Financial markets

Man-Brothers-Islamic-Financial-InstitutionMan-Brothers-Group-Menu-Currency-Financial-marketsIn the primary Islamic financial market, the companies have the option to raise funds necessary for their project on the principle of comparing the profit expectations from various allocated funds. We distinguish both primary and secondary financial markets: the first which is a meeting place between the companies that issue securities in order to claim the funds and on the other side we find the offers for funds  which emanate from numerous banking institutions.

In Islamic finance issuance of shares in the market is done through so-called Mudaraba contracts: indeed this type of contract takes the form of a holding company in which we could distinguish the 2 parties: the first that invests the capital and the second that offers expertise. The method of distribution and the date of starting of trading of securities should be well  included in the prospectus to avoid any element of uncertainty. In the primary Islamic financial market, companies have the option to raise the funds necessary for their project on the principle of comparing the profit expectations from various allocated funds. This comparison is done through accumulation and dissemination of information about the companies by the financial market. This would result in improvement of the distribution, allocation of funds as a result of the selection, they feed the most profitable projects. What is emphasized here is the outstanding efficiency of a resource allocation system based firstly on the profitability of investments made in the real sector of the economy.

However, the development of the primary market requires simultaneous development of a secondary market. Indeed, the latter enables to satisfy the preference for liquidity of the savers who are holders of financial securities, while presenting them the option to sell them quickly. Hence the investment for long term, for a larger pool of savings. Trading of financial products is tolerated in Islam and the prices will be subject to the laws of supply and demand, but speculative activities are prohibited. However, investments are not without risks: risk of bankruptcy of the company and risk related to the ability of the company to generate profits.