Capital Markets 181
commodities, such as pork or alcohol, is prohibited. Many of the com-
modity funds are developed by fi nancial intermediaries or by conventional
Western banks to cater to high - net - worth individuals.
DEVELOPMENT OF EQUITY MARKETS
The Islamic economic system relies upon vibrant markets for equity - based
securities. A formal model for a stock market organized in strict accordance
with Islamic principles has yet to be formulated, but there have been a few
attempts to identify the issues that distinguish an Islamic stock market from
its conventional counterpart. There are at least three major structural issues
that need to be resolved, however, as set out below.
Limited Liability
First and the foremost is the question of what is the best contractual
agreement representing a share in a joint stock company with limited
liability. Limited liability raises the issue of how to deal with a legal entity
such as a corporation, which has a legal “personality” and needs to be
treated as a “juridical person.” Some argue that limited liability confl icts
with the basic Islamic moral and legal principle that obligations are, as it
were, indestructible without agreed release of forgiveness from the credi-
tor.^4 In this respect, fi qh scholars need to address several critical issues
such as the acceptance of a corporation as a partnership (on a musha-
rakah basis) or some other similar contract. In addition, what happens
to the liability in case of the insolvency of the juridical person (that is,
the company)? Some Shari’ah scholars are of the view that there are cer-
tain precedents wherefrom the basic concept of a juridical person may be
derived by inference.^5
Contractual Structure of an Equity Stock
The second issue is related to the type of contract most appropriate to repre-
sent a common share as a partnership in a joint stock company. The Shari’ah
identifi es two broad categories of musharakah contracts: musharakah mulk
which gives the partner ownership rights to a specifi c real asset; and musha-
rakah aqed, which grants the partner ownership rights to the value of assets
without any specifi c linkage to any real asset. It is important to understand
this distinction. For example, if a stock is represented as musharakah mulk,
then buying and selling of the stock will be equivalent to buying and selling
an identifi able real asset and hence becomes subject to the rules applicable
for bay’ (trade/sale). On the other hand, if a stock is treated as musharakah
’aqd, it is not subject to bay’ rules but this raises other issues such as trad-
ing, valuation, and possession. A review of current rulings indicates that the
joint stock company has been treated as a new form of musharakah which
is neither of the above but a combination of the two, in that the rulings