ISLAMIC finance signifies financial services, mechanisms, practices, transactions and instruments that comply with provisions given in the fundamental Islamic texts. Thus, Islamic finance not only includes banking, but also capital formation, capital markets and all types of financial intermediation.

In recent years, Islamic finance has not only increased in size. It has also become complex as finance professionals compete furiously to produce new Sharia-compliant transactions and instruments. Becoming a segment within the global financial market, it has gained considerable interest as an alternative model of financial intermediation.

However, in the 1980s and most of the 1990s, Islamic finance did not have much of this dynamism. On the asset side, the activities of Islamic financial institutions mainly involved ijara, mudaraba and musharaka. The need for liquidity, portfolio and risk management tools, and derivative instruments was strongly felt, and there were numerous calls for the promotion of financial engineering and the introduction of new products.

Along with other developments, this resulted in the introduction of Islamic equity funds (IEFs). Overall, IEFs have been the most popular among all Islamic investment funds. According to FTSE, IEF assets are forecasted to increase from $15.5bn to $53.8bn by 2010. According to other reports, the assets have already reached $20bn.

The industry is dominated by Saudi Arabian funds and fund managers, accounting for more than 70 funds out of about 300 IEFs globally. In fact, Saudi British Bank’s Amanah GCC Equity Fund was reported as the best performing Islamic equity fund in 2007. On the other hand, Bahrain is becoming the centre for IEF registrations because of the kingdom’s efficient regulatory system. International investment firms with Islamic divisions are focusing on Dubai.

IEFs are different from conventional equity funds because they select their placements on the basis of their compatibility with the Sharia. In order for a stock to be considered Sharia-approved, it must satisfy certain requirements set by Islamic scholars. These standards may differ in different jurisdictions depending upon how strictly the Sharia is interpreted.

However, the basic condition is the same throughout the Muslim world: an enterprise must not conduct business activities prohibited by Islamic texts. These include gambling, alcohol, pornography, etc. Financial ratios (debt-to-equity ratio, cash and interest-bearing securities-to-equity ratio and cash-to-asset ratio) and cleansing mechanisms (to purify investments that are tainted by forbidden activities) are also used by various Sharia boards and authorities.

It must be mentioned that a country may or may not have a national screening body. For instance, in Malaysia, it is done by the Securities Commission; whereas in the Middle East financial institutions prepare their own list of Sharia-approved stocks.

One of the factors that gave an immense boost to IEFs was the introduction of the Dow Jones Islamic Market Index (DJIM) in 1999 as a subset of Dow Jones Global Indexes (DJGI). DJIM Indexes intend to measure investable equities that fulfil Sharia requirements. At present, with more than 70 Islamic indexes (which include regional, country, industry and market-cap-based indexes), it is one of the most comprehensive families of Islamic market indexes.

Other conventional index providers have also entered the field. In 2000, FTSE launched the FTSE Global Islamic Index. Unlike Dow Jones that has an independent Sharia Supervisory Board, FTSE indexes are evaluated by Yasaar Research Inc. In 2006, Standard & Poor’s (S&P) introduced the S&P Sharia Indices, followed by in 2007 the S&P GCC Sharia Indices and the S&P Pan Asia Sharia Indices. S&P has contracted with Ratings Intelligence Partners (RI) to provide the Sharia screens and select the stocks based on these standards.

As reported by the Financial Times, these indexes do not enjoy complete acceptance by Muslims. The screening principle allowing total debt ratios of up to 33 per cent is considered objectionable by some scholars. They claim that it is akin to declaring a kind of food that has a small quantity of pork in it as halal. The indexes maintain that their legitimacy comes from the concerned Sharia authorities. In other words, as long as their Sharia supervisors agree with these practices, the indexes need not change them.

The future of IEFs does not look gloomy at all. However, Muslim scholars need to be careful while interpreting and applying the Sharia. They need to make sure that Islamic principles are properly observed and that they don’t present or accept an un-Islamic idea as Islamic just because there is more profit in it.

THE outcome of six grim days of bloodshed in the Caucasus has triggered an outpouring of the most nauseating hypocrisy from western politicians and their captive media. As talking heads thundered against Russian imperialism and brutal disproportionality, US Vice-President Dick Cheney, faithfully echoed by Britain’s Gordon Brown, declared that “Russian aggression must not go unanswered”.

Could these by any chance be the leaders of the same governments that in 2003 invaded and occupied — along with Georgia, as luck would have it — the sovereign state of Iraq on a false pretext at the cost of hundreds of thousands of lives?You’d be hard put to recall after all the fury over Russian aggression that it was actually Georgia that began the war last week with an all-out attack on South Ossetia to “restore constitutional order” — in other words, rule over an area it has never controlled since the collapse of the Soviet Union. Nor have there been much more than the briefest references to the atrocities committed by Georgian forces against citizens it claims as its own in South Ossetia’s capital.

Might it be because Georgia is what Jim Murphy, Britain’s minister for Europe, called a “small beautiful democracy”. Well it’s certainly small and beautiful, but both the current president, Mikheil Saakashvili, and his predecessor came to power in western-backed coups, the most recent prettified as a ‘Rose revolution’.

Saakashvili was then initially rubber-stamped into office with 96 per cent of the vote before establishing what the International Crisis Group recently described as an “increasingly authoritarian” government.

The long-running dispute over South Ossetia — as well as Abkhazia, the other contested region of Georgia — is the inevitable consequence of the break-up of the Soviet Union. As in the case of Yugoslavia, minorities who were happy enough to live on either side of an internal boundary that made little difference to their lives feel quite differently when they find themselves on the wrong side of an international state border. Such problems would be hard enough to settle through negotiation in any circumstances. But add in the tireless US promotion of Georgia as a pro-western, anti-Russian forward base in the region, its efforts to bring Georgia into Nato, the routing of a key Caspian oil pipeline through its territory aimed at weakening Russia’s control of energy supplies and conflict was only a matter of time.

The CIA has in fact been closely involved in Georgia since the Soviet collapse. But under the Bush administration, Georgia has become a fully fledged US satellite.

But underlying the conflict of the past week has also been the Bush administration’s wider, explicit determination to enforce US global hegemony and prevent any regional challenge.

Over the past decade, Nato’s relentless eastward expansion has brought the western military alliance hard up against Russia’s borders and deep into former Soviet territory. American military bases have spread across eastern Europe and central Asia, as the US has helped install one anti-Russian client government after another through a series of colour-coded revolutions. Now the Bush administration is preparing to site a missile defence system in eastern Europe transparently targeted at Russia.

By any sensible reckoning, this is not a story of Russian aggression, but of US imperial expansion and ever tighter encirclement of Russia by a potentially hostile power. That a stronger Russia has now used the South Ossetian imbroglio to put a check on that expansion should hardly come as a surprise.

Despite Bush’s attempts to talk tough, the war has also exposed the limits of US power in the region. As long as Georgia proper’s independence is respected that should be no bad thing. Unipolar domination of the world has squeezed the space for genuine self-determination and the return of some counterweight has to be welcome. But the process of adjustment also brings huge dangers. If Georgia had been a member of Nato, the conflict would have risked a far sharper escalation.

— The Guardian, London