Islamic Market Index -1995
  • Shariah -approved securities
    • As of 27th.May, 2007, the KLSI included a total of 875 (more than 80%) Main Board shares that were on the list of Securities Commission’s Shariah -approved securities and the total increased.
  • Future Market
    • Rosly (2005)- suggests that the future of an Islamic equity market will depend on the greater participation of Islamic bond issues and bank equity financing so that the capital structure has zero interest-bearing debt content.
    • Companies looking for capital should be given incentives to use equity rather than interest-bearing bonds. This can be done by treating dividend payouts as a tax-deductible expense.
  • Future Market
    • An Islamic financial system requires several vital elements to qualify as a viable system, i.e.:-
    • -A large number of players
    • -A broad variety of instruments and
    • -An Islamic Financial legal act or jurisdictions
    • -A sufficient Islamic money and capital market activities
    • -A support from the government
    • An Islamic financial system must also reflect the socio-economic values in Islam, and must be Islamic in both substance and form.