Islamic Structured Investments
An Islamic Structured Investment is a Shari’a compliant investment under which the full amount of the principal is repaid at maturity in the currency invested, but where the whole or part of the profit payable is calculated by reference to movements in a specified index.
Investors looking to invest their funds for a longer duration are offered Islamic Structured Investment products. An investor can invest in an index of a certain Shari’a compliant asset class and earn a return based on the movement of that reference index or index strategy. The asset class can be equity, foreign exchange, commodities, or a combination. Islamic Structured Investment products are executed through a combination of a Commodity Murabaha and a unilateral promise (W'aad) to enter in another Commodity Murabaha at the end of the investment period for the profit amount (if any).
Steps to enter into an Islamic Structured Investments
- The investor will enter into a Commodity Murabaha with the bank for a specified amount and tenor. The bank would undertake to pay the Murabaha amount (principal and profit) on the agreed payment date.
- The bank will also issue a promise ( Wa’ad ) to enter in a Commodity Murabaha transaction at the choice of the investor with profit calculation benchmarked against the performance of a particular index
- During the period of the investment the bank will track agreed indices based on various asset classes. The bank will declare an index value which is benchmarked against the performance of the relevant asset classes to reflect the performance of the index
- At the end of tenor, the investor will receive the agreed Murabaha amount
- Assuming that the performance of the index provides an opportunity to enter into a second Murabaha for the profit amount then in such a case, the investor would have the choice to call on the promise to conduct another Murabaha deal with the bank with the amount equal to the profit generated based on the performance of the index over the tenor of the investment