Risk Management in
Islamic Financial Instruments
6
that the products they purchase are Shariah compliant and do not violate any religious edicts.
While tools to identify Shariah compliant shares are available, they are restricted in use by
only a limited number of jurisdictions. Islamic rating agencies are another underdeveloped
area in Islamic finance. To compete with conventional securities products, Islamic securities
need to be evaluated by either an Islamic rating agency or an existing conventional rating
agency that is able to perform an Islamic rating assessment (10 Year Framework 43-44).
1.3.1 Islamic Indices
Since the launch of Islamic indices in 1999, Islamic indices have expanded across both regional
and economic geographies. Four major global Islamic indices providers are: 1) Dow Jones
Islamic Market Indices, 2) S&P Shari’ah Indices, 3) MSCI Global Islamic Indices, 4) FTSE Global
Islamic Indices. Following Table 1.2 summarizes the evolution of the Islamic indices and their
major focus areas.
Table 1.2: Islamic Indices Providers for Equity Markets
Dow Jones Islamic
Market Indices
(a) Country Indices
- track Sharī`ah -compliant securities in 69 countries across both developed and
emerging markets
- Example: DJIM Canada, DJIM China, DJIM Kuwait, DJIM U.K., etc.
(b) Global/Regional Indices
- include regional, industry sector and market capitalization indices, as well as
specialized indices and custom measures
- Example: DJIM Asia Pacific, DJIM GCC, DJIM Europe, DJIM Emerging Markets
(c) Strategy/Thematic Indices
- Example: DJIM BRC, DJIM Global Finance and Takāful.
S&P Sharī`ah
Indices
(a) Major Indices
- In 2006, S&P applied Sharī`ah screens to three major indices – the S&P 500, the S&P
Europe 350 and the S&P Japan 500
(b) Regional Indices
- In 2007, S&P followed with the S&P GCC Sharī`ah and the S&P Pan Asia Sharī`ah
Indices, to cater for the demand for Sharī`ah product benchmarks for those regions
- Other regional indices: Europe 350 Sharī`ah, Global BMI Sharī`ah, BRIC Sharī`ah.
(c) Global Indices
- In 2008, S&P reviewed S&P Global Broad Market Index (BMI) Equity Indices for
Sharī`ah compliance and created the S&P Global BMI Sharī`ah index that includes 6,000
companies in 10 sectors and 47 countries.
(d) Market Cap Indices
- Example: IFCI Large-Mid Cap Sharī`ah, 500 Sharī`ah, etc.
(e) Sector Indices
- Global Healthcare Sharī`ah , Global Property Sharī`ah, etc.
MSCI Global
Islamic Indices
MSCI began its Islamic indices series in 2007. Later, the indices were developed to cover
over 50 developed and emerging countries and over 50 regions such as the GCC
countries and Arabian markets