The screening process for Securities Commission (SC) is taken by the Shariah Advisory Council of SC. There are two phases of screening process which are, the industries screening and the second phase is the financial screening. Click Here for the latest Shariah stock screening criteria by SC (November 2013)
SC Industries
Screening criteria
To be listed in
list of shariah compliant company by SC, the core activities of the companies
should be Shariah compatible. Companies will be classified as shariah
non-compliant stocks if their core businesses activities have involve in
following elements:
a) Financial
services based on riba (interest),
b) Gambling
and gaming,
c) Manufacture
or sale of non-halal products or related products,
d) Conventional
insurance,
e) Entertainment
activities which are non-permissible according to Shariah,
f) Manufacture
or sale of tobacco-based products or related products,
g) Stockbroking
or share trading in Shariah non-compliant securities, and
h) Other
activities deemed non-permissible according to Shariah.
Source: Bulletin of Malaysian Islamic
Capital Market (1st quarter of 2011 issue)
Hence a company
which involve in these activities as their core business will be excluded from
the list of shariah compliant company by Securities Commission of Malaysia.
SC Financial
Screening Criteria
The quantitative screening involve when a
companies practice a mixed shariah and shariah non-compliant activities which
will affected the purity of the company income. For this, SC considers two
additional criteria for this mixed halal and haram income company before
applying the benchmark which will decide either the stock from the company are
shariah compliant or not. The criteria are:
i) The
public perception or image of the company must be good, and
ii) The core or main activities of the
company are important and considered in the public interest (maslahah) to the Muslim community (ummah) and
the country. Furthermore, the non-permissible
element is very insignificant and involves matters such as common plight and difficult to avoid (umumbalwa), custom
(uruf) and the rights of the non-Muslim community which are accepted by Islam.
If a company
qualify these terms and condition, next, SC will screen their mix halal and
haram income sources by using benchmark based
on reasoning from the source of Shariah by qualified Shariah scholars.
If the income contributions
from non-permissible activities exceed the benchmark, the securities of the
company will be classified as shariah non-compliant stock.
The benchmarks are:
a) The
5-percent (5%) 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), maysir (gambling), liquor, pork and
non-halal food production.
b) The
10-percent (10%) benchmark
This benchmark is used to assess
the level of mixed contributions from the activities that involve the element of ‘umumbalwa’ which is
prohibited element affecting most people and difficult to avoid. For examples, interest income
from fixed deposits in conventional banks.
c) The 20-percent (20%) benchmark
This benchmark is used to assess
the level of contribution from mixed rental payment from Shariah non-compliant activities such as
the rental payment from the premise that involved in gambling, sale of liquor, and others that related.
d) The 25-percent (25%) benchmark
This benchmark is used to assess
the level of mixed contributions from the activities that generally permissible according to
the Shariah and have an element of maslahah (public interest), but there are other elements that may affect the Shariah
status of these activities, for example,
hotel and resort operations, share trading, stock broking, as these activities
may also involve other activities
that are deemed non-permissible according to the Shariah.
Source: Bulletin of Malaysian
Islamic Capital Market (1st quarter of 2011 issue)
P/S: I will update this entry if there are changes of benchmark set by SC, which I heard it will be changes maybe in the end of this year or maybe next year. Click here for the latest Shariah screening criteria by SAC of SC (November 2013)
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