In the name of Allah, the Beneficent the Merciful - PowerPoint Presentation

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In the name of Allah, the Beneficent the Merciful

“Dow Jones Islamic Market Index”

Presented By:Ahmad Wais ShujjaAshtar Hussain JanSlide2

Contents

Stock and the stock marketWhy the need for Islamic Index?Dow Jones Islamic Market IndexIslamic FiltersPerformance

ReferencesSlide3

Stock and The Stock Market

The Stock is a security that represents a share of ownership in a corporation. (Frederic C. Mishkin & Stanley G. Fakins, March 18, 2005, p. 5), while the stock market is a primarily a virtual exchange of securities__shares and debentures, which companies use as a means of raising finance__and derivatives__virtual instruments such as contracts that relate to assets and securities and can be traded. (http://www.independentinvestor.co.uk/share-dealing/what-is-stock-market.html)Slide4

Why the need for Islamic Index?

Islam is a modus vivendi – a lifestyle

(G. Forte and F. Miglietta, 2007)Balanced approach of Islam which contains guidance in every sphere of life.Interest (Riba), gambling (Qimar), uncertainty (Gharar)

__wealth in the hands of few in the conventional economic system, which are prohibited in Islam (Usmani, April, 2011)

The guidelines of Islamic investments are based on

tawhid – a total adherence to the willing of God – revealed to the world by the words of the Prophet Mohammed

Islamic economy is founded on Shari’ah: it does not deny profit, private ownership and market forces, but they are not given total freedom and must be reached in accordance with the divine prescriptions (G. Forte and F.

Miglietta

, 2007)

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Cont..

Over the last few decades, the Muslims have been trying to restructure their lives on the basis of Islamic principles (Usmani, April, 2011)Until 1970s, no stock market investments due to Islamic prohibition of certain business activities In the 1990s, a major breakthrough took place in religious rulings related to equity investment

FTSE Global Islamic Index Series (GIIS) at the end of 1998, as a result of the increasing demand for Islamic equity investmentSlide6

Dow Jones Islamic Market Index

A. Rushdi Siddiqui, Director of the Islamic Index Group at Dow Jones Indexes has stated, 'Our goal is to offer the Islamic investment community additional regional and sector indexes that provide them the same kind of choices presently available to non-Islamic investors’ (Haroon, 1999)Slide7

Cont..

February 1999, the first Dow Jones Islamic market index (DJIMI), an Islamic equity benchmark index was launched from 34 countries and covers 10 economic sectors, 18 market sectors, 51 industry groups and 89 subgroups (Hussein), in Manama, Bahrain (Haroon, 1999)

Monitored by a supervisory board of Islamic scholars⃰Based on December 31, 1995, at base value 1000. Reviewed quarterly, with component changes implemented on the third Friday of March, June, September and December assures that the index reflects the latest trends and developments in the global stock market.Slide8

Islamic Filters

(screens for business activities and

financial ratios) Stocks of companies whose primary business is in areas not suitable for Islamic investment purposes__ alcohol, pork related products, conventional financial services (banking, insurance, etc.), entertainment (casinos/gambling, pornography, music, etc.), tobacco and defense/weapons are excluded from the Dow Jones Islamic Market Index. Slide9

Cont..

After removing companies with unacceptable primary business activities, the remaining universe is tested by three financial-ratio 'filters‘:

1. The ratio of

“Total Debt to Total Assets ≥ 33%”

(Total Debt = Short-Term Debt + current portion of Long-Term Debt + Long-Term Debt )

2. The ratio of

“Accounts Receivables to Total Assets ≥ 45%”

(Accounts Receivables = Current receivables + Long-Term Receivables)

3. Companies of which

“the sum of cash and interest bearing securities exceeds 33%”

Companies that pass these criteria are included in the DJIMI investable universe (Hussein, Islamic Investment: Evidence From Dow Jones and FTSE indices)Slide10

Performance

DJIMI vs. Wilshire 5000 Index (W5000) Approximately 75% of the companies fail to meet the Islamic criteria 700 companies in the DJIMI Restrictions vs. Performance

Restriction vs. Diversification__risk and returnSlide11

Cont..

1. (Sam Hakim and Manochehr Rashidian) has found out that:The filtering criteria have not adversely affected the performance of the Islamic index in relation to the broad equity marketThe Islamic index is influenced by factors independent from the broad market or interest rates

The risk per unit of return on the broader Wilshire 5000 index is markedly higher than on the Islamic indexThe investors in the DJIMI have been relatively more immune from the turmoil in the equity markets.Slide12

cont..

2. To introduce morals, religion and conscience into investments is a challenging task and a difficult problem to overcome. (G. Forte and F. Miglietta, 2007) has mentioned that: The investors entering the Shari’ah compliant investments are increasing about 12-15% per yearSlide13

Cont..

3. According to (Hussein, Islamic Investment: Evidence From Dow Jones and FTSE indices) the application of shari’ah screens does not have an adverse impact on the Islamic indices performance Slide14

Scholars

⃰

Members of the DJIMI Shari`ah Supervisory Board

Shaykh Nizam Yaquby, Bahrain

Shaykh Dr. Mohd Daud Bakar, Malaysia

Shaykh Justice Muhammad Taqi Usmani, Pakistan

Shaykh Dr. Mohamed A. Elgari, Saudi Arabia

Shaykh Abdul Sattar Abu Ghuddah, Syria

Shaykh Yusuf Talal DeLorenzo, United States (Guide to the Dow Jones Islamic Market Indices, 2003)Slide15

References

Frederic C. Mishkin & Stanley G. Fakins. (March 18, 2005). Financial Markets and Institutions (5th ed.). Boston, Massachusetts: Addison Wesley.G. Forte and F. Miglietta. (2007, August). Retrieved October 24, 2011, from http://www.failaka.com/downloads/Forte&Miglietta_SocialResp.pdf: www.failaka.comG. Forte and F. Miglietta. (2007). Islamic mutual funds as faith-based funds in a socially responsible context.(2003).

Guide to the Dow Jones Islamic Market Indices. Haroon, S. Y. (1999). Islamic Finance. Retrieved October 24, 2011, from http://www.islamic-finance.com/item21_f.htm: www.islamic-finance.comSlide16

Cont..

http://www.independentinvestor.co.uk/share-dealing/what-is-stock-market.html. (n.d.). Retrieved from /www.independentinvestor.co.uk.http://www.independentinvestor.co.uk/share-dealing/what-is-stock-market.html. (n.d.). Retrieved October 24, 2011, from Independent Investor: www.independentinvestor.co.uk

Hussein, K. A. (n.d.). Islamic Investment: Evidence From Dow Jones and FTSE indices.Hussein, K. A. Islamic Investment: Evidence From Dow Jones and FTSE Indices. Sam Hakim and Manochehr Rashidian. (n.d.). Risk & Return of Islamic Stock Market Indexes.Usmani, M. M. (April, 2011). An Introduction to Islamic Finance. Karachi, Sindh

, Pakistan:

Maktaba

Ma'ariful

Qur'an.Slide17

Because questions are guaranteed in life, answers are not!

Thank you very much.Questions are welcome