Comparison of Islamic and Conventional Equity Products.

As we know that the equities involves company shares which represents part ownership by the investor in a particular company. The comparison of Islamic and conventional products is Islamic Equity product must not involves any company shares that not follow Shariah-compliant investment. As a Muslim we only can invest in a company that their business activities such as halal food, financial services not based on interest (riba), no gambling activities and other activities deemed permissible according to Shariah. We can not invest in manufacture or sale of non-halal products or related products, conventional insurance, entertainment activities that non-permissible according to Shariah, manufacture or sale of tobacco based products or related products and stockbroking or share trading in Shariah non-compliant securities. However in the conventional investment product, all the above criteria is not important. Every company share that can make profit or higher return to investor is permissible and all company who want to raise fund can issued stock without tied to any Shariah-compliant.

In term of formula of dividend distribution to their investor, the dividend derive from preference shares also known as preferred stock is not allowed in Islam because of it promises to pay to its holder a fixed stream of income each year. A firm’s failure to pay the dividend due on preferred stock, however, does not set off corporate bankcruptcy. However the resolution of the Securities Commission Shariah Advisory Council (SAC) as make decision that the basic preference share (non-cumulative) is permissible based on tanazul where the right to profit of the ordinary shareholder is willingly given to a preference shareholder. Tanazul is agreed upon at an annual general meeting of a company which decides to issue preference shares in an effort to raise new capital. As it is agreed at the meeting to issue preference shares, this means that ordinary shareholders have also agreed to give priority to preference shareholders in dividing the profits, in accordance with tanzul. In the context of preference shares, tanazul means surrendering the rights to a share of the profits based on partnership, by giving priority to preference shareholders.

In other to provide a broad benchmark for Shariah-compliant investment, Bursa Malaysia, a single exchange group, come out with two Islamic equity indices known as FTSE Bursa Malaysia EMAS Shariah Index (FBM EMAS Shariah) and FTSE Bursa Malaysia Hijrah Shariah Index (FBM Hijrah Shariah). These indices are designed for investors who wish to invest in Shariah-compliant stocks that are consistent with Shariah principles. The main index use as a benchmark for Malaysia foreign and international stock market indexes is FTSE Bursa Malaysia (FBM KLCI). These stock market indexes provide guidance concerning the performance of the overall stock market.

The gain earned from a right to buy fixed quantity of an asset for a specified price within a limited period of time (Call warrants) offered by company to their shareholders is depend on the company and it type of business operation. The gain is permissible if the company services or operation is halal according to Shariah. The resolution of the Securities Commission Shariah Advisory Council as make decision that call warrants is permissible based on supported from Islamic jurisprudence as a reference. The evidence were firstly, in the form of holding rights in sales and purchases according to Imam Ahmad, as narrated by Ibnu Qadamah, Nafi bin al-Harith was reported to have bought a house from Safwan bin Umayyah for Caliph Omar. He laid down a condition to Safwan that if Caliph agreed, he would buy the house, otherwise, Safwan would still be paid a certain sum. Ibn Qayyim said that the cost of the house was 4,000 dirham, and Safwan would be paid 400 dirham if the Caliph did not agree to the purchase. The reason for 400 dirham was given so that the house would not be sold to someone else. This showed that payment was permissible to give holding right to a property. holding rights in rentals. Secondly, in the form of holding right in rentals according to Ibnu ‘Aun narrated, a man asked the owner of a mount-for-hire, “ Prepare your mount, if I do not rent it on the promised date, I will give you 100 dirham”. This narration shows that holding rights in rental is permissible and the payment ensured that the mount was not rented out to someone else.