Islamic Financial Markets and Institutions

Cover
Half Title
Title
Copyright
Contents
About the Authors
List of Figures
List of Tables
Preface
Acknowledgement
Glossary
1 Understanding Principles and Concepts of Islamic Finance
	1.1 Introduction
		1.1–1 Islamic Finance Principles
		1.1–2 Islamic Financial Practice
		1.1–3 What Does Islamic Finance Stand For?
	1.2 The Components of Islamic Finance
		1.2–1 Banking and Riba (Interest)
		1.2–2 Islamic Banking
		1.2–3 Takaful (Islamic Insurance)
		1.2–4 Islamic Capital Markets
	1.3 The Principal Features of Islamic Finance
		1.3–1 Interest Free
		1.3–2 The Need for Underlying Assets
		1.3–3 Avoiding Uncertainty or Gambling
		1.3–4 Profit and Loss Sharing
		1.3–5 Shari’ah Based
	1.4 Why Islamic Finance?
		1.4–1 The Benefits of Islamic Finance
		1.4–2 What Does Islamic Finance Offer?
		1.4–3 Profit and Loss Sharing
	1.5 Real Assets Over Monetary Assets in Islamic Finance
	1.6 Major Contracts Used in Islamic Finance
		1.6–1 Mudarabah (Trust Financing)
		1.6–2 Musharaka (Profit and Loss Sharing Joint Venture)
		1.6–3 Murabahah (Cost Plus)
		1.6–4 Ijarah (Leasing)
		1.6–5 Istisna (Manufacturing an Asset)
		1.6–6 Salam (Advance Payment Sale)
		1.6–7 Wadiah (Safekeeping)
		1.6–8 Wakalah (Agency)
	1.7 Conclusion
2 Primary and Secondary Markets
	2.1 Introduction
		2.1–1 Primary Market
		2.1–2 Secondary Market
	2.2 Bull and Bear Markets
	2.3 Short Selling
	2.4 Two Basic Strategies: Value Investing and Growth Investing
	2.5 Conclusion
3 Islamic Capital Market
	3.1 Introduction
	3.2 Products in ICM
	3.3 Classification of the Islamic Capital Market
	3.4 Understanding Shari’ah Screening
		3.4–1 Screening Methodology
		3.4–2 Shari’ah Stock Screening
		3.4–3 Screening Business Activities
		3.4–4 Qualitative and Quantitative Screening Criteria
	3.5 Flow of Funds in the Islamic Capital Market
	3.6 Liquidity Issues in the Islamic Capital Market
	3.7 Regulatory and Legal Frameworks of the Islamic Capital Market
	3.8 Conclusion
4 Islamic Equity Markets
	4.1 Introduction
	4.2 Types of Islamic Equity
		4.2–1 Mudarabah Products
		4.2–2 Musharaka Products
	4.3 Shari’ah Recognise the Joint-Stock Companies and Trading of Shares in the Secondary Market
		4.3–1 Islamic Investment Funds
		4.3–2 Shari’ah-Compliant Stocks
		4.3–3 Islamic Mutual Funds
		4.3–4 Mixed Islamic Funds
		4.3–5 Islamic Assets Under Management
		4.3–6 Growth in Islamic Funds Assets
	4.4 Characteristics of Islamic Equity
	4.5 Islamic Equity Market Indexes
		4.5–1 Relative Performance of Islamic and Conventional Indexes
		4.5–2 Significance of Islamic Equity Investments
	4.6 Price and Valuation of Equity
		4.6–1 Using Price-to-Earnings Ratio to Evaluate Stock
		4.6–2 Price-to-Earnings Ratio and Return on Equity
		4.6–3 Price-to-Book Ratio and Return on Equity
		4.6–4 Return on Equity
		4.6–5 Equity Value and Enterprise Value
		4.6–6 Difference Between Market Value of Equity and Book Value of Equity
		4.6–7 Basic Equity Value Versus Diluted Equity Value
	4.7 Understanding Measuring of Risks
		4.7–1 Classifications of Risks
		4.7–2 Common Measures of Risk
	4.8 Can Screening of Islamic Stocks Induce Another Risk for Investors?
	4.9 Conclusion
5 Investment in Islamic Mutual Funds: A Vehicle for Mobilisation of Small Savings
	5.1 Introduction
	5.2 Types of Islamic Mutual Funds
	5.3 Calculation of Net Asset Value in Islamic Mutual Funds
		5.3–1 Swing Pricing
		5.3–2 Difference Between Swing Pricing and Fair Value Pricing
	5.4 Islamic Investment Criteria
		5.4–1 Qualitative Screens
		5.4–2 Quantitative Screens
	5.5 Trading and Investing Practices
	5.6 Growing Importance of Islamic Mutual Funds
	5.7 Investment Process of Islamic Mutual Funds
	5.8 Asset Growth and Investment Allocation
	5.9 Comparative Performance of Islamic and Conventional Indices
	5.10 Conclusion
6 Investment in Islamic Private Equity
	6.1 Introduction
	6.2 Venture Capital Versus Private Equity
	6.3 Structuring Islamic Private Equity
	6.4 Deal and Shari’ah Screening Process
	6.5 Choice of Investment in Islamic Private Equity
		6.5–1 Direct Investment
		6.5–2 Fund of Funds
		6.5–3 Private Equity Funds
	6.6 Factors of Benefit From Islamic Private Equity
		6.6–1 Continuing Convergence
		6.6–2 Delivering
		6.6–3 Activating
	6.7 Growth of Islamic Private Equity
	6.8 Prospects of Islamic Private Equity in the Global Markets
	6.9 Conclusion
7 Capital Asset Pricing Model in the Shari’ah Domain
	7.1 Introduction
		7.1–1 Efficient Frontier
		7.1–2 Disadvantages of CAPM
	7.2 Previous Studies on CAPM in the Shari’ah Domain
	7.3 Shari’ah Viewpoints on the Assumption of Traditional CAPM
		7.3–1 No Operation Cost
		7.3–2 No Personal Income Tax
		7.3–3 Divisibility and Saleability of Asset
		7.3–4 Investors’ Choices Are Exclusively in Terms of Variance (Risk) and Expected Return
		7.3–5 Short Sales Violate Islamic Ethics
		7.3–6 Homogeneousness of Expectation
		7.3–7 Unrestricted Borrowing and Lending at a Risk-Free Rate
		7.3–8 A Financier Should Not Change the Price of a Stock by Buying and Selling Activities
	7.4 Traditional CAPM Undesirable in Islamic Finance
	7.5 The Proposed CAPM in the Islamic Domain
	7.6 Benefits of the Shari’ah-Compliant Model in Contrast With the Traditional CAPM
	7.7 Conclusion
8 Islamic Exchange-Traded Funds
	8.1 Introduction
	8.2 Common Type of ETFs
		8.2–1 Equity ETFs
		8.2–2 Bond/Fixed Income ETFs
		8.2–3 Commodity ETFs
		8.2–4 Currency ETFs
		8.2–5 Specialty ETFs
	8.3 Factors Investing in ETFs
		8.3–1 ETF Creation and Redemption
		8.3–2 Not Free From Risk
	8.4 Process of ETF
	8.5 Islamic Exchange-Traded Funds
		8.5–1 Financial Ratio Screening
	8.6 Tracking a Shari’ah-Compliant Index
		8.6–1 Compliance With Shari’ah Principles for Gold, Silver and Currencies
	8.7 Islamic EFTs in the Global Market
	8.8 Islamic ETFs in Comparison
	8.9 Return Comparison of Islamic ETFs
	8.10 Cases of Three US-Based Halal ETFs
	8.11 Conclusion
9 Islamic Real Estate Investment Trusts
	9.1 Introduction
	9.2 How Do REITs Operate?
	9.3 Kinds of REITs
		9.3–1 Types of REITs on the Basis of Investment Holdings
		9.3–2 Types of REITs on the Basis of Trading Status
		9.3–3 Private REITs
	9.4 Islamic Real Estate Investment
	9.5 Shari’ah Guidelines for Real Estate Investment Trusts
		9.5–1 Features That Define Islamic REITs
	9.6 Contracts in Islamic REITs
	9.7 Prohibitions in REITs Under Shari’ah
	9.8 Development of Global Sharia-Compliant REITs
		9.8–1 GCC’s Shari’ah-Compliant REITs
		9.8–2 Malaysian Shari’ah-Compliant REITs
		9.8–3 Singaporean Shari’ah-Compliant REITs
		9.8–4 The United Kingdom and the Middle East and North Africa
		9.8–5 REITs in the United States
		9.8–6 A Case Study: Manulife Shari’ah Global REIT Fund
	9.9 Conclusion
10 Financial Futures, Stock Options, and Warrants in the Islamic Capital Market
	10.1 Introduction
	10.2 Stocks and the Islamic Capital Market
	10.3 Strategies for Sophisticated Conventional Investors: Stock Options, Warrants and Futures
		10.3–1 Options
		10.3–2 Warrants
		10.3–3 Futures Contracts
	10.4 Shari’ah Prohibits Maisir, Gharar and Dayn bi-dyan
	10.5 Obstacles Encountered During the Practice of Stock Index Futures, Stock Options and Warrants in the Islamic Market
		10.5–1 Stock Index Futures
		10.5–2 Stock Options
		10.5–3 Warrants
	10.6 Conclusion
11 The Islamic Money Market Vis-à-Vis the Conventional Money Market
	11.1 Introduction
	11.2 Conventional Money Market Yields
	11.3 Conventional Money Market Rates
		11.3–1 Discount Rates
		11.3–2 Add-on Rates
	11.4 Comparison of Money Market Instruments Using Bond Equivalent Yield
	11.5 Islamic Money Markets
		11.5–1 Functions of the Islamic Money Market
		11.5–2 Safeguard of Liquid Assets
	11.6 Islamic Money Market Instruments Experienced in Some Muslim Countries
		11.6–1 Islamic Interbank Money Market in Malaysia
		11.6–2 Islamic Interbank Money Market in Bahrain
		11.6–3 Islamic Interbank Money Market in Pakistan
	11.7 Conclusion
12 Sukuk Securities: New Ways of Debt Contracting
	12.1 Introduction
	12.2 Sukuk Structuring
		12.2–1 Popular Types of Structured Sukuk
	12.3 Global Sukuk Market Performance
		12.3–1 Short-Term Sukuk
		12.3–2 Composition of International Long-Term Sukuk Issuance
	12.4 Challenges to the Development of the Sukuk Market
		12.4–1 Legal Regime
		12.4–2 Standardisation
		12.4–3 Mechanics for Default
	12.5 AAOIFI’s Concern on Shari’ah Compliance of Sukuk
	12.6 Conclusion
13 Green Sukuk Vis-à-Vis Green Bonds
	13.1 Introduction
		13.1–1 Types of Green Bonds
		13.1–2 Type of Projects of Green Bond Investment
		13.1–3 Green Bonds Issuers
		13.1–4 Themes of Green Bond Investment
	13.2 Green Sukuk
		13.2–1 Difference Between Green Islamic Bonds and Green Bonds
		13.2–2 Method of Issuance of Green Sukuk
		13.2–3 Eligible Projects Under the Green Sukuk Framework
		13.2–4 Demand for Green Sukuk
		13.2–5 External Reviewers
		13.2–6 Impact Reporting
	13.3 Global Green Sukuk Market Trend
		13.3–1 Case Study
	13.4 Challenges and Opportunities
		13.4–1 Marginal Market
		13.4–2 Unclear Benefit
		13.4–3 Lack of Supply
		13.4–4 Costly in the Process of Issuance
		13.4–5 Opportunities
	13.5 Conclusion
14 The Basel Standards in Relation to Islamic Finance as an International Regulatory Framework
	14.1 Introduction
	14.2 Basel Accord Application in Islamic Banks and Financial Institutions
		14.2–1 Capital Adequacy Framework Under the Basel Accord
	14.3 Basel Methodology to Islamic Banking and Finance
		14.3–1 AAOIFI Capital Adequacy Framework
		14.3–2 The IFSB Capital Adequacy Framework
	14.4 Risk Specification of IFIs
		14.4–1 Risk Specification in IFSB Guidelines
		14.4–2 Liquidity Risk in Basel III Framework
	14.5 Conclusion
15 Cryptocurrency: Shari’ah-Compliant Digital Currency
	15.1 Introduction
	15.2 Economic Significance of Cryptocurrency
		15.2–1 Importance of Cryptocurrency
		15.2–2 The Value of Cryptocurrency
		15.2–3 Cryptocurrency Wallets
	15.3 Blockchain and the Operational Method
	15.4 Electronic Cash and Digital Payment
		15.4–1 Bitcoin
		15.4–2 Ethereum (ETH)
		15.4–3 Litecoin
		15.4–4 Cardano (ADA)
		15.4–5 Binance Coin (BNB)
		15.4–6 Tether (USDT)
		15.4–7 XRP (XRP)
		15.4–8 Solana (SOL)
		15.4–9 Polkadot (DOT)
		15.4–10 Dogecoin (DOGE)
		15.4–11 USD Coin (USDC)
		15.4–12 Uniswap (UNI)
		15.4–13 Terra (LUNA)
		15.4–14 Libra
	15.5 Digital Payments
	15.6 Do Cryptocurrencies Signify Real Money?
	15.7 Legal Status of Cryptocurrency
	15.8 Risk Involved in Trading Cryptocurrencies
	15.9 Islamic Legal Criteria on Money and Commodity
	15.10 Unit of Account Differences Between Money and Commodities
	15.11 Are Cryptocurrencies Shari’ah Compliant?
	15.12 Conclusion
16 Financial Technologies in Islamic Finance
	16.1 Introduction
	16.2 Islamic FinTech
		16.2–1 Key Areas for Islamic FinTech
		16.2–2 Islamic Finance Vis-à-Vis FinTech
	16.3 Islamic FinTech Landscape
		16.3–1 Islamic FinTech Categories and Platforms
	16.4 Islamic FinTech Application in Blockchain
		16.4–1 Goldmoney Inc
		16.4–2 Blossom Finance
		16.4–3 Finterra
	16.5 Islamic Robo Advisors
		16.5–1 Wahed Robo Advisor
		16.5–2 Algebra
		16.5–3 Aghaz Investments
		16.5–4 Others
	16.6 Case Studies
		16.6–1 Founding Principles
		16.6–2 Value Proposition
		16.6–3 Traction to Date
		16.6–4 Roadmap for the Future
	16.7 Risks of Islamic FinTech and Potential Mitigations
	16.8 Conclusion
17 International Islamic Accounting Standard-Setting Body (AAOIFI)
	17.1 Understanding the AAOIFI
	17.2 Conclusion
18 International Islamic Financial Services Board (IFSB)
	18.1 Introduction
	18.2 Constituent Members
	18.3 Adoption of Standards
	18.4 Conclusion
19 Islamic International Rating Agency (IIRA)
	19.1 Introduction
	19.2 Type of Ratings Offered by IIRA
		19.2–1 Sovereign Ratings
		19.2–2 Issuer Ratings
		19.2–3 Sukuk Ratings
		19.2–4 Shari’ah Quality Ratings
		19.2–5 Corporate Governance Ratings
	19.3 Conclusion
20 International Islamic Liquidity Management Corporation (IILM)
	20.1 Introduction
	20.2 Diverse Membership and International Recognition
	20.3 Islamic Liquidity Management Tool
	20.4 Conclusion
21 Conclusion: Future of Islamic Financial Markets
	21.1 Introduction
	21.2 Growth Outlook
	21.3 Islamic Finance Increases Market Share
		21.3–1 Growth of Mergers and Acquisitions
		21.3–2 Islamic Funds
		21.3–3 Islamic Real Estate
		21.3–4 Sukuk
		21.3–5 ESG in Islamic Finance
		21.3–6 Islamic FinTech
		21.3–7 Shari’ah Governance
	21.4 Challenges Faced by Islamic Finance
	21.5 Future Opportunities for Growth
Index