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KembaraXtra–Islamic Finance–Islamic Capital Market – Shari’ah-Compliant Stocks
-Shari’ah-compliant stocks are shares of companies that are approved for investment only after being examined under Shari’ah principles
-Both the securities and the company’s overall operations must comply with Shari’ah tenets before approval
-These stocks are usually issued by publicly listed companies,making them tradable in the secondary market
-Shari’ah compliance is assessed across all key dimensions of the company,including:
-Primary business activities,to ensure the core operations are halal
-Investment activities,to ensure funds are not invested in prohibited sectors
-Financial position,to ensure limited involvement in interest-based transactions
-The classification and monitoring of Shari’ah-compliant stocks are carried out by Islamic stock index providers
-Major global providers include Dow Jones,S&P,and MSCI
-These providers apply two main screening approaches:
-Qualitative screening,to evaluate the nature of business activities and ethical considerations
-Quantitative screening,to assess financial ratios such as debt,interest income,cash,and receivables
-The screening process establishes benchmarks for acceptable business involvement and financial thresholds
-Only companies that meet both qualitative and quantitative criteria are classified as Shari’ah-compliant
-Key takeaway:Shari’ah-compliant stocks represent ownership in ethically screened,financially disciplined companies,ensuring investments align with Islamic principles while remaining part of modern capital markets
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