Abdulkader Thomas asked Dayan Candappa on the current scenario in the Islamic equity-linked products. According to Dayan, one of the issues is the danger of speculation in oil, foreign exchange, stock and commodity markets.

Another concern is new investment opportunities and whether these investments are safe and predictable. The question of safety leads to transparency and whether the market could create products that are safe and sustainable.

Abdulkader then asked Norfadelizan Abdul Rahman about the important issues and elements that provide safety and sustainability. Norfadelizan explained it all depends on the nature of the organization that does the screening. For instance, the Securities Commission Malaysia (SC) which oversees the screening in Malaysia, has a different power compared to Dow Jones, FTSE or Yasaar because as a regulator, it has the authority to call for information.

Abdulkader then asked Dr Mohd Daud Bakar on the important Shariah parameters that product developers need to take into consideration and the new and interesting products that are emerging for the equity-linked sector. According to Daud, there are many issues that should be considered by practitioners. Citing an example, he said in equity structuring, product developers should avoid capital guarantee or profit guarantee.

He added that while there are many mechanisms to protect the net asset value of the funds or the value of the capital such as risk management tools, there are no schemes to guarantee capital or profit from the very start.

Secondly, product developers have to understand the demand of investors. He said they may have products that may be appealing to the retail investors such as exchange-traded funds (ETFs), mutual funds and unit trusts, but some may not be suitable for certain profiles.

There are many products which have not been duplicated such as the American depository receipts structure and contracts for difference. These are new equities which are common in the western market but are not seen in the Islamic market.

Responding to Abdulkader on the elements that are crucial to the development in the Islamic equity-linked product sector, Mohd Damshal Awang Damit said in product innovation, there are other dimensions that should be looked into such as analyses on the products, reporting on the products and relationship with fund managers of the innovative products.

Abdulkader then asked Masaru Arai for his thoughts on the first Japanese Islamic ETF and the process in coming up with it. Arai said even though the Islamic community in Japan is small, there are opportunities there.

“There is a reason for the product to be based on Shariah and listed on the Singapore Exchange. We thought this is the first step to encourage Islamic investors to come to the Japanese market.

“In developing the product, we worked with FTSE and Yasaar because we don’t have the expertise. Islamic banks in the GCC have plans to invest in the Japanese market. We are talking with those banks about setting up funds based on Shariah screening,” he said.

On Abdulkader’s question whether Islamic ETFs were in demand by investors, Arai said ETFs are still new and developing rapidly in most parts of the world, particularly in the US and Japan.

He said as at the end of last year, there were 601 ETFs which are equivalent to about US$580 billion. In Japan, there are now 51 ETFs listed on the Tokyo Stock Exchange, of which 38 were listed this year.

Abdulkader then asked the panel’s view on the factors that are holding back the pace of innovation. Damshal gave three factors — safety, superiority and sustainability. Safety lies in the ability of fund managers to mitigate risk and optimizing return through a lot of analyses.

Norfadelizan said the main factor that is stopping innovation is the lack of specialists, practitioners and Shariah scholars.

Abdulkader then asked Daud about how careful scholars are in issuing fatwas, to which Daud replied that scholars have to be very careful when they wanted to issue a fatwa and must constantly be conscious of their duties toward Allah and the public at large.