Islamic Capital Market - Universiti Tunku Abdul Rahman

33 Pages·2011·0.68 MB·English

Islamic Capital Market
ICM04-Islamic Structured Products
Khairuddin Zakaria
B.Sc.Eng, MBA, CIFP, RFP
Outline
• What is Structured Product?
• What is Islamic Structured Product?
• Capital Protection and Structured Products
– CASE1: Alternatives Islamic Capital Protected
Products
• Derivatives and Structured Products
– CASE2: Alternatives Islamic Derivatives Products
• CASE 3-Islamic Structured Products
• Challenges for Islamic Structured Products
What is Structured Product
• generally a pre-packaged investment
strategy which is based on derivatives (ie.
options etc) but which features
protection of principal
What is Structured Product
• The two common elements in a Structured Product
are:
– 1. A bond product or another element of capital
safeguard.
– 2. An alpha generator – which is any financial instrument
(i.e. a stock, currency, etc.)
• For example, an investor invests 10,000 ringgits, the
issuer simply invests in a risk free bond which has
sufficient interest to grow to RM10,000 after the 5
year period. For example, this bond might cost
RM8,000 today and after 5 years it will grow to
RM10,000. With the leftover funds the issuer invest in
special derivatives needed to perform whatever the
investment strategy is.
What is Islamic Structured
Product
• Generally, it is Structured Product which
is classified as a Shariah-compliant
instrument.
• It uses some of below approved
contracts:
– Murabahah
– Tawarruq
– Urbun, etc.
Capital Protection and
Structured Products
• Capital protection is possible in
conventional by finance through such
below investment instruments:
– Fixed income securities such as bonds and
bils, etc.
– Preference shares
• Is this possible to have from Islamic
perspective?
CASE1: Alternatives Islamic
Capital Protected Products
• Currently the main instruments used to
simulate similar features of conventional
capital protected instruments will involve
below:
– Bai Inah
– Bai Tawarruq
– Waad
CASE1: Alternatives Islamic Capital
Protected Products: Inah
• Bai Inah
– Two sales contracts concluded separately
– Underlying asset finds its way back to
original seller
– Difference in payment mode and time
between those two concluded contracts
CASE1: Capital Protection and Structured
Products: Tawarruq
• Bai Tawarruq
– Similar to Inah with major differences are:
• Asset does not return to original seller
• Involves more than two parties
COMPARISONS (Taw vs. ‘Inah)
DISTINGUISHING
NO. AL-‘INAH AL-TAWARRUQ
FACTORS
Purchase of a
Buying a commodity for
commodity on differed
a deferred payment and
payment basis and it is
selling it to another
1. Concept then sold for cash, at a
person other than initial
price lower than the
seller at a lower price
purchase price, back to
for immediate payment.
the original seller.
To facilitate cash and To facilitate cash and
2. Purpose
liquidity shortage. liquidity shortage.
Three parties (at least)
Two parties involve for
3. Parties involve for two transactions
two transactions.
(at least).
Return back to the Transferred and
4. Subject Matter
original seller. possessed by third party.
• Both Inah and Tawarruq have different level of acceptance
• Some consider as valid and some otherwise. Why?