The Dubai Financial Market (DFM) will move to Business Bay in 2009 from its current location at the Dubai World Trade Centre.
The Dubai Financial Market yesterday announced that it has commenced the process of converting itself into the first international Islamic stock market.
A Sharia committee recently issued a fatwa approving this step and stating that DFM is Sharia-compliant.
The vital decision made by DFM aims at attracting a wide spectrum of local and international companies that would like to be listed on a Sharia compliant stock market.
The revenues generated from trading fees will be bifurcated into conventional and Sharia compliant income. DFM will maintain two separate books of accounts for each type of revenue and will share the details with investors on a regular basis to maintain its perpetual policy of transparency. « The decision made by the DFM board to be the first international Islamic stock market comes in response to demand from local, regional and international companies that would like to be traded on a fully Shariacompliant stock market, » Eisa Kazim, director-general of DFM, said in a statement.
« The fact that 98 per cent of DFM’s revenues generated from trading fees accrue from companies that are Sharia compliant and only two per cent from conventional companies made the process of conversion much smoother. In addition, DFM’s excess liquidity was always channelled into Sharia compliant investments.
« The Sharia compliance is a result of pent up demand for Islamic products and services worldwide, and is in sync with Dubai’s pole position as the Islamic financial hub of the world, » Kazim said.
Gulf News 08/11/2006
Commentary on Dubai Financial Market DFM Islamic conversion from DIB VP – Gulf News 02/12/2006
How can a bourse be transformed into an Islamic organisation? What about the trading of shares from activities considered Sharia-repugnant, such as conventional banks, insurance companies, hotels, etc? Will DFM henceforth only allow Sharia-compliant shares to be traded on its platform?
Having taken part in the conversion process under the guidance of chairman Sharia Board of the Islamic bank I work for, I would endeavour to respond to the above questions.
The process began by identifying the short-term and medium-term objectives. The purpose of short-term objectives was to enable the entity to declare itself as an Islamic entity for the IPO.
Review of the objectives laid out in DFM’s proposed memorandum and articles of association necessitated the addition of provisions relating to its activities to remain within Sharia boundaries. Company’s prospectus was also amended on the same lines.
Latest audited financials and management accounts of the company were analysed and found to be within the financial covenants relating to equity acquisition set by the Sharia Board of the Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI).
The most important aspect in the conversion process was to provide DFM with a mechanism to allow the non-Sharia-compliant shares to continue to be traded on its platform.
According to an analysis, DFM earned over 98 per cent of its income in the current fiscal year by trading in Sharia compliant shares. That leaves it with less than two per cent income earned from trading of shares not considered Sharia-compliant.
As such stocks are already listed on DFM and there is no other channel for them to be listed, scholars have asked the DFM to donate such income amounts to charity.
Such a purging mechanism is called « Tazkiya » or purification in Sharia terminology and is an important process for DFM to remain an Islamic market.
The writer is VP and Head, Sharia Structuring, Documentation and Product Development, Dubai Islamic Bank.