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Hamza Kayani Fa18-Bba-185-B
Hamza Kayani Fa18-Bba-185-B
Hamza Kayani Fa18-Bba-185-B
ASSIGNMENT: 2
Subject: Islamic Finance
Title: INVESTMENT IN NON-SHARIA COMPLIANT INSTRUMENTS WRECKS
TH’S NOBLE REPUTATION
Submitted By:
Hamza kayani
Roll No : FA18-BBA-185
Section: B
Submitted To: WAHEED AKHTAR
In sharia law:
Sharia principles, also known as Islamic rules (Sharia law), are a framework established from
Allah's direct revelations that is meant to educate Muslims. Sharia law covers a wide range of
issues that secular society does not, including crime, politics, economy, and personal issues
like sexual relations, hygiene, food, prayer, and fasting.
Activities:
One famous example of asset classes is that investments in common stocks are subjected to
detailed examination to determine their Sharia-compliant status, while preferred stocks are
regarded non-compliant. Companies are only considered compliant in terms of business
activities if the total revenue from non-compliance activities and non-operating interest
income does not exceed 5% of total income. Alcohol, gambling, tobacco, adult entertainment,
pig products, hotels, cinema/broadcasting, music, defense, and interest income are examples
of non-compliant income streams.
Decision:
The new CEO's decision weakened public trust in TH mostly because TH (via these two
GMs) had invested in FOREX, which the new CEO and public assumed was non-Sharia-
compliant. Even though no final decisions on the status of FOREX investment had been
taken then this choice was made.
After that, the two GMs attended a board meeting where their RM150 million investment was
approved. Though the two GMs and the board could have had no conclusive facts and
evidence of or against the FOREX investment, given the unresolved nature of the debate over
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the market's Sharia-compliance, it remained a fact that the two GMs knowingly leaked
evidence from the board about their knowledge that a portion of the investment was planned
for FOREX markets.
Although no conclusive decision was made by Muslim scholars or fatwa on the status of
FOREX investment, it appears that the CEO believed it was necessary and critical. The
investment itself disrespected TH's primary goal of maintaining that their investment was
limited strictly to assuredly Sharia-compliant investment instruments, though no conclusive
decision was made by Muslim scholars or fatwa on the status of FOREX investment. This
action resulted in a total loss for TH, due to the new CEO's decision to end TH's participation
in MAM's risky investments. Because there had been no clear judgement by Muslim scholars
on the status of FOREX, when the new CEO observed that the MAM investment includes
FOREX transactions, the CEO and the board concluded it could not be in line with existing
Sharia rules. At the same time, TH filed claims in court demanding RM80 million from
MAM for losses costs because of MAM's rejection of the RM200 million investments.
The distribution of dividends by TH was exposed to a return of investment from some
percentage of non-Sharia compliant investment instruments, therefore such expenses must be
financed entirely from Sharia-compliant halal sources. After serving as the Chief Financial
Officer (CFO) of TH during its crucial phase, this new CEO was able to take the company to
new heights through aggressive promotion and corporate activities help restore public
confidence, including initiating changes to the company's financial assets. Because sections
of TH's return on investment were made through potentially non-Sharia compliant
instruments, this is the root of the worry. Though its legality is unclear, the CEO's move sent
a message to the public that FOREX investment is not Sharia-compliant. Depositors began to
discuss concerns or pessimism about TH's capacity to protect their funds and keep its promise
to invest in Sharia-compliant products.
CONCLUSION:
The GMs were concerned that a portion of the second investment was in FOREX since there
was a big discussion among Muslim academics over the status of FOREX, with defenders
maintaining that it was compliant with Sharia principles and others claiming that it was not.
Following their initial success with MAM's recommended investment, they were inspired to
continue subscribing to the second investment proposal that was submitted to them for
consideration. Include a description of the problems, an examination of the grounds for and
against FOREX investment being classified as Sharia-compliant, and recommendations to
help them in making their judgement.
On the other side, the incoming CEO's decision to cancel the two investment resulted in an
RM80 million loss for TH. Consider the situation in which the two general managers and the
board of directors were bound to accept a multimillion-dollar investment decision based on
incomplete data. Consider whether the GMs and the board have requested the assistance in
analyzing and recommending the FOREX investment's status.