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KembaraXtra–Islamic Finance–Islamic Capital Market – Introduction
-Conventional financial systems were severely affected by the global financial crisis,particularly during the subprime mortgage crash of 2007–2008
-The Islamic financial system,which is Shari’ah-compliant,has evolved steadily since its inception and began adopting modern financial practices from the mid-1970s
-Over time,Islamic finance has emerged as a credible and successful alternative to conventional financial structures
-Shari’ah principles emphasise risk-sharing and discourage interest-based financing
-Instead of interest-based contracts,Islamic finance promotes Mudarabah and Musharaka as profit-and-loss-sharing instruments
-Risk-sharing is a core foundation of Islamic finance and is aimed at equitable and productive distribution of financial risk
-This concept of risk-sharing is not limited to Islamic finance alone but is beneficial for the broader economy
-Equity markets are considered ideal platforms for practising risk-sharing
-Stock markets inherently involve risk-sharing since investors share in profits and losses through equity ownership
-Globally,equity markets are generally well-organised,regulated,and long-established
-Many Islamic jurists permit investment in modern joint-stock companies provided they comply with Shari’ah norms
-Shari’ah screening is mandatory to determine whether stocks are permissible for Islamic investors
-Screening ensures investments align with Islamic ethical and legal principles
-Companies involved in tobacco,alcohol,gambling and gaming,conventional insurance,and interest-based finance are excluded from Islamic portfolios
-Sectors such as non-compliant entertainment,hotels,and weapons are also excluded from ethical Islamic investments
-Financial ratio screening is applied to limit involvement in interest-based activities
-These ratios assess interest-based debt,interest income,cash holdings,and receivables
-All Islamic investment funds and portfolios must maintain full Shari’ah compliance
-The growth of Islamic equity investments is driven not only by an increase in Shari’ah-compliant companies but also by diversification of equity instruments
-Islamic equity instruments include unit trusts or mutual funds,REITs,ETFs,venture capital funds,investment funds,and structured products based on Shari’ah indices
-All Islamic equity products must be structured strictly in accordance with Shari’ah principles
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