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Islamic Derivatives – Common Stock in Islamic Financial System
A. Concept of Common Stock in Islam
B. Historical Origin
C. Nature of Ownership
D. Risk and Responsibility
E. Shari’ah Acceptance
F. Development of Islamic Capital Market Instruments
1. Modern Development (Post-2002)
2. Contributing Factors
a. Growth of Islamic Finance
b. Role of Key Institutions
c. Evolution of Financial Transactions
G. Final Takeaway
A. Concept of Common Stock in Islam
- Common stock is viewed as:
- Similar to Mudarabah
- Meaning:
- Shareholders act like:
- Providers of capital
- Company acts as:
- Entrepreneur/manager
- Shareholders act like:
- Therefore:
- Stock = profit and loss sharing certificate
B. Historical Origin
- Conventional view:
- Stocks originated in Western economies
- Alternative view:
- Dennis Holme Robertson (1933):
- Traced origins to medieval Muslim traders
- Dennis Holme Robertson (1933):
C. Nature of Ownership
- Shareholders:
- Are partial owners of the company
- Rights include:
- Share in profits (dividends)
- Share in ownership benefits
- Right to:
- Vote in meetings
- Elect directors
D. Risk and Responsibility
- Shareholders must:
- Bear residual risk (business losses)
- In case of liquidation:
- Third-party debts paid first
- Remaining assets distributed to shareholders
E. Shari’ah Acceptance
- Based on these features:
- Scholars consider common stock:
- Permissible (halal)
- Scholars consider common stock:
- Approved by:
- Islamic Fiqh Academy (1993)
- Recognized as:
- Valid investment instrument
F. Development of Islamic Capital Market Instruments
1. Modern Development (Post-2002)
- Introduction of:
- Shari’ah-compliant capital market instruments
- Marked:
- Rapid growth of Islamic finance
2. Contributing Factors
a. Growth of Islamic Finance
- Especially since:
- Mid-1990s onward
- Increased demand for:
- Shari’ah-compliant investments
b. Role of Key Institutions
- Islamic Development Bank
- Accounting and Auditing Organization for Islamic Financial Institutions
- Islamic Financial Services Board
- Develop standards
- Promote global Islamic finance
c. Evolution of Financial Transactions
- Continuous innovation since:
- Mid-1990s
- Creation of:
- New Shari’ah-compliant structures
G. Final Takeaway
- Common stock:
- Viewed as Mudarabah-based ownership
- Involves:
- Profit sharing
- Risk sharing
- Widely accepted as:
- Permissible investment in Islam
- Supported by:
- Strong institutional development and modern financial evolution
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