Investment in Islamic financial institutions can take many forms – from the basic partnership contracts of Mudarabah and Musharakah to the more developed contracts such as Istisna’. These Islamic financial tools can be applied as basic Islamic retail products such as financing the purchase of a house. At a more sophisticated level, they can also be used as Islamic capital market products for investment purposes through securitization.
Musharakah financing, for example, is a partnership between two or more parties who trade with a joint capital. The profit share of each partner therefore is a part of the joint profit. Hence, at a retail level, this mode of finance can be used in a simple partnership contract with a common business undertaking.
However, on a more complex level, Musharakah Sukuk is an Islamic capital product used for raising capital for certain projects on hand. For example, Musharakah Sukuk was the product used for the issuance of certificates to raise funds of US$2.8 billion for the construction of the Dubai ports, customs and Free-Zone Corporation. It was a landmark deal as one of the world’s largest single sukuk issuance as well as the first Sukuk issue to be convertible into equity upon an IPO.
In order to apply the different modes of Islamic financing, it is pertinent to appreciate the characteristics of the Islamic financing and investment products as well as the rules and conditions pertaining to them. For example, in the most instances, funds provided as capital should be in cash and not debt. The contract is invalidated if the capital provider/creditor requests that the debt owing to him is to be considered as his part of the capital contribution. Inability to appreciate the finer issues in the operations and implementation of an Islamic product may result in non-Shariah compliant although the product is an acceptable mode of Islamic finance.
More details including the registration form can be found in the workshop booklet.
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