Name : Fatin Nur Farisha Binti Muhamad Hafizi

Id no. : AIU20092005

ARTICLE SUMMARY (ISLAMIC CAPITAL MARKET)

Islamic capital markets The emergence of a distinct Islamic capital market, where
investment and financing activities and products are structured in accordance with
Shariah principles, is therefore the outcome of a natural progression in the growth of the
Islamic financial services industry.

This was followed with the introduction of the Muqaradah Bond Act (1981) by the
Jordanian Government to develop waqf property. However, to date, no Islamic bonds
have been issued in Jordan and Pakistan. This was later followed by the introduction of a
list of Shariah- compliant stocks in June 1997 by the Securities Commission of Malaysia.
The implementation of a process to identify Shariah-compliant stocks facilitates the
establishment of Islamic indices.

Shariah-compliant stocks In general, the Shariah-based principle of equity participation is

essentially the same as that for conventional companies. It is based on a form of equity
partnership investing called Musharakah. However, from an Islamic perspective,
corporate stocks can only be classified as Shariah-compliant if their business activities
are not related to prohibited activities as outlined by Shariah scholars. The prohibited
business activities include alcohol, gambling, pork-related product, pornography,
conventional financial services and conventional insurance. The main financial ratios
applied are: o debt-to-equity ratio o cash and interest bearing securities-to-equity ratio of
cash-to-asset ratio. This is called purification or dividend cleansing.

The customer and investors identify certain customer’s assets. In return the customer will
receive cash proceeds from the transaction. The title to the assets reverts back to the
customer who, as a result of transactions will be indebted to the investors. In trade
finance, Islamic institutions use the murabahah contract, which enables the Islamic
institutions to purchase certain goods and re-sell the same to the client.