Islamic Finance – Islamic Capital Finance - Islamic mutual fund dealing with Tainted Income2/21/2023 Islamic Finance – Islamic Capital Finance - Islamic mutual fund dealing with Tainted Income
When a mutual fund that invests in Islamic enterprises receives dividends from investee companies that have tainted income, the Shari'ah governance mechanism in the ICM is also put to use in this situation. This may come from interest revenue or other non-Halal activities, but these are not the main operations of the business. The mutual fund's SSB will provide the fund managers instructions on how to purge the tainted money by giving a portion of the payouts to predetermined charity. The value of the interest or illegal income is divided by the overall revenue produced by the investee company to determine the percentage. For instance, Islamic fund A recently received $150,000 in dividends from its investee business E, which earned interest income of 2% of its annual sales. As a result, Islamic fund A requires $3,000 ($150,000 x 2%) in income to clean up. Just $147,000 of the dividend can legally be disbursed in this situation since the remaining $3,000 must be donated to charity.
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