Understanding Islamic finance : a study of the securities market in an Islamic framework

Author

Mannan, M. A.

Edition

1 ed.

Publisher

Islamic Development Bank (IDB) Islamic Research and Training Institute (IRTI)

Publication Date

1993-12-31

Country of Publication

Saudi Arabia

No. of Pages

115

Main Subjects

Financial and Accounting Sciences
Religion
Islamic Studies

Topics

• Banks
• Islamic jurisprudence
• Financial institutions
• Islam
• Performance appraisal
• Securities
• Sales
• Markets
• Contracts
• Derivative securities
• Financing
• Profits
• Investments
• Financial markets
• Insurance
• Debts
• Capital
• Loans
• Wages
• Stockholders
• Interest
• Stocks
• Speculation
• Pakistan
• Western world
• Forward buying
• Postponed sale
• Resale on profit
• Mutual funds
• Usury
• Negotiable instruments
• Partnerships
• Differences(Islamic law)
• Profit-sharing
• Diminishing partnership
• Certificates of participation(Securities)
• Islamic Banks
• Pre-emption
• Options(Finance)
• Government bonds
• Preferred stocks
• Markup
• Islamic Development Bank

English Abstract

This study demonstrates that there is a valid case for the Islamic Securities Market (ISM) from the point of view of the Shari'ah.

In this study, the term "securities" is used in its broadest sense to include both long - and short - term debt obligations and shares of all maturities.

Thus, here, the term "securities market" approximates "financial market".

A comparative policy approach is adopted in analyzing the framework of the Islamic Securities Market.

The study shows that a substantial part of the operations of Western securities markets and the behavior of its participants are considered to be unlawful in Islam.

Thus the study examines the nature and characteristics of various securities such as ordinary shares, preference shares, debentures, commercial papers, operation of stock exchanges, purchase of stocks, against "margin", over-the-counter stocks, and operation of the options in the light of the Shari'ah.

While the behavior of the investors interested mainly in dividends from their investment in shares is looked upon with favor in the Shari'ah, the behavior of the speculators, hedgers, and arbitragers is generally questionable.

The fact is that as the Islamic economy is essentially share-economy, the framework of the Islamic Securities Market can be developed on the basis of the Musharaka, Mudaraba and Murabaha (cost-plus) concept.

Thus, it is demonstrated that since the cost of investment in securities is mainly a function of the rate of return, the Islamic Securities Market can provide a built-instabilizerto investment and is less prone to speculation.

The study indicates that speculative gains have a doubtful validity in the Shari'ah although, this may not be the case with regard to capital gains.

It is further suggested that the implications of some aspects of the Islamic concept of sale such as, advance sale (i.e., Bai-al-Salam) and defer-red sale (i.e., Bai-Moajjal) could be far-reaching, if their underlying principles are operationalized in the conduct of the Islamic Financial Markets.

In this connection a number of problems and issues such as index-linked loan certificates, small and fragmented markets, and the dispersion of the ownership of shares have been high lighted.

This theoretical analysis is further supplemented by a review of the recent attempt to issue Islamic bonds and certificates by Islamic investment companies and banks, coupled with further suggestions of a new package of financial instruments.

The study may provide the basis for further research work and a framework for an action program.

Table of Contents

• APA
• MLA
• AMA

Language

English

Document Type

Book

Notes

Includes bibliographical references.

Record ID

BIM-655290