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Islamic Capital Markets and Products

Book Description

Ensure Basel III compliance with expert analysis specific to Islamic Finance

Islamic Capital Markets and Products provides a thorough examination of Islamic capital markets (ICM), with particular attention to the products that they offer and the legal and regulatory infrastructure within which they operate. Since Islamic banks act as asset managers, attention is paid to the regulatory challenges which they face in the light of Basel III, as regards both eligible capital and liquidity risk management. The authors of the chapters are professionals and practitioners, and write from experience. The editors also contributed to some of the chapters.

The markets and products covered include Islamic equities, Islamic investment certificates (Sukūk) which are Shari'ah compliant alternatives to conventional bonds, and Islamic Collective Investment Schemes. The coverage of legal and regulatory issues includes an examination of the implications for ICM of securities laws and regulations and of Basel III, as well as collateralisation issues. Shari'ah compliance aspects, in terms both of the selection criteria for Islamic equities and of the 'purification' of impermissible components of income, are also examined in some detail, as are the implications of Basel III for eligible capital in general and for Shari'ah compliant capital instruments in particular. A similar analysis is also made of the implications of the Basel III requirements for liquidity risk management and high quality liquid assets (HQLA), including Shari'ah compliant HQLA.

The book concludes with three case studies, two describing the ICM in Malaysia and Bahrain and a third which describes Sukūk issued as Shari'ah compliant capital instruments, followed by brief concluding remarks by the editors.

Table of Contents

  1. Cover
  2. Title Page
  3. Foreword
  4. Acknowledgements
  5. About the Editors
  6. CHAPTER 1: Overview of the Islamic Capital Market
    1. HISTORY OF THE ICM
    2. GEOGRAPHIC SPREAD
    3. KEY PRINCIPLES FOR SHARI'AH-COMPLIANT FINANCIAL INSTRUMENTS
    4. SHARI'AH-COMPLIANT INSTRUMENTS
    5. SHARI'AH-COMPLIANT INVESTORS
    6. SHARI'AH-COMPLIANT EQUITY INDICES
    7. SHARI'AH-COMPLIANT COLLECTIVE INVESTMENT SCHEMES
    8. TAKAFUL (ISLAMIC INSURANCE) INSTITUTIONS
    9. SUKUK
    10. BANKS: CAPITAL AND REGULATORY ISSUES
    11. MARKET LIQUIDITY: THE OUTLOOK FOR MARKETABLE ASSETS
    12. CONCLUSION
    13. NOTES
  7. CHAPTER 2: Islamic Capital Markets and Islamic Equities
    1. SHARI'AH COMPLIANCE CRITERIA FOR EQUITIES
    2. SECURITIES, FUNDS AND MARKETS: ISLAMIC EQUITIES
    3. REGULATORY ASPECTS: ICM AND BASEL III REQUIREMENTS
    4. CONCLUSION
    5. NOTES
  8. CHAPTER 3: Sukuk – Unlocking the Potential for Economic Development – Unlocking the Potential for Economic Development
    1. GENERAL CHARACTERISTICS OF SUKUK
    2. ASSET-BACKED VS. ASSET-BASED
    3. VOLUME OF SUKUK ISSUED
    4. ORIGINATORS OF SUKUK
    5. COMMONLY USED CONTRACTUAL BASES AND STRUCTURES FROM ALL SUKUK ISSUED
    6. ‘QUASI FIXED-INCOME’ SUKUK VS. EQUITY-BASED SUKUK
    7. ASSET-BACKED AND ASSET-BASED SUKUK
    8. RATINGS OF SUKUK
    9. ISSUANCE OF SUKUK AND SECONDARY MARKETS
    10. CONCLUSION
    11. BIBLIOGRAPHY
    12. NOTE
  9. CHAPTER 4: Islamic Collective Investment Schemes
    1. SHARI'AH-COMPLIANT EQUITY FUNDS
    2. SHARI'AH-COMPLIANT FUNDS – REGULATORY ISSUES
    3. SHARI'AH-COMPLIANT AND CONVENTIONAL RETURNS
    4. COMMODITIES FUNDS
    5. ISLAMIC REAL ESTATE INVESTMENT TRUSTS (iREITs)
    6. TAKAFUL (ISLAMIC INSURANCE) INSTITUTIONS
    7. PROFIT-SHARING INVESTMENT ACCOUNTS
    8. CONCLUSION
    9. BIBLIOGRAPHY
    10. NOTES
  10. CHAPTER 5: Legal and Regulatory Considerations Pertaining to Islamic Capital Markets
    1. SECURITIES LAWS AND REGULATORY REGIMES
    2. SECURITISATIONS (INCLUDING SUKUK)
    3. SYSTEMIC ASPECTS OF LEGAL REGIMES
    4. CONCLUSION
    5. BIBLIOGRAPHY
    6. NOTES
  11. CHAPTER 6: Regulatory Aspects of the Islamic Capital Market and Basel III Requirements
    1. ELIGIBLE CAPITAL AND CAPITAL INSTRUMENTS
    2. SHARI’AH-COMPLIANT INSTRUMENTS AND BASEL III CAPITAL COMPONENTS
    3. LIQUIDITY RISK MANAGEMENT AND HIGH QUALITY LIQUID ASSETS (HQLA)
    4. NOTES
  12. CHAPTER 7: Shari'ah Foundations of Islamic Equity Investment Criteria and Purification of Investments
    1. THE ISLAMIC EQUITY INVESTMENT CRITERIA
    2. TOTAL ASSETS OR MARKET VALUE
    3. FALLING OUT OF THE CRITERIA
    4. COMPONENTS OF THE PROGRAMME
    5. THE LIMITED APPLICABILITY OF THE SCREENS
    6. PURIFICATION
    7. THE ISSUES
    8. METHODS OF PURIFICATION
    9. CONCLUSION
    10. NOTES
  13. CHAPTER 8: Collateralisation in Islamic Capital Markets
    1. THE DEVELOPMENT OF SHARI'AH-COMPLIANT COLLATERALISATION ARRANGEMENTS RELATED TO THE NEED FOR, AND CURRENT DEARTH OF, HQLA TO MEET THE CHANGED REGULATORY ENVIRONMENT FOR ISLAMIC BANKS
    2. THE KEY STAKEHOLDERS IN THE DEVELOPMENT OF THE COLLATERALISATION ELEMENT OF ICM AND THEIR NOTABLE DEVELOPMENTS IN REGULARISING COLLATERALISATION IN ICM ACROSS THE ‘VALUE CHAIN’
    3. THE ‘ISLAMIC REPO’ AND THE NEED FOR, AND CURRENT DEARTH OF, HQLA TO MEET THE CHANGED REGULATORY ENVIRONMENT FOR ISLAMIC BANKS
    4. DEVELOPING MARKET PRACTICE AND IDENTIFYING AND MITIGATING RISK IN COLLATERALS, GUARANTEES AND COLLATERAL MANAGEMENT
    5. RISKS SPECIFICALLY ASSOCIATED WITH ISLAMIC COLLATERALISATION IN ICM
    6. CONCLUSION
    7. NOTES
  14. CHAPTER 9: Eligible Capital and Capital Instruments
    1. FLAWS IN THE BASEL II REGIME
    2. THE DEFINITION OF CAPITAL
    3. QUANTITY OF CAPITAL
    4. CAPITAL WEIGHTS
    5. LEVERAGE RATIO
    6. BASEL III CAPITAL AND ISLAMIC BANKS – FURTHER CONSIDERATIONS
    7. CONCLUSION
    8. NOTE
  15. CHAPTER 10: Regulatory Aspects of the Islamic Capital Market and Basel III Requirements – Shari'ah-Compliant Bank Capital Instruments
    1. BANK CAPITAL REQUIREMENTS: BASEL II VS. BASEL III
    2. BASEL III-COMPLIANT COMMON EQUITY TIER 1 (CET1) INSTRUMENTS
    3. BASEL III-COMPLIANT ADDITIONAL TIER 1 CAPITAL (AT1) INSTRUMENTS
    4. BASEL III-COMPLIANT TIER 2 CAPITAL (T2) INSTRUMENTS
    5. CONCLUSION
    6. NOTES
  16. CHAPTER 11: Liquidity Risk Management and High Quality Liquid Assets
    1. LIQUIDITY RISK CHALLENGES – FUNDING LIQUIDITY AND MARKET LIQUIDITY
    2. HIGH QUALITY LIQUID ASSETS (HQLA)
    3. SHARI'AH-COMPLIANT HQLA: THE IILM SUKUK
    4. CONCLUSION
  17. CHAPTER 12: Malaysia's Islamic Capital Markets – A Case Study
    1. THE BEGINNINGS OF AN ISLAMIC CAPITAL MARKET
    2. COMPONENTS OF MALAYSIA'S ISLAMIC CAPITAL MARKET
    3. MALAYSIAN SUKUK AND SUKUK MARKETS
    4. CONCLUSION
    5. BIBLIOGRAPHY
    6. NOTE
  18. CHAPTER 13: Bahrain's Islamic Capital Markets – A Case Study
    1. THE RATIONALE FOR CAPITAL MARKET DEVELOPMENT
    2. THE PATH TO A SOUND MARKET
    3. THE ECONOMIC OUTLOOK
    4. THE EMERGENCE OF THE MODERN FINANCIAL MARKET
    5. INTRODUCTION OF AN ISLAMIC FINANCE INDEX
    6. CONCLUSION
    7. CASE STUDY: MUMTALAKAT USD600 MILLION SUKUK
    8. MUMTALAKAT SUKUK: THE MURABAHA PROGRAMME
    9. NOTES
  19. CHAPTER 14: Sukuk Issued as Regulatory Capital Instruments for Basel III Compliance – A Case Study Issued as Regulatory Capital Instruments for Basel III Compliance – A Case Study
    1. REGULATORY CAPITAL IN BASEL III AND IFSB-15
    2. SUKUK AS CAPITAL INSTRUMENTS IN BASEL III
    3. AL HILAL BANK TIER 1 SUKUK LIMITED
    4. MAYBANK ISLAMIC'S RM1.5 BILLION SUBORDINATED SUKUK MURABAHA ISSUANCE
    5. CONCLUSION
  20. CHAPTER 15: Concluding Remarks
  21. APPENDIX A: Nominate Contracts Employed as a Basis for Shari'ah-Compliant Financial Transactions
    1. WAKALA
    2. MUDARABA
    3. MUSHARAKA
    4. MURABAHA
    5. SALAM
    6. IJARAH
    7. ISTISNA'A
    8. MUSATAHA
    9. USUFRUCT
    10. WA'AD
    11. ARBOUN
  22. APPENDIX B: A Note on Market Index Providers
  23. Index
  24. End User License Agreement