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ANALYSIS OF CAPITAL GAIN AS A MAIN MOTIVE IN ISLAMIC CAPITAL MARKET
Gusniarti
Islamic Faculty, University of Muhammadiyah Prof. DR. HAMKA
ABSTRACT
This study aims to prove that the obtaining capital gain as the major purpose for transactions in the Islamic Capital Market is not in accordance with the concept of Islamic economics. People said that capital gain as primary goal was something justified not only in Conventional Capital Market but also in Islamic Capital Market. The first refers to Islamic concepts, whereas the second refers to the concept of capitalist economy. This research is a qualitative study with field survey in which the author wants to explain the incompatibility of capital gains motives with basic principles in Islamic economics. This study strengthen that the capital gain motive only is not in line with the Maqasid Shari’ahh and the basic principles in Islamic economics because this is actually born from the capitalist concept that gives the widest freedom to individuals to obtain the greatest benefit in various ways, while in Islam benefit is not the main purpose but Maslahah. Thus, it must be aligned with the objectives of the Islamic economy, namely Maqasid Shari’ah so it brings benefit to all people. This study contributes to the development of the Islamic capital market where the practice of speculation does not occur but really reflects the Islamic values and norms.
Key Word: Investment, Maqasid Shari’ah, Sharia capital market, capital gain.
INTRODUCTION
According to conventional economics, looking for capital gains on the secondary market is permissible without limits. There is no prohibition on someone buying as much as possible and then selling it to make a profit. However, if this continues then it will create bubble economics where the economy looks like advanced (pseudo economy) but is not supported by the real sector. If it is shaken just a little, there will be a deep crisis like a balloon being poked with the needle then immediately erupted.
Capital gain is the difference between a lower purchase price and a higher selling price of stocks traded in the secondary market. To get the profit, Investors have to purchase at a lower price and sold at a higher price. This profit has nothing to do with the real sector. If this happens continuously, then money only revolves among the capital owners without touching the real sector. It creates a pseudo economy. It’s contrary to the capital market function that bringing together those who have excess funds and those who need funds in investment.
In the Islamic economics view, investment should be the main goal for investors when they comes to the capital markets both primary and secondary markets so that money is expected to revolve in the real sector and from the results of capital
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management will get a return. Capital owners meet with managers or people who have skills so that the value added money will be in line with the increase in the real sector.
But often happening, the investors change the goal to make a profit in the shortest possible time period that is called capital gains. From here the problem starts happening.
We could be argued that the purpose of the transaction in the primary market is investment and the purpose of the transaction in the secondary market is as an investment intermediary only. Getting capital gain continuously does not comply with the concept of Maqasid Shari’ah and investment.
This research is a qualitative study with field survey in which the author wants to explain the incompatibility of capital gains motives with basic principles in Islamic economics. An important aspect to be seen is the Maqasid Shari’ah as the main objective of Islamic economics and the concept of investment in Islam as the initial goal of coming to the capital market. The approach used in this research is the Islamic Economic approach. The data is taken from books, the Indonesia Stock Exchange, journals and others.
Capital gain as the main motive in the Islamic capital market actually comes from the concept of capitalist economy. In the Islamic perspective, the purpose of getting capital gain only is not compliance with Maqasid Shari’ah which is the goal of all transactions in the Islamic economy and is not in accordance with the investment concept which is the main objective of the capital market.
This study purposes to clarify and prove that capital gains are not in accordance with Maqasid Shari’ah which is the goal of economic activity in Islam and to make it clear that it is not in accordance with the investment concept which is the main objective of the existence of the capital market. This research gives contribution to the development of the Islamic capital market where the practice of speculation does not occur but really reflects the Islamic values and norms.
CAPITAL GAIN DOES NOT SUIT WITH MAQASID SHARI’AH
Maqasid Shari’ah becomes the mouthpiece of all human activities on earth including in the field of mu’amalah in terms of transactions at the secondary market in the capital market. Are transactions in the secondary market in line with Maqasid Shari’ah. The essence of Maqasid Shari’ah is to realize goodness and avoid badness at once or attracting benefits and rejecting harm at one blow.
According to Imam al-Ghazali (450-505 H / 1058 M-1111 AD), maslahah means something that brings benefits and keeps damage away. Maslahah also means goodness and usefulness, anonymous from the word mafsadah (damage) (Muhammad bin Abu Bakar al-Razy, 1990). Rejecting damage means withdrawing benefits and refusing benefit means withdrawing damage. The scholars agree that the maslahah is the benefit of the world and the hereafter (Ibn al-Qayyim, t.t) because the existence of Islamic law is intended to create goodness and usefulness, not only in the the world but also in the hereafter. Where there is a goodness and benefit to humans in Islamic perspective, that's where there is maslahah. In line with this definition, Imam al-Syaukani (1173 H-1250 H) who lived about two centuries earlier said that maslahah was maintaining and preserving the will of God by avoiding everything that endangers human life (Shatiby, t.t.). Thus, the essence of maslahah according to Imam Al-Ghazali and Syaukani is the
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kindness and usefulness desired by Allah swt rather than the goodness and usefulness desired by humans. What is good according to humans is not necessarily good according to Allah.
The way to realize the maslahah that is desired by Allah according to al-Ghazali is by maintaining al-usul a-khamsah (five main objectives of sharia) which include 1) Hifz al-dien (religion); 2) Hifz al-nasl (heredity); 3) Hifz al-nafs (soul); 4) Hifz al-‘aql (reason); 5) Hifz al-maal (treasure). Every effort that is able to preserve the five things is maslahah, and vice versa that damage the five goals of sharia is mafsadah (Al- Ghazali, 1993). Here are five important needs that must always be maintained in our life.
Syatibi (d. 790 H / 1408 AD) who wrote nearly three centuries after al-Ghazali (505 H) used the term of Maqasid Shari’ah and agreed the list of al-usul al-khamsah from al-Ghazali (505 H). Those were the most appropriate with Shariah essence.
Maqasid Shari’ah is the goal to be achieved by the Shari'ah (‘Allal al-Fasi, 1366).
Umer Chapra made it clear that the goal of Maqasid Shari’ah was the goal of the economy to achieve falah (human happiness) and hayatan thayyibah (good life) within the sharia boundaries. Spiritual Increase is the main factor to achieve falah (human happiness) (Umer Chapra, 1992). So, the term of Maqasid Shari’ahh and Maslahah have the same meaning.
Al-Ghazali and Syatibi (quoted from Chapra, 2000) placed the order of faith (al- dien) first because this would provide a worldview that tends to influence personality.
This would improve the balance between material and spiritual encouragement, increase family and social solidarity and prevent the development of anomie which is the condition of lack of moral standards. Faith (al-dien) is a moral filter to all behaviors in economic life. Imam al-Ghazali placed the sequence of treasure (al-maal) in the last order because the treasure was not the final destination. It is only an intermediary (tool) although it is very important to realize human happiness and it cannot deliver this purpose unless it is distributed fairly. If property becomes the main goal, there will be an imbalance and damage to the environment that will result in the unhappiness of community members. Three other goals in the middle (life (al-nafs), reason (al-aql) and descent (al-nasl) relate to humans themselves because their happiness is being the main goal of sharia (M. Umer Chapra, 1992).
In connection with the Maqasid Shari’ahh above, we will first look at the behavior of people who obtain capital gains in the capital market. Indeed, there are other parties who are very happy when they get a very large profit, but at the same time there are other parties who loss that ultimately owe everywhere, even become criminals (Ali Arifin, 2007). Psychologically, people become addicted when they often get large profits in a short time from capital gains and then they only stop when they have experienced bankruptcy. In lighter cases, the souls of investors become sick, the mind becomes unhealthy; the heart becomes uneasy due to greed in seeking profit. Sometimes a variety of methods are used to increase the price of shares and lower the price of other securities by creating issues, games and speculations. However, it is clear that it developeds greediness in human self. The term of win-lose is not in accordance with the initial principle, such as gambling which makes one party wins and the other party loses (Gusniarti, 2014). Is this kind of benefit desired? Obviously, the five things (al-usul al- khamsah) above have been neglected and far from the benefits desired by Allah Almighty.
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The phenomenal case was a king speculator and great bear of Wall Street', Jesse Lauriston Livermore (1877-1940) gaining huge profits when the Wall Street market was bearish in the crashes of 1907 and 1929. In 1934, Livermore was declared bankrupt because he often lost stock trading which eventually ended his life (Bayu, 2013).
Ironically, what Livermore said has being often used as a reference in transactions to get capital gains until now. He once revealed "The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor" (Elite Trader, 2010). What he said had been happened to him. In Indonesia, the case of a bread boss loosing stocks ended his life and his family at the same time (Forexindo, 2008).
The impact of capital gains as the main objective coming to the capital market is contrary to the maintenance of usul al-khamsah as an embodiment of Maqasid Shari‘ah namely religion, soul, ancestry, reason and wealth. Unhealthy souls contradict hifz al-
‘aql which results in opposing hifz al-nafs and ultimately in conflict with hifz al-dien which is the main purpose of life including the economy. Something that destroys one of usul al-khamsah means mafsadah. So capital gains which are used as the main motive in dealing in the secondary market carry more mafsadah than maslahah. Economic actors in the secondary market should be colored by the embodiment of Maqasid Shari‘ah or maslahah. The essence of it is a goodness or benefits desired by Allah swt, not what is desired by humans because what is good according to humans is not necessarily good according to Allah.
CAPITAL GAIN IS NOT IN ACCORDANCE WITH THE INVESTMENT CONCEPT.
Obtaining capital gains solely as a primary objective for transactions in the secondary market is not in accordance with the investment function (Tuti Ernawati, 2008) because investment requires patience and a longer time while capital gains only require a few minutes or even a few seconds. The benefits gained in a few minutes or hours in large numbers are really irrational. Irrational profits are usually only driven by greed within the human being. This activity eventually also led to acts of speculation that are detrimental to other parties. For the seller himself, if the goal is capital gain, it can be ascertained that in the shortest possible time the shares have been sold again to another party. In addition, the contribution to the macro economy is actually obtained from the results of transactions in the primary market rather than the secondary market.
All concepts, prohibitions and orders in Islamic economics lead to the real sector which can create a balance between humans and their environment.
Like the function of the secondary market to facilitate the exchange of securities between investors due to one reason or another, Investors wish to sell their part to another party or wish to get another investor's part who no longer wants to have them with reasonable sales and a process permitted in Sharia perspective, then this secondary market provides benefits.
Islam adheres to the concept of “economic value of time”(Adiwarman A. Karim, 2007) which prioritizes efforts to use quality time for the development of the real sector rather than the concept of time value of money in conventional economics that is not in
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contact with the real sector and is contrary to the rules of al-ghunmu bi al-ghurm or al- kharaj bi al-dhaman (Ali Ahmad al-Nadwi, 1994). The monetary sector (money) is only the impact of the real sector (Choudury, 1997). It means that money will not have added value if the real sector does not move. Therefore, investment is encouraged because it is believed to bring productivity in the real sector and provide benefits to the people. If the real sector does not work then the monetary sector will not develop. That is why Islam suggests making the best use of time with the management of the real sector so that there is added value to money.
In the process, the investment requires time, long-term or short-term. Short-term is not even possible for one day or even instant; at least it takes a year to make an investment. There is a distance between the time of purchase and resale in order to the object can be developed so that it has value added. Metwally (1984) stated that at least, investors did not sell the shares for three months. In addition to leading to the initial goal, It reduces the frequency of stock speculation in the secondary market so that the five things in Maqasid Shari‘ah (religion, soul, descent, intellect and property) are truly protected. Al-Masri (quoted from Gusniarti, 2015, p. 162) stated that the act of speculation was the same as gambling, both of which depent on information, experience and learning.
Mohamed Ali al-Gari (1993) believed that investment should be long-term and if it only aims to get capital gains then the transaction was not Islamic. Like al-Gari, Seif Tag el-Din (2007) said that the circulation of shares that did not add any real value to the community should be minimized. Investment in the Islamic capital market should provide prosperity to the society. The stock market is often used as a place to get profits and a lot of money from changes in stock prices, such as casinos. They only think of buying shares then sit and wait for the stock price to go up to make a profit. Some Muslim scholars explained that the transactions whose only purpose was to obtain capital as un-Islamic (Billah, 2007, p.76).
Another impact of capital gains is that the growth of the monetary sector will be faster than the real sector's. This will create bubble economics which will eventually erupt. (Wiedemer, 2006, p. 26). Where does the profit come from when transactions on the secondary market occur tens or even hundreds of times on the object? What is the effect on the real sector directly? It is clear that the benefits gained in the secondary market in term of capital gains will not flow to the issuer but to the brokers and the actors in capital market.
Obtaining capital gains solely does indeed benefit individuals because they can gain large profits in the short term but in the long run not only contribute less to the economy but also create bubble economics even the economic crisis. The effects of them will be felt by all elements of society. So, if only obtaining capital gains, that is not in accordance with the concept of falah, namely individual and social welfare. Apart from discrepancy of opinion about the acquisition of capital gains, however, it is clear that long-term investment makes a real contribution to economic growth, revives the real sector, and creates jobs, increases people's income. Sharia securities transactions that are carried out every day are still influenced by conventional economic concepts, where liquidity is an attraction of investors so that financial assets can be exchanged for money every day. Sometimes this liquidity is used as a reason to enliven the secondary market every day.
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In modern (conventional) financial theory, the company's goal is to maximize the welfare of shareholders. The measure of welfare lies in the price of the stock concerned (Marzuki Usman, 1997, p. 23). This is a measure of welfare for investors who make transactions in the secondary market by earning profits when stock prices rise.
Maximizing the welfare of shareholders by measuring the share price seems illogical.
Issuers want to prosper their shareholders but do not want to be directly responsible for the welfare itself. All is given to the market and the profit that occurs among the market players is to obtain capital gains. Welfare is obtained by a handful of people and losses by a large number of people. Unlike the prosperity in the concept of Islamic economics which includes the world-hereafter, individual-social, material-spiritual. That is why Monzer Kahl (1995, p. 131) said that is the investors who speculate on the capital market, not the issuer. The advantage for the issuer is only in the side that the shares of the company become superior shares contested by investors, thus providing good prospects for the company with the trust given by investors.
The difference of “welfare concept” results from the distinction system economics. It derives from Islam which forms a worldview consequently, the goals and objectives are different from other systems.The objectives of Islamic economics suits the objectives of the Shariah itself. Chapra (1992) explained, the goal of sharia (Maqasid Shari'ah) is the goal of economics. Spiritual enhancement is the main factor for achieving falah. Falah as a form of welfare is holistic and balanced including material and spiritual dimensions as well as individual and social and covering the dimensions of the world and the hereafter. Therefore, welfare can not only be measured by money through high share prices, but included intentions, sources, methods and so on. In my opinion, it is certainly better to restrict secondary market with holding period at least one year or three months like Metwally's opinion so that the opportunities for speculation are very minor or even no longer exist
In reality, capital gains still become a goal in the Islamic capital market. Investors are free to buy and sell at any time on weekdays. There are no time restrictions on holding shares. It cannot be ascertained whether they aim for investment or just getting capital gains. It is due to the Islamic and conventional capital markets are still united in one place like in Malaysia, London, including Indonesia and others, where there is dualism, sharia and conventional systems. It makes difficult to achieve the ideal Islamic capital market. Likewise, the fatwa of the National Sharia Council - Indonesian Ulema Council does not provide restrictions. Another factor, transactions can be done every working day, namely Monday-Friday like in conventional capital market.
Certainly, if we apply “holding period” rule then the Islamic secondary market is not as liquid as conventional secondary markets. However, we have to choose which the practices giving more benefit, not benefits in the human view but Allah sight because that is the true benefit. However, the liquidity concept comes from modern economics.
CONCLUSION
The capital gain as the main purpose is not in accordance with the maqasid shari’ah because it weakens al-usul al-khamsah, develops greediness in human beings, gives more harm than benefits, it is gambling which is shaded in sharia. In addition, it is
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also incompatible with the investment concept because of short-term transactions, causing the velocity of the monetary sector to be faster than the real sector, creation of bubble economics, causing an economic crisis, no impact on economic growth. To reduce the adverse effects above, it is recommended that the secondary market be given a minimum ownership period of three months or preferably one year.
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