The Sharia Principles of Islamic Capital Market

According to the definition of islamic capital market, we can find out that the sharia principles is the most important variable in the Islamic capital market. the question is what is sharia principles?

The simple definition of sharia principles is all basic principles which based on Al Qur'an and Hadist. Capital market is part of financial market activities. it means a part of muamalah activity. Than, if we are talking about muamalah, we should refer to basic sharia principle of muamalah "basically, all forms of muamalah are permissible, as long as there is no dalil that prohibits". That principle is very important to understand because based on it, we can build and develop the islamic capital market.

Many Islamic scholars have different opinion when they elaborate the sharia principles of Islamic capital market. Iqbal (1997) told that the Islamic capital market has six sharia principles, El Gamal (2000) said that only 2 main sharia principles which be basis of Islamic capital market, prohibition of gharar dan prohibition of riba. IOSCO (2004) reported that the sharia principles of Islamic capital market consist of four (4) basic principles which are gharar, riba, maisyir, and non-halal products. We can call that investment product or securities are Islamic product if  they comply with all four sharia principles.

In Indonesia, the fatwa which cover the Islamic capital market is fatwa DSN-MUI No. 40/DSN-MUI/X/2003 about capital market dan general guidelines for the application who came from islamic principles.  

what is islamic capital market?

When we are talking about islamic capital market, firstly we must know exactly what capital market is. Many islamic scholars who tried to give explanation about islamic capital market came up with misleading explanation. it's happen because they didn't know capital market clearly.

Capital market is not only about speculative transaction, short selling or margin trading but lot of activities. According to the text book, in fact all of these activities are prohibited because will give negative impact to the market. Speculative means trading with blank stock's information which is traded or we can say trading by feeling or trading by following others blindly. This action will give wrong information to the market because the movement of price of stock is have no basis at all. We can call it a gambling transaction. Short selling means investor has no stock but takes position to transact it. Investor hopes price will goes down and when it happen investor will buy the stock. Margin trading means investor has no sufficient money to transact. Instead of short selling, investor who takes margin trading position will hope that price goes up. It like borrowing money for trading stock with hoping that the transaction will give big profit. That's why all three are very risky.

So, what is islamic capital market?

According to Islamic Capital Market Task Force report which published by IOSCO in 2004, "islamic capital market means where investment and financing activities and products are structured in accordance with Shariah principles”. 


Bursa Malaysia's definition is (taken from The Islamic Capital Market, p. 2): "The Islamic Capital Market (ICM) refers to the market where activities are carried out in ways which doesn’t conflict with the principles of Islam. The ICM represents an assertion of religious law in capital market transactions where the market is free from prohibited activities and elements such as riba, maisir and gharar".

How about Indonesia's definition for islamic capital market? Official definition of islamic capital market in Indonesia is explained on Bapepam's rule and DSN's fatwa. We can't find the term of islamic capital market on both source because Indonesia use "islamic principles in the capital market" to mention islamic capital market. According to Bapepam's rule no. IX.A.13 concerning the issuance of islamic securities the definition of islamic principles in the capital market is “Prinsip-prinsip hukum Islam dalam kegiatan di bidang Pasar Modal berdasarkan fatwa Dewan Syariah Nasional Majelis Ulama Indonesia (DSN-MUI), baik fatwa DSN-MUI yang ditetapkan dalam peraturan Bapepam dan LK maupun fatwa DSN-MUI yang telah diterbitkan sebelum ditetapkannya peraturan ini, sepanjang fatwa dimaksud tidak bertentangan dengan peraturan ini dan atau Peraturan Bapepam dan LK lain yang didasarkan pada fatwa DSN-MUI”.

the new blog is coming

The information of islamic capital market on the net is very limited. It's very different with other branch of islamic economics. Until today, if we are talking about islamic finance means islamic banking. Whereas islamic finance is not just banking but also capital market. This blog is created to fulfill the needs.

The objectives of this blog is to deliver islamic capital market information, included islamic principles of capital market, market performance data and others related info. Hopefully, this blog will be a gate for people who want to know all about islamic capital market from theory to market info.

enjoy the blog.