Legal Aspect of Islamic Business

Islamic Capital Market

Lecturer:
Dr. Gemala Dewi

Group (EDIT):
17101138 Herdy Almadiptha Rahman
17101139 Juan Fadri Ramdhani
17101141 Ramadhana Devandhani Entiadi

Sekolah Tinggi Ekonomi Islam (STEI) Tazkia

Jl. Ir. H. Djuanda No. 78, Sentul City, Bogor, Jawa Barat Indonesia 1681
 Preface

There is no more appropriate sense to be conveyed by the author except by giving thanks
for the blessings of the Almighty Allah for the completion of this small writing. As well as the
writer's gratitude to the family, and lecturer Dr. Gemala Dewi. This article was made to fulfill the
assignment of the subject of.
The author realizes there are still many shortcomings in this small paper. For that, the
author is open for any revision.

Bogor, Oktober 2018

(Author)
A. Introduction to Islamic Capital Market

1. Introduction
According to Law No. 8 Year 1995 concerning Capital Market (UUPM), Capital
Market is defined as: An activity concerned with the public offering and trading of
securities, the Public Company relating to the issuance of securities, as well as the
institutions and professions related to securities.
In short, the term capital market refers to any financial market where debt and equity
are demanded and supplied. A capital market helps investors find a platform for making
their investments and helps both borrowers and investors by channeling funds from
those with excess funds to those in need of such funds. Businesses and governments
raise funds in the capital market.
Simply put, the Islamic capital market is where sharia-compliant financial assets are
transacted. It works parallel to the conventional market and helps investors find sharia-
compliant investment opportunities. Therefore, the Islamic capital market is not a
separate system to the capital market system as a whole. In general, Islamic Capital
Market activity has no difference with the conventional capital market, but there are
some special characteristics of Islamic capital market, which are the products and the
transaction mechanism do not againts Islamic principles.
The increase of wealth among Muslim investors (especially from nations that are part
of the Gulf Cooperation Council — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and
United Arab Emirates) is spurring growth in the Islamic capital market. The market’s
current growth is between 12 and 15 percent annually. In total, Islamic assets are worth
an estimated $1 trillion at the time of this writing, and about 25 percent of that amount
is tied to the Islamic capital market.

2. Regulation

a. Rule Number II.K.1 on Criteria and Issuance of Sharia Securities List

b. Rule Number IX.A.13 about Sharia Securities Issuance
c. Rule Number IX.A.14 about Covenants (akad) used in the Issuance of Sharia
Securities

3. Instrument and Operational

Based on Law Number 8 Year 1995 concerning Capital Market (Capital Market Law),
the securities defined as promissory notes, commercial paper, shares, bonds, evidences
of indebtedness, participation units of collective investment contracts, futures contracts
related to securities, and all derivatives of securities.
Bapepam-LK Rule Number IX.A.13 concerning Issuance of Sharia Securities stated
that the shariah securities is securities as defined in Capital Market Law and its
implementing regulation in which its contract and issuance method fulfills the shariah
principles in capital market. Up to now, the sharia securities that have been issued in
Indonesian capital market are shariah stocks, sukuk and shariah mutual funds.
A. Sharia Stocks
The idea of stock is a share in the ownership of a company. Stock represents a claim
on the company's assets and earnings. Based on shariah principles, this idea known as
musyarakah or syirkah concept, meaning by nature its a shariah product. However, not
all stocks referred to as shariah stocks. The stocks could be classified as shariah stocks
if issued by:
a. The issuer who declares that its business activities as well as its business
management are conducted based on the shariah principles in the capital market as
clearly stated in its article of association.
b. The issuer who does not declares that its business activities as well as its business
management are conducted based on the shariah principles in the capital market, as
long as the issuer fulfills the following criteria:
 Business activities that does not conflict with shariah principles in the capital
market. Bussiness that conflict with its principles, among other things, are:
o Gambling; trading with non deliverance of goods or service; trading
with counterfeit offering/demand; conventional banks; conventional
leasing companies; trading of risk that contain uncertainty (gharar) and
or gambling (maisir), e.g. conventional insurance; producing,
distributing, trading, and or providing: products or services that are
forbidden because of its contents; products or services that are forbidden
not because of its contents but because they are stated forbidden by the
National Sharia Board-MUI; and or products or services that can
deprave one's morals and are useless; doing transaction that contains
bribe substance.
o Total interest-based debts in comparation with total assets < 45%.
o Non-permissible contribution income to revenue < 10%.
o
B. Sukuk
Sukuk (previously known as shariah bond) is the plural form of the Arabic word "sakk".
According to Bapepam-LK Rule Number IX.A.13 concerning Issuance of Sharia
Securities, sukuk is shariah securities in a form of certificate or proof of ownership that
have the same value and represent participation unit that is not separated from or consist
of:
 The ownership of particular tangible assets;
 The beneficial value or services of particular project's assets or particular
investment activities; the ownership of particular project's assets or particular
investment activities.
 Services (al khadamat) that have already existed or will be exist;
 Particular project assets (maujudat masyru 'mu'ayyan); and / or
 Investment activities that have already been determined (nasyath ististmarin
khashah)".
Types of sukuk
Type of sukuk based on Sharia Standards of AAOIFI No. 17 concerning Investment of
Sukuk, consist of:
 Ownership Certificate on leased asset.
 Ownership Certificate on benefit, which consist of: ownership certificate on
existing asset, ownership certificate on future asset, ownership certificate on
party of services, ownership certificate on future services.
 Salam Certificate.
 Istishna Certificate.
 Murabahah Certificate.
 Musyarakah Certificate.
 Muzara'a Certificate.
 Musaqa Certificate.
 Mugharasa Certificate.

C. Sharia Investment Fund / Sharia Mutual Fund

In Regulation of Bapepam and LK No. IX.A.13, Sharia-Based Mutual Fund is as
defined in Law No. 8 year 1995 concerning Capital Market Law and its implementing
regulations, in which the conduct of the business activities is not in contrary to Sharia
Principles in capital market.
Sharia-Based Mutual Fund is an investment alternative for the investors, especially for
small investor and those who have less time and skill to count the risks of their
investments. Mutual Fund is designed as tool to collects fund from the society that have
the capital, have plan to invest, but only have limited time and knowledge.
Sharia-Based Mutual Fund is to be known at the first time in Indonesia in 1997
characterized by issued of Danareksa Stocks Sharia-Based Mutual Fund in July 1997.
As one of the investment instruments, Sharia-Based Mutual Fund has different criteria
with Conventional Mutual Fund. This difference comes from the choosing of
investment instruments and investment mechanism that shall not be in conflict with
Sharia Principles. Other differences are all of portfolio management process, screening,
and cleansing.
Like other investments, besides giving various opportunities of profits, Mutual Fund
has possibilities of risks, such as:
 Risk of Decreased Value of Participating Units
The risk is influenced by the decrease price of securities (stocks, bonds, and other
securities) that included in the Mutual Funds Portfolio. It is related with the investment
manager capability to manage their funds.
 Liquidity Risk
The risk is related to the difficulty faced by the fund manager if most of the unit holders
resell (redemption) their units. Fund manager will find difficulty in providing cash for
this redemption. The risk only happens on mutual funds company which has open
characteristic. The risk is called as redemption effect.
 Default Risk
While commonly most of the mutual funds wealth is insured to the insurance company,
there is a probability of the worst risk, default risk. The risk can raise when the
insurance company that insures the mutual fund's wealth is not being able to pay
immediately the indemnity or only pay lower than the loading value in the case of
unwanted events happens. In addition, default risk is also possible to be triggered from
other parties related to mutual funds, brokerage, custodian bank, payment agent, or
catastrophic events, that cause the decrease of Net Asset Value of investment funds.
 Politic and Economy Risk
The risk, which resulted from the change of political and economic policy influencing
the stock exchange and company, so that finally affecting securities in mutual funds
portfolio.