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Islamic Market indices promoting Shariah-compliant funds globally.

Better returning funds are those that invest in most productive firms after transparent evaluation processes. Muslims who wish to have their funds professionally managed, taking care of their religious values, have the opportunity to make their investments in Islamic funds. Islamic investment funds invest in products and companies that are acceptable to Islamic faith.

The development of financial centers in Asia and the Middle East has given rise to growth of Islamic investment funds. High potential markets include Saudi Arabia, Malaysia, Qatar, Pakistan, Turkey and Indonesia. Instruments that were previously off limits to the Islamic investor, such as the international bond markets, have been developed (as Sukuks) to serve the investment industry. The last decade has seen high growth of Islamic funds all across the globe. While the latent demand was always there and awareness was rising, Islamic indices have played a major role in promoting growth. In recognition of increasing interest of Shariah-compliant investors in diversifying and tapping the growth opportunities, the world's first Islamic index was introduced by Dow Jones in February 1999. This index and a number of others serve as a benchmark for Shariah-compliant funds and pave the way for their growth.

Dow Jones Islamic Market[TM] Index

The Dow Jones Islamic Market[TM] Index family includes broad-market, blue-chip, fixed-income and strategy and thematic indices that have passed rules-based screens for Shariah compliance. The Dow Jones Islamic Market[TM] indices are weighted by free-float market capitalization, rather than full market capitalization, to reflect the actual number of shares available to investors. Companies must meet Shariah requirements for acceptable products, business activities, debt levels, and interest income and expenses. The screening methodology is subject to input from an independent Shariah supervisory board. To determine their eligibility for the Dow Jones Islamic Market[TM] Indices, stocks are screened to ensure that each meets the standards set out in the published methodology.

Industry Screens

- Alcohol

- Pork-related products

- Conventional financial services

- Entertainment

- Tobacco

- Weapons and defense

Financial Ratio Screens

All of the following must be less than 33%:

- Total debt divided by trailing 24-month average market capitalization

- The sum of a company's cash and interest-bearing securities divided by trailing 24-month average market capitalization

- Accounts receivables divided by trailing 24-month average market capitalization

FTSE Global Islamic Index Series

The FTSE Group has developed a range of Shariah-compliant indices designed to meet the requirements of Islamic investors globally. The FTSE Global Islamic Index Series (GIS) are equity benchmark indices designed to track the performance of leading publicly traded companies whose activities are consistent with Islamic Sharia law. The index series is calculated by FTSE and designed for those who wish to invest according Islamic investment guidelines. In essence, it is an indicator of the performance of global stocks that are available to an Islamic investor.

S&P Shariah Indices

In 2006, Standard & Poor's introduced the S&P Shariah Indices. The S&P Global Shariah Indices comprise developed and emerging market indices that cover a wide range of regions, countries, sectors, size ranges, and themes. Standard & Poor's initially applied Sharjah screens to three headline indices--the S&P 500, the S&P Europe 350 and the S&P Japan 500. The results are the S&P 500 Sharjah, the S&P Europe 350 Shariah and the S&P Japan 500 Shariah indices. Standard & Poor's has contracted with Ratings Intelligence Partners (RI) to provide the Shariah screens and filter the stocks based on these screens. Ratings Intelligence Partners is a London/Kuwait-based consulting company specializing in solutions for the global Islamic investment market.

MSCP Global Islamic Indices

The MSCI Global Islamic Indices are derived from MSCI's country indices, and are a family of benchmark indices reflecting Sharia investment principles. They cover over 70 developed, emerging and frontier market countries. Like Dow Jones, the MSCI Islamic indices also apply two key sets of criteria i.e. business activities and financial ratio.

Local Indices

Several markets have their own local Islamic indices e.g. KMI-30 Index in Pakistan which contribute to the growth of Islamic funds by providing benchmarking. Local markets also benefit from country specific indices like Dow Jones' or MSCI.

Islamic finance has shown resilience at a time when global recovery has slowed and conventional banking in Western countries has remained under pressure. One of the major issues faced by the Islamic funds industry is the lack of knowledge and understanding of its functioning. There is still a great need to create awareness about market Islamic products and to differentiate them from other conventional counterparts. By screening stocks for consistency with Shariah law, the indices help to reduce research costs and compliance concerns investors would otherwise face in constructing Islamic investment portfolios.

Year-on-Year Performance--Total Return (USD)

Index % (USD)             2008  2009   2010   2011   2012

FTSE Sharjah All-World     -38  36.2   13.1     -6   13.4

FTSE Shariah Developed   -35.2    31   12.6   -4.1   13.3

FTSE Shariah Emerging    -54.4  79.6     17  -18.6   14.2

FTSE All-World           -4.18  36.2   13.2   -7.3   17.1

Source: FTSE Factsheet

            S&P Global        S&P       S&P        S&P  S&P BRIC
                   BMI  Developed  Emerging   Frontier   Shariah
               Shariah        BMI       BMI        BMI
                          Shariah   Shariah    Shariah

Number of        3,267      2,445       822        145        30

Number of           44         24        20         32         3

Adjusted     15,792,68  14,477,51  1,315,16      60.71    374.37
Market Cap

             S&P 500

Number of        224

Number of          1

Adjusted    7,598,82
Market Cap

S&P Global Shariah Index Series Factsheet, March 29, 2013
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Comment:Islamic Market indices promoting Shariah-compliant funds globally.(SHARIAH COMPLIANT PRODUCT / FUNDS MARKET)
Publication:Economic Review
Article Type:Statistical data
Geographic Code:9PAKI
Date:Jun 1, 2013
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