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KembaraXtra-Islamic Finance - Islamic Capital Market-Islamic Capital Markets (ICMs)
  • Islamic Capital Markets (ICMs) consist mainly of equity investments and fixed-income instruments, such as Sukuk, which must operate strictly in accordance with Shari’ah principles.
  • ICM instruments must be consciously segregated from conventional capital market components, and this separation must be examined from both:
    • A contractual perspective, and
    • A transactional perspective
  • Avoidance within Islamic capital markets is not restricted only to interest (Riba) and uncertainty (Gharar).
  • ICMs must also avoid other prohibited elements, including:
    • Gambling and speculative activities (Maisir)
    • Investments in illegal or non-permissible (haram) activities
    • Capital-guaranteed features embedded in equity-based products and services, which contradict the principle of risk sharing
  • Although both Islamic finance and conventional finance ultimately aim to generate economic returns, the mechanisms and pathways used to achieve these gains are entirely different and distinctive.
  • Islamic finance emphasises ethical compliance, asset backing, and risk sharing, whereas conventional finance often relies on interest-based and speculative structures.
  • The Islamic Capital Market is an integral component of the broader Islamic financial system, operating alongside Islamic banking and Takaful.
  • ICMs play a critical role in promoting economic development and growth at the national level, as they mobilise long-term funds for productive investments.
  • The ICM functions as a complementary mechanism to the Islamic banking system, expanding the overall scope and reach of Islamic financial markets.
  • By providing investment and financing avenues beyond banking products, the ICM helps ensure that Islamic financial markets grow and diversify globally.

Growth Drivers and Market Significance
  • The increase in wealth among Muslim investors has been a major driver of growth in Islamic capital markets.
  • This growth is particularly influenced by investors from countries such as:
    • Bahrain
    • Kuwait
    • Oman
    • Qatar
    • Saudi Arabia
    • United Arab Emirates
  • These countries collectively form the Gulf Cooperation Council (GCC) and play a dominant role in the global Islamic finance ecosystem.
  • The annual growth rate of the Islamic Capital Market is currently estimated to range between 12% and 15%, indicating strong and sustained expansion.
  • The ICM accounts for approximately 27% of total global Islamic Financial Services Industry (IFSI) assets.
  • The total value of ICM assets is estimated to be around US$591.9 billion, highlighting its substantial contribution to Islamic finance.

Sukuk and Market Performance
  • Despite experiencing a slower growth rate in 2018 compared to 2017, Sukuk continues to dominate the Islamic Capital Market sector.
  • The dominance of Sukuk is largely attributed to:
    • Strong sovereign issuances by governments
    • Multilateral Sukuk issuances by international institutions
    • Issuances aimed at financing public budgetary expenditures
    • First-time Sukuk issuances in new jurisdictions, expanding the geographical reach of the market
  • These factors have helped maintain Sukuk’s position as the leading instrument within the ICM, even during periods of slower growth.

Comparison with Global Equity Markets
  • A comparative analysis of global equity markets during the same period shows a contrasting trend.
  • In 2018, global equity asset values declined by approximately 8.5% compared to 2017.
  • Several factors are identified as contributing to this decline, including:
    • Moderation in global economic growth
    • Recurring geopolitical challenges
    • Tightening international liquidity conditions, which reduced capital availability and investment activity
  • These challenges had a broader impact on conventional financial markets, highlighting the relative resilience of Islamic capital market instruments such as Sukuk.

Overall Market Size and Outlook
  • By the end of 2019, the estimated total value of global Islamic financial assets reached approximately US$1.5 trillion.
  • Of this total, around 25% is represented by the Islamic Capital Market, underscoring its importance within the Islamic finance ecosystem.
  • The sustained expansion of the ICM reflects its growing role as a key pillar of Islamic finance, supporting ethical investment, economic development, and global financial inclusion.
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