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Issues & Suggestions for OIC Shari’ah Compliant Indexes. Rushdi Siddiqui Global Director Dow Jones Islamic Market Index Group. Presentation Overview.

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Issues suggestions for oic shari ah compliant indexes

Issues & Suggestions for OIC Shari’ah Compliant Indexes

Rushdi Siddiqui

Global Director

Dow Jones Islamic Market Index Group

Presentation overview
Presentation Overview

  • Are the various Islamic Funds assisting and promoting OIC Countries economic and capital market development at:

  • Member Country Level

    • Intra-OIC Portfolio Investments

      • Liquidity on Stock Exchanges

    • Transparency & Governance Listed Firms

      • Deyaar, Tamweel, Nakheel, etc.

  • Regional/OIC Level

    • Viewed as a common market

  • OIC Global Level

    • Foundational, not Transactional, Infrastructure Paradigm

Dow jones indexes timeline key dates
Dow Jones Indexes Timeline: Key Dates

  • 10/6/97-Cash options on DJIA begin trading on CBOE

  • 2/26/98-Dow Jones STOXX Indexes launch

  • 2/5/99-Dow Jones-AIG Commodity Index launch

  • 2/9/99-Dow Jones Islamic Market Indexes launch

  • 7/14/99-Dow Jones Global Titans Index launch

  • 9/7/99-Dow Jones Sustainability Group Indexes launch

  • 2/14/00-Dow Jones U.S. Total Market Index launch

  • 2/18/03-Dow Jones Indexes Islamic Blue-Chip Indexes launch

  • 11/3/03-Dow Jones Select Dividend Index launch

  • 11/30/05-Dow Jones Wilshire U.S. Industry Indexes launch

  • 1/23/06-Dow Jones Islamic Market Sustainability Index launch

  • 3/6/06-Announced launch of Dow Jones Citigroup Sukuk Index

  • 5/31/06-Dow Jones Islamic market China Offshore Index launch

  • 6/7/06-Dow Jones BRIC 50 Index launch

Dow jones islamic market index awards
Dow Jones Islamic Market Index Awards

  • Best Shariah Compliant Index Provider (Global Finance Magazine, US, 2008)

  • Global Recognition in Islamic Finance for a Finance Institution (Dubai, IIFF 2008)

  • Best Islamic Index Provider (Euromoney, London, 2008)

  • Best Islamic Index Provider (Islamic Finance News, Malaysia, 2007)

  • Best Islamic Index Provider (Terrapin, Singapore)- 2007

  • Best Individual Contribution to Islamic Finance (Kuala Lumpur Islamic Finance Forum (KLIFF), Malaysia, 2007)

  • American Muslim Achievement Award, Islamic Center of Southern California, USA (2006)

  • Sh. Mohmmad Rashid Bin Makhtoum Award for Contribution by Western Institution to Islamic Finance (2006)

  • Contribution to Islamic Capital Market Development, International Islamic Finance Forum, Singapore, 2006.

  • Failka Award for Contribution & Development to Islamic Funds (2006)

  • Deloitte/KLIFF Award for Special Contribution to Islamic Finance (2005)

  • CERT (Malaysia) Award for Excellence in Islamic Finance (2004)

  • Sh. Mohmmad Rashid Bin Makhtoum Award for Innovation in Islamic Finance (2003)

Where are we coming from
Where are we coming from?


Structured Sukuk

Mega Project Finance

Mega Commercial Banks


Hard Asset Private Equity

Fund Management

Islamic Indexes

Market Exposure: 250m

Conversions, Islamic Windows & Subsidiaries of Mega Banks,

Establishment of significant Islamic Banks in Non-Muslim states

Muslim populated states getting interested Syria, Libya, Soviet bloc


Commercial Banking


Islamic Conglomerates

Market exposure: 100m

Concentrations of Islamic Banks growing in GCC, Malaysia, Pakistan and Bangladesh

Market exposure: 20m

Onset of Islamic Banks (Malaysia, UAE, etc.)

Inefficient Command SOEs in Iran and Sudan, and Pakistan

Source: S. Farooq, BIBF

Timeline 1975-2010



We are moving forward in if
We are moving forward in IF








-Petro-liquidity & HNWs


-Shariah Scholars/research

-Stress Tested/Time

-Cross Sell










300 plus years


Hypothetical islamic investor asset manager dilemma
Hypothetical “Islamic Investor & Asset Manager” Dilemma?

Increased Volatility:

Exclusion of prohibited industries that may be the current high-fliers

Exclusion of financial sector

Exclusion of highly leveraged firms

Exclusion of companies with high non-operating interest income

Bias: Technology, Healthcare & Energy

Quarterly Reviews (turnover)

First islamic funds
First Islamic Funds

Fund Name

Fund Manager



Dana Al-Aiman

Mara Unit Trust



Tabung Amanah Bakti

Tabung Amanah Bakti



Amana Income Fund

Saturna Capital



Mendaki Growth Fund

Mendaki Holdings Pte. Ltd.



Futuregrowth AlBaraka

Futuregrowth AlBaraka

South Africa


Al Rajhi Local Share

Al Rajhi Banking & Invest.

Saudi Arabia


AlAhli US Trading Equity

National Commercial Bank

Saudi Arabia


Source: Failaka

As regards equity funds

As regards Equity Funds Asia)

Total Number of Islamic Equity Funds: 306

Source: Failaka

Nearly full range of products
Nearly Full Range of Products Asia)

Fund categories

Global Equity 27 available

Asian Equity 7 by non-Asian based managers

US Equity 12 available

European Equity 7 available

Emerging Market 19 available (BRIC, South Africa, Turkey)‏

Single Country (SABB Amanah Saudi Equity)

Small Company (Al-Rajhi Global Small Cap Equity)

Regional Funds (45 funds dealing in GCC Equities)‏

Sector Funds 9 available

Balanced Easy to duplicate and 17 available

Hedge Fund 6-7 nearly there; 2 operational


Its all relative
Its all Relative Asia)

Total Mutual Funds in the World: 56,863

Total Islamic: 550

Total Islamic Equity: 320 (including balanced)‏

Total Socially Responsible (SRI): 201


Assets under management in perspective
Assets Under Management: In Perspective Asia)

Total Assets invested in Mutual Funds: US$ 17.8 Trillion

Total Assets in SRI Mutual Funds: US$ 179 Billion

Total Assets in Islamic Equity Funds: US $ 17.3 Billion (est.)‏


Djim screens
DJIM Screens Asia)

  • DJIM Shariah Supervisory Board v Outsourcing Shariah

  • Primary Business

    • Negative Screens ~ Socially Responsible Investing

    • Positive Screens: DJIM Sustainability Index

  • Revenue Accountability

  • Financial Screens

    • Debt/MC <33%

    • Cash + IBS/MC <33%

    • Acc Rec/MC <33%

  • Debt Screen Impact:

    • Enron (Deleted: 3Q’01), Worldcom (2Q’01), Tyco (1Q’02) & Global Crossings (2Q’01)

  • AAOIFI Standard (21): Product  Standard

    • DJ CitiGroup Sukuk Index: Standard  Product

  • Price Only, Market Cap & Free Float Weighted Indexes

    • Price, Equal, MC and Fundamental Indexes

  • Low Debt/Non-Financial Social-Ethical Index  Alpha Strategy

Screening process
Screening Process Asia)





Djim regional breakdown 2007
DJIM Regional Breakdown (2007) Asia)




Djim sector breakdown 2007
DJIM Sector Breakdown (2007) Asia)

Credit & Impact on Financial




Compliant sector based investing

Health Care Asia)



Cons Svcs

Oil & Gas


Cons Goods


Basic Matls


Compliant Sector Based Investing

Islamic Equity Indexes

Benchmark Indexes: Dow Jones Islamic Market Index ($17T)

Sector Indexes:

Industries (Broadest-Based)

Theme based investing
Theme Based Investing Asia)

Strategy and Theme Based Indexes

  • Dow Jones Sustainability Indexes

  • Based on the cooperation of Dow Jones Indexes and Zurich-based SAM, Dow Jones and Dow Jones STOXX Sustainability Indexes track the performance of the leading sustainability-driven companies.

  • The family includes global and regional indexes, and subindexes excluding alcohol, gambling, tobacco and/or armaments and firearms.

  • Dow Jones Islamic Market Sustainability Index

  • First indexes from major provider; widely accepted as the standard.

  • Measure companies that have been screened for compliance with Islamic principles based on financial ratios and industry.

  • Family includes 70+ indexes for countries, regions, sectors and cap ranges.

Islamic asset class expansion
Islamic Asset Class Expansion Asia)

  • Screening

  • Pricing

  • Data

  • Education & Awareness

    • Commodities

    • REITs

    • Hedge Funds

    • Portfolio Indexes

Islamic investing in oic countries
Islamic Investing in OIC Countries Asia)

  • Location Source of Funds

    • GCC

  • Location of Underlying Assets Invested

    • LME Murabaha

      • Palm Oil (Malaysia)

    • Equity

    • Real Estate

    • Commodities

    • PE/VC (ArCapita, etc.)

  • Absorption of Liquidity without Asset Inflation

  • Capital flight: How does it benefit Muslim Country?

Sector weighting breakdown q2 2008 what does this mean
Sector Weighting Breakdown (Q2 2008) Asia) What does this mean?

What does sector breakdown mean for an islamic oic index
What does Sector breakdown mean for an Islamic OIC Index? Asia)

  • Largest sector Eliminated

    • Conventional Financial

  • 2-3 Sectors more than 70% of Weighting

    • One Company Sector

  • Lack of Technology sector implies:

    • VC Industry/Angel Investing?

    • Innovation?

    • Equity Culture?

    • Knowledge Based Economies?

Muslim country islamic conventional index top 5 components weightings q1 2008
Muslim Country Islamic & Conventional Index Top 5 Components & Weightings (Q1 2008)





Muslim country islamic conventional index top 5 components weightings q1 20081
Muslim Country Islamic & Conventional Index Top 5 Components & Weightings (Q1 2008)





Muslim country islamic conventional index top 5 components weightings q1 20082
Muslim Country Islamic & Conventional Index Top 5 Components & Weightings (Q1 2008)






What does this sampling of top 5 weighting mean
What does this sampling of top 5 weighting mean? & Weightings (Q1 2008)

  • Conventional components from OIC

    • Comparable to non-OIC EM

      • Capping weightings

    • Financial sector available

    • Trading in top 20 companies

  • Shari’ah compliant components from OIC

    • Largest/liquid sector eliminated

      • Free Float

      • Illiquid Mid-Small caps available

      • No equity culture (debt screen)

    • Volatility

    • Established OIC v Emerging OIC

      • Malaysia, Turkey, Pakistan, Egypt, Saudi, UAE, Kuwait, etc.

      • Bangladesh, Nigeria, Jordan, etc.

Suggestions & Weightings (Q1 2008)

  • OIC Countries

    • Risk Mindset: Debt v. Equity Culture?

    • Habit Mindset: Depositors v. Investors?

      • Fraud on the Unsuspecting (Returns advertised)

    • Understanding Mindset: Real estate v. Other asset class comprehension?

  • Shariah Screening

    • Muslim owned companies

    • One methodology does not fit all geographies or asset classes

  • Consensus on Primary Business

Suggestion number 1 sukuk
Suggestion Number 1 ( & Weightings (Q1 2008)Sukuk):

  • Financial Screens

    • Conventional Debt

      • Reduction over a given time frame

        • Islamic Indexes v Funds: Selling no longer compliant companies

        • Conversions FIs to IFIs (Sharjah Islamic Bank)

        • Acquisitions (ADIB acquires Natl Bank of Development (Egypt))

      • Equitization of Balance Sheet via Sukuks & Equity Recapitalization

        • PLUS (Malaysia)  WIDER SHAREHOLDERS

  • Sukuks [financial incentive within time, Ex: IDB Incentive Fund]:

    • Primary & secondary mkt development

    • Sukuk Market Development

    • Yield curves for corporate tenors

    • Sukuk Trading & Investing vehicles

    • Expansion to other issuers

    • Cross Issuers & Buyers

Billion dollar watermark cross over
Billion Dollar Watermark Cross-Over & Weightings (Q1 2008)

Eurobond Market*

Sukuk profile


* Source: Frank J. Fabozzi,

Handbook of Fixed Income Securities, 1991

Suggestion number 2
Suggestion Number 2: & Weightings (Q1 2008)

  • Index for investable and tradable OIC countries

    • DJ OIC Index

    • DJ OIC Islamic Index

  • [Profile Indexes: DJIA, S&P 500, DJIM, MSCI EAFE, FTSE 100, Russell 2000, etc.)

  • Sub-Indexes

  • Transparency & Governance

  • Investable Products off of the Index

  • Intra-OIC Investments  Liquidity

  • Liquidity Encourages Listings (BB v FPI)

Suggestion number 3 complimenting comcec oic exchange cooperation oic vtp
Suggestion Number 3 (Complimenting COMCEC: OIC Exchange Cooperation OIC VTP)

  • Arab Stock Exchange?

  • Islamic Stock Exchange:

    • Location?

    • Deciding Compliance?

    • Listing of companies/products?

  • OIC VTP:

    • Neutrality

    • Gatekeeper of compliance?

    • Trading of companies & products

      • Funds Supermarket

    • Supported by financial information, news, analysis, PLUS:

      • Obligatory Information

    • Liquidity to traded company  Home country exchange

    • Proprietary Trading

    • Global Secondary Sukuk Trading Platform

    • Cross sell

Conclusion Cooperation

  • Suggesting a Path for Shariah compliance for OIC publicly listed Companies & Encourage Listings

    • Add Depth & Breadth

  • Encouraging Use of Sukuks

  • Developing an Equity/risk taking culture in OIC

  • Establishing an informed Global Portal for Intra-OIC Investment Opportunities for ALL investors

  • WinCountry OIC Level

  • WinRegional OIC level

  • Win  Global OIC Level