The Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC) approves and updates shares classified as Shariah-compliant Securities, listed on Bursa Malaysia. The list, which is updated every May and November, provides investment reference for Islamic unit trust funds, Takaful funds, Islamic stock broking companies/services and investors looking for Shariah-compliant investments. The list shall meet several objectives as follows:
- Facilitate investors seeking investment in Shariah compliant shares listed on Bursa Malaysia.
- Centralisation of Shariah decisions domestically.
- Enhance disclosure and transparency.
- Promote the development of Islamic Capital Markets.
- Encourage the development of Islamic instruments.
What is the methodology used for screening?
The SAC of SC screens listed shares based on a 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 the 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.
The SAC of SC subsequently assesses the financial management of the company by applying financial ratio benchmarks. The financial ratio benchmarks are intended to measure riba and riba-based elements within a company’s statements of financial position.
In addition, the SAC of SC also takes into account the qualitative aspect which involves public perception or image of the company’s activities from the perspective of Islamic teaching.
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How many securities are Shariah-compliant?
As of 28 February 2024, 841 securities are classified as Shariah-compliant. They represent 78% of securities listed in Bursa Malaysia.