5.

0 Recommendation/ suggestions

Nowadays, Islamic capital market and Islamic financial sector growing rapidly, but still

too small compared to its true potential. This sector market for Muslims around the world itself

has not yet fully explored. Therefore, all the organizations including the government and society

need to take action to overcome this problem.

5.1 Recommendation

5.1.1 Government

The Islamic Development Department of Malaysia (JAKIM), acting as a central

agency in Islamic affairs management and the development of the ummah will strive and

give full commitment and support in developing the Islamic financial industry with a

system of monitoring and enforcement "world-class" to ensure the image of Malaysia can

be upheld.

Therefore, the JAKIM and its agencies will always assist the government and its

related parties to survive in the face of challenges in upholding the Islamic financial

industry in Malaysia through relevant programs. This has been realized through the close

collaboration that has been established with various agencies such as Bank Negara

Malaysia, Securities Commission, ISRA and AIBIM.

5.1.2 Non-governmental organizations (NGO)

The Islamic finance industry must continuously approach and educate the

community. For this to be more effective, Islamic financial institutions themselves must

be knowledgeable and understand what Islamic finance is and what Islamic financial
capabilities are. Islamic financial institutions need to extend research involving all levels

to include regulators, practitioners and academics to strengthen understanding. At the

same time, investment in human capital should also be emphasized by the lack of

knowledge in Islamic finance often associated with the lack of qualified experts in the

field. Hence, it has affected the innovation of the products and services introduced.

5.1.3 Society

The innovation of Islamic financial products and services is gaining momentum

and with the integration of Islamic finance into the global financial system, it is

imperative for the foundation of Islamic finance to be unaffected. This is the key to

maintaining the resilience of the Islamic financial system in the challenging international

financial industry.

To achieve this, society must be open to accepting Shariah-based innovations in

the development of Islamic financial products. In today's increasingly sophisticated

financial market, innovation is a key factor for staying competitive. The weak economic

conditions have now shown that over-complex and uncontrolled innovations can lead to

instability which in turn results in major disruption in the financial system. As such, it is

important for financial innovation to stick to Shariah objectives and to always adhere to

Shariah principles. In this way, Shariah-based innovations can contribute to the creation

of Islamic financial products that have different values with internal strengths that based

the essential characteristics of Shariah.

5.1.4 Academicians and Islamic scholars

As is well known, the role of Islamic scholars is essential in ensuring compliance

with Islamic financial products and services to the Shariah principles outlined by the

Qur'an and the Sunnah and developed by earlier Islamic scholars. This role is becoming

more important as Islamic scholars and scholars called Shariah Advisors are given the

trust to help shape new products to be more innovative and comparable to conventional

products. In fact, it is not too much to say that the Muslim community also expects

Shariah Advisors in Islamic financial institutions to be "custodians" of Islamic financial

benefits to all, namely customers, management, supervisors and the general public. These

three roles must run concurrently to maximize the "good value" of Islamic finance to the

industry and the nation as a whole.

Organizing the Muzakarah of Islamic Financial Industry Shariah Advisory

Members in Malaysia by JAKIM which brings together policy makers, syariah financial

experts and practitioners of the Islamic financial industry is one of the platforms to digest

and coordinate current issues relating to Islamic finance towards the pursuit of sound

results and complete for application by the Islamic finance industry. The scholars and

academicians will review and reassess things that have widespread dissent in order to

achieve a better solution. In addition, the Malaysian Islamic Training Institute (ILIM)

has offered various training programs in Islamic finance, while ILIM is currently working

on the Muamalat High Certificate Module involving experts from IPTA and ISRA.
5.1.5 Mass media and campaign

Under the capacity of JAKIM as a coordinating religious agency at the central

level, JAKIM also plays a role of disseminating information on Islamic financial and

banking systems through awareness campaigns and seminars to all levels of society

whether government employees or the public to provide clear understanding to the

community about the importance of practicing and supporting the Islamic financial

system that has been established for over 25 years in the country. The dissemination of

this information and information has been expanded through various media and outreach

such as through the JAKIM e-Muamalat Portal and the publication of scientific papers

such as the JAKIM Muamalat Journal, Muamalat Glossary Association and the National

Fatwa Committee Decision on the Issues of Muamalat Issues.

In addition, the Securities Commission (SC) also should organize many seminars

and conferences for capital market professionals and the public to channel the latest

information to participants on various issues with ICM. For instance, a seminar on ICM

held at the Academy Islamic Studies University of Malaya Nilam Puri, Kota Bharu and

Islamic Bond Colloquium held in Kuala Lumpur are some of the best example of seminar

in encouraging people to join ICM.

5.2 Suggestion

5.2.1 Sukuk issued based on Ijarah principle

If the sukuk is issued based on the Ijarah principle and applies the property as its

underlying asset, the actual rate of tenancy should be examined for use to determine the

rate of return on the instrument. It will then fluctuate depending on the demand and

supply for the property and gives a true picture of the price of the underlying asset.

Therefore, full support should be given to international standard setting organizations

such as the Islamic Financial Services Board and the Accounting and Auditing

Organization for Islamic Financial Institutions to provide appropriate standards that will

strengthen the Islamic financial system.

5.2.2 The ICM should participate actively in the global sukuk market

The ICM across the globe should endeavor to participate actively in the global

sukuk market which is presently being led by ICM in Malaysia, Saudi Arabia, United

Arab Emirate, Qatar and Turkey. All the ethical standards and Shariah guiding principles

must be duly observed in structuring the sukuk and other products in the ICM. While

benchmarking and learning from the experience of the conventional bond market, rules

and procedures should not be blindly adopted because the basic principles of the two

markets are not the same. Furthermore, participants in ICM Malaysia encouraged to

establish a synergistic relationship with the center International ICM, organizations and

financial institutions others to better prepare for the globalization market and

international competition. It aims to encourage the development of channels of

communication and exchange information, as well as promoting the active secondary

transactions for Islamic financial instruments.

5.2.3 Norms and ethics of ICM

Every transaction in the ICM should be guided by the norms of Islamic ethics as

prescribed by the Islamic legal system or the Shariah. While Islamic transactions must be

free and fair, this freedom is however not an unlimited one but constrained by the

provisions of Shariah which include prohibition of usury (riba), deception (gharar),

alcohol (khamr) and gambling (maysir) among others (Dusuki & Abozaid, 2008). There

is provision for fairness in the ICM transactions and the like of which is not obtainable in

the other system. Therefore, the freedom obtainable within the framework of IFS is not

the same with its counterpart in the conventional system of financial transaction. In fact,

all the restrictions and constrains imposed by Shariah is meant to protect all the parties

involved in transaction and to provide a level playing ground for the market participants

as well (Dusuki, 2010). The justice and fairness is vital for the sustenance of the IFS and

ICM in particular. Hence, all the participants in the ICM are adequately protected and are

given their befitting rights and obligations (ISRA, 2011).

5.2.4 Islamic equity

Islamic equity-based contracts are usually structured based on Mudarabah and

Musharakah which should comply with the norms and ethics of Islamic contracts. One of

the important aspect is that the business must be a permissible or halal. Thus, Shariah-

compliant equity includes the equity of a company whose core line of business is wholly

halal. However, companies that have mixed income from both Shariah compliant and
non-Shariah compliant operations should be subjected to a screening process. It has been

argued that operating a corporation totally in line with Shariah requirements might not be

feasible. Hence, if the main line of business is halal, an insignificant proportion of non-

halal element will not invalidate the equity of such company (ISRA, 2011). So, a Shariah

stock selection criteria must been established to determine the benchmark of the non-

compliant element.
6.0 Conclusion

The Islamic capital market (ICM) is a component of the overall capital market which

plays an important role in generating economic growth for a country. A modern and efficient

capital market is the backbone of an economy. In most of the Muslim countries, ICM functions

as a parallel market to the conventional capital market and plays a complementary role to the

Islamic banking system in broadening and deepening the Islamic financial markets. Islamic

capital market is increasingly commanding global attention as a source of financing as well as

for investment activities that adhere to Shariah principle.

As an important component of Islamic Financial System (IFS), ICM has witnessed a

tremendous growth in the recent years. This is however not surprising given the progress posted

by IFS in general terms. Basically, Islamic equity and Sukuk together made up the commodities

being traded in the ICM. ICM is essential in ensuring efficient mobilization and allocation of

funds and their optimal utilization (Ali, 2008). It has been opined that Sukuk market is one of the

areas of ICM that continuous to catch the attention of stakeholders globally (Al-Bashir & Al-

Amine, 2008).

The principles of Islamic capital market has been highlighted and subsequently shows

that the market which is fast growing mainly due to Sukuk is having a lot of potentials that are

yet to be tapped. Sukuk can be structured in many ways that are shariah-compliant and stand as

a better alternative to the conventional bond which is contrary to the Islamic principles. In

structuring the various products of the ICM, there are a number of ethical norms enshrined in the

Islamic legal system that must be followed. For instance, while structuring sukuk, Shariah issues

must be meticulously observed.

 However, there are many issues and challenges are faced by ICM that can give the

negative impacts to Islamic financial management and country. Malaysian ICM has evolved not

only in terms of size and efficiency but more in terms of segments and the range of products

offered. Therefore, appropriate steps should be taken which is the responsible parties includes

government, NGO, society and mass media must give a full commitment to overcome this issue

through the issuances of recent innovative Sukuk, mostly based on Musharakah, Ijarah, Istisna

and Mudarabah principles to gain global acceptability.