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A critical analysis of Islamic equity funds
Abstract
Purpose
– The purpose of this paper is to highlight the inconsistencies between the methodologies of Islamic funds and indices.
Design/methodology/approach
– The paper has reviewed the methodologies of the most prominent funds and indices (5) to apply their apparent screening features to the asset universe. In the analysis conducted, qualitative and quantitative screens are derived from each selected fund and index methodological approach to asset selection subject to Shari’ah constraints. Qualitative screens are applied first followed by quantitative screens.
Findings
– Few inconsistencies are evident between the chosen funds and indices when the qualitative screens are applied. However, the major inconsistencies are highlighted after analysis of the quantitative screens.
Research limitations/implications
– A number of companies within the asset universe are investment trusts, and such financial statement line item data were not found. However, this posed no difficulty, as these companies were investment trusts and would have been excluded in the qualitative screening process.
Social implications
– This paper will assist in the construction of a framework which thus leads to the development of a standardized methodological approach, ultimately benefiting investors.
Originality/value
– This paper is believed to be the first which analyzes the impact of Shari’ah screens on the Financial Times Stock Exchange (FTSE). Additionally, this paper also analyzes the impact of Shari’ah screens pre and post the financial crisis. The findings of this research paper will also aid in the construction of a different research methodological approach capable of selecting halal securities listed in the FTSE 250.
... 12 aylık ortalama piyasa değerini kullanan DJIM' nin 2008 küresel finans krizinin etkisiyle hisse evreninde en az şirket bulunan metodoloji olmuştur. Elde edilen bulgular ışığındaClarke (2015), metodolojilerin standardize edilmesi gerekliliğini vurgulamışlar ve standart bir metodolojinin nasıl olması gerektiği konusunda tavsiyede bulunmuşlardır.Clarke (2015),Zaidi vd. (2015)'nin çalışması ile benzer şekilde her oran grubu için %33 eşik değerini ve bölen olarak piyasa değerinin kullanılmasını tavsiye etmiştir.İslami hisse senedi tarama metodolojilerinin karşılaştırılması anlamında en geniş örnekleme sahip çalışmaHo (2015)'nun çalışmasıdır.Ho (2015), 34 farklı metodolojinin hem sektörel hem de finansal oran taraması kriterlerini detaylı bir şekilde incelemiştir. ...
... r. 12 aylık ortalama piyasa değerini kullanan DJIM' nin 2008 küresel finans krizinin etkisiyle hisse evreninde en az şirket bulunan metodoloji olmuştur. Elde edilen bulgular ışığındaClarke (2015), metodolojilerin standardize edilmesi gerekliliğini vurgulamışlar ve standart bir metodolojinin nasıl olması gerektiği konusunda tavsiyede bulunmuşlardır.Clarke (2015),Zaidi vd. (2015)'nin çalışması ile benzer şekilde her oran grubu için %33 eşik değerini ve bölen olarak piyasa değerinin kullanılmasını tavsiye etmiştir.İslami hisse senedi tarama metodolojilerinin karşılaştırılması anlamında en geniş örnekleme sahip çalışmaHo (2015)'nun çalışmasıdır.Ho (2015), 34 farklı metodolojinin hem sektörel hem d ...
Islamic stocks refer to stocks that are in compliance with the shariah
compliant stocks screening. There are two stages of the shariah compliant stocks
screening; business activity screening and financial ratio screening. The criteria that
are used in the shariah compliant stocks screening are determined by international
rating agencies and the shariah boards of index providers. In practice, shariah boards
may adopt different criteria from each other. The most significant difference between
these criteria is related to firm value which is used in financial ratios during the
financial ratio screening and the question is whether the book value or the market value
of a company shall be used as denominator. In this study, firstly, the effect of using
book value and market value (12, 24 and 36 month average market value) as the firm
value is examined. In this context, the financial data of the 330 companies from 40
sectors in the BIST All index for the 2008Q1-2018Q2 periods were utilized and
shariah compliant stocks screening was performed. Secondly, two new models were
proposed based on prudence and liberal approaches. Accordingly, while in prudence
approach minimum index dividing value is accepted as firm value, in liberal approach,
maximum index dividing value is accepted as firm value and shariah compliant stocks
screening was performed based on these two newly formed portfolios. In this regard,
six different portfolios were formed in line with four different dividing values and two
new model proposals and Islamic stock indices were created from these portfolios.
Finally, the decomposition hypothesis that Islamic stock markets are differentiated
from conventional stock markets has been tested. For this BIST100 index was used to
represent the conventional stock markets. The MV-GARCH model was established
between Islamic stock indices and BIST100 indices and dynamic conditional
correlation coefficients (DCC) were obtained from the model. In general, the findings
of the study show that there are serious differences between the shariah compliant
stocks screening criteria and these differences lead to serious differences in the sectoral
distribution of the portfolios and the firm composition in the portfolio; however these
differences did not have a significant effect on the validity of the divergence
hypothesis between the yield series of indices -which obtained using a holistic
approach- and the conventional markets.
... To illustrate this, we used a case that is related to the prohibition of riba' (interest). Both interest paid for loans and received from the savings are not allowed from a Sharia perspective (Clarke, 2015). Sharia only allows an equity approach or risk and profit sharing, but not interest-bearing borrowings and repayments of riba(Abdul Rahman et al., 2010;Ho, 2015). ...
... While the existence of elements of riba' is widely discussed in the literature (Mohammed, 2005;Derigs and Marzban, 2008;Abdul Rahman et al., 2010;Clarke, 2015;Ho, 2015), less attention has been paid to other concepts, such as gharar. Many Islamic scholars relate gharar to ambiguity, hidden knowledge, unknown facts and ignorance, which could lead to undeliverable promises, fraud and treachery, or any other injustices to the parties in the transaction (Kamali, 1998;Mohammed, 2005). ...
Purpose
This study examines the reasons behind the low level of Sharia-related disclosures, particularly Sharia-compliant companies, to gain an understanding on how these companies disclose Sharia-related information in their annual reports, and how professional users of these reports search for such disclosures.
Design/methodology/approach
The study is an exploratory research based on structured interviews with individuals involved in the preparation of annual reports of Sharia-compliant companies and professional users of annual reports.
Findings
Most Sharia-compliant companies and professional users interviewed agree that the most relevant Sharia-related information is most commonly understood as the information found in the financial statement and its notes (accounting-related disclosures). Their responses indicate that there is a disjoint between the conventional disclosure-practices on corporate social responsibility (CSR) items and the Sharia-related information.
Research limitations/implications
The idea of full disclosure needs to be further understood from the perspectives of Sharia. This study provides insights into the types of Sharia-related information that are important for disclosure. Future research should focus on examining a larger number of companies and interviewing more professional users from different jurisdictions to generate more knowledge about the nature of Sharia information and its disclosure.
Practical implications
Users of the Sharia screening methods, especially regulators, such as the Securities Commission Malaysia should encourage the disclosure of the required aspects of Sharia in the annual reports of Sharia-compliant companies, as professional users are interested in this type of information.
Originality/value
This study offers insights into the reasons behind low Sharia disclosures in annual reports of Sharia-compliant companies.
... Quarterly financial reports published by the Financial Services Authority provide valuable insights into funds' financial health and performance. Additionally, the moderation of the Indonesia sharia stock index (ISSI) and the composite index of Sharia stocks listed on the Indonesia Stock Exchange play a crucial role in evaluating funds' performance and market trends (Clarke, 2015). By analyzing these ratios and indices, investors can make more informed decisions about a fund's potential for growth and stability. ...
Purpose – This study investigates how the Sharia stock price index influences the relationship between various factors, such as the expense ratio, portfolio turnover ratio, cash ratio, age, size, and characteristics of Sharia mutual funds, and their overall performance. Methodology – This study employed a quantitative descriptive research method to analyze 316 populations. Purposive sampling was used to obtain a total of 51 samples. We used research tools for data collection and SMART PLS 4 statistical software to analyze the collected data. Findings – The characteristics of ISSI-moderated mutual funds have a significant positive effect on the performance of Sharia mutual funds. To achieve better performance, investment managers must incur high costs in implementing active strategies. The more active the investment manager is in trading by looking at existing opportunities, the better the performance of the Sharia Mutual Funds. Implications – The implications of this research indicate that the movement of the Sharia stock price index can strengthen the positive causal relationship between several characteristics of Sharia mutual funds. The effects of Sharia mutual fund portfolio instruments, including shares, bonds, and deposits from the Sharia banking industry, also contribute to improving the performance of Sharia mutual funds in Indonesia.Originality – This study investigates the moderating role of the Sharia stock price index on several characteristics of Sharia mutual funds, including the expense ratio, portfolio turnover ratio, cash ratio, age of the mutual funds, and size of the mutual funds, in relation to their performance.
... When it comes to medicine, Husin et al. (2015) investigate the awareness of halal medicine among doctors and its relationship with different variables, and in cosmetics, we can find articles about the purchase behavior of halal cosmetics (Ishak et al., 2019;Mustafar et al., 2018). In the business area, Clarke (2015) addresses the inconsistencies between the methodologies of Islamic funds and Ahmad Tarmizi et al. (2020) address the Islamic legal maxims as a basis for Sharia auditing practices. ...
Purpose
The purpose of this study is to systematically examine and compare the growth of halal tourism and hospitality in OIC and non-OIC countries based on published literature.
Design/methodology/approach
A critical systematic review of 154 academic papers published in the last decade involving halal tourism in OIC and non-OIC countries constituted the sample for this study. The study uses an integrated antecedents, decisions and outcomes and theories, contexts and methods framework, and a coding protocol based on the preferred reporting items for systematic reviews and meta-analyses.
Findings
Halal tourism is not developed in non-OIC countries where Islam does not predominate, which represents an opportunity for many countries to incorporate new trends in their tourism offerings. This research increases awareness of non-OIC destinations to welcome a growing halal tourism market, enabling them to foster innovation to meet new demands for Muslim travelers.
Originality/value
This study is different as we compare the pertinent needs that are based on religion in various geographical locations while focusing on tourism and hospitality research in Islamic and non-Islamic nations.
... Charbonnier Jacques, op. cit., p.152 ;9 Revue d'économie du développement, 2015, 1(23), p 60 ;10 Kabir Hassan, Mervin K. Lewis, Handbook of Islamic Banking, Edward Elgar Publishing, p. 401 ; 11 Mher, M. H., & Ahmad, T. P. (2011). Conceptual and opertational differences between general Takaful and conventional insurance. ...
L’introduction des banques participatives au Maroc durant l’année 2017 a connu un essor remarquable
et des performances solides. Toutefois, ces entités sont confrontées à plusieurs contraintes et défis
d’ordre réglementaire et financier qui limitent leur environnement. Ainsi, l’exemple de l’assurance
Takaful en est l’illustration parfaite. En effet, celle-ci a été lancée en juin 2022, en marquant un retard
considérable par rapport au lancement de ces banques. Ce retard a entraîné des coûts supplémentaires
et des risques significatifs devant être gérés. Dans ce contexte, notre étude se concentre sur une revue
de littérature qui vise à comprendre et d’analyser les fondements et les principes de l’assurance
Takaful, en général, ainsi qu’à porter un regard critique sur l’introduction tardive de cette forme
d’assurance au Maroc et le bilan de ses réalisations, en particulier. Pour atteindre notre objectif, nous
avons mené une recherche sur le contenu descriptif
... In terms of the difference in performance, evidence is provided either from the mutual funds' industry or broad market indices. For mutual funds comparison; see, for example, as follows: Hoepner et al. (2012) and Clarke (2015). The findings in these studies lead to mixed conclusions; some studies suggest that Sharīʿah restrictions improve overall portfolio performance whilst others argue that such restrictions have a negative effect on diversification opportunities and affect performance negatively. ...
Purpose
There are a number of differences in the current Sharīʿah screening guidelines formulated by Sharīʿah scholars associated with world-renowned index providers and financial institutions. The purpose of this study is to highlight the consequences of such differences on the portfolio level outcomes for Sharīʿah-compliant investors. This study also investigates the cost of adopting an alternative stock selection methodology.
Design/methodology/approach
Seven Sharīʿah-compliant equity portfolios (SCEPs) are created from the active constituents of the S&P 500. Size, sector allocation and financial performance of the resulting seven portfolios are evaluated for the period 1984–2019. Style analysis is performed to attribute the difference in financial performance caused by the choice of selection criteria to different risk factors. The cost of switching the selection criteria is evaluated with turnover analysis and break-even transaction cost.
Findings
The choice of stock selection criteria has a significant effect on the size, sector bets and financial performance of the portfolios. Those portfolios which are constructed with market capitalization-based screens outperform portfolios constructed with total assets-based screens. The turnover analysis revealed that SCEPs are relatively costly in practice.
Originality/value
This study investigates the performance of Sharīʿah-compliant portfolios in the context of seven different screening guidelines. The effects of transaction cost and performance attribution to different risk factors represent the key contributions of this study.
... It is probable that a company screened as permissible in line with one index criteria may be rejected and considered impermissible in accordance to another index criterion (Derigs & Marzban, 2008). In addition to criticism on quantitative filters, Clarke (2015) mentions certain inconsistencies related to qualitative filters (for example, divergence in opinion regarding the classification of entertainment activities) that lead to further conflicts. Consequently, a significant number of studies called for the harmonization of screening practices and various new methodologies are proposed in the literature (Masih, Kamil, & Bacha, 2018). ...
Shariah screening discards the firms that belong to impermissible business sectors (or sin industries) and follow capital structure with high debt and current assets. This study tests whether the firms passing Shariah screening have better (or worse) governance quality as compared to firms not subjected to Islamic screening. The screened firms may have lesser governance quality as they cannot use debt to discipline managers or achieve optimal capital structure. On the contrary, they may be better governed as these firms get higher presence of institutional investors and better analyst coverage. This paper provides comparison of governance quality of Shariah compliant (SC) firms in United States by using proprietary dataset of Dow Jones US Indices. The screened firms offer grounds for a natural experiment as they pass negative ethical screening and meet financial criteria for the inclusion in the index. The findings suggest that the SC firms have lesser governance quality than Shariah Non-Compliant firms. The lower level of governance can be attributed to lower Size, lower Profitability, higher Dividend Payout, higher Total Risk and lower Free Cash Flow. Various robustness tests are performed to validate the findings and the results remained robust. These findings provide useful insights about the governance mechanism of SC firms that are emerging as an important alternative investment class in the last two decades.
... Islamic mutual funds are subjected to certain restrictions which are guided by Islamic law or Shariah. Generally, Islamic mutual funds are developed principally to Muslim investors as an alternative asset with Shariah compliance funds to assure them that their money is being invested in compliance with Islamic teachings (Clarke, 2015). Wealth creation under Islamic transactions must be generated from a joint-venture between a capital provider and the operator of capital which means the risk and return involved in Islamic investment should be shared accordingly. ...
... For comparison of Shariah-compliant mutual funds and conventional mutual funds (see, e.g.,Abdullah et al., 2007;Hayat and Kraeussl, 2011;Hoepner et al., 2011;Rubio et al., 2012;Ashraf, 2013;Makni et al., 2015;Nainggolan et al., 2015;El-Masry et al., 2016;Makni et al., 2016;Boo et al., 2017;Hammamia and Oueslati, 2017). For comparison based on Shariahcompliant indices and conventional indices (see, e.g.,Hussain and Omran, 2005;Kok et al., 2009;Alam and Rajjaque, 2010;Walkshausl and Lobe, 2012;Bacha et al., 2013;Al-Khazali et al., 2014;Ho et al., 2014;Clarke, 2015;Alam et al., 2016;Umar, 2017). The findings of performance evaluation studies lead to mix conclusions where some studies suggest that Shariah restrictions improve overall portfolio performance while other argue that such restrictions have negative effect on diversification opportunities and effects the performance negatively.The studies mentioned here suffer from few serious shortcomings. ...
The Shariah-compliant equity investments make implicit bets and do not invest in firms with non-compliant core operations. The negative screens are implemented in two steps, qualitative screens and quantitative screens. There exist significant discrepancies among the existing Shariah screening guidelines. This study construct seven Shariah-compliant equity portfolios based on seven different Shariah screening guidelines formulated by world leading index providers and financial institutions. The portfolio level outcomes of the resulting seven Shariah-compliant portfolios are evaluated for the period 1984-2017. Though the discrepancies are minor but when implemented on a unified investment universe (S&P 500 active constituents) the resulting portfolios vary significantly in terms of size and sector allocation. The heterogeneous sectoral bets lead to difference in financial performance. This study also shows that the choice of stock selection in Shariah-compliant investing matters for Shariah investors. Portfolios constructed with market capitalization based screens result in superior financial performance as compare to portfolios constructed with total assets based screens. Finally, investors should consider seriously the relatively higher turnover associated with Shariah-compliant equity portfolio.
... Both types of mutual fund siphone off inflows to Bursa Malaysia stock exchange and many other types of securities, impose fees, and superintended by a special governance structure best known as Board of Directors (BOD). However, the difference in principle embraced by conventional and Shariah law has restricted Shariah mutual fund (SMF) activities from engaging investment universally (Clarke, 2015). For instance, entertainment, alcohol, tobacco, and widely interest based activities are strictly forbidden industries for investing by Shariah law (Abbasi et al., 1989). ...
Mutual fund has become an increasingly important investment vehicle for retail investors, especially among households. Besides developing the institutional investment as an efficient momentum trader, the long-established separation of ownership and control in contemporary type of fund management has very much caused depreciation in shareholder value under minimum investor protection environment. The unobserved activities and widely magnitude decision skills of managers under imperfect contract with the tendency to serve self-interest exacerbates the shareholder wealth, predominantly in Shariah mutual fund, pertaining to dual investing interests. This paper reviews the theoretical and empirical literature with central attention given to the existing governance structure, Shariah governance in religious based fund, and some other related internal governance mechanisms. Concurrently, the review explains theoretically and conceptually the interrelationships among all relevant governance mechanisms. After some rigorous discussion and argument, this paper recommends further empirical investigation into this line of research to integrate the gap from developed market evidence.
... Pok (2012) applied common screening standards to Malaysian stocks and found the Dow Jones criteria to be the most restrictive (compared to S&P and FTSE). Clarke (2015) observed that while the majority of inconsistencies are found within quantitative screens, there were also issues related to qualitative (sector) screens. For instance, the description of categories "disallowed" by the Shari'ah was somewhat diverse. ...
This paper reviews the current literature on Islamic equities. Our survey indicates that the bulk of papers are quantitative or empirical in nature, with a notable dearth of theoretical works. Among the common research themes explored by these papers are comparative performances of Islamic equities vis-à-vis their conventional counterparts, comparisons of Islamic portfolios with SRI funds, and empirically articulating portfolio diversification benefits associated with Islamic equities. In addition, numerous papers discuss idiosyncrasies of Shari’ah compliant stocks and portfolios under subthemes such as volatility, risk factors and performance attributes. This survey also includes papers addressing efficiency perspectives, calendar anomalies and issues in Shari’ah stock screening norms. We summarize general findings and offer suggestions for future research. Literature surveys on Islamic equities are few and far between, and this paper, to date, represents the most recent and comprehensive attempt at that.
Purpose
The purpose of this study is to highlight key issues pertaining to making use of Islamic equity indices and proposing possible solutions to address the problems faced in advancement of the concept of Shariah investing (SI) with the aim to advance the discourse on the subject.
Design/methodology/approach
Online focus group discussion (FGD) was carried out in which ten Islamic finance researchers and analysts belonging to institutions considered as authority on the subject matter participated to share their viewpoints on Islamic equity indices. Content analysis on the collected data of FGD was carried out which has revealed six key themes.
Findings
Six broader themes were identified based on the analysis of FGD, which includes criteria for constructing Islamic equity indices, utilization of Islamic equity indices for comparison with conventional stock indices, stock market efficiency perspectives, reason for integration of different equity markets, investors’ awareness of SI and future directions of Islamic equity indices. Results of the study indicate that Islamic finance researchers and analysts opined that there is a need for revising the criteria for construction of Islamic equity indices. There are conflicting viewpoints regarding performance and efficiency of Islamic indices in comparison with conventional indices and main reasons for stock market integration are trade liberalization, globalization and other factors. Moreover, there is a need for making investors and other market players aware about the attractiveness of Islamic indices from investing point of view.
Originality/value
Based on this extensive literature review and as highlighted by Masih et al. (2018) in their recap of literature on Islamic equity indices indicating that there are bulk of empirical studies carried in the past in the domain, however, there is a dearth of theoretical and qualitative studies. Hence, this preliminary qualitative study not only makes theoretical contribution but also deploys FGD, which is rarely used in the similar context, and offers candid views of the participants on key issues pertaining to Islamic equity indices. This lends novelty to this study.
This paper examines the effect of Shariah screening on performance. We use the constituents of the ASX200 to identify Shariah‐compliant investments (SCI) using eight different Shariah screening methods (SSMs) and investigate the effect of quantitative screening ratios and purification ratios on performance. We find significant differences in the constituents of the SCI universe and performance across SSMs. Our results demonstrate consistent evidence that the debt and purification ratios are negatively associated with SCI performance. However, we find mixed results for the impact of liquidity ratios on performance.
This paper seeks to provide a preliminary profile analysis of investors of Islamic funds based on their underlying motivation to invest, which at present received little interest in the literature. The experience of faith-based and socially responsible investment clearly reveals the heterogeneity of investors with divergent investment motives, and this is highly likely to be true among Islamic funds’ investors as well. For this purpose, the study surveys Investors of Islamic funds from three fund management companies in Malaysia with a total sample of 451 respondents. The profiling employs a cluster analysis of the respondents using religion, percentage invested in Islamic funds, and four potential motivations to invest. The result shows a possible segmentation of the investors into three groups, with Muslim investors being segmented into two categories, ‘committed’ and ‘pragmatic’ investors, while the third category being the ‘non-Muslim’ investors. The clusters represent a clear distinction between the three groups in terms of their commitment to Shariah principles in investment, the importance of earning halal vis-à-vis high returns, and the benefits of diversification between Islamic and conventional funds. The findings provide valuable insights for fund management companies in terms of understanding the different segments of investors and their issues of concerns for better investment services, product innovation and offering, as well as marketing strategies.
Reports that there are lessons which can be learned from the Western ethical “green” finance industry for Islamic investors. States that these are that the criteria for investment selection are different, and the modes of permissible financing may also differ, but there are screening and reporting techniques which are of potential importance to both groups of investors. First addresses ethical fund management issues, which should shed some light on the dilemmas facing Islamic investors. Goes on to consider criteria for haram and halal investment, as well as the implications of company capital gearing or leverage for riba. Covers investment specific issues, including the treatment of capital gains in Islam and the evaluation of the conduct of market participants. Finally, surveys emerging markets in the Islamic world, as these are of obvious interest to Muslim investors wishing to broaden their portfolios.
Iwas asked by ISNA to produce a short guide to Islamic Banking and Finance for the Muslims of North America. To keep this guide short, we had to de ne our target audience rather carefully. This introductory guide is meant to address the Muslim who is familiar with the fundamental tenets and sources of legislation in Islam. The reader is not assumed to have elaborate prior knowledge of Islamic nancial contracts, but a certain degree of nancial sophistication will be required. This is not a full survey of the eld, and it is not a religious guide. It is the work of a single individual, who does not claim any religious authoritybeyond that which is derived from quoted texts. I tried my utmost to steer away from issues which are or may become controversial. Therefore, I have been careful to limit the discussion of recent fatwas and decisions of jurists and juristic councils. In that sense, this guide falls short of providing the reader with full information about \state of the art " Islamic nancial instruments. This apparent shortcoming is intentional. The eld of contemporary Islamic
Purpose
The purpose of this paper is to analyze the impact of applying alternative Shariah screens on the resulting universe of halal assets and to show that Shariah screening procedures currently used in practice are inconsistent with respect to discriminating between halal and haram.
Design/methodology/approach
An empirical data analysis of the different asset universes obtained when applying the criteria specified by the most prominent Shariah‐compliant funds and indexes to a common standard asset universe, the assets contained in the S&P 500 index.
Findings
Analysis reveals that the asset universes are significantly different in size as well as constituents, i.e. for every index there is a substantial number of assets which are specified as halal or haram but classified the opposite way for other indexes. This indicates that, so far, there is no universal or generally accepted understanding of how to transform the descriptive Shariah rules into a system of checkable investment guidelines.
Research limitations/implications
The results presented in this paper could motivate the development of a standardized screening framework which, taking into account the existing Shariah guidelines, produces a controlled, unified and understandable classification of assets, by which the credibility and consistency of Islamic equity products is enriched.
Practical implications
Islamic institutions and Shariah scholars are guided to set up a common and standardized Shariah screening norm based on which computer‐based management systems for Shariah compatible portfolios could be developed.
Originality/value
This paper is believed to be the first empirical comparative analysis identifying the impact of using different Shariah screens on the composition of the compliant asset universe. The sensitization of Shariah scholars, fund managers and Islamic investors for the consequences of this so far undiscovered relation will certainly contribute to an enrichment of the credibility and consistency of Islamic equity products.
Islamic lending transactions are governed by the precepts of the shariah, which bans interest and stipulates that income must be derived as return from entrepreneurial investment. Since Islamic finance is predicated on asset backing and specific credit participation in identified business risk, structuring shariah-compliant securitization seems straightforward. This paper explains the fundamental legal principles of Islamic finance, which includes the presentation of a valuation model that helps distil the essential economic characteristics of shariah-compliant synthetication of conventional finance. In addition to a brief review of the current state of market development, the examination of pertinent legal and economic implications of shariah compliance on the configuration of securitization transactions informs a discussion of the most salient benefits and drawbacks of Islamic securitization.
Islamic finance is growing at an astonishing rate and is now a 1200 billion industry, with operations in over 100 countries. This book explains the paradox of a system rooted in the medieval era thriving in the global economy. Coverage is exhaustively comprehensive, defining Islamic finance in its broadest sense to include banks, mutual funds, securities firms and insurance (or takaful) companies. The author places Islamic finance in the context of the global political and economic system and covers a wide variety of issues such as the underlying principles of Islamic finance, the range of Islamic financial products, and country differences. He also discusses a number of economic, political, regulatory and religious concerns and challenges. This second edition has been completely revised and updated to take into account the great changes and developments in the field in recent times. It includes the impact of the 9/11 and 7/7 terrorist attacks on the industry, the new forms of interaction with Western financial institutions, the emergence of innovative products such as sukuk, attempts by a broad range of financial centres - including Kuala Lumpur, London, Singapore, Bahrain and Dubai - to become global hubs of Islamic finance, and the repercussions of the 2008 global financial meltdown on Islamic institutions. Key Features Includes numerous country-specific case studies including the Persian Gulf, Malaysia, Singapore and the UK Traces the evolution of Islamic finance Explores its significance from a historical and comparative perspective Considers the strategic, marketing, managerial, political, economic, regulatory and cultural challenges faced by Islamic institutions Second edition has been completely revised and updated to take into account the great changes and developments in the field in recent times Offers up to date coverage of the political-economic context Discusses the interplay with conventional finance Considers the impact of the financial meltdown of 2008/09 on the industry.
Reports that there are lessons which can be learned from the Western ethical “green” finance industry for Islamic investors. States that these are that the criteria for investment selection are different, and the modes of permissible financing may also differ, but there are screening and reporting techniques which are of potential importance to both groups of investors. First addresses ethical fund management issues, which should shed some light on the dilemmas facing Islamic investors. Goes on to consider criteria for haram and halal investment, as well as the implications of company capital gearing or leverage for riba. Covers investment specific issues, including the treatment of capital gains in Islam and the evaluation of the conduct of market participants. Finally, surveys emerging markets in the Islamic world, as these are of obvious interest to Muslim investors wishing to broaden their portfolios.
There has been large-scale growth in Islamic finance and banking in Muslim countries and around the world during the last twenty years. This growth is influenced by factors including the introduction of broad macroeconomic and structural reforms in financial systems, the liberalization of capital movements, privatization, the global integration of financial markets, and the introduction of innovative and new Islamic products. Islamic finance is now reaching new levels of sophistication. However, a complete Islamic financial system with its identifiable instruments and markets is still very much at an early stage of evolution. Many problems and challenges relating to Islamic instruments, financial markets, and regulations must be addressed and resolved. In this paper, we provide a comprehensive comparative review of the literature on the Islamic financial system. Specifically, we discuss the basic features of the Islamic finance and banking. We also introduce Islamic financial instruments in order to compare them to existing Western financial instruments and discuss the legal problems that investors in these instruments may encounter. The paper also gives a preliminary empirical assessment of the performance of Islamic banking and finance, and highlights the regulations, challenges and problems in the Islamic banking market.
The underdevelopment of many of the Muslim economies along the Silk Road is often ascribed to the negative effects of Islam. Yet historically, the Muslim cities along the Road were thriving centers of commerce, and since the collapse of the Soviet Union, there appears to be a revival of business as central Asia is opened up to the global economy. Islam has its own distinctive code of business ethics, and the trust this fosters can lower transaction costs and increase management efficiency. There is no inherent conflict between Islam and capitalism; indeed, it is possible to identify the emergence of a distinctive Islamic type where capital accumulation is based on noninterest forms of financing.
“Shari’ah supervision of Islamic mutual funds
- Y T Delorenzo