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To know the definitions of Islamic investment To describe the principles of Islamic investment To identify the determination of acceptable and permissible activities The implementation of Islamic investment in Malaysia Qawaid fiqhiyyah in islamic investment
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Islamic Investment is an investment in financial services and investment products that adhere to Islamic principles Islamic Investment means a joint pool in which the investors contribute their money for the purpose of its investment to earn permissible (halal) profits in strictly comply with the Islamic law
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The Islamic financial system broadly refers to financial market transactions, operations and services that comply with Islamic rules, principles and codes of practices The Islamic financial services industry comprise Islamic banking, Islamic insurance and Islamic capital market,
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The principles of Islamic investment consists: Investment must be in ethical sectors (profits are not from prohibited activities, and non-Islamic financial institutions Investment of property and wealth must be result from a partnership between the investor and the user of capital in which rewards and risks are share Investment must be considered the philosophy of Islamic business (e.g: social justice, equitability, and fairness as well as practicality of transaction
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The major prohibited elements are riba (interest), gharar (uncertainty), maisir (gambling), non-halal (prohibited) food and drinks and immoral activities When a transaction have a prohibited elements, its must first be removed for it to be Shariah-compliant
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According to Al-Qardhawi (2000), the Shariah legal maxim in relation to transactions and contracts are state, they are permissible unless there is a clear prohibition.
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In Islamic perspectives, all activities must be acceptable and not related to prohibited by Islamic law. An examples of the prohibited activities are follow: Alcohol Gambling Pork or a related products Pornography Conventional financial, banking & insurance services
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Also, an activities such as tobacco, hotels or entertainment are prohibited The decision are depends on the methodology or interpretation used by Islamic scholars in different jurisdictions
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Islamic countries are recognized Malaysia as the pioneer and at the forefront in Islamic finance and investment Malaysia was developed and established an Islamic institutions by providing a clear guidance on the types of investment to fulfill the Muslim needs
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All investors whether domestic or international can invest their wealth at the Islamic financial institutions The institutions of Islamic financial in Malaysia comprise 3 categories: Islamic banking, Islamic insurance and Islamic capital market
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Modern Islamic financial products and services are developed using two different approaches. by identifying the existing conventional products and services that are generally acceptable to Islam, and modifying, removing any prohibited elements that are able to comply with Shariah principles By involving the application of various Shariah principles to facilitate the origination and innovation of new products and services Types and companies for each categories are follows:
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Islamic banking were developed and applied by 3 types/approaches and companies are: Fully Islamic (e.g: Bank Islam Malaysia berhad (BIMB), Bank Muamalat Malaysia Berhad (BMMB), Bank Rakyat) Window banking (Dual-banking) (e.g: Public Bank, Maybank, etc) International Islamic banking. Malaysia also, give an authorization for the foreign countries to set up and developed a branches (e.g: Kuwait Financial House (KFH) and Ar-Rajhi Bank (Bahrain)
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Islamic insurance also well known as a takaful Example of Islamic insurance companies are Syarikat Takaful Malaysia, Etiqa Takaful and Takaful Ikhlas Each companies have a difference of business strategy to manage and achieve their goals
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The Islamic Capital Market (ICM) refers to the market where capital market activities are carried out in ways that do not conflict with the conscience of Muslims and the religion of Islam Islamic capital market is the stocks listed of companies on Bursa Malaysia classified as Syariahapproved securities by the SAC, these securities continue to provide the momentum for further growth in the ICM
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Sukuk
Asset-based sukuk Asset-backed sukuk Investment Sukuk
Shariah-compliant Derivatives
Exchange traded Crude Palm Oil Futures Crude Palm Kernel Oil Futures Single (Shariah-compliant) Stock Futures OTC Islamic profit rate swap Foreign Exchange swap Cross Currency Swap
PRODUCTS
PLATFORMS
Bursa Malaysia
Islamic Stockbroking services Islamic Fund Management / Unit Trust Management Companies
INTERMEDIARIES
REGULATORS
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Any market in which Shariah compliant securities are traded. The Islamic Capital markets include the Shariah compliant stock and Islamic bonds or Sukuk markets. Companies and governments use the Islamic Capital markets to raise funds for their operations; for example, a company may issue an IPO while a government may issue an Shariah compliant securities or bonds in order to conduct new or expand ongoing activities. Investors purchase Shari'ah compliant securities in the capital markets in order to extract a return and earn profit on the securities. The Islamic Capital markets include primary markets, such as IPOs that are placed with investors through underwriters, and secondary markets, where all subsequent trading takes place, such as the New York Stock Exchange or Bursa Malaysia. Government agencies in different countries regulate local capital markets, though some, especially exchanges, play some role in regulating themselves. Source: Adapted from Farlex Financial Dictionary. 2009 Farlex, Inc. All Rights Reserved
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The SC is a self-funding statutory body with investigative and enforcement powers The SC established on 1 March 1993 under the Securities Commission Act 1993 The SC reports to the Minister of Finance and its accounts are nominated in Parliament annually
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The main functions of SC are: to promote the development of the capital market to stream line the regulations of the securities market
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SCS FUNCTIONS:
1.
2. 3.
4.
5. 6. 7. 8.
Supervising exchanges, clearing houses and central depositories; Registering authority for prospectuses of corporations Approving authority for corporate bond issues; Regulating all matters relating to securities and futures contracts; Regulating the take-over and mergers of companies Regulating all matters relating to unit trust schemes; Licensing and supervising all licensed persons; Ensuring proper conduct of market institutions and licensed persons.
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BURSA MALAYSIA
Bursa Malaysia is an exchange holding company, listed on the Main Board of Bursa Malaysia Securities Bursa Malaysia listed classified between syariah approved securities and non-syariah approved securities
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The SAC of SC was established in 1996 and as a main thrust of ICM products to comply on Islamic principles The SAC is an important source of authority for Syariah compliance and plays a critical role in ensuring and maintaining market confidence in the ICM SAC of SC has applied a standard criterion in focusing on the activities of the companies listed on Bursa Malaysia
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The SAC has approved an updated list of securities, which have been classified as Shariah-approved securities If subject to certain conditions, companies whose activities are not contrary to the Shariah principles will be classified as Shariah-approved securities For further information, please refer to website: http:www.sc.com.my
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The functions of SAC are: To advise the Securities Commission on Shariah-related matters To provide Shariah guidance on ICM transaction and activities, To aimed at standardizing and harmonizing application
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Stocks of a company listed on Bursa Malaysia which is classified as Shariah permissible for investment Primary business and investment activities that generate income for the company must conform with Shariah principles
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2.
3.
Gambling
Manufacturing or sale of non-halal products or related products Conventional insurance
Classified as Shariah-compliant if the company is not significantly involved in the following activities
4.
5.
6. 7.
Entertainment
Manufacture or sale of tobacco-based products Stockbroking or share trading in Shariah noncompliant stocks
8.
1. 2.
Interest income from conventional fixed deposits / interest bearing instruments Dividend received from investment in Shariah noncompliant stocks
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Extraction of relevant financial information from audited financial report and other material information
Undertaking Syariah compliance review process to identify contribution from non-permissible activities
1
Quantitative Compute the contribution of nonpermissible activities and compare with group turnover and SC group profit before tax
2
Qualitative
SAC
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Phase 1 : Quantitative
Parent Company
Subsidiaries Co.
Subsidiaries Co.
Associated Co.
Other investment
TO : Shariah noncompliant PBT : Shariah noncompliant
Group Turnover
SAC considers other factors / criteria before decision is given companies which compliant with quantitative review may turn to non-compliant status due to qualitative/image consideration
Qualitative
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liquidate immediately
Profit (different between
original investment cost and closing price of announcement date) can
Investors to dispose their non-compliant securities within a month of knowing the status of the securities Any gain made in the form of capital gain or dividend received during or after the disposal of the stocks to be channelled to charitable bodies. Investors are entitled to keep their original investment cost
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