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Islamic Derivatives – Capital Markets in Islamic Finance 


A. Types of Capital Markets
  • Modern financial system includes:
    • Stock market
    • Commodity / derivatives market


B. Role of Islamic Stock Market
  • Must operate in:
    • Full compliance with Shari’ah principles
  • Main function:
    • Transfer funds from:
      • Surplus units (investors)
      • To deficit units (businesses)


C. Key Objectives
  • Ensure:
    • Ethical and Shari’ah-compliant investment activities
  • Attract:
    • Surplus funds into productive investments


D. Investment Requirements (Shari’ah-Compliant)
  • Must consider:
    • Risk level
    • Expected return
    • Investment period
  • All must follow:
    • Islamic ethical rules (no riba, no exploitation, fairness)


E. Nature of Instruments in Stock Market
  • Includes:
    • Stock index futures
    • Stock options
    • Warrants


F. Complexity of These Instruments
  • These instruments are:
    • Complex and technical
  • Require:
    • Interpretation by scholars in:
      • Fiqh al-Muamalat


G. Scholarly Involvement
  • Opinions differ across:
    • Major schools of Islamic jurisprudence
  • Reason:
    • Need to assess:
      • Compliance with Shari’ah principles
      • Issues like:
        • Gharar
        • Maisir


H. Final Takeaway
  • Islamic capital markets aim to:
    • Combine financial efficiency with ethical compliance
  • However:
    • Modern instruments (futures, options, warrants) remain:
      • Debatable and subject to scholarly interpretation




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