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KembaraXtra-Islamic Finance-Islamic Capital Market-Classification of the Islamic Capital Market (ICM)
– The Islamic capital market is broadly divided into two main segments:
– Primary market
– Secondary market
• Primary Market in the Islamic Capital Market
– The Islamic primary market deals with new issues of Islamic equity and debt instruments.
– Securities are issued either as:
– entirely new flotations (e.g. IPOs), or
– offers to existing investors (e.g. rights issues).
– In all cases, the issuing organisation raises fresh capital in exchange for securities.
– For companies, securities issued may take the form of:
– shares (equity), or
– Islamic bonds (Sukuk).
– Governments typically issue sovereign Sukuk to raise funds.
– Having a public quotation (listing) on a stock exchange is a major advantage for firms, as it makes it easier to raise additional capital in the future.
• Secondary Market in the Islamic Capital Market
– The secondary market facilitates the trading of Islamic financial assets that were issued previously.
– These assets include shares and Sukuk.
– Trading takes place among investors, not with the issuing organisation.
– The secondary market provides liquidity, allowing investors to:
– sell securities easily
– convert investments into cash when needed
– Liquidity ensures that investments are not locked in for long periods.
– The Islamic secondary market enables the continuous reallocation of financial assets among investors.
– It also allows investors to diversify their portfolios by reallocating funds across different Islamic financial instruments.
• Key Products in the Islamic Capital Market
• Overall Insight
– The Islamic capital market integrates primary and secondary markets with a range of Shari’ah-compliant instruments.
– It supports capital formation, liquidity, risk-sharing, and ethical investment in line with Islamic principles.
– The Islamic capital market is broadly divided into two main segments:
– Primary market
– Secondary market
• Primary Market in the Islamic Capital Market
– The Islamic primary market deals with new issues of Islamic equity and debt instruments.
– Securities are issued either as:
– entirely new flotations (e.g. IPOs), or
– offers to existing investors (e.g. rights issues).
– In all cases, the issuing organisation raises fresh capital in exchange for securities.
– For companies, securities issued may take the form of:
– shares (equity), or
– Islamic bonds (Sukuk).
– Governments typically issue sovereign Sukuk to raise funds.
– Having a public quotation (listing) on a stock exchange is a major advantage for firms, as it makes it easier to raise additional capital in the future.
• Secondary Market in the Islamic Capital Market
– The secondary market facilitates the trading of Islamic financial assets that were issued previously.
– These assets include shares and Sukuk.
– Trading takes place among investors, not with the issuing organisation.
– The secondary market provides liquidity, allowing investors to:
– sell securities easily
– convert investments into cash when needed
– Liquidity ensures that investments are not locked in for long periods.
– The Islamic secondary market enables the continuous reallocation of financial assets among investors.
– It also allows investors to diversify their portfolios by reallocating funds across different Islamic financial instruments.
• Key Products in the Islamic Capital Market
- Ordinary Stocks
– Ordinary stocks (common shares) represent basic ownership in a company.
– Shareholders usually enjoy voting rights, typically one vote per share.
– Ownership is proportional to the number of shares held.
– Ordinary shareholders benefit from:
– dividends (if declared)
– capital appreciation
- Preferred Stocks
– Preferred stocks are a hybrid instrument, combining features of both equity and debt.
– They usually offer fixed dividends, unlike ordinary shares.
– Preferred shareholders generally do not have voting rights.
– They have priority over ordinary shareholders in dividend payments but rank below debt holders.
- Mutual Funds
– Mutual funds pool money from many small investors.
– Funds are invested in:
– stocks
– bonds
– money market instruments
– other Shari’ah-compliant assets
– Professional fund managers manage the investments.
– The aim is to generate income and capital growth for investors.
- Single Stock Futures
– Single stock futures are contracts between two parties.
– The buyer agrees to purchase a specified number of shares of a single stock at a future date and agreed price.
– The seller agrees to deliver the shares at that future date.
– These contracts are used for hedging or price speculation, subject to Shari’ah considerations.
- Mudarabah Sukuk
– Mudarabah Sukuk represent ownership in assets or ventures managed under a Mudarabah contract.
– The contract is between:
– capital providers (investors), and
– entrepreneurs (managers).
– Profits are shared based on a pre-agreed ratio.
– If losses occur:
– capital providers bear the financial loss
– entrepreneurs lose only their effort and do not receive profits
- Ijara Sukuk
– Ijara Sukuk are based on a leasing (rental) contract.
– Investors own the underlying asset and lease it to a user.
– Sukuk holders earn returns through rental income.
– The contract grants the right to use an asset in exchange for payment.
- Musharaka Sukuk
– Musharaka Sukuk represent ownership in tangible assets or joint ventures.
– Holders share in both:
– profits, and
– losses, in proportion to their ownership.
– Any changes in the asset’s value before maturity affect the Sukuk holders.
– These Sukuk are issued by:
– private companies
– corporations
– governments
• Overall Insight
– The Islamic capital market integrates primary and secondary markets with a range of Shari’ah-compliant instruments.
– It supports capital formation, liquidity, risk-sharing, and ethical investment in line with Islamic principles.
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