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Development Of Islamic Financial Products In Iran’s Capital Market


The Securities and Exchange Organization (SEO) of Iran was established in 2005 as a regulatory and supervisory body of the Iranian capital market. The Securities Market Law was enacted soon after by the Islamic Consultative Assembly (Iran’s Parliament) followed by the demutualisation and incorporation of exchanges.. As a result, the SEO now supervises trading at the following exchanges:

1. Tehran Stock Exchange (TSE)                               2. Iran Fara Bourse Company (IFB)

3. Iran Mercantile Exchange (IME)                          4. Iran Energy Exchange (IRENEX)

It is noteworthy that the first two exchanges are dedicated to providing a trading platform for financial securities such as equities and Sukuk like Ijarah, Murabahah and Musharaka, while the latter two provide trading equipment for commodities and commodity-based products like Salam Sukuk and commodity-depository certificates. Total market capitalization of Iran’s four bourses recorded 12,282 trillion rials (US$102.3 billion) at the end of June 2019.

As the main supervisory authority of the country’s capital market, the SEO enforces capital market laws and direct supervision and regulation on financial entities, exchanges and other corroborative bodies. In other words, the SEO independently regulates and supervises the entire Iranian capital market including regulated entities, brokerage firms and investment banks, funds, issuers as well as a number of other financial institutions.


Iran’s capital market is compelled to comply Shari’a rules and regulations in all its financial products, as per Article 43 of Iranian Constitution. According to Article 43 of chapter 4, the financial system does not permit any financial instrument which contradicts Shari’a principles neither to be issued nor to be traded. Based on this,t is not permissible for the capital market to issue or trade any financial products that contradicts with the Shari’a principles.

Legally speaking, unlike many other capital markets in the world, Iran’s capital market is fully in compliance with Shari’a. Nevertheless, the Shari’a compliancy is not restricted only to the capital market but extends to other segments of the Iranian financial system where they are, at least at their legal stage, required to comply with Shari’a rules and regulations.


Similar to other capital markets, the Iranian market supervisor aims to provide a range of investment instruments that are in compliance with Shari’a principles. However, realizing the development of a comprehensive financial system requires comprehensive legal and technical infrastructures and Iran’s capital market has a long way ahead to be considered as a developed Shari’a-compliant capital market.

However, the Iranian capital market has issued some notable financial products as per below:.

  1. Financing instruments

Based on the resolutions of the Shari’a Committee of SEO, a range of Shari’a-compliant financial instruments in the capital market are available, which includes:

  • Islamic Equities: at the moment, more than 440 companies have their equities listed and traded in the securities exchanges.
    • Sukuk:
    • Ijarah sukuk: a type of fixed-income sukuk with around 20% annual profit rate
    • Musharakah Sukuk: a variable-income sukuk with a profit rate between 17-22% annually
    • Murabahah sukuk: a fixed-income sukuk with around 20% annual profit rate
    • Manfa’ah Sukuk: a variable-income sukuk with around 19% annual profit rate
  • Hedging Contracts

Shari’a-compliant futures contracts and options are the second major type of financial products. 1-Ounce Gold bullion, copper cathode, gold coin, soybean meal, single stock and equities portfolio are amongst the important underlying assets in the market. Hedging instruments in the capital market can be divided into two main categories:

  • Shari’a-compliant futures contracts: Soon after the SEO’s Shari’a committee introduced the necessary Shari’a requirements for structuring futures contracts the SEO board of directors announced trading regulations. With this, the first deal was made in June 2008 with 1-ounce gold bullion as the underlying asset. Later on, other real and financial assets were introduced as underlying assets in the futures contracts market.
    • Shari’a-compliant options contracts: Options contracts are the second type of derivatives in the market. and Options contract with real assets (i.e. gold coin) was introduced in December 2017.


Iran’s capital market is one of the unique financial markets in the world as nearly all of its products comply with Shari’a rules and regulations. Equities have been the oldest financial instrument listed in the market and traded for more than half a century. Sukuk trading and issuance in the capital market was introduced just after 2005. Nevertheless, Musharakah sukuk has been issued and traded in the Iranian banking system since 1994. So, generally speaking, the sukuk issuance in Iran financial system has a long history in the banking system as compared to the capital market.

Another distinguishing feature of the market is in relation to derivatives. The Shari’a committee of SEO has imposed strict criteria for Shari’a-compiant derivatives. The committee has emphasised that only deliverable assets may be used as the underlying asset and hence, some financial assets such as indexes may not be considered as the underlying asset in the Iranian derivatives market. This makes the Iranian derivatives market very much different than its conventional counterpart.


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