Chapter 5


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Chapter 5

  2. 2. OBJECTIVES OF THIS CHAPTER <ul><li>To know the definitions of Islamic investment </li></ul><ul><li>To describe the principles of Islamic investment </li></ul><ul><li>To identify the determination of acceptable and permissible activities </li></ul><ul><li>The implementation of Islamic investment in Malaysia </li></ul><ul><li>Qawaid fiqhiyyah in islamic investment </li></ul>[email_address]
  3. 3. DEFINITIONS OF ISLAMIC INVESTMENT <ul><li>Islamic Investment is an investment in financial services and investment products that adhere to Islamic principles </li></ul><ul><li>Islamic Investment means a joint pool in which the investors contribute their money for the purpose of its investment to earn permissible (halal) profits in strictly comply with the Islamic law </li></ul>[email_address]
  4. 4. Cont’ <ul><li>The Islamic financial system broadly refers to financial market transactions, operations and services that comply with Islamic rules, principles and codes of practices </li></ul><ul><li>The Islamic financial services industry comprise Islamic banking, Islamic insurance and Islamic capital market, </li></ul><ul><li>The area are growth increasingly within the global financial market and has gained considerable interest </li></ul>[email_address]
  5. 5. THE PRINCIPLES OF ISLAMIC INVESTMENT <ul><li>The principles of Islamic investment consists: </li></ul><ul><li>Investment must be in ethical sectors (profits are not from prohibited activities, and non-Islamic financial institutions </li></ul><ul><li>Investment of property and wealth must be result from a partnership between the investor and the user of capital in which rewards and risks are share </li></ul><ul><li>Investment must be considered the philosophy of Islamic business (e.g: social justice, equitability, and fairness as well as practicality of transaction </li></ul>[email_address]
  6. 6. Cont’ <ul><li>The major prohibited elements are riba (interest), gharar (uncertainty), maisir (gambling), non- halal (prohibited) food and drinks and immoral activities </li></ul><ul><li>When a transaction have a prohibited elements, it’s must first be removed for it to be Shariah -compliant </li></ul>[email_address]
  7. 7. Cont’ <ul><li>According to Al-Qardhawi (2000), the Shariah legal maxim in relation to transactions and contracts are state, “they are permissible unless there is a clear prohibition.” </li></ul>[email_address]
  8. 8. THE DETERMINATION OF ACCEPTABLE AND PERMISSIBLE ACTIVITIES <ul><li>In Islamic perspectives, all activities must be acceptable and not related to prohibited by Islamic law. </li></ul><ul><li>An examples of the prohibited activities are follow: </li></ul><ul><li>Alcohol </li></ul><ul><li>Gambling </li></ul><ul><li>Pork or a related products </li></ul><ul><li>Pornography </li></ul><ul><li>Conventional financial, banking & insurance services </li></ul>[email_address]
  9. 9. Cont’ <ul><li>Also, an activities such as tobacco, weapons, hotels or entertainment are prohibited </li></ul><ul><li>The decision are depends on the methodology or interpretation used by Islamic scholars in different jurisdictions </li></ul>[email_address]
  10. 10. THE IMPLEMENTATION OF ISLAMIC INVESTMENT IN MALAYSIA <ul><li>Islamic countries are recognized Malaysia as the pioneer and at the forefront in Islamic finance and investment </li></ul><ul><li>Malaysia was developed and established an Islamic institutions by providing a clear guidance on the types of investment to fulfill the Muslim needs </li></ul>[email_address]
  11. 11. Cont’ <ul><li>All investors whether domestic or international can invest their wealth at the Islamic financial institutions </li></ul><ul><li>The institutions of Islamic financial in Malaysia comprise 3 categories: Islamic banking, Islamic insurance and Islamic capital market </li></ul>[email_address]
  12. 12. Cont’ <ul><li>Modern Islamic financial products and services are developed using two different approaches. </li></ul><ul><li>by identifying the existing conventional products and services that are generally acceptable to Islam, and modifying, removing any prohibited elements that are able to comply with Shariah principles </li></ul><ul><li>By involving the application of various Shariah principles to facilitate the origination and innovation of new products and services </li></ul><ul><li>Types and companies for each categories are follows: </li></ul>[email_address]
  13. 13. Islamic Banking……..………………… Cont’ <ul><li>Islamic banking were developed and applied by 3 types/approaches and companies are: </li></ul><ul><li>Fully Islamic (e.g: Bank Islam Malaysia berhad (BIMB), Bank Muamalat Malaysia Berhad (BMMB), Bank Rakyat) </li></ul><ul><li>Window banking (Dual-banking) (e.g: Public Bank, Maybank, etc) </li></ul><ul><li>International Islamic banking. Malaysia also, give an authorization for the foreign countries to set up and developed a branches (e.g: Kuwait Financial House (KFH) and Ar-Rajhi Bank (Bahrain) </li></ul>[email_address]
  14. 14. Islamic Insurance .……..……………… Cont’ <ul><li>Islamic insurance also well known as a takaful </li></ul><ul><li>Nowadays, Malaysia have a 3 companies of Islamic insurance. It’s Syarikat Takaful Malaysia, Takaful Nasional, and Takaful Ikhlas </li></ul><ul><li>Each companies have a difference of business strategy to manage and achieve their goals </li></ul>[email_address]
  15. 15. Islamic Capital Market……………… cont’ <ul><li>The Islamic Capital Market (ICM) refers to the market where capital market activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam </li></ul><ul><li>Islamic capital market is the stocks listed of companies on Bursa Malaysia classified as Syariah-approved securities by the SAC, these securities continue to provide the momentum for further growth in the ICM </li></ul>[email_address]
  16. 16. THE SECURITIES COMMISSION <ul><li>The SC is a self-funding statutory body with investigative and enforcement powers </li></ul><ul><li>The SC established on 1 March 1993 under the Securities Commission Act 1993 </li></ul><ul><li>The SC reports to the Minister of Finance and its accounts are nominated in Parliament annually </li></ul>[email_address]
  17. 17. Cont’ <ul><li>The main functions of SC are: </li></ul><ul><li>to promote the development of the capital market </li></ul><ul><li>to stream line the regulations of the securities market </li></ul>[email_address]
  18. 18. BURSA MALAYSIA <ul><li>Bursa Malaysia is an exchange holding company, listed on the Main Board of Bursa Malaysia Securities </li></ul><ul><li>Bursa Malaysia listed classified between syari’ah approved securities and non-syari’ah approved securities </li></ul>[email_address]
  19. 19. SHARIAH ADVISORY COUNSIL (SAC) <ul><li>The SAC of SC was established in 1996 and as a main thrust of ICM products to comply on Islamic principles </li></ul><ul><li>The SAC is an important source of authority for Syariah compliance and plays a critical role in ensuring and maintaining market confidence in the ICM </li></ul><ul><li>SAC of SC has applied a standard criterion in focusing on the activities of the companies listed on Bursa Malaysia </li></ul>[email_address]
  20. 20. Cont’ <ul><li>The SAC has approved an updated list of securities, which have been classified as Shariah-approved securities </li></ul><ul><li>If subject to certain conditions, companies whose activities are not contrary to the Shariah principles will be classified as Shariah-approved securities </li></ul><ul><li>For further information, please refer to website: </li></ul>[email_address]
  21. 21. Cont’ <ul><li>The functions of SAC are: </li></ul><ul><li>To advise the Securities Commission on Shariah-related matters </li></ul><ul><li>To provide Shariah guidance on ICM transaction and activities, </li></ul><ul><li>To aimed at standardizing and harmonizing application </li></ul>[email_address]
  22. 22. SYARIAH-APPROVED AND NON-APPROVED SECURITIES <ul><li>The companies will be classified as non-approved securities if the core activities are follow : </li></ul><ul><li>Financial services based on Riba (interest) </li></ul><ul><li>Gambling </li></ul><ul><li>Manufacture or sale of non-halal products or related products </li></ul><ul><li>Conventional insurance </li></ul><ul><li>Entertainment activities that are non-permissible according to shariah </li></ul><ul><li>Manufacture or sale of tobacco-based products or related products </li></ul><ul><li>Stock brocking or share trading in shariah non-approves securities </li></ul><ul><li>Other activities are non-permissible according to shariah </li></ul>[email_address]
  23. 23. QAWAID FIQHIYYAH IN ISLAMIC INVESTMENT <ul><li>For companies are combine both of permissible and non-permissible activities, the SAC considers to 2 additional criteria: </li></ul><ul><li>The public perception or image of the company must be good </li></ul><ul><li>The core activities of the company are important and considered maslahah (benefit) to Muslim and Country, and the element of non permissible is very small, and involves matter such as ‘umum balwa” </li></ul>[email_address]
  24. 24. Cont’ <ul><li>To determine the tolerable level of mixed contributions of from permissible and non permissible activities towards turnover and profit before tax of a company, the SAC has established several benchmarks based on ijtihad </li></ul><ul><li>If the contributions from non-permissible activities exceed the benchmark, the securities will be classified as Shariah-non approved </li></ul><ul><li>The benchmarks were classified by 3 types : </li></ul><ul><li>The five-percent benchmark </li></ul><ul><li>The 10-percent benchmark </li></ul><ul><li>The 25-percent benchmark </li></ul>[email_address]
  25. 25. THE 5 % BENCHMARK <ul><li>The 5 % benchmark is used to assess the level of mixed contributions from the activities that are clearly prohibited such as interest (riba), gambling, liquor and pork </li></ul>[email_address]
  26. 26. THE 10 % BENCHMARK <ul><li>The 10 % benchmark is used to assess the level of mixed contributions from the activities that involve the element of “ umum balwa ” which is a prohibited element affecting most people and difficult to avoid </li></ul><ul><li>“ Umum balwa ” means a prohibited element affecting most people and difficult to avoid. Also, it’s a common plight and difficult to avoid, ‘uruf (custom), and the rights of the non-Muslim community which are accepted by Islam </li></ul><ul><li>For example: A contribution is the interest income from fixed deposits in conventional banks </li></ul><ul><li>This benchmark is also used for tobacco-related activities </li></ul>[email_address]
  27. 27. THE 25 % BENCHMARK <ul><li>The 25 % benchmark is used to assess the level of mixed contributions from the activities that are generally permissible according to Shariah, and have an element of maslahah to the public, but there are other elements that may affect the Shariah status of these activities </li></ul><ul><li>The activities that belong to this benchmark are hotel and resort operations, share trading, stock broking and others </li></ul><ul><li>Besides that, these activities also involve other activities that are deemed non-permissible according to the Shariah </li></ul>[email_address]
  28. 28. [email_address]