ISLAMIC STRUCTURED PRODUCT

     Islamic structured products are a shariah-compliant asset class that is regarded as a financial market innovation. With the development of structured products that are well received by Malaysian investors, there is an increment demand for Islamic structured products among shariah-observant investors as well as those who want to diversify their portfolios.

Islamic Capital Instruments	Islamic Structured Products
Definition	Shariah Compliant Investment instruments designed to fulfill specific needs that cannot be met by standardized financial instruments that available on the market.
Purpose	An alternative to a direct investment which is part of the asset allocation process to reduce risk exposure of a portfolio or to utilize the current market trend.
Characteristics and Features	The underlying asset, contracts, principles should be shariah compliant and the relationship between investors and issuers must be clearly define accordance with it.
Types	1)     Equity-linked Notes 2)     Interest Rate-Linked Notes 3)     FX-Linked Notes 4)     Commodity-Linked Notes 5)     Bond-Linked Notes 6)     Credit-Linked Notes
Shariah Contracts /Elements	- Wakalah - Mudarabah - Murabahah - Tawarruq - Bay’ Al-Inah - Urbun - Wa’ad
Example	CIMB-i Commodities Structured Fund The fund aims to provide investors with regular income over the tenure of the fund linked to the performance of commodities through investments that confirm to Shariah principles.

    

    Islamic structured products are a shariah-compliant asset class that is regarded as a financial market innovation. With the development of structured products that are well received by Malaysian investors, there is an increment demand for Islamic structured products among shariah-observant investors as well as those who want to diversify their portfolios. Moreover, Islamic structured products have essentially the same processes as conventional structured instruments which are design to fulfill specific needs that cannot be met by standardized financial instruments which currently available on the market and they exclusively use Shariah-compliant contracts.

    Structured products can be used as an alternative to a direct investment which as a part of the asset allocation process to reduce risk exposure of a portfolio or to utilize the current market trend. Throughout of investor returns, it is crucial to note that structured product returns may be vary, rarely guaranteed, and are heavily reliant on the performance of the underlying assets over the investment period. To some extent, losses may incur too.

    Besides, Islamic Structured product might have similar structure with the conventional structured product, however, there are some differences which obviously peculiar to Shariah structure. Firstly, the underlying asset in Islamic structured products should be Shariah compliant, even there has a certain difference opinion among Shariah scholars. Secondly, the Islamic structured products should only establish using contracts and principles that do not contradict to Shariah principles which does not contain any prohibited element. Thirdly, the relationship between the investors and the issuers or managers must be clearly defined in accordance with the underlying contracts and principles applied.

    Furthermore, there are six types of Islamic structured products which are, Equity-linked Notes, Interest Rate-Linked Notes, FX-Linked Notes, Commodity-Linked Notes, Bond-Linked Notes, and Credit-Linked Notes. The most applied structured products in both Islamic and conventional market are, Equity-linked Notes which is a type of structured products with its returns tied to the performance of an underlying equity. 

    Last but not least, Islamic structured products, must follow the essential standards in Islamic finance, such as being free of ribawi elements, having no gharar or gambling features, and being fair to the parties of a contract. Also, the main underlying shariah contract that has been use are, wakalah and mudarabah, while the primary contracts are, murabahah, tawarruq, Bay’ Al-Inah, urbun and wa’ad.