Islamic Finance For Dummies by Jamaldeen Faleel

Author:Jamaldeen, Faleel
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-08-01T16:00:00+00:00

Also, LSE owns a submarket — the Alternative Investment Market (AIM) — that was created to help small companies stay afloat in a more flexible regulatory environment. The AIM has listed four sharia-compliant companies so far: the Islamic Bank of Britain, European Islamic Investment Bank, The Family Shari’ah Fund, and Shariah Capital, Inc.

Labuan International Financial Exchange

The Labuan International Financial Exchange (LFX) is a Malaysian-based offshore exchange operating in Labuan IBFC. (The IBFC stands for International Business and Financial Centre, and it’s located on an island called Labuan off the coast of East Malaysia.) This Internet-based exchange launched in 2000 and operates 24/7. Currently, LFX is attracting a substantial number of Islamic capital investors. U.S. $100 million worth of corporate bonds have been issued from LFX so far. Islamic investment instruments comprise 38 percent of the exchange’s total market capitalization.

Luxembourg Stock Exchange

In 2002, the Luxembourg Stock Exchange became the first European exchange to issue sukuk (the Islamic version of bonds). So far, 16 sukuk have been traded on this exchange. As of September 2010, 37 sharia-compliant funds had also been established on this exchange.

Tadawul (the Saudi Arabian stock exchange)

The Saudi Arabian stock exchange, referred to as Tadawul, transacts Islamic capital market products such as equities, IETFs, sukuk, and mutual funds. Tadawul is the only stock exchange in Saudi Arabia and is supervised by the Capital Market Authority. At the end of 2011, 150 companies were listed on this exchange; these companies operate in various industries, including oil and gas, agriculture, food, technology, banking, and other financial sectors.

Tapping into the Islamic Equity Market

Equity markets (where stocks are traded) are crucial to any economy because they provide capital to companies. The Islamic equity market is where sharia-compliant stocks are traded. (In Chapter 12, I explain how to check the sharia compliance of a particular stock.)

Although some investors may opt to purchase stocks from individual companies via the exchanges I discuss in the preceding section (or via equity brokers), the majority of Islamic investors (especially those with modest portfolios) make equity purchases by using Islamic funds, such as unit trusts, mutual funds, or ETFs. Here are the key reasons:

Islamic equity funds are pre-screened for sharia compliance, so the investor has assurance that his money is being invested according to Islamic law.

Investing in funds is easier than accessing the exchanges directly in order to make stock purchases.

Fund investment is less risky than investment in individual stocks because funds offer instant diversification.

For all these reasons, my focus here is on equity funds rather than individual stock purchases.

In this section, I briefly explain how Islamic equity funds are managed, the benefits and drawbacks of investing in Islamic equities versus conventional equities, and the Islamic indexes that have given this equity market greater international exposure. I also introduce some types of Islamic equity funds worth knowing about: unit trusts, mutual funds, and exchange-traded funds.

Managing Islamic equity funds

Fund management companies form Islamic equity funds by pooling investors’ money and investing it in sharia-compliant stocks. These funds have access to both regional and international markets.

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