Islamic Stock Exchange

[idreesdurrani]

<font color="blue"></font id="blue"><font size="4"></font id="size4"><font face="Century Gothic">The recent booms in the stock market has allured the investors to put their money in the market. Foreign as well as local investors are entering the stock market with long-term investment options. Eveyone seem to be enjoying the party and making some money from the outing.

While our Pakistani stock market has been subject to so many allegations over the past, my question is whether there can be any TRUE Islamic Stock Exchange? If yes, what are to be its likely features? I remember I heard something in the news that the Dubai Financial market becoming Islamic stock Exchange some time back, but am not sure about its current status. What can .be the likely steps to convert the existing stock exchanges in to the Islamic stock Exchange?


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O Lord! Increase me in knowledge, Ameen
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[msc286]

I think there is a decree from Jamai Al Azhar that dealing in stock exchange is not unislamic as it involves both the risk and rewards. In view of the above, the first question which comes to my mind is that what is unislamic about the stock exchanges operating in Pakistan?

I think the only aspect which we have to see is the financing of the transactions undertaken on these stock exchanges. This aspect could be debated to bring it inline with the Islamic teachings.

[idreesdurrani]

<font color="blue"></font id="blue"><font size="5"></font id="size5"><font face="Century Gothic">My personal opinion is that apart from the financing of the transactions there are other elements of the existing stock exchanges, which needs further investigation, including short selling where the trader sells in advance without owning the security/scrip. Further, I think all the companies to which an Islamic stock Exchange provides the platform for investment must be shariah compliant i.e. their business, financing, the instruments they are offering, all must be shariah compliant. For this purpose, a shariah Board needs to be established. Having a compliant company is only the beginning, as the company has to be monitored for continued compliance. The question then becomes how frequently are companies reviewed for continued compliance. what about margin trading accounts; how will penalty fees against companies and participants be enforced and allotted (administrative and charity)?</font id="Century Gothic">

[msc286]

So before establishing an Islamic Stock Exchange, we would have to overhaul our whole corporate culture. And again the utmost problem would be to first define what is a Sharia Compliant Company?

In my personal view, there are following three factors which make a difference between a company being Sharia Compliant or not

1. Dealing in Interest Bearing Instruments (Either deposits with banks on which interest is received or financing from the banks on which interest is paid). Can easily be done away with as a lot of Sharia Compliant Financial Instruments are available in market now a days.

2. Payment of Zakat on the net assets at the end of the year. Need to have a sound system of Zakat. Relying only on Zakat and Ushr Ordinance will not solve the problem

3. Normal Taxation - Many people feel it to be un-islamic.