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An Islamic Perspective on Capital Markets and "Islamic" Securities in Malaysia

Author

Listed:
  • Muhammad Anwar

    (International Islamic University, Selangor, Malaysia.)

Abstract

Financial systems channel funds in an economy from the surplus economic units lacking appropriate investment opportunities to the deficit economic units with such opportunities. The surplus units seeking returns by employing their funds in productive activities and the deficit units interested in exploiting their investment opportunities contact one another through a network of financial markets and institutions in the economy. The participants make financial contracts in ways which satisfy their requirements regarding liquidity, denomination, maturities, and risk diversification [Anwar (1987), pp. 296-297]. In this way, the financial markets contribute to a higher production, efficiency, and economic welfare of everyone in the society [Mishkin (1989), p. 45]. In recent years, the appetite for investment in the markets of developing countries has increased manyfold [Hussain (1994), p. 2]. A good many of such developing markets are in Islamic countries such as Egypt, Turkey, Bangladesh, Pakistan, and Malaysia. Well-developed Islamic financial markets would contribute towards economic development by attracting capital inflows and checking capital flight from the Islamic nations. Islamisation of financial institutions, especially banking and insurance, has received sufficient attention since 1950. In fact, a number of Islamic banks and insurance companies are now operating worldwide. Islamisation of financial markets has, however, received relatively little attention from the academic and practitioners, although some "Islamic" securities have been introduced in several Muslim countries including Pakistan, Jordan, Sudan, Iran, and Malaysia. The major task of this study is to discuss the "Islamicity" of the main activities in the conventional capital markets and the Malaysian "Islamic" capital market instruments in the light of Islamic principles. The study is organised as follows. An Islamic criteria for portfolio management through capital market activities is developed in Section 2. The "Islamicity" of conventional capital market (with an emphasis on secondary markets) operations and the "Islamic" capital market in Malaysia are discussed in Sections 3 and 4 respectively. Additional recommendations towards the Islamisation of capital markets are made in the final section.

Suggested Citation

  • Muhammad Anwar, 1995. "An Islamic Perspective on Capital Markets and "Islamic" Securities in Malaysia," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 865-878.
  • Handle: RePEc:pid:journl:v:34:y:1995:i:4:p:865-878
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    File URL: http://www.pide.org.pk/pdf/PDR/1995/Volume4/865-878.pdf
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    Cited by:

    1. El Mehdi, Imen Khanchel & Mghaieth, Asma, 2017. "Volatility spillover and hedging strategies between Islamic and conventional stocks in the presence of asymmetry and long memory," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 595-611.
    2. Abdelbari El Khamlichi & Kabir Sarkar Humayun & Mohamed Arouri & Frédéric Teulon, 2014. "Are Islamic equity indices more efficient than their conventional counterparts ? Evidence from major global index families," Working Papers 2014-91, Department of Research, Ipag Business School.
    3. Abdelbari El Khamlichi & Kamel Laaradh & Mohamed Arouri & Frédéric Teulon, 2014. "Performance Persistence of Islamic Equity Mutual Funds," Working Papers 2014-115, Department of Research, Ipag Business School.
    4. Syed Adeel Hussain, 2013. "Differentiation of Market Risk Characteristics among Sharia Compliant and Conventional Equities listed on the Pakistani Capital Market - KSE 100 Index over a selective time period," 2013 Papers phu395, Job Market Papers.
    5. El Khamlichi, Abdelbari, 2010. "L’INVESTISSEMENT EN BOURSE : LES NORMES DE LA FINANCE ISLAMIQUE APPLIQUEES AUX VALEURS DE LA PLACE BOURSIERE DE PARIS (CAC 40 et SBF 250)," Etudes en Economie Islamique, The Islamic Research and Training Institute (IRTI), vol. 4, pages 39-63.
    6. Muhammad Anwar, 2001. "Development Of Mudarabah Instruments: Understanding Their Profitability, Securitization And Negotiability Aspects," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 9(2), pages 165-186, December.
    7. repec:ipg:wpaper:2014-091 is not listed on IDEAS

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