Download Slide 1 - Arsip UII

Another dimension which has started to bring capital markets to
prominence in many countries is the increasing role of private capital
flows. The economic growth previously relied on domestic financial
sources of funding or foreign aid. This has changed with time, now private
capital flows from abroad have also become an important financial
contributing factor.2 The importance of capital markets in tapping domestic
as well as foreign financial resources have therefore increased manifold.
Businesses and governments needing to finance their operations through
Islamic modes cannot remain aloof to this development. Providing public
finance through market based instruments in Islamic system remains a
challenge for which well performing capital markets would be crucial.
The subject of development of Islamic capital markets is very broad. It can
include a variety of aspects such as: the state of regulatory system and
possible approaches for further development; market micro-structure and
practices; product range and product development; nature and preferences
of market players; identification and development of support institutions;
market performance evaluation; cost benefit analysis of market expansion
and integration; designing of incentive and corporate governance system;
evaluation of the nature and role of Islamic capital markets in the overall
Islamic financial system; and many other dimensions. The present study
attempts to discuss only a subset of these issues involved in development
of Islamic capital markets. Its primary focus is on products and product
development. More specifically, the equity and stable income products like
sukuk; and their implications for the future of capital market. When further
focus is needed we have relied on examples from four countries namely,
Bahrain, Malaysia, Pakistan, and Sudan.
The second section gives the landscape of capital markets. The third
section discusses at length the two types of capital market products,
equities in subsection-3.1 and sukuk in subsection-3.2 evaluating their
nature and market size. These subsections survey the existing state of the
two kinds of products, analyze their risks and risk mitigating potentials, as
well as suggest some new innovation possibilities. The subsection-3.3
discusses the issue of standardization of products and procedures and
proposes issuance of Islamic Depository Receipts which can help in
achieving the convergence across different jurisdictions. The fourth section
2
Just to give an example from Kruger (2003), the net capital inflows to emerging
markets were under US$48 billion in 1990 (about 0.8 per cent of their GDP).
These flows had reached US$212 billion by 1996 (i.e., about 3 per cent of their
GDP).
2