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Suppose that a committee has been set up to evaluate and propose improvements to the current...

Suppose that a committee has been set up to evaluate and propose improvements to the current criteria used in Shariah stock screening and that you have been asked to provide inputs and suggestions. What are the recommendations on how the Shariah stock screening process and/or the criteria used can be improved?

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Answer :-

The SAC of SC screens listed shares based on certain methodology. As a preliminary screening, companies which activities are not contrary to Shariah principles will be classified as Shariah-compliant securities. On the other hand, companies will be deemed as Shariah non-compliant if they are involved in the following core activities

  • Financial services based on riba (interest)
  • Gaming and gambling
  • Manufacture or sale of non-halal products or related products
  • Conventional insurance
  • Entertainment activities that are non-permissible according to Shariah
  • Manufacture or sale of tobacco-based products or related products
  • Stock broking or share trading on Shariah non-compliant securities, and
  • Other activities deemed non-permissible according to Shariah

For companies with activities comprising both permissible and non-permissible activities, the SAC of SC measures level of mixed contributions from permissible and non-permissible activities towards turnover and profit before tax of a company. The SAC of SC uses benchmarks based on Ijtihad (Shariah based reasoning). Where the contributions of non-permissible activities exceed the benchmark, the securities shall be classified as Shariah non-compliant.

genius_generous answered 2 years ago
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