Sharia Capital Market and its Types

Rancakmedia.com – The Islamic capital market is a long-term financial instrument that regulates the trading of debentures, stocks and mutual funds using Sharia rules as the basis for its functional system.

In Indonesia, the concept itself cannot be separated from Law Number 8 of 1995 concerning Capital Markets (UUPM), namely public offerings and securities trading, public securities companies and sharia-related organizations and work.

However, the application of sharia principles is based on the Al-Qur'an as the main source of law and the Hadith of the Prophet Muhammad. In addition, academics interpret the discipline of fiqh from these two sources of law.

Development of Islamic Capital Market in Indonesia

From year to year, the development is more promising. Based on statistics obtained from the Financial Services Authority (OJK), at the end of March 2020 sharia mutual fund managed funds or net asset value (NAV)

The development of the Islamic capital market in Indonesia

When viewed from the proportion of total NAV by industry, sharia mutual funds contributed 12,15% at the end of March 2020, while at the end of December 2019 they only contributed 9,91%.

How does the Islamic Capital Market Function

In essence, it is part of a wider capital market, whose activities include buying and selling of shares, sukuk, and mutual funds. This financial activity is also included in muamalah acts, meaning that interactions between men are regulated.

Capital market activities are included in the muamalah category and transactions in the capital market are thus permissible as long as there are no sharia restrictions.

There are many features, including in the capital market, products and transaction mechanisms must not conflict with sharia rules. Moreover, guaranteeing halalness in its procurement and sales activities. Especially avoiding prohibitions that contain elements of ghararar (uncertainty) and usury.

However, it is global in nature so that it is not limited to certain ethnic groups, beliefs or groups.

Sharia Capital Market Engagement

There are two Main Functions

  • As a source of financing for the company's business development by issuing sharia securities.
  • As a way to invest in Islamic investor securities.

Even though it bears the term Sharia and is governed by Islamic law, it is broad in nature so that anyone can make use of it regardless of ethnic, religious or racial background.
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Its aim is to help accelerate economic development by offering companies the opportunity to benefit directly from public funds and providing the business sector with a source of (long-term) funding to generate excellent and attractive jobs.

Sharia Capital Market Engagement

Sharia Capital Market Activities Prohibited

In Muamalah people are allowed to carry out profitable activities, but all types of transactions including elements of usury and interest are still avoided. The advantage of the Islamic capital market is due to the profit or profit ratio.

Basic and Legal Basis

Its activities are related to Capital Market Law No. 8 of 1995. Meanwhile, as a capital market regulator in Indonesia, Bapepam-LK has several specific rules regarding Islamic capital markets, including:

Rule II.K.1 Criteria and Issuance of List of Sharia Securities
Regulation No. IX.A.13 concerning Sharia Securities Issuance
Contracts used in the issuance of sharia securities Regulation IX.A.14
Product

Available instruments include:

  • Sharia shares (securities).
  • Sukuk
  • Mutual funds from sharia.
  • Sharia Asset Backed Securities Sharia Real Estate Investment Fund (Sharia EBA) (Sharia DIRE)
  • Sharia (securities) actions
  • Sharia shares are cooperation in a company when this activity is based on a contract and is not prohibited by religion.
  • Investors donate funds as a form of contribution, and fund management companies use them for business development. If the company's profit or loss is carried out simultaneously with the dividend period.

Sukuk

Sukuk are bonds based on the principles of sharia law. Bonds are debt securities issued by companies or administrations. Simply put, a bond coupon implies that, as an investor, you are providing the business that issued the bond with debt as collateral for the debt.

Islamic capital market products

In relation to sukuk, ownership is represented by certificates or asset coupons, usually in the form of land, buildings, projects, services and asset rights. Profits come from profit sharing

Conclusion:

Islamic capital market is a long-term financial instrument that regulates the trading of debentures, stocks and mutual funds using Sharia rules as the basis for its functional system. In Indonesia, the concept itself cannot be separated from Law Number 8 of 1995 concerning Capital Markets (UUPM), namely public offerings and securities trading.

The goal is to help accelerate economic development by offering companies the opportunity to benefit directly from public funds. In Muamalah people are allowed to carry out profitable activities, but all types of transactions including elements of usury and interest are still avoided.

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