116 Islamic Finance in Practice
excluded;- Highly leveraged companies that are burdened with conventional debt.
Only companies that have a ratio of debt to 12 months trailing market
capitalization of lessthan a third are allowed; - Companies that derive a high proportion of income from interest.
Companies that have total cash and securities in excess of one third of
their 12 months trailing market capitalization are excluded; and - Companies having a significant portion of non-income generating assets.
Hence companies that have accounts receivables higher than one third of
12 months trailing market capitalizationare also excluded.
The above screening is mainly for DJIM indexes. The FTSE Islamic index
base its ratios on the total assets of the company, whereas Standard & Poors
generally follow the guidance of the DJIM index.Future developments
Today, the Islamic capital market has grown to form a critical mass that
some claim can support a well functioning and efficient market. The growth
that has been fuelled by demand from oil rich states as well as developing
counties of the Far East is set to continue. Recent studies, however, indicate
that penetration rates are still as low as 20 per cent of the financial markets
in the mainly Muslim states. As Islamic products and services become more
competitive, such penetration would increase. Some additional 60 per cent
of the users of financial services in those countries have indicated their
preferences for Islamic banking services if the products and services are
competitive.
The continuing trend in high oil and commodity prices, the significant
need for infrastructure investment together with growing awareness of
compliance with faith in countries comprising the organization of Islamic
countries will ensure that demand remains high forIslamic capital markets.