User:Hanifacm

=Islamic Capital Market=

Islamic capital market is created by screening stocks, already listed on stock markets. Such screening is required to provide opportunities for Halal earnings, as per Islamic Shari'ah. As per Islamic Shari'ah, there is a well-defined code of Halal and Haram. Hence, believers in Islam are required to do Halal activities and refrain from Haram activities. Halal and Haram is applicable to every sphere of life. As a principle, only those things/activities are absolute Haram which are declared by Qur'an and Sunnah. However, there multiple derivations based on reasoning by Jurists. In the case of investments in equities, there are two stage screening of companies. First is business screening, where companies engaged in Haram activities are excluded from the list of Shari'ah compliant companies. Examples include companies engaged in the business of alcohol and pork-related products. The companies which qualify first stage screening are further filtered through financial screening criterion. Financial screening criterion address liquidy, leverage, mixed earnings, and earning purification. Financial screening or limiting a certain activity of a company to be Shari'ah compliant are concessions [derived by jurists] and unproven from original sources of Islamic law i.e Quran and Sunnah.

There are multiple Islamic equity indexes, developed over the period including FTSE, DJIM, MSCI, S&PSI and country-specific indexes KMI-Pakistan and SCM-Malaysia. There are minor differences in Shari'ah compliant filters designed by multiple institutions. As per AAOIFI, following screening tests are applied: 1- Ratio of liquid assets to total assets is not more than 70% 2- Ratio of Haram investments is not more than 30% of the market capitalisation 3- Ratio of interest based debts is not more than 30% of market capitalisation 4- Ratio of Haram income is not more than 5% of total revenue

Finally, any Haram income is earned by shareholders is need purification