KembaraXtra–Islamic Finance–Islamic Capital Market–Understanding Monetary Assets in Shari’ah Screening


What Does This Rule Mean?

When Shari’ah scholars screen companies, they do NOT say that a company cannot have cash.
Instead, they say that cash and money-like items must NOT dominate the company’s assets.


Islamic investing requires that shares represent ownership in real business activities and real assets, not mainly ownership of money.


So… Can a Company Have Cash?


✅ Yes, absolutely.
Every company must hold cash to:
• Pay salaries
• Pay suppliers
• Run daily operations


❌ But if most of the company’s assets are cash or money-based, then buying its shares becomes similar to trading money for money, which is not allowed in Shari’ah.


👉 That is why limits are placed on monetary assets.


What Are Monetary Assets? (Very Simple)


1. Cash
This includes:
• Money in bank accounts
• Cash on hand


Example:
A company keeps $10 million in the bank to pay expenses.


✔ Normal and allowed
✖ Problem only if it becomes the major part of total assets


2. Accounts Receivable
Accounts receivable = money owed to the company by customers


This happens when:
• A company sells goods or services
• The customer has not paid yet


Simple example:
A halal furniture company sells sofas worth $1 million on credit.
Customers will pay next month.


👉 That $1 million is accounts receivable (money expected in the future)


Why it matters:
• Accounts receivable are money claims, not physical assets
• Too much of it makes the company money-based, not asset-based


3. Marketable Securities
These are short-term financial investments that can easily be converted into cash, such as:
• Treasury bills
• Bonds
• Interest-bearing money market instruments


Example:
A company invests excess cash in conventional bonds to earn interest.


❌ This is problematic because:
• It involves interest (riba)
• It is money generating money


Why Shari’ah Sets Limits on These Assets


Islamic law requires:
• Real economic activity
• Ownership of tangible assets
• Profit linked to business risk


If a company mainly owns:
• Cash
• Receivables
• Interest-based instruments


Then buying its shares means:
👉 You are mostly buying money, not a real business


And in Islam:
👉 Money cannot be traded for profit by itself


What Do the Percentages Mean?


Scholars set thresholds such as:
• Monetary assets ≤ 45%
• Real (illiquid) assets ≥ 51%


This ensures:
• The company is asset-backed
• Shares represent real ownership
• Trading shares is Shari’ah-compliant


Very Simple Example

Company A (Compliant):
• Factories & equipment: 60%
• Cash & receivables: 40%
✅ Allowed


Company B (Not Compliant):
• Cash & receivables: 80%
• Real assets: 20%
❌ Not allowed


One-Line Summary

👉 Islam does not forbid companies from holding cash, but it requires that real assets and real business activities dominate, so shares represent genuine ownership rather than money trading.