Latest Shariah Stock Screening by Securities Commission of Malaysia

To identify which company are shariah compliant, The Shariah Advisory Council (SAC) of Securities Commission of Malaysia (SC) use a two phase of quantitative approach, which are the business activity benchmark and the financial ratio benchmarks.

Business Activity Benchmarks

In this approach, to see the ratio on how much shariah non-compliant distribution to the total revenue of a company, the total contribution of shariah non-compliant business activities
of a company will be compared to the overall revenue and profit before taxation of a company.

There are two types of benchmark applied in different business activities, which are:

The 5% benchmark

	Business Activities	Rationale
1	Conventional  banking	Interest (riba) based products
2	Conventional insurance	Ambiguity/uncertainty (gharar) based products
3	Gaming and gambling	Prohibited by Shariah
4	Liquor and liquor related activities	Prohibited by Shariah
5	Pork and pork related activities	Prohibited by Shariah
6	Non-Halal food and beverages	Prohibited by Shariah
7	Tobacco and tobacco related activities	Harmful to life
8	Shari’a non-compliant entertainment	Prohibited by Shariah
9	Interest income from conventional accounts and instruments (including investment from investment in shariah non-compliant instruments and interest income awarded arising from a judgement by a court or arbitrator)	Prohibited by Shariah
10	Other activities deemed non-compliant according to shariah

The contribution from shariah non-compliant business and activities that has mention above will be compared with the overall revenue or profit before tax of the company, must be less than 5%.

The 20% Benchmark

This 20% benchmark is applied to:

1	Hotel and resort operations
2	Share trading
3	Stockbroking business
4	Rental received from shariah non-compliant activities
5	Other activities deemed non-compliant according to shariah

For the above mentioned business and activities, the contribution from shariah non-compliant business and activities will be compared with the overall revenue or profit before tax of the company, must be less than 20%.

Financial Ratio Benchmarks

There are 2 types of financial benchmarks set by SC

1	Cash over total assets	Only includes cash that placed in conventional account and instruments. In the other word, cash placed will not include in the calculation
2	Debt over total assets	Only include interest bearing debt, Islamic finance sukuk will be excluded from the calculation

Company which have cash or debt more than 33% will be excluded from the list of shariah compliant company.











Source: 'List of Shariah-Compliant Securities by the Shariah Advisory Council of the Securities Commission Malaysia'. 29 November 2013. Published by Securities Commission of Malaysia