Islamic Sharia-based firms on the rise worldwide

KUWAIT CITY (KUNA):

 

 Companies that follow Islamic Sharia (Islamic Law), in their transactions are slowly becoming the focus of portfolio and investment fund managers, as well as small investors. This is due to the fact that these companies have been able to challenge other traditional companies as well as being able to compete with their other Sharia-following counterparts. Companies that work in accordance with Islamic Sharia use the Islamic Law in their everyday transactions, and must contain a special Sharia Supervisory Board as part of an Administrative Structure, with the chief function of monitoring corporate financial statements. Functionality of these corporations must be based on criteria related to their financial statements and must be, most importantly “Halal”, which means permitted for the use of Muslims.

Companies should prevent methods of financial dealing that are forbidden to the Islamic religion, especially usury, which is the lending of money on interest-based profit, as well as the dealing of items prohibited by Islam like alcoholic beverages, pork, gambling activities, etc.
The debt-to-income ratio (DTI) for these companies should not exceed 30 percent of the value of assets, the liquidity ratio should exceed 40 percent of their bank balance and debts, and the bank deposits revenue should not exceed five percent of the total revenues. Therein lies the feasibility of investment with these corporations which prohibit loans more than one third of their capital, which attributes the fact that these loans increase the burden of finance as well as their Cash And Cash Equivalents (CCE) and if exceeding 40 percent, could most likely face a problem in the exploitation of cash surpluses.

The non-exceeding five percent revenues on the bank statement reserve unused cash, are updated on a quarterly basis, taking into account these companies are in full working order and are functioning in a professional manner. These strict debt and lending measures, as well as the increasing number of Sharia-compatible companies around the world, make them the target they are today, adding to their growth regionally and internationally. The risks of investing in Sharia-compatible companies are those commonly associated with investment in traditional companies, in addition to geographical risks that are subject to market fluctuations.

That is why it is important for investors in Sharia-based corporations, to reallocate their assets to stable markets that guarantee steady investment. Market-analyzers across the Gulf Cooperation Council (GCC) states have grown to regard investment with these companies as a bonus, especially amongst increasing trade with their traditional counterparts. This has led to a huge rise in the number of stocks from Sharia-compatible companies in GCC stock markets. The Kuwaiti Stock Exchange recorded 90 out of 195 listed Sharia-compatible companies, which means 46 percent of all listed companies in Kuwait. It seems as if the future is heading towards a rise in the number of these Islamic institutions which have in-turn, led many traditional investment companies, to transform into Islamic firms.

http://www.arabtimesonline.com/kuwaitnews/pagesdetails.asp?nid=17444&ccid=12

 

 

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