IslamiQ offers e-trading the Shari’ah way

Dr Hasnita Hashim believes that TradeIslamiQ.com finally makes it practical for Islamic investors to make personal investment decisions

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By  Charlotte McDonald Published  April 5, 2001

Online equities trading with TradeislamiQ|~||~||~|Already with a multitude of online services under its belt, IslamiQ has now added an Islamic trading site to its profile. The concept of this new e-brokerage service, ‘TradeislamiQ’, combines online brokerage of US securities with the ability for customers to screen their securities for Shari’ah-compliancy. Fulfilling the trade on behalf of IslamiQ is US broker Trade.com, of which ABN Amro is a 25% shareholder.

The way it works is that, initially, opinion on the stocks that are
acceptable Islamically is endorsed and given by the Shari’ah board. After that, IslamiQ develop qualitative and quantitative processes for screening. The former looks at the activities of the companies, which are then divided into several categories that the Shari’ah scholar has segregated into what is allowable and what is not allowable.

The quantitative process looks at the financial ratios of the companies,assessing both the debt to total assets ratio, as well as the liquid assets to total assets ratio. Again, the Shari’ah board sets the criteria and IslamiQ develops a software mechanism to do the screening, as well as applying manual screening by members of the company.

CEO of IslamiQ, Dr Hasnita Dato’ Hashim, has pretty much run the show since she came up with the idea of online stock trading some time ago. Having achieved some of her short-term goals with her other Web sites,(Islamiqdaily.com, Islamiqmoney.com and Islamiqstocks.com), she now has TradeislamiQ to build on and make as successful as the rest.

“There are a lot of goals for this year and I’m sure we will be doing a lot more announcements,” she says. “Basically, we view this online trading as just the start of our full range of products that we want to offer via our brokerage service. It will include other things. For example, if you are an account holder with Trade.com and you use this service, your cash will not be earning any interest because it is prohibited via Shari’ah compliancy. We will look at alternative ways of investing that cash, so the full range of services will include management of accounts and funds.”

IslamiQ aims to generate revenues in several ways. “Firstly, we already have an offshore fund supermarket on the site, so we will be concentrating our sales and marketing activity on that,” she says. “Secondly, we have online trading of securities that we will look to improve.”

Aside from this, Dr Hashim wishes to provide an advisory service on the site, related to the management of portfolios. For example, once you have a portfolio, you will be able to monitor all your stocks within it. The monitoring is to include a purification service because part of the earnings from the investment in each stock are derived from some interest elements, not permitted under the Shari’ah directive. “We also have payment of Zakah online which we will be promoting — this is really to create total global wealth management for a Muslim customer,” says Dr Hashim.

When all of the above seems like such a good idea, why then has it taken so long to establish online equities trading? “The main issue is really regulatory, because you have to be licensed,” explains Dr Hashim. “We have an investment advisory license which allows us to provide this advisory service and towards the later part of this year, we hope to have a full broker dealer license ourselves,” she adds.

And according to Dr Hashim, the market is now ready for such a Shari’ah service. “We exist because of demand and not through trying to create a demand,” she says.
||**||Shari'ah compliancy|~||~||~|
Currently, TradeislamiQ covers about 6,000 (US) listed equities in terms of the screening and another 2,000 are on the London stock exchange. However, only the US equities will be transactional through Trade.com. The London stock exchange is purely for information and of the 6,000 U.S. shares, there will be some that will probably be Shari’ah compliant and some not — this is currently reviewed every two months. Overall, out of the 8,000 in total shares, approximately 35% are permissible (2,500-3,000). But shouldn’t TradeislamiQ maybe look further afield for equities, considering the current ‘weak’ state of the U.S. market?

“Over time we hope to add other exchanges to make it transactional,” says Dr Hashim. “So after London, we will look at other markets and gauge the situation according to demand from customers,” she adds.

TradeislamiQ charges U.S. $29.95 per transaction, which includes access to ScreenIslamiq, but that’s still dearer than some of her non-Shari’ah compliant competitors. However, Dr Hashim claims this is not due to the ‘specialisation’ of the service.

“I think if you look at different brokers they have different charges,” she says. “Companies such as DLJ have a yearly subscription fee on top of their trading fee and that trading fee is only up to a certain number of stocks. The $29.95 is a flat fee for any amount of stocks that you trade and there is no yearly charge plus you get proprietary research, real-time news and other value-added services.”

When it comes down to it all, is Islamic investing, with its many
guidelines, practical for the consumer? Dr Hashim believes Islamic investing was not so before this service. The only way anyone could invest in equities that were Shari’ah compliant was by investing in funds. Now, however, retail customers can make their own investment decision as well as a Shari’ah decision.

“What we offer makes it practical for people because before this, individual investors did not have the opportunity to access this kind of information themselves,” she says. “They would have to go through a broker and then they would have to do their own research into the companies – that requires a lot of information, so as an individual it is very difficult to acquire this kind of information and do your own screening.”

Dr Hashim is also positive that investors can receive the same sort of
returns as if they were putting their money into any other conventional investment instruments. “Technology, manufacturing, construction industries are Shari’ah compliant in most cases and in fact, if you look at the Islamic indices last year and the previous years, they have actually outperformed the conventional indices,” she says.

Although it’s still early days, TradeislamiQ seems confident that its
approach to Islamic online investing will provide a unique service that delivers what Muslims require. Convinced that it is giving the market what it wants and is increasing the market size in this arena, it is confident that others will follow in its footsteps.||**||

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