Shari'a Compliance: The Authoritative Voice

We take pride in being the first financial market globally to operate in accordance with the principles of Shari'a Law—and we remain committed to the values of Shari’a in all aspects of our operations.

The following set of standards were prepared by a dedicated in-house Shari'a Committee and approved by a group of third-party experts and specialists to ensure full compatibility with Shari'a Law across all DFM activities, products and services.

Standard 1 Issuing, Acquiring and Trading Shares

We aim to enable investors to identify Shari’a-compliant listed companies. Our Standard No. 1 document details all parameters for acquiring and trading in company shares, along with the rules for excluding prohibited income, and general provisions.

Standard 1 Issuing, Acquiring and Trading Shares

Standard 1 Download Standard No. 1 Full Document Download

Standard 1 Issuing, Acquiring and Trading Shares

Standard 1 Addendum No. 1 for the DFM Shari’a Standard of Issuing, Acquiring and Trading Shares Download

Standard 2 DFM Standard for Issuing, Acquiring and Trading Sukuk

The Standard No. 2 document covers the definitions, types, parameters, and listing requirements for Sukuk, as well as the terms, conditions and characteristics for Green Sukuk.

Standard 2 DFM Standard for Issuing, Acquiring and Trading Sukuk

Standard 2 Download Standard No. 2 Full Document Download

Standard 3 DFM Standard for Hedging Against Investment and Finance Risks

Given the increasing importance of hedging and its significance for economic activities, the DFM issued a standard on Hedging Against Investment and Finance Risks, a first-of-its-kind all inclusive standard which will form a point of reference for Islamic banks and financial institutions to safeguard their funds without violating the rules of Shari’a.

Standard 3 DFM Standard for Hedging Against Investment and Finance Risks

Standard 3 Download Standard No. 3 Full Document Download

Frequently Asked Questions

Quick Access

Shares Sukuk Hedging Against Investment and Finance Risks Trading Rights Issues Zakat Shares DFM Shari'a Index

: Trading in shares in the sense of buying and selling is permissible according to Shari'a provided the relevant contracts are Shari'a compliant. However, if such contracts are Shari'a repugnant such as short, margin and forward sale, then it is not permitted.

: Short sale is a sale of shares that the seller does not own. Where the seller borrows such shares to be returned later, for the purpose of making profit by selling it at a price that is higher than the price at which the seller will buy in the future and return to its lender (the owner).

: Investors who are willing to trade in Shari'a compliant shares.

: If the shares were purchased for trading purpose then 2.5% of their market value is payable per annum (Hijri year) as Zakat. If, however, they were purchased with the aim of retaining them (as long-term investment) then the Zakat shall be the same over the net value of the zakatable assets, if this value was calculated and made available to shareholders by the company. Alternatively, shareholders can choose to annually pay 10% of their net profit, whether the profit was actually distributed or not.

: Yes, it is permissible provided they are tracked after the listing process in the list of Shari’a-compliant companies issued by the market on a quarterly basis.

: Yes, Shari’a compliant- shares may be bought and sold on the same day.

: Prohibited (Haram) income is the interest or profit earned from trading in forbidden items.

: Refer to the concerned listed company regarding the percentage to be excluded from the dividends that have been decided to be distributed.

: According to the DFM shares' Standard, it is when the company allocates profit to the shareholder; however, the Securities & Commodities Authority (SCA) states that the profit is entitled to the holder of the share on the tenth day after the decision to distribute dividends is made in its General Assembly, and since the SCA is binding one should abide by it. Therefore, whoever holds the share at that time must implement the exclusion at the earliest opportunity.

: Yes it is permitted provided the following Shari'a parameters are adhered to:

The Shari'a repugnant income is less than 10% of total revenue which is subject to purification by the shareholder.

The interest-based borrowing does not exceed 30% of total assets.

The interest-based lending does not exceed 30% of total assets.

: It is not permissible to deal in preferred stocks, if preferred stockholders have a preferential right in terms of profit distribution prior to other shareholders or in terms of receiving their rights prior to other shareholders in case of liquidation. Whereas if the preference is related to administrative matters (like voting rights), then dealing is permitted.

: Non-Shari'a compliant companies either have prohibited income exceeding 10% of the total income, or it lends or borrows with interest beyond 30% of the total assets. Trading in such companies is not permissible even if the Shari’a repugnant income is totally purified.
In principle it is not permissible to deal in a company if its activity is Shari’a repugnant.

: It is not permissible to hold shares in companies that do not fulfill the Shari’a parameters previously mentioned.

: The sale on the margin means that the broker lends the client an amount above the margin, i.e. the amount paid by the client, and the broker buys the shares on behalf of the client on condition that the client pays the loan amount within a specified period. If not, the broker is authorized by the client to sell the shares he bought at the market price if their price has reached the margin. From the selling price the broker recovers his debt and the balance, if any, is returned to the client. Shari’a permits the loan as long as it is free from explicit or hidden interest, and the commission taken by the broker in case of buying on the margin is considered hidden interest if it is above the commission normally charged for brokerage without lending. If the commission remains the same, then the transaction is valid because it involves no interest.

: It is not permissible, since in this case the contract is considered void according to Shari’a in view of the initial agreement to pay interest. If, however, there is no agreement to pay interest, then the contract is permissible.

Sukuk

: All development projects, including industrial, mining, extractive and infrastructural projects can be financed through Mudaraba, Musharaka and Istisna' Sukuk.

The advantages of financing through investment Sukuk are as follows:

It is a finance which is based on rights in ownership rather than the lending of money.

The Sukuk holders herein share the risks of the projects and also share the project proceeds with the Mudarib or the managing partner as per their agreement.

It does not require the taking of securities since the financiers own the project until the redemption or the maturity of the Sukuk.

The Mudarib or the managing partner may own the project before or at the end of the financing period.

: It is valid to trade investment Sukuk which are used to finance projects so long as they represent tangible assets or usufructs as is the case with Mudaraba, Musharaka and investment Wakala Sukuk. This is because it is valid to sell the underlying assets of these Sukuk on any agreed price, spot or deferred, whereas the finance Sukuk, such as Murabaha and Istisna' Sukuk, and since they represent debt instruments and are normally of short maturity periods, these can be traded only at face-value and against a spot price.

The Maliki school, however, unlike the remaining Fiqh schools, allows upon the fulfillment of certain conditions the sale of the Salam asset before its delivery. Nevertheless, the Salam Sukuk holders or their representative still can sell, to a third-party through a parallel Salam, an asset similar in its specifications to the Salam asset. The delivery date in this case shall be later than the delivery date of the original Salam asset.

: It is permitted to give, in the prospectus, the Sukuk originator the right to redeem the Sukuk before maturity and pay their value to their holders. This right shall be based on an undertaking given by the trustee who holds the Sukuk assets on behalf of their owners.

: Although it is not a Shari'a requirement to provide an expected rate of return since Shari'a recognizes only the actual realized profit, it is very helpful to do so because this rate functions as an indicator to the profit to the Sukuk holders; besides, it forms a point of reference for the Sukuk manager so that he may be given, as an incentive, what exceeds this rate.

: It is valid to amend the duration and terms of the Mudaraba provided the amendment applies only to the remaining period, with no retroactive effect. Among the valid amendments are the profit distribution ratio and the incentive. Any amendment must, however, be mutually agreed upon between the two parties (the Sukuk manager and Sukuk holders or their representative).

: The Sukuk manager is entitled to willingly waive part of his profit in the Mudaraba Sukuk, or any part of his commission in the Wakala Sukuk. Any waiver of this kind, however, does not bind him in any way to give up any other amounts in the future.

Hedging Against Investment and Finance Risks

: Yes, because protection of wealth is one of the major Shari’a objectives, and if the duty to protect wealth entails hedging, then hedging itself becomes a duty, because it is an established principle in the Shari’a that what is a prerequisite to a duty becomes a duty itself.

: Capital protection is to seek to protect it from loss without guaranteeing to pay it back, a pursuit which may not deliver the desired results: for example, guarding an asset; despite its protection it may be stolen or impaired.

Guaranteeing the capital on the other hand is to bear the losses, if any, instead of having them borne by the guarantee seeker. It relates to the outcome without considering the reasons or monitoring the feasibility of the means and methods taken by the guarantor or the guarantee seeker.

: Please refer to Section (2) of the Dubai Financial Market Standard on Hedging against Investment and Finance Risks.

Trading Rights Issues

: Subscription rights may not be traded in general, regardless of whether the company is Shari’a compliant or not.

Zakat Shares

: There is no difference.

: The profit that is subject to Zakat being 10% thereof, should include realized profits due to the increase in value of its assets and goods, even prior to selling the same.

: The actual percentage of Zakat is 2.5% for every Hijri year and 2.5775% for every Gregorian year.

DFM Shari'a Index

: Yes. The DFM Shari’a Index (DFMSI) includes historical data from 31^st December 2009.

: Please refer to the DFM Shari’a Index Rules.

: No. The DFMSI showcases the best performing Shari’a compliant companies on the DFM.

: No. The DFMSI is reviewed on a quarterly basis based on the statistical Classification of listed companies on the Dubai Financial Market in terms of compliance with Shari’a rules. This review focuses on continuing eligibility and changes to free float for index constituents.

: All classes of Shari’a-compliant ordinary shares listed on DFM are eligible for inclusion in the DFMSI.

: Investors and mutual funds interested in trading in Shari’a-compliant companies listed on the DFM, data providers, market participants including listed companies

: The DFM Shari’a Index (DFMSI) aims to replicate the performance of the Dubai Financial Market Shari’a-compliant listed companies. The importance of the DFMSI stems from the following:

Strengthening the numerous successes of the initiative of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, to position Dubai as the capital of Islamic economy globally.
Facilitating investors and mutual funds interested in trading in Shari’a-compliant companies in tracking the performance of these companies.
Attracting Islamic financial investments to the market by highlighting the available investments that are not based on interest or forbidden activities.
Providing historical data on the performance of Shari’a-compliant companies
Ease of comparing the performance of Shari’a compliant companies with the performance of traditional companies and with the performance of Shari’a compliant companies in other markets.