4. Development of Islamic Capital Market
The market development of Islamic capital market will require certain circumstance which is they will go beyond the conventional products and regulation philosophy as well as demand development and reformation in existing trading practices. Farhan Hameed in “Venture Capital Funds: A Venue for Growth of Islamic Capital Markets” argues that with Shari’ah constraints on Riba and asymmetric allocation of risk, that the venture capital offers mostly towards the growth of Islamic capital market.
The increased competition between Financial Centres has also contributed to the Islamic capital market development at international level. Most of the countries including OIC member countries, London and other offshore jurisdictions in non-OIC member countries are developing themselves as the centres of Islamic finance.
Nowadays, there are various products being offered to invest and transact in the Islamic capital market for the Muslims including Islamic unit trust, Shariah indices, call warrants and crude palm oil futures contract. As a result, the growth of the Islamic capital financial market had become the most fastest growing sector in the Islamic finance industry.
There are still a number of facts pertaining the growth of the Islamic capital market which can be comprised by two points;- the growth in Shariah-compliant funds and the growth in Shariah-compliant equity market.
The number and size of Shariah-compliant funds have increased from 13 in 1963 to 150 in 2000 and to over 400 by 2006 with more than $300 billion under management. The Islamic funds have grown at an approximate cumulative annual growth rate of 22 percent between 2000 and 2005.4 Year-to-year growth has also been explosive as can be observed by the number of new equity funds incepted each year. However, this also implies an average fund size of only about $0.75 billion. Moreover, the dispersion of funds by size is skewed towards the smaller fund sizes reflecting the various operational constraints and regional focus in marketing and deployment of these funds. In terms of distribution, by type, the Islamic funds are highly concentrated in equities and thinly spread over other asset classes.
Another measure of growth is to look at the size of Shariah-compliant stocks in total equity market. Uniformly applying the screening criteria of Dow Jones Islamic Market Index (DJIMI) to local stock markets of Bahrain, Malaysia and Pakistan (three IsDB member countries) a recent IRTI study (Ali, 2005) found that market capitalization of Shariah-compliant stocks was about US$104 billion in 2004. Assuming that these three countries constitute 30 percent of the stock capitalization in the IsDB- member countries, the Ten Year Framework and Strategies (TYF&S, 2006) document of IRTI estimates the capitalization of Shariah-compliant stocks in the member countries to exceed US$300 billion.
5. Example of Islamic Capital Market products -(I-REITs)