Appraisal of Development Treatment of Shariah Compliant Financial Products in New Zealand - Research Paper Example

Shari'ah-compliant financial products have gained global acceptance and growth, with the globalization of commerce, New Zealand has laws governing securities regulation while Shari’ah laws have principles regulating investment and finance, in consideration of the above regulations founded on different principles, how has the development of Shari'ah compliant financial products occurred in New Zealand and what is the regulatory treatment of these products?, furthermore what associability, in terms of similarity or divergence exists between the Shari’ah principles and the rules governing New Zealand’s corporate and commercial sector?

Introduction Shari’ah-compliant financial products is a relatively new notion to New Zealand's financial stratum, however, according to data published by Hormoz and Raquibuz over the past decade the concept of Shari’ah-compliant financial services and Islamic capital securities and Shari’ah-compliant products, which were previously predominantly viewed as a preserve of Middle East and East Asia as experienced exponential growth in the world, especially in Asia, Europe, North America and some parts of Africa beyond the traditional spheres of activity.

Several Shari’ah-compliant equity market indices exist for example FTSE Global Islamic Index Series, Global Dow Jones Islamic Market Index, and the FTSE SGX Shari’ah Index Series, these indices portray that Shari'ah-compliant financial products are continuously gaining global acceptance and growth, achievement of this growth in New Zealand requires enforceability of agreements, facilitating legislations and suitable dispute resolution methodologies. The international effects of Shari’ah-compliant products in terms of growth, legal and regulatory perspective resulted in the recognition of such products as Shari'ah-compliant commercial banking products, Shari’ah-compliant stocks, Takaful, Islamic bonds, Mutual Funds / Unit trust, and Islamic stock broking which were previously not catered for in international context, as attested by the recent creation of Islamic Capital Market Task Force by the International Organization of Securities Commissions to access the compatibility of IOSCO’s core principles with the products and practices of Islamic finance.

shari'ah compliant financial products have been touted to also represent a class of investment products, which may appeal to those looking for socially responsible or ethical investments, as these products must comply with strict Shari'ah rules that have religious as well as ethical underpinnings, this is because shari'ah compliant financial product alone does not automatically guarantee that shari'ah compliant financial intermediary has occurred, related financial advice must also conform to shari'ah compliance, and based on mutual consent.

Indeed, the pace of Islamic financial market development has gathered such momentum that various international Islamic organizations have been established with the view towards formulating appropriate standards for the Islamic financial services industry. These international bodies include the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and Islamic Financial Services Board (IFSB).

Laws and regulations governing the securities sector of numerous countries in the world were created and implemented without context consideration of the Shari'ah laws since the global recognition of Islamic laws concerning finance and securities were minimal. In New Zealand, a great percentage of the laws which govern securities were implemented long before IOSCO’s creation and recognition of the Islamic Capital Market Task Force, these laws include the Securities Act 1978, Securities Regulations 1983, The Securities Markets Act 1988, Securities Act (Contributory Mortgage) Regulations 1988, Financial Reporting Act 1993, Securities (Fees) Regulations 1998 and the Securities Markets (Fees) Regulations 2003, the secular laws do not bear religious proclivity, inclination or perceptible conformity.