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Islamic Voice Logo
MONTHLY    *    Vol 13-03 No:147    *   MARCH 1999/ ZIL-HIJJAH 1419H
email: editor@islamicvoice.com

ECONOMIC MONITOR


Seminar on Islamic Banking
Dow Jones Plans Launch of Islamic Equity-Market Index


Seminar on Islamic Banking

Islamic Bank more popular now: Dr. Ahmad Need for a Regulatory Authority: Rahman Khan

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By A Staff Writer

BANGALORE: Interest-free banking was receiving more international exposure and acceptability, said Dr Ausaf Ahmed from Islamic Development from Jeddah.

Dr. Ahmed said nearly 150 financial institutions in the world were handling over $ 100 billion worth of business and several US banks in the Gulf were opening Islamic windows in the conventional banks where funds were deployed for businesses permitted by Islam and involved no interest. He pointed out that a leading Saudi Arabia based economist had his article on interest free banking returned by the UK's Economic Journal published by the Royal Economic Society 30 years ago with the remarks that "it was interesting but not feasible." But the same journal chose to publish a paper on the interest-free banking.

Dr. Ahmed, who was speaking at a seminar on Islamic Banking at the Al-Ameen College's Management Studies Association in Bangalore, countered the notion that the Qur'anic terminology of Riba did not apply to bank interest. He said bank interest was riba and there could be no doubt about it. He said interest-based financial transactions were unjust, inflationary and led to economic instability. He said interest was leading to a vicious kind of debt trap for the poor folk.

Quoting from the report of the Rural Credit Enquiry Commission appointed in 1930 by the British-India government, he said: "the rural folk were born in debt, lived in debt, died in debt and transferred their debt to their progeny after death."

Dr. Ahmed said Tabung Haji of Malaysia, chain of Faisal Islamic banks in various countries and Daral Mal Al-Islami as the successful experiments in Islamic banking and investments. He said Sudan had experimented with several Islamic financial instruments such as Musharika in farm sector and come out successful.

Earlier, Mr. K. Rahman Khan MP and chairman of the Al-Ameen Islamic Financial Investment Corporation, said the West had reduced currency to a commodity through its trading while Islam viewed currency as a store of value. He however said the Islamic banking and investment were still passing through infancy and were to develop sophistication of the Western economy. He said the Islamic financial activity, whether banking or investment, in India needed a regulatory authority just as Reserve Bank of India regulated the conventional banks. "Without this there would be chaos," he warned.

Mr. Khan said Islamic banking presupposed honesty and integrity and presented a few case studies from AIFIC as to how the absence of these traits among borrowers resulted in incidence of losses for the institution. Besides a good number of intellectuals, the seminar was attended by MBA students of the Al-Ameen College of Management.

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Dow Jones Plans Launch of Islamic Equity-Market Index

NEW YORK : Dow Jones & Co., publisher of The Wall Street Journal and Interactive Journal, is launching a new global equity-benchmark index aimed at investors who follow Islamic investment guidelines, according to a report by Sara Webb published in The Wall street Journal.

The new index called the Dow Jones Islamic Market Index, or DJIM currently tracks 600 companies whose products and services do not violate Shari'ah law. Companies in the index aren't just from Islamic countries, but from 30 countries around the world, including the U.S.

The creation of the index reflects a growing interest by individuals in making investments that adhere to ethical guidelines, according to their beliefs. Over the years, many funds have avoided certain categories of stocks for example, tobacco stocks, or shares in defense companies, or stock in companies that did business in South Africa during the period when that country practised apartheid.

Institutions and individuals who invest in companies listed in the Dow Jones Islamic Index can be assured that their investments do not transgress religious law; in addition, the index provides a yardstick against which investors can measure the performance for existing Islamic mutual funds.

"Presently there is no Islamic benchmark index provided by an established index provider," says A. Rushdi Siddiqui, director of Dow Jones' Islamic Index Group, who estimates that perhaps as much as $8 billion is invested in stocks that meet Islamic religious guidelines.

In keeping with Shari'ah law, the index excludes companies whose products include alcohol, pork, tobacco and weapons; firms in the entertainment business (such as hotels, casinos and cinemas); and those in the conventional financial-services industry, such as banking and insurance, that collect interest, which is in violation of Islamic law. The index also screens out companies with unacceptable financial ratios, such as high debt levels.

As a result of the screening techniques, the DJIM index is heavily weighted in the U.S., at nearly 70 per cent of the index, and consists mainly of stocks in the consumer, technology, utility, energy and industrial sectors.

Investment practices vary widely in the Islamic world. One of the best-known Saudi Arabian investors, Prince Al-Waleed bin Talal bin Abdulaziz Al-Saud, owns big stakes in financial-services giant Citicorp, as well as in the alcohol-serving restaurant chain Planet Hollywood International. In some of the more liberal Moslem countries, such so-called sin stocks even trade on the domestic stock exchanges. For example, Indonesian cigarette companies and banks trade on the Jakarta stock exchange, while Malaysia's stock market lists several gaming companies.

Traditionally, Islamic investors have tended to use leasing (ijara) and financing (mudarba) agreements as their main investment vehicles rather than listed company shares. "Islamic financing and leasing is very big," says Nic Contomichalos, head of Dresdner Private Banking in London, a unit of Dresdner Bank. But, he adds, there is increasing interest in equity investing according to Islamic practices.

Dow Jones has issued a licence to Brown Brothers Harriman & Co. and Wafra Investment Advisory Group, which is a wholly owned subsidiary of Kuwait's Public Institution for Social Security, to create tradable fund based on the Dow Jones Islamic Market Index.

http://indexs.dowjones.com/djimi/imselect.html

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