Islamic investment Fund

Gladiators

of Jinnah

Gladiators of Jinnah Group Members

Jamshaid AhmadBC-11064

Farhat AbbasBC-11045

Arfan M. AfzalBC-11043

Kafel AhmadBC-11011

Zeeshan AttiqueBC-11062

Subject: Islamic Finance

Presented To: Ms. Qandeel Anjum

Presented By: Gladiators of Jinnah Group

University of The Punjab (Gujranwala Campus)

Arfan Mohammad AfzalBC-11043

Contents1) Islamic investment funds2) Why we need the Islamic investment? 3) Literature review 4) Australian and Indonesia stock exchange5) Shariah Screening Criteria 6) Dividend Purification7) Ask from Shariah 8) List of Shariah Compliance Co. in Pakistan9) How the Conventional Business convert into Shariah Business10) Procedure for investment in Secondary Market

What Is Islamic Investment?

Islamic investment funds mean “a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn Halal profits in strict conformity with the precepts of Islamic Shari’ah.”

Shariah-compliant Investments meansAccording to Abdullah ibn Masud, Radi-Allahu unhu, The Prophet Muhammad (P.B.U.H.) said: ‘Seeking halal earning is a duty after the duty.’

In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers, fasting and hajj.

Why we need of Islamic investment?

It is unlawful include businesses dealing with alcohol and pork products, gambling casinos, movie theatres, hotels, conventional financial services, restaurants earning mainly from selling alcohol and airlines earning their profit from duty free sale of alcohol and tobacco.

Question?

Isn't safe to say that Stocks are Haram because you are taking a RISK just like in gambling The element of risk taking is always there. If stocks are halal, then could you please quote from the holy Quran, or the hadith.

Answer:

Investment in stock is an extremely different process from gambling, although it carries risk with it.

In fact we developed the first integrated guidelines to investing in the stock market (equities)/mutual funds.

The following is a summary of the guidelines:

The following is a summary of the guidelines: The spirit of investing according to Islamic

Jurisprudence is to participate in EQUITY investing and not in debt type investing.

Equity investing means owning equity in the company (companies) one invests in.

Debt investing means lending money to the company using a RIBA instrument like a loan promissory note or a bond.

Over Review of Islamic Investment

Islamic investment is based on Shariah principles, that is, it prohibit activities with elements of usury (riba), gambling (maisir), and ambiguity (gharar) and also prohibit activities like producing products or delivering services which are against Islamic teaching such as producing/selling alcohol, casino etc.

The Islamic financial industry is growing at a rate 50% faster than that of conventional Industry and is expected to be worth USD 2.1 trillion by the end of 2014

Australian Stock Exchange

We have collated data from the Australian Stock Exchange (ASX) for the period 2001-2013 to investigate whether investors in Shariah products earn a higher rate of return compared to the conventional stocks.

Investments in financial instruments with fixed income, such as, preferred stocks, bonds and some derivatives (e.g. options) are unacceptable as they promise a fixed rate of return and grant no voting rights.

Islamic investors are not permitted to purchase stocks of companies whose main business activities are involves in prohibited things.

Department of Finance (University of Waikato)Australian Stock Exchange

Shariah and Conventional Stocks Performance of Public Companies Listed

This significant shift from conventional into Shariah financial system is generated by three main reasons.

First, a strong demand for Shariah-compliant financial products from a large number of Muslim communities worldwide.

Second, a strong demand from oil rich nations particularly the Middle East countries which prefer to invest in Shariah-compliant products.

The last reason is the competitiveness and the ethical focus of the Shariah-compliant products not only attracting Muslim investors but also non-Muslim investors.

Indonesia Stock Exchange

Islamic finance has become systemically important globally. With Islamic finance in more than 55 countries, the global market for Islamic financial services, as measured by the total volume of Shariah compliant assets, is estimated to have increased from only $80 billion at the beginning of the last decade to $1.1 trillion at end-2011.

Conti…

Does Shariah Complaint Stocks Perform Better than the Conventional Stocks? The first Islamic Index was established in the Dow Jones Market in

December 1995 to enable Islamic fund managers to list businesses in the capital markets.

Since its establishment, investment in Islamic stocks has experienced remarkable growth. At the end of 2002, there were 105 Islamic equity funds worth approximately US$5 billion with 48 %t located in the Middle East, 30 % in Europe and North America, and 22 % in Asia (Falaika, 2002).

Consequently, various capital markets and financial institutions around the world now have established their own Islamic Indexes.

Stocks Listed on the Australian Stock Exchange

Al Meezan Index by Board of Meezan Bank and Mufti Muhammad Taqi Usmani

Al Meezan Investment Management, a subsidiary of Meezan Bank in collaboration with Karachi Stock Exchange has introduced in Pakistan the first co-branded Islamic index of listed companies - KSE Meezan Index.

KMI INDEX BOOKLET The objective of KSE-Meezan Index (KMI) is to serve as a instrument for measuring the performance of Shariah compliant equity investments. Besides tracking performance of Shariah compliant equities, its construction will increase investor trust and enhance their participation.

KSE-Meezan Index is also calculated using the “Free-Float Market Capitalization” for 30 companies that qualified the Shariah screening criteria.

Case Study

Farhat Abbas BC-11045

Shariah Screening or Eligibility Criteria

For Shariah compliance of stocks to be “Shariah compliant”, it must meet ALL the six key tests given below.

Screening Criteria # 1. Business of the Investee Company Core business of the company must be halal and in line with the

dictates of Shariah. Hence, investment in securities of any company dealing in conventional banking, conventional insurance, alcoholic drinks, tobacco, pork production, arms manufacturing, pornography or related activities is not allowable.

Case: Atlas Honda

Shariah Screening Criteria (for equity securities)

Conti…Screening Criteria # 2: Interest Bearing Debt to Total

Assets, <37%

Debt to Asset ratio should be less than 37%. Debt, in this case, is classified as any interest bearing debts. Zero coupon bonds and preference shares are, both, by definition, part of debt.

CASE Atlas Honda:Total Debts: 512500000 ,Total Asset: 8522276000Debt To Asset Ratio: 512500000/8522276000

=6.01%<37%

Conti…Screening Criteria # 3: Non-Compliant Investments to Total Assets,<33%

The ratio of Non Compliant Investments to Total Assets should be less than 33%. Investment in any non-compliant security shall be included for the calculation of this ratio.

CASE Atlas Honda: Total Long term Depositd:9632000 Total Asset:14365190000 =9632000/14365190000

=.067%<33%

Conti…Screening Criteria # 4: Non-complaint Income to Total revenue,<5%The ratio of non compliant income to total revenue should be less than 5%. Total revenue includes Gross revenue plus any other income earned by the company. This amount should be purified by shareholder by giving this amount as charity process called PURIFICATION

CASE Atlas Honda: Total Non compliant Income:1819000 Total Rev:44899364000 =1819000 /44899364000

= .00405% < 5%

Conti…Screening Criteria # 5: Illiquid Assets to Total Assets, >25% The ratio of Illiquid Assets to Total Assets should be at least

25%. The Sum of all those assets whose trade price can deviate from par value, according to the rules of Shariah, is considered the aggregate value of illiquid assets.

Case Atlas HondaTotal illiquid Asset:11521452000

Total Asset:14365190000 = 11521452000/14365190000 =80%>25%LOGIC: if all asset are in liquid then shares can not be traded in market because it is backed by only liquid means cash form and money can be traded on its face value.

Conti…Screening Criteria # 6: Net Liquid Assets/Share Vs

Market Price/Share

Market Price per share should be at least equal to or greater than net liquid assets per share. Net liquid assets per share are calculated by using the following formula:

Net Liquid Asset=(Total Assets – Illiquid Assets – Total Liabilities) divided by number of shares.

Case Atlas Honda:Total Liquid Asset:2843738 Total shares Holder:103406600 LIQUID Asset Per Share: 2843738/103406600 =.o27<371

**Dividend purification rate means investors of the respective company should purify dividend income by the following formula:

Dividend income received x Dividend purification rate *These are provisional rates for dividend purification which

are subject to final adjustment on the basis of respective company's annual accounts for the year 2014.

Case Atlas Honda: Receiving (7.75% - 12%) So shareholder has to give such % of dividend + Capital

gain as charity

Dividend Purification

Zeeshan AttiqueBC-11062

Ask the Shariah

Ask the Shariah

Q= I am a professional accountant and apart from doing my practice I also trade in the Stock market. I avoid badla trading, future, Investment in companies in Banking. Leasing and Insurance sector. What about the day trading, is it Halal or Haram? and why so?

Answer:View of Ulema about Day-trading is its non- permissibility. Because in Day trading a buyer buys a scrip at say 10:30 am @ Rs.95

and sells it at 11:15 am @ Rs.96. The reason behind its non-permissibility is that the buyer sells a commodity before he takes its delivery that is done on Day 3 after Day of trading. Well knowingly selling before taking possession is not allowed in Shariah.

Conti…

Q. Are the Shares of " BankIslami " Offered to people through IPO HALAL?

Answer: Yes, BankIslami pus its efforts to do only Shariah compliant business. I am here to see daily operations of the Bank to make it Shariah compliant.

Q. I would like to get your opinion about purchasing shares of BankIslami?

On what price they could be purchased (above or under their face value) ?Answer :BankIslami's share could be purchased and sold at any price since the company has financial assets along with its fixed assets

Question:Would the Dividend from these shares be Halal?Anawer :Yes the Dividend is Halal

Question: Would the Capital gains by sale of these shares be Halal?Answer :Capital gain is also Halal because the share itself is Halal.

Conti…

Q. Is buying and selling of shares permissible in Islam or not? If it is permissible then can I buy shares of a Company whose income is from traditional banking (i.e. includes interest earned) plus profit through Islamic banking?

Buying and selling of shares is allowable if they meet following conditions:

They are not shares of a company which does not do a Halal business, like Conventional banks, Insurance companies, Entertainment companies or Alcoholic business performing companies.

Conti…

The additional income of the company (shown as "other income" in Balance Sheet) should not be from Bank deposit and Investment in interest-bearing securities like Bonds, PIBs, DSS, TFCs and other instruments. If any income of this nature is there it should be less than 5% of total income and should be given to charity as function of purification.

Conti…

Q. Is investment of stocks as in KSE index or any other Stock exchange index Halal or Haram?

There are various conditions to be fulfilled for a stock to be declared Halal:

1) If the stock is not of a company that does Haram business;2) The leveraging ratio of the company is not above over 40%3) The interest income should not exceed 5%4) The unwanted income should be purified from profit

Some other conditions are also there that should be followed in investment policy.

Conti…

Stock Exchange

List of Shariah Compliance Co. In Pakistan

List of Shariah Compliance Co. 1) ATLH Atlas Honda2) ABOT Abbott Lab.3) APL Attock Petroleum Ltd4) BIPL BankIslami Pakistan5) FCCL Fauji Cement6) FFC Fauji Fertilize7) HADC Haydery Construction Company8) ICI I. C. I. Pakistan 9) KOIL Kohinoor Industries10) MTL Millat Trac. 11) OGDC Oil & Gas Development Ltd.12) PSO P. S. O. 13) PSMC Pak Suzuki 14) SITC Sitara Chemicals15) WTL Worldcall TelecomLtd16) YOUW Yousuf Weaving17) Etc.

Kafeel AhmadBC-11011

Legal Perspective Of Converting A Conventional Business Into An Islamic

One?

However, it is important to note that, from a UAE legal perspective, there are no specific laws or regulations that govern corporate Shariah practices.

Although a conventional business and an Islamic business may be fairly similar, there will be a few key differences demanded by Shariah law. These include;

The structure of business arrangements (loan agreements, business-to-business contracts, etc.),

The structure of investments and debts, Business sectors in which the company is involved which may

be banned under Sharia (alcohol, gambling, etc.),

The company should review and amend its business arrangements to ensure compliance with Shariah principles.

licensing requirements, The appointment of a Shariah Board or a consultant to assist

with compliance, and Shariah-specific internal controls or constitutional

documents.

Conti…

Legal Perspective Of Converting A Conventional Business Into An Islamic One?

1. Structuring Business Arrangements

Islamic Business

For instance, conventional property financing will have a prevailing interest rate, a term, and non-payment penalties, while the company retains ownership of the property.

Islamic financing for that property will commonly require an ijara model under which the property is owned by the bank and leased to the company.

Business loans and arrangements also need to be measured for Shariah compliance, and any conventional facilities converted.

Conventional Business

Conventional Business Islamic Business

Many company assets (such as savings accounts, stocks, bonds, mutual funds, stock in trade, etc.) may have attributes inconsistent with Shariah Principles. Investments and debts are not limited to the financial sector, but extend throughout the value chain.

If a company owns grocery stores which sell alcohol or pork products, these products must be removed from the shelves and the entire stock discarded. Any profits or funds related to these products may not be accrued, and the funds may not be mingled with the company’s receivables.

2. Compliant Investments And Debts


Conventional Business Islamic Business A practical example is a

company or a subsidiary which owns a restaurant. The restaurant serving, own, or distribute any alcohol or pork products. In the event that the company sells the restaurant’s alcohol stock, then the company may not be considered Sharia compliant until the products are discarded.

Shariah prohibits engaging in any business that involves pork, alcohol, gambling, pornography, among other activities.

3. Reviewing business sectors


Currently the company is not complaint Shariah so it does not have any license regarding Shariah compliance

It must have to obtain license from concerning authority

From a UAE legal prospective there are no specific laws and Regulations that govern corporate Shariah practices

Conventional Business Islamic Business4. Licensing under Shariah


Currently the business is non Shariah compliance so obviously its internal rules and regulations are non Shariah compliance

the Memorandum and Articles of Association may restrict borrowing practices to ensure that all borrowing (including shareholder loans, guarantees, acquisition of subsidiaries, etc.) will be undertaken in accordance with Sharia principles and standards.

Conventional Business Islamic Business5. Codes for compliance


Jamshaid AhmadBC-11064

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