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KembaraXtra–Islamic Finance–Islamic Capital Market–Qualitative Screens
Meaning of Qualitative Screens
Qualitative screens are Shari’ah-based rules used by Islamic scholars to decide whether an investment is halal (permissible) or haram (prohibited).
They focus on the nature and behaviour of the company, not numbers or ratios.
If a company fails qualitative screening, it is automatically excluded, even if it is profitable.
Types of Qualitative Screening
1. Industry Screening
Industry screening examines which sector or industry the company operates in.
The company is not Shari’ah-compliant if its core business is involved in prohibited (haram) industries.
Examples of prohibited industries:
• Alcohol production and distribution
• Gambling, betting, casinos, and games of chance
• Interest-based banking and conventional insurance (riba-based finance)
• Pornography and non-Shari’ah-compliant entertainment
• Pork and non-halal food production
• Weapons and arms manufacturing (in many Shari’ah opinions)
Key rule:
👉 If the main industry is haram, the stock is rejected regardless of financial strength.
2. Business Practices Screening
Business practices screening evaluates how the company conducts its operations.
Even if the industry is halal, the company may still be excluded if its practices are unethical or exploitative under Islamic principles.
Unacceptable business practices include:
• Exploitation of customers or suppliers
• Fraud, deception, or misleading advertising
• Price manipulation or unfair trading practices
• Abuse of monopoly power
• Harmful labour practices or injustice to workers
Key rule:
👉 Islam requires justice (adl) and fair dealing, not just halal products.
Why Qualitative Screening Is Important
• Ensures investments align with Islamic ethics
• Prevents indirect support of immoral activities
• Promotes fairness, transparency, and social responsibility
• Reflects the Islamic principle that how profit is earned matters, not just how much is earned
Simple Example
• A food company selling halal products passes industry screening
• If the same company exploits farmers or cheats customers, it fails business practices screening
👉 Result: Not Shari’ah-compliant
One-Line Summary
👉 Qualitative screening checks whether a company’s industry and behaviour are morally acceptable under Shari’ah, before any financial analysis is done.
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