Reviewing the Concept of Shares: Towards A Dynamic Legal Perspective

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This paper argues that there has been a historical evolution in the concept of shares and that shares no more represents a pro rata ownership in the assets of listed companies as reflected in most fatawa. The legal position in the UK is that shares represent an entitlement to a bundle of rights. Thus, there has been a shift from ownership towards shouldering the liability of risk of the companies. Consequently, any claim against shares has moved away from real rights (a tangible asset) towards personal rights (an intangible asset). Hence, this demands that the fatawa be reconsidered in relation to shares, as by buying a bundle of rights the dealings are no more asset-backed. Thus, the possibility of riba, gharar and ghaban may manifest in dealings with shares. Hence, Muslim scholars will have to reconsider how to implement Shari(ah within a volatile legal system. Two more issues discussed in this paper: firstly, the filtering criteria of the FTSE Islamic Index used on the London Stock Exchange. Suggestions have been made to increase the level of asset-backed limit. Secondly, the possibility of establishing an Islamic Securities House to optimise compliance with Shari(ah regarding investment on the London Stock Exchange.

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... In essence financial assets, financial liabilities, and equity instruments are technically mere paper or electronic documents. For example, buying shares would create a financial asset which technically is a bundle of rights (Manjoo, 2005), including the right to claim dividend by virtue of one's equity in the balance sheet of the company. The company receives money as asset and the shareholder receives equity in the company. ...
... For 'urf to be valid, some conditions need to be met: e.g., it must not be against Quran and sunnah, it must be an existing prevailing practice, etc. Given that share contains a bundle of rights that accompany it and not necessarily the assets of the listed company, then based on 'urf it can be considered as an asset class (Manjoo, 2005). So here 'urf has been used to construct the legality of shares. ...
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If it was not for the indices for Shariah compliant equities, the global Islamic capital market (ICM) would not have proliferated with an astounding pace. Those indices have played an extremely crucial role in assisting the investors seeking Shariah compliant stocks to invest their capital. This conjecture is equally true for Pakistan. In this regard, a remarkable initiative recently taken by the country is the launch of All Shares Islamic Index of Pakistan (ASIIP). The index has been established to develop Pakistan’s ICM and to cater the needs of the investors pursuing Shariah compliant investment in stocks. The selection criterion of ASIIP comprises of mainly two categories: (1) Shariah screening criterion and (2) technical filters. Although a general understanding has been established regarding the Shariah screening criterion and its conceptual basis, there seems to always linger a muddle about how those Shariah rulings are unswervingly related to it. Part of this confusion is attributable to the presence of rather an incongruity between the criterion and its Shariah underpinnings. In view of that, this paper gives an insightful discussion on the criterion from Shariah perspective. It critically analyses the criterion and its underlying Shariah basis by conducting a comprehensive and conscientious research through qualitative method. In doing so, it also juxtaposes the criterion directly to the classical sources of Islamic jurisprudence. On the basis of analysis, it proposes major modifications, on the one hand, to introduce a new ratio or filter within the criterion and, on the other hand, to exclude unnecessary ones from it. It also recommends re-examining the benchmarks for the prevalent ratios. These propositions would not only improve the robustness of the prevailing criterion, but also help abridging the gap between practical aspect of the criterion and its conceptual Shariah basis. Ultimately, it would vitally contribute to critical success factors and future progression of ICM in Pakistan.
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A vigorous and vibrant equity market being an integral part of a resilient and sustainable Islamic financial system, plays a vital role in the overall economic developments of a country. However, the contribution of Muslim investors to the equity market requires the availability of Shari`ah compliant stocks for them to invest, which must pass a certain set of Shari`ah screening criteria prior to any investment. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) offers a criterion for screening stocks to include them in the Shari`ah compliant list, which consists of total five filters. The objectives of this study are three-fold: 1) critically analyse AAOIFI’s criterion and providing the Shari`ah justification behind these filters; 2) develop and introduce a unique filter to be included in the criterion as a replacement of one of the current filters; and 3) suggest to re-examine one of the existing filters, and proposes the removal of two filters from the criterion. To sum up, this paper advocates major changes in AAOIFI’s criterion based on stronger Shari`ah justifications a. It is expected that the findings of this study would not only provide an efficient and practically sustainable solution, it would also enable more companies to become Shari`ah compliant, and provide Muslim investors a wider universe of Shari`ah compliant stocks to choose from for their investment.
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