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 shariah-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 80s and most of the 90s, Islamic finance did not have much of this dynamism. On the asset side, 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 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 projected to increase from $15.5 billion to $53.8 billion by 2010. According to other reports, the assets have already reached $20 billion. 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.

Islamic Equity Funds are different from conventional equity funds because they select their placements on the basis of their compatibility with the shariah. 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 shariah 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 shariah 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 shariah-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 shariah requirements. At present, with more than seventy Islamic indexes (which include regional, country, industry, and market-cap-based indexes), it is one of the most comprehensive family 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 Shariah Supervisory Board, FTSE indexes are evaluated by Yasaar Research Inc. In 2006, Standard & Poor’s (S&P) introduced the S&P Shariah Indices, followed by, in 2007, the S&P GCC Shariah Indices and the S&P Pan Asia Shariah Indices. S&P has contracted with Ratings Intelligence Partners (RI) to provide the shariah screens and select the stocks based on these standards.

As reported by the Financial Times, these indexes do not enjoy complete acceptance by the 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 food as halal that has a small quantity of pork in it. The indexes maintain that their legitimacy comes from the concerned shariah authorities. In other words, as long as their shariah supervisors agree with these practices, the indexes need not change them.

The future of IEFs looks bright. However, Muslim scholars need to be careful while interpreting and applying the shariah. 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.

AT the penultimate moment, Gen (retd) Musharraf stepped down. It is true that he has spared us much agonising by doing so, but he could have spared us past, and continuing, agonies had he done so sooner and not resorted to the extra constitutional.

Should he be forgiven the unforgivable? Absolutely. Safety lies not in dragging him through the dust but in ensuring we are not sometime later hailing yet another COAS for rescuing us from the misused powers of elected representatives.

For the Zardari Bhuttos and their party, democracy may be the best revenge. Pakistan’s citizens want democracy to be a vindication: of itself. That is why the restoration of a superior judiciary that was punished for true independence and safeguarding the common weal is crucial.

Some in the new government argue that nothing speaks louder than an empty stomach. Absolutely. But would a restoration of the deposed judiciary or publicly sustaining that demand till it is met come in the way of dealing with the problems of inflation and administrative mismanagement?

The correct answer is that keeping that on the backburner rather provides due cause for agitation. The administration’s inhibitions and constraints in dealing with the economic crisis and terrorism are not to be laid at the doors of the lawyers’ movement or the PML-N coalition partner’s misguided obstinacy about the issue. In any case a government has to be capable of multi-tasking!

Conventional wisdom also has it that preserving the coalition is of the essence. Why? Plurality, dissent, a shadow government and opposition are much more conducive to and characteristic of healthy democratic governance. Or is the new government scared of coming out of the protective shadow of emergency situations in the Pakistan first idiom?

Keeping the coalition going must not serve as a pretext for government camouflaging of a status quo. What matters is that party politics and opposition not be vested in a desire to dislodge in order to grab the kursi and the keys to the national exchequer.

True, maintaining public order can become problematic and confusion is the right climate for terrorists. But civil protest and activism are sent to sacrifice at the altar of law and order only by dictators and fascists. The last incidentally also like to preserve demos of people and street power as their party’s monopoly.

It is worth thinking about the public display that followed Gen (retd) Musharraf’s announcement. The guard of honour offered to an outgoing and admittedly disgraced president may prove less disquieting in terms of our democratic future than the insensate firing at Bilawal House, Karachi, indulgently watched by the police and where the chief minister, a veteran of Chairman Bilawal Bhutto Zardari’s party, could not or would not be heard amid ‘party’ enthusiasts.

Perhaps the first lesson we need in our new democratic primer is revision of the fact that we have all made the same mistakes at least twice. We the public too have distributed mithai with equally misplaced enthusiasm and unbecoming indignity at every leader’s fall from power.

The president whose exit occasioned such ugly gloating was the very same man whose intrusion into civil politics was popularly hailed — such had been the PML-N’s utilisation of its heavy mandate. Leaders and functionaries of the coalition please note.