Introduction to Islamic Capital Market
- In an Islamic Capital Market, market transactions are carried out in ways that do not conflict with the conscience of Muslim and the religion of Islam.
- There is assertion of religious law so that the market is free from prohibited activities by Islam such as usury (riba'), gambling (maysir) and ambiguity (gharar).
- ICM is a component of the overall capital market in Malaysia. It plays an important role in generating economic growth for the country.
- ICM functions as a parallel market to the conventional capital market and plays a complementary role to the Islamic banking system in broadening and deepening the Islamic financial markets in Malaysia.
What is Islamic Capital Market?
- The Islamic Capital Market refers to the market where activities are carried out in ways which doesn't conflict with the principle of Islam.
- ICM represents an assertion of religious law in capital market transactions where the market is free from prohibited activities and elements such as riba', maysir and gharar.
Roles of Islamic Capital Market
- Intermediaries between deficit and surplus funds. It acts as a vehicle which matches the saving of suppliers of funds with the demand for fund of both government and private sectors looking for Shariah compliant financing to undertake long term projects.
- Avenue for liquidity for Islamic banking and takaful sectors. It provides an avenue liquidity management to Islamic banks and Takaful operators by making available a whole range of assets classes with different maturities and return profiles for investment.
- Provides opportunities for diversification of risks. It offers a wider portfolio of asset selection to investors and institutions offering Islamic Financial Services(IIFS) in general enabling them diversify risks to meet their different needs.
- Facilitates the availability of liquidity by enabling secondary trading of securities. The tradability of the long term securities issued in the capital market on the secondary market enables the investors to enter or exit the market at their will. It allows illiquid asset to be converted into liquid instrument.
- Contribute to the economic growth. ICM gives an added dynamism to the real economy by facilitating the development of infrastructural projects, expanding private sector businesses, increasing production and generating employment.
Important of Islamic Capital Market
- Provides an avenue for liquidity management to IIFS
- Make available shariah-compliant financing for product activities
- Regarded as a new asset class for Muslim and conventional investors
- The Islamic Capital Market plays an important role immobilizing saving and channel is in them into productive investment for the development of commerce and industry
- The capital market is the transmission mechanism between surplus units and deficit units.
