Using indices for guiding
operations that relate to real transactions is permissible according to Sharia
law. It is permissible to use indices to determine the magnitude of a certain
market or to judge the performance of certain fund managers or estimate the
performance and systematic risks of a portfolio of financial papers. It is also
permissible to link periodical adjustments of salaries or wages to changes in
the level of prices. It is permissible to correlate the remuneration package of
a fund’s manager, mudarib’s bonus, variable rent in anijarah contract and a
deferred settlement of a donation to a charitable body with a particular index.
However, trading in indices or making payment or receipt of money based on the
index changes without buying or selling the real assets that the index
represents, is prohibited by Shariah as it is considered a form of gambling. On
the same basis, it is prohibited to conclude or deal with option contracts that
are based on indices or on the index contract multiplier as these transactions
deal with wills and intentions rather than real commodities. In developing an
Islamic index, Sharia compliance must be adhered to in its components and a
Sharia supervisory board must be appointed to conduct periodical reviews and
reporting.
Britain will be the first country outside the Muslim world to issue its own
Islamic bond, known as sukuk.
The announcements were made in the World Islamic Economic Forum in London couple
of days back , the first time it has been held outside the Muslim world. It is
being attended by 1,800 political and business leaders from nearly 120
countries.
There will be some benefits of introducing the Islamic index in the London stock
exchange:
These not only identify companies that meet traditional Islamic investment
principles but also use the most advanced techniques on the planet to screen
financial ratios and enable investors to identify opportunities with lower
volatility. In plain language, this means the creation of a new way of
identifying Islamic finance
"For years people have been talking about creating an Islamic bond — or Sukuk —
outside the Islamic world. But it's just never quite happened. This government
wants Britain to become the first Western sovereign to issue an Islamic bond. So
the Treasury is working on the practicalities of issuing a bond-like Sukuk worth
around £200 million and we very much welcome the involvement of industry in
developing this initiative which we hope to launch as early as next year."
Already more than 20 banks in the UK offer Islamic financial products and
services, more than in any other Western country.
The London Stock Exchange is an attractive draw for Islamic finance listing,
with over 49 Sukuk (an Islamic bond which pays investors a fixed return based on
the profit generated by an underlying asset) listings valued at $34 billion over
the last five years. About 25 law firms in the UK are already operating
substantial Islamic finance departments for the global and domestic markets.