Islamic Investment Opportunities in Malaysia

In recent years, Malaysia has been a stronghold for innovative developments in the Islamic investing space. Many new verticals for Islamic finance have made great strides over time. Now, Shariah-compliant opportunities hold greater accessibility and awareness in the common investing community nationwide. Here are a few of the prominent opportunities that exist.

Islamic Investment Principles and How they Differ from Traditional Investment Methods 
 

Islamic finance in essence must adhere to Sharia law (Islamic Law). This also includes investments that comply with Islamic law. With the establishment of Islam came the widespread practices of Islamic banking and finance. However, it wasn't until the 20th century that institutional Islamic finance was established. Islamic financial institutions already manage about $2 trillion, and the field of Islamic finance is growing at a rate of 15% to 25% annually. The way risk is managed and distributed is the primary distinction between conventional and Islamic finance.

The Current State of Islamic Finance in Malaysia
 

If a company passes the commercial and financial tests outlined by AAOIFI or by the regional body of Shariah scholars, investments are said to be halal. The Shariah Advisory Council of the Securities Commission Malaysia in Malaysia is the main body in charge of deciding how Shariah principles should be applied in the regional Islamic capital markets.

Types of Islamic Investment Opportunities in Malaysia
 

The Islamic Collective Investment Scheme includes Islamic investment funds, unit trust funds, and mutual funds based on the Islamic Financial Services Board (IFSB) (ICIS). Equity funds, Ijarah funds, commodities funds, real estate funds, Murabahah funds, money market funds, and mixed funds are only a few of the several kinds of Islamic investment funds. These distinct funds represent quite different return patterns, which is a quality that is crucial in difficult economic circumstances.

Equities are inherently more volatile than Ijarah and Murabahah funds in the near term and should be viewed as long-term investments because they are based on set leasing fees on capital equipment on hire purchase and cost-plus-profit rates, respectively. 

Real estate development-focused funds, many of which are structured as private equity, offer a varied ratio of risks to profits. Despite several debates among academics about their legality, hedge funds are emerging as a potential fund category in the market.

The equities investment-related Islamic investment funds make up more than half of all the funds available. The present market trend demonstrates that since these financial vehicles were created in the 1980s, they have grown in number.

The number of Islamic investment funds increased from 161 in 2006 (excluding money market funds) to an estimated 480 in 2007 (including all varieties of Islamic investment funds), indicating a strong desire among investors to participate in the capital market.

There are Several Types of Financing Arrangements
 

Special forms of financing arrangements were created to adhere to the following criteria because Islamic finance is based on a number of prohibitions and rules that do not exist in traditional banking:
1. A partnership that splits profits and losses (Mudarabah)
A profit-and-loss-sharing partnership arrangement known as a mudarabah is one in which one partner (the financier or rab-ul mal) distributes the capital to another partner (the labour provider or mudarib), who is in charge of managing and investing the capital.

2. Joint venture with profit-and-loss sharing (Musharakah)

A cooperative business called a musharakah involves all participants investing money and splitting profits and losses proportionally. The following joint ventures are the most common types:

Diminishing Partnership: This kind of business arrangement is frequently used to buy real estate. A property is bought jointly by the bank and the investor. The bank then progressively gives the investor its share of the property's equity in exchange for payments.

Permanent Musharakah:This kind of cooperative enterprise has no set end date and keeps working as long as the parties involved are willing to do so. In general, it is employed to fund lengthy projects.

3. Leasing (Ijarah)

In this kind of financing, the lessor (who must be the owner of the asset) leases it to the lessee in return for a series of rental payments that end after transfer of ownership.

Halal Investment Guidelines to Follow
 

Investment choices must be made in conformity with Islamic standards to be considered halal. Investors frequently view halal investing as falling under the area of ethical or socially responsible investing because it is a faith-based approach to asset management. 
According to Islamic principles, investors must share in gains and losses, get no interest (riba), and refrain from funding ventures that are against sharia, or Islamic law. Before making an investment in a company, it is important to assess its operations and financial records to ascertain where its main sources of income are from and how its balance sheet is managed.

Companies whose primary business activities infringe on the fundamental principles of Islam are all regarded by sharia scholars as being unacceptably risky investments. Furthermore, the majority of shariah scholars advise against purchasing shares in tobacco corporations.

The rising demand for halal financial products has been recognised by well-known private equity firms. More and more financial institutions and foreign currency markets have taken action in the last ten years to establish themselves in the Islamic finance and private equity sectors. Thus, Islamic finance is no longer viewed as a specialised and foreign area of the financial business.

One of the largest bourses in ASEAN, Bursa Malaysia operates and regulates a fully integrated exchange offering a comprehensive range of exchange-related facilities.