Definition of Sharia Capital Market According to Experts

Definition of Sharia Capital Market According to Experts


The term capital market is used as a translation of the word “stock market.”

Based on Law Number 8 of 1995 Concerning the Capital Market, it means that the capital market is defined as activities related to public offering and trading of securities issued, as well as institutions and professions related to securities.

According to the provisions of fiqh, the term capital can be interpreted as “Everything (ownership of assets) that is possible to produce other assets” (Syafei, 2004: 41).

According to Sofyan S. Harahap, capital market activities are related to securities trading that has been offered to the public, which will / has been issued by issuers in connection with investments in long or medium / long term investments, including derivative instruments.

Whereas what is meant by the Islamic capital market is a capital market that implements sharia principles. These principles include:

  • Prohibition of any transactions that contain elements of uncertainty.
  • The instruments or securities being traded must meet the halal criteria.

The definition of conventional capital markets is still general, because it has not touched on aspects of whether the form of transactions carried out or securities traded is halal or haram. To find out the essence of halal-haram, there is no other way except to return to the determination of sharia.

Activities in the Islamic capital market are related to trading securities (sharia securities) that have been offered to the public in the form of equity ownership or issuance of Islamic bonds. According to fatwa no. 40 / DSN-MUI / X / 2003, the meaning of sharia securities is the effects referred to in the laws and regulations in the capital market sector that the contract, the management of the company, as well as the way of issuance meet the sharia principles.

There is a fundamental difference between conventional capital markets and Islamic capital markets. The Islamic capital market is not familiar with trading activities such as short selling, buying or selling in a very short time to get a profit between the difference between selling and buying. Sharia shareholders are shareholders for a relatively long period of time.

This pattern of share ownership has a positive impact. The company will certainly get shareholders who are clearly more concerned and have a sense of ownership, this will be an effective control. The company and shareholders are partners who respect and remind each other, so that the communication between the two parties will meet in an effort to achieve good for both parties. The characteristics of ownership of sharia shares that only prioritize the achievement of profits to be shared or losses that will be shared (profit-loss sharing), will not create fluctuations in sharp and speculative trading activities.

Other fundamental differences between conventional capital markets and sharia capital markets can be seen in the instruments and transaction mechanisms, while the difference in the value of sharia stock indexes with conventional stock index values ​​lies in the criteria of issuer shares that must meet the basic principles of sharia.

Islamic Capital Market Instruments

Instruments traded in conventional capital markets are commercial debt and commercial paper such as shares, rights, warranties, options, and so on. Likewise what applies in the Islamic capital market, but the instrument has been adjusted to the principles of sharia, especially the principle of profit sharing.

Islamic capital market instruments are grouped into three categories, namely:

  1. Asset securitization which is evidence of participation, whether in the form of musharaka (management share). The participation of the community is that which represents fixed capital with management rights, oversees management and voting rights in making decisions. While mudharabah participation (participation share) is representing working capital with the rights to capital and finance, but without voting rights, supervisory rights or management rights.
  2. Debt securities (debt securisation) or the issuance of debt securities arising from a sale and purchase transaction or is a source of funding for the company.
  3. Capital securities, these securities are issuance of securities by listed companies that have been registered in the Islamic capital market in the form of shares. This capital security can also be carried out by companies whose shares are limited (nongo public) by issuing shares or buying shares.

In this connection, securities that are traded in the Islamic capital market only fulfill Islamic criteria such as Islamic stocks, Islamic bonds, and Islamic mutual funds. In addition, there are also Islamic capital market instruments with the principles of muqaradah / mudharab funds and muraqadhah / mudarabah bonds (muraqadah / mudharabah bonds).


Sharia Principles in the Sharia Capital Market

The purpose of sharia principles in the capital market are the principles of Islamic law in the activities of capital based on the fatwa of the National Sharia Council of the Indonesian Ulema Council (DSN-MUI), both the established DSN-MUI fatwa, and the DSN-MUI fatwa that have not been determined in Bapepam and LK regulations. In Chapter II article 2 of the National Sharia Council Fatwa No. 40 / DSN-MUI / X / 2003 Concerning Capital Markets and General Guidelines on the Application of Sharia Principles in the Capital Market Sector reads:

1) The Capital Market and all its mechanisms of activity, especially regarding Issuers, types of securities traded and trading mechanisms are deemed to be in accordance with Sharia if they have fulfilled Sharia principles.

2) An effect is deemed to have fulfilled Sharia Principles if it has obtained the Shariah Conformity Statement.

Funding and investment activities in the capital market in principle are activities carried out by the owner of the property (shabibul maal)

to the issuer (business owner), where the owner of the property expects to obtain certain benefits or benefits. Basically, investment activities in the capital market are the same as other investments, which prioritizes halal and fairness. But in broad outline, these principles can be described as follows:

1) Financing or investment can only be done on assets or business activities that are lawful, specific, and beneficial.

2) Because money is a tool for exchange of values, where the owner of the property will get a share of the results of these business activities

financing and investment must be in the same currency as the bookkeeping of business activities.

3) The contract between the owner of the property and the issuer must be clear. The actions and information must be transparent and not allowed

raises doubts that can cause harm to one party.

4) Neither the owner of the property nor the issuer may take risks that exceed their abilities and can result in losses.

5) Emphasis on reasonable mechanisms and principles of prudence both for investors and issuers.


Prohibited Transactions on the Islamic Capital Market

The application of sharia principles in their entirety and in full in activities in the Islamic capital market, must be based on foundations that are in accordance with Islamic teachings. The foundations are from the Qur’an {QS Al-Baqarah (2): 275-279; QS An-Nisa (4): 29; Surah Al Jumu’ah (62): 10; QS. Al-Maidah (5): 1}, as well as the hadith of the Holy Prophet. Or from the results of Ijtihad of Islamic jurists.

In accordance with the rules of ushul fiqh (the basic principles of fiqh law), in matters of worship, the law of origin is forbidden, unless there is an order that allows it. Whereas in the matter of muamalat, the law of origin is permissible, unless there is a prohibition.

Thus, based on Islamic sharia, in principle all engagement is permitted unless there is a text prohibiting it. Agreements relating to business cooperation, investment, debts, loans, buying and selling, and so on, can basically be done by a Muslim with other members of the community, as long as there are no prohibited matters in the agreement.

Based on considerations from the daily implementing body, DSN MUI issued fatwa no. 40 / DSN-MUI / X / 2003 concerning the Capital Market and General Guidelines for the Application of Sharia Principles in the Capital Market Sector, stating that what is meant by prohibited securities transactions / trading are:

1) The transaction must be carried out according to the principle of prudence and not allowed to do speculation and manipulation which contains elements of dharar, gharar, usury, maisir, risywah, immorality, and tyrannical.

2) Transactions containing elements of dharar, gharar, usury, maisir, risywah, immorality and tyrannical zeal as referred to in paragraph (1) include:

  1. Bai’najsy, which is making a fake offer. In the capital market it is usually manifested in the form of frying up shares.
  2. Bai ‘al-ma’dum, which is selling goods (sharia securities) that are not yet owned (short selling).
  3. Insider trading, which uses insider information to gain profits on prohibited transactions.
  4. Gives misleading information. In capital markets related to material facts (See Chapter XI of the Capital Market Law).
  5. Margin trading, which is conducting transactions on sharia securities with an interest-based loan facility for the obligation to settle the sharia securities.
  6. Ihtikar (hoarding), which is buying or collecting a sharia securities to cause changes in the price of sharia securities, with the aim of influencing other parties;
  7. And other transactions that contain the above elements.

According to the general provisions of the Decree of the Chairperson of the Capital Market and Financial Institution Supervisory Agency Number: KEP-181 / BL / 2009 concerning Issuance of Sharia Securities, the types of transactions prohibited in the capital market are:

1) Gambling and games which are classified as gambling or trading are prohibited.

2) Carrying out financial services that apply the Ribawi concept, buying and selling risks containing gharar and / or trades.

3) Producing, distributing, trading and or providing:

  • illicit goods and or services due to their substance (haram li-dzatihi);
  • illicit goods and or services not because of the substance (haram li-ghairihi) stipulated by DSN-MUI; and or
  • goods or services that are morally damaging and damaging.


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