• English
  • Polski

Sharia investments

English

Many instruments on the Polish capital market do not ensure compliance with the Sharia Law. In short, this law prohibits driving income from interest or speculative activities. However, there are financial instruments that are regarded as correct. The investment instruments are definitely not enough and the means of managing investment risk are also needed. Those financial instruments include: shares in limited liability companies, shares in the public limited-liability company and zero-coupon bonds. We offer cooperation which will enable execution of investment on the basis of a specially designed Closed-end Investment Fund. It is compliant with the Sharia Law, as it will only use the above-mentioned financial instruments.

Shares of limited liability companies

Limited liability companies are compliant with the Code of Commercial Companies. It is one of the two basic forms of activity in the form of limited companies in Poland. The partners of a limited liability company through establishing a company and paying agreed amount of share capital acquire interests in this company. Thus, the shares are a form of security, which entitles to receive share in the profits of the company operating as a limited liability company. Return is paid out to the partners in the form of dividends on the basis of a resolution of the basic body of the company which is the general meeting of shareholders. Additionally, the interest gives corporate rights to the partners of the limited liability company and the rights are granted by the Code of Commercial Companies.

It should be stressed that shares, as securities, do not generate income from interest on capital employed. The investors who transferred financial resources to a special purpose vehicle, in return participate in the company profits. The profits are generated from the basic business activity of the company. Moreover, the increase of company value may result in the increase of shares value. In this respect, in the case the investor decides about its intention to withdraw from the investment, it can sell its shares and earn profit resulting from increase of the shares value when compared to their initial price. At the same time, all shareholders participate in the risks related to the company’s business activity. The concerned risks are limited to the value of financial contributions of the individual partners.

The shares of a joint stock company

Joint stock companies are compliant with the Code of Commercial Companies. It is one of the two basic forms of activity as limited companies in Poland, apart from the abovementioned limited liability companies. The shareholders of a joint stock company through establishing a company and paying agreed amount of share capital acquire shares in this company.
Thus, the shares are a form of security which entitles to receive share in the profits of the company operating as a joint stock company. Return is paid out to the partners in the form of dividends on the basis of a resolution of the basic body of the company which is the Annual General Meeting. Moreover, shares provide a number of corporate rights granted by the Code of Commercial Companies to the shareholders of a given joint stock company.

Similarly as in the case of interest, it should be stressed that shares, as securities, in accordance with the Polish law, do not generate income from interest on capital employed. The investors who transferred financial resources to a special purpose vehicle in return for shares, participate in the company profits, generated from its basic business activity. Moreover, the increase of shares value may result from the increase of the company value. In this respect, in case if the investor decides to withdraw from the investment, it can sell its shares and earn profit, resulting from the increase of the shares value, when compared to their initial price. At the same time, all shareholders participate in the risks related to the company’s business activity. The concerned risks are limited to the value of financial contributions of the individual shareholders.

Zero-coupon bonds

There are different kinds of bonds on the Polish and international financial markets. Vast majority of them are not compliant with the basic laws of Sharia, as they are a debt instrument which incorporates generation of interest income from the capital employed. However, there is a kind of bond that is free from the abovementioned factor, namely the zero-coupon bonds.
The company which issues the zero-coupon bonds offers its investors the possibility to purchase bonds with a specific nominal value and at a specific price agreed with the investors, which includes discount in relation to the nominal value. As a result, the investors purchase zero-coupon bonds (sometimes called discount bonds), and in turn, provide capital to the company. The company uses the capital for its basic business activity purposes or for execution of a given project. Thanks to the investments the company gains profits, which in turn are used to repurchase the bonds from investors at face value. Thus, the investors profit from the difference between the purchase price (the nominal value with a discount) and repurchase price (the nominal value) of bonds purchased by the company. The company, during the life cycle of the zero-coupon bonds, derives income from execution of investments that are based on the funds from the issue of bonds.

 

Source: investpl.eu