Islamic Capital Market

Introduction

Islamic finance is complies with and governed by the Shariah (Islamic Law). The sourced of Shariah (Islamic law) is from Quran and Sunnah. Islamic finance is managed under the underlying risks and the sharing of profits and loss. Beside that the prohibited in Shariah (Islamic Law) which are Riba, Gharar and Maysir.

• Riba is the meaning to increase, to exceed or to be more than based on the principle. Riba is refers to the excess or above the principal loan amount received by creditor as a rewards of waiting with the liquid part of his or her capital for a specific time period.
• Gharar is the meaning of an uncertainty or hazard. From the Shariah (Islamic Law) point of view, an agreement that have any factors about Gharar is Void.
• Maysir is the meaning of gambling. Any activities that included gambling are prohibited by Shariah (Islamic Law). For example, the return of prize which is in money.

Syariah (Islamic Law) encourage earning profits through participate in business activities. In Islamic financial market there is divide into 4 market which are Money and Foreign Exchange Market, Capital Market, Off-shore Market and Derivatives Market.

Money Market and Foreign Exchange Market

• Money Market

• Islamic money market was born on January 3, 1994.
• It’s a short-term investment instruments outlets based on Shariah (Islamic Law) principle.
• Bank Negara Malaysia (BNM) implement it based on the Shariah concept of mudharabah or profit and loss sharing.
• For example the money market of the product are accepted bills – Islamic(AB-I), Islamic treasury bills and so on.

• Foreign Exchange Market

• There is 2 types of Islamic foreign exchange market which are spot market and forward market.
• Spot market is an exchange between the same items such as currencies with currencies, dates with dates and so on.
• Shariah (Islamic Law) judged that different country of currencies can be exchange on a different rate from unity and on a spot basis.
• Forward market is the currencies exchange on a forward basis is not allowed.
• The Bai’ al-sarf based on the waad (promise) or the murabahah commodity.

Capital Market

• In 1970, Islamic Capital Market is born.
• During 1980, Islamic Capital Market has established in many institution for example Islamic Banks institutions, Investment companies and Takaful Company.
• Justice and equitable distribution of benefits or dividends is the compulsory factors that perform by the Islamic Capital Markets.
• For example the Islamic capital market of the product are securities, sukuk, Islamic unit trusts and so on.

Off-shore Market

• The off-shore market exist to facilitate international financing activities to cater to foreign investments, as well as international trade and finance.
• In essence, the Islamic off-shore market is really no different than the conventional off-short market, except that all activities will be required to be Syariah compliant. It provides an alternative means for the lenders, investors and borrowers to go about their business via Syariah compliant means (i.e. Islamic Finance).

Derivative Market

• Islamic derivatives market is to be in favor of the related evidence of Shariah (Islamic Law). Derivatives would unquestionably be the commodity futures.
• Derivative which involve with any of riba (interest) is haram (prohibited) by the Shariah (Islamic Law).
• For example the Islamic Derivative market of the investment instrument are forward contracts, future contracts, and options.

Equity Market

• The first Islamic bank in Malaysia is Bank Islam Malaysia Berhad.
• The Syariah Approved Securities list is introduced by the Securities Commissions Syariah Advisory Council during June 1997.
• Muslims can invest in the stocks that the Syariah Approved Securities which is listed on the Kuala Lumpur Stock Exchange.

Index Market

• Islamic index are suitable for Muslims investor to invest because there is consider a securities that approved by the Shariah law (Islamic Law).
• During May 1996, RHB Unit Trust Management Berhad is the first institution in Malaysia that introduced the Islamic equity index.
• The Dow Jones Islamic Market index (DJIM) established in February 1999.
• April 1999 Kuala Lumpur Shariah Index (KLSI) was established.

Conclusion

The Islamic Capital Market in Malaysia is growing speedily and energetic. The Islamic finance market and Islamic financial capital market in Malaysia is faraway successful compare to the other Muslims countries. Malaysia Islamic Capital Market infrastructure with persistent which is support by the Malaysia government and also provide motive power for the expansion of the Islamic Capital Market in Malaysia. Preliminary taken by the Malaysia government towards an entire center world.