Islamic Capital Markets 115
assets and not themudarabaor themusharakaunits. In this respect the
basis for determining the price for the purchase of the assets could be agreed
at the time of entering into the purchase undertakings.
AAOIFI is in the process of resolving the differences and providing
guidance on thesukukstructures.
Equity markets
Other than debt instruments, another significant development of the Islamic
capital market was the establishment of clear guidance on the types of
equities that comply with Shari’a requirements. Given the popularity of
investing in equities, much debate took place as to which equities were
available for Muslim investors. Initial efforts were made in Malaysia in
1983 when Bank Islam Malaysia Bhd published its first list of Shari’a-
compliant equities. This was later followed by the introduction of a list of
eligible equities in June 1997 by the Securities Commission of Malaysia.
As the Shari’a guidance for screening stocks became acceptable, this
facilitated the establishment of Islamic indices. The first Islamic equity
index was introduced in Malaysia by RHB Unit Trust Management in May
- This was followed by the launching of the Dow Jones Islamic Market
(DJIM) Index by Dow Jones & Company in February 1999, the Kuala
Lumpur Shari’a Index by Bursa Malaysia in April 1999, and the FTSE
Global Islamic Index Series by the FTSE Group in October 1999. In the last
few years Standard & Poors have followed suit with their own Shari’a-
compliant index.
Another asset class that benefited from the Shari’a screening guidance
was the Islamic investment funds. The Amana Income Fund, the first
Islamic equity fund to be established in the US, was formed in June 1986 by
members of the North American Islamic Trust−an organization in Indiana,
which oversees the funding of mosques in the country. In 1987, Dallah
AlBaraka Group established two companies, namely Al-Tawfeek and Al-
Amin, which were specifically dedicated to the development of Islamic equity
funds. These companies have successfully launched a number of Islamic
funds focusing on such diverse sectors such as real estate as well as
international equities. Later, the entry of international banks in the Islamic
market lead to a proliferation of structured products, ranging from capital
protected certificates tolong-term investment certificates.
The Shari’a screening process of equities is based on a number of filters:
- Haram or non-Shari’a-compliant business activities. These include
financial institutions that derive their income from interest-based
products, businesses engaged in alcohol, pork, entertainment such as
pornography, hotels, casinos and other related sectors that infringe
Islamic principles as well as some sectors of the defence industry that are
engaged in offensive weaponry. Normally, the tobacco sector is also
