Screening Method for Shariah Compliant

Topics: Dow Jones Islamic Index, Investment, Kuala Lumpur Pages: 4 (1288 words) Published: May 18, 2013
Screening method
Screening method is used in order to classify those stocks that listed in Bursa Malaysia as shariah-compliant. There are two methods in shariah screening methodology which are quantitative and qualitative. Shariah advisory Commission (SAC) received input and support from the SC. The SC gathered information on the companies from various sources, such as company annual financial reports, company responses to survey forms and through inquiries made to the respective company’s management. The SC, through the SAC, continues to monitor the activities of all companies listed on Bursa Malaysia on periodic basis based on availability of information to determine their status from the Shariah perspective. In order to be classified as Shariah-compliant; SAC need to consider three criteria which are: (a) The proposed business activity should be Shariah-compliant (b) The proceeds raised from the IPO should be placed in an Islamic account (c) In the event that the proceeds are invested, the investment should be Shariah-compliant. To determine the tolerable level of mixed contributions from permissible and non-permissible activities towards turnover and profit before tax of a company, the SAC has established several benchmarks based on ijtihad (reasoning from the source of Shariah by qualified Shariah scholars). If the contributions from non-permissible activities exceed the benchmark, the securities of the company will be classified as Shariah non-compliant. The benchmarks are: a) the five-percent benchmark

This benchmark is used to assess the level of mixed contributions from the activities that are clearly prohibited such as riba (interest-based companies like conventional banks), gambling, liquor and pork. b) The 10-percent benchmark

This benchmark is used to assess the level of mixed contributions from the activities that involve the element of “`umumbalwa” which is a prohibited element affecting most people and difficult to avoid. An...
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