In the name of Allah, the Beneficent the Merciful

1. In the name of Allah, the Beneficent the Merciful “Dow Jones Islamic Market Index” Presented By: Ahmad Wais Shujja Ashtar Hussain Jan

2. Contents • Stock and the stock market • Why the need for Islamic Index? • Dow Jones Islamic Market Index • Islamic Filters • Performance • References

3. Stock and The Stock Market The Stock is a security that represents a share of ownership in a corporation. (Frederic C. Mishkin & Stanley G. Fakins, March 18, 2005, p. 5), while the stock market is a primarily a virtual exchange of securities__shares and debentures, which companies use as a means of raising finance__and derivatives__virtual instruments such as contracts that relate to assets and securities and can be traded. (http://www.independentinvestor.co.uk/share-dealing/what-is-stock-market.html)

4. Why the need for Islamic Index? • Islam is a modus vivendi– a lifestyle (G. Forte and F. Miglietta, 2007) • Balanced approach of Islam which contains guidance in every sphere of life. • Interest (Riba), gambling (Qimar), uncertainty (Gharar)__wealth in the hands of few in the conventional economic system, which are prohibited in Islam (Usmani, April, 2011) • The guidelines of Islamic investments are based on tawhid – a total adherence to the willing of God – revealed to the world by the words of the Prophet Mohammed • Islamic economy is founded on Shari’ah: it does not deny profit, private ownership and market forces, but they are not given total freedom and must be reached in accordance with the divine prescriptions (G. Forte and F. Miglietta, 2007)

5. Cont.. • Over the last few decades, the Muslims have been trying to restructure their lives on the basis of Islamic principles (Usmani, April, 2011) • Until 1970s, no stock market investments due to Islamic prohibition of certain business activities • In the 1990s, a major breakthrough took place in religious rulings related to equity investment • FTSE Global Islamic Index Series (GIIS) at the end of 1998, as a result of the increasing demand for Islamic equity investment

6. Dow Jones Islamic Market Index A. Rushdi Siddiqui, Director of the Islamic Index Group at Dow Jones Indexes has stated, 'Our goal is to offer the Islamic investment community additional regional and sector indexes that provide them the same kind of choices presently available to non-Islamic investors’ (Haroon, 1999)

7. Cont.. • February 1999, the first Dow Jones Islamic market index (DJIMI), an Islamic equity benchmark index was launched from 34 countries and covers 10 economic sectors, 18 market sectors, 51 industry groups and 89 subgroups (Hussein), in Manama, Bahrain (Haroon, 1999) • Monitored by a supervisory board of Islamic scholars⃰ • Based on December 31, 1995, at base value 1000. • Reviewed quarterly, with component changes implemented on the third Friday of March, June, September and December assures that the index reflects the latest trends and developments in the global stock market.

8. Islamic Filters (screens for business activities andfinancial ratios) Stocks of companies whose primary business is in areas not suitable for Islamic investment purposes__ alcohol, pork related products, conventional financial services (banking, insurance, etc.), entertainment (casinos/gambling, pornography, music, etc.), tobacco and defense/weapons are excluded from the Dow Jones Islamic Market Index.

9. Cont.. • After removing companies with unacceptable primary business activities, the remaining universe is tested by three financial-ratio 'filters‘: 1. The ratio of “Total Debt to Total Assets ≥ 33%” (Total Debt = Short-Term Debt + current portion of Long-Term Debt + Long-Term Debt ) 2. The ratio of “Accounts Receivables to Total Assets ≥ 45%” (Accounts Receivables = Current receivables + Long-Term Receivables) 3. Companies of which “the sum of cash and interest bearing securities exceeds 33%” Companies that pass these criteria are included in the DJIMI investable universe (Hussein, Islamic Investment: Evidence From Dow Jones and FTSE indices)

10. Performance • DJIMI vs. Wilshire 5000 Index (W5000) • Approximately 75% of the companies fail to meet the Islamic criteria • 700 companies in the DJIMI • Restrictions vs. Performance • Restriction vs. Diversification__risk and return

11. Cont.. 1. (Sam Hakim and Manochehr Rashidian) has found out that: • The filtering criteria have not adversely affected the performance of the Islamic index in relation to the broad equity market • The Islamic index is influenced by factors independent from the broad market or interest rates • The risk per unit of return on the broader Wilshire 5000 index is markedly higher than on the Islamic index • The investors in the DJIMI have been relatively more immune from the turmoil in the equity markets.

12. cont.. 2. To introduce morals, religion and conscience into investments is a challenging task and a difficult problem to overcome. (G. Forte and F. Miglietta, 2007) has mentioned that: The investors entering the Shari’ah compliant investments are increasing about 12-15% per year

13. Cont.. 3. According to (Hussein, Islamic Investment: Evidence From Dow Jones and FTSE indices) the application of shari’ah screens does not have an adverse impact on the Islamic indices performance

14. Scholars⃰ • Members of the DJIMI Shari`ah Supervisory Board • Shaykh Nizam Yaquby, Bahrain • Shaykh Dr. Mohd Daud Bakar, Malaysia • Shaykh Justice Muhammad Taqi Usmani, Pakistan • Shaykh Dr. Mohamed A. Elgari, Saudi Arabia • Shaykh Abdul Sattar Abu Ghuddah, Syria • Shaykh Yusuf Talal DeLorenzo, United States (Guide to the Dow Jones Islamic Market Indices, 2003)

15. References • Frederic C. Mishkin & Stanley G. Fakins. (March 18, 2005). Financial Markets and Institutions (5th ed.). Boston, Massachusetts: Addison Wesley. • G. Forte and F. Miglietta. (2007, August). Retrieved October 24, 2011, from http://www.failaka.com/downloads/Forte&Miglietta_SocialResp.pdf: www.failaka.com • G. Forte and F. Miglietta. (2007). Islamic mutual funds as faith-based funds in a socially responsible context. • (2003). Guide to the Dow Jones Islamic Market Indices. • Haroon, S. Y. (1999). Islamic Finance. Retrieved October 24, 2011, from http://www.islamic-finance.com/item21_f.htm: www.islamic-finance.com

16. Cont.. • http://www.independentinvestor.co.uk/share-dealing/what-is-stock-market.html. (n.d.). Retrieved from /www.independentinvestor.co.uk. • http://www.independentinvestor.co.uk/share-dealing/what-is-stock-market.html. (n.d.). Retrieved October 24, 2011, from Independent Investor: www.independentinvestor.co.uk • Hussein, K. A. (n.d.). Islamic Investment: Evidence From Dow Jones and FTSE indices. • Hussein, K. A. Islamic Investment: Evidence From Dow Jones and FTSE Indices. • Sam Hakim and Manochehr Rashidian. (n.d.). Risk & Return of Islamic Stock Market Indexes. • Usmani, M. M. (April, 2011). An Introduction to Islamic Finance. Karachi, Sindh, Pakistan: MaktabaMa'ariful Qur'an.

17. Thank you very much. Questions are welcome Because questions are guaranteed in life, answers are not!