The Role of the Stock Exchange in an Islamic Economy

Abstract

In an Islamic economy where interest bearing loans are prohibited and where direct participation in business enterprise, with its attendent risks and profit sharing, is encouraged, the existence of a well functioning Stock Exchange is very important. It would allow for the mobilization of savings for investment and provide means for liquidity to individual shareholders. However, existing Stock Exchanges in non-Islamic economies have many drawbacks. They generate practices such as speculation and fluctuations in share prices which are not related to the economic performance of enterprises. These practices are inconsistent with the teachings of Islam.

Keywords: Stock Exchange, Islamic Economy