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Islamic Capital Market
Shari'ah Compliant Listed Equities
The Shari'ah Advisory Council (SAC) of the Securities Commission Malaysia approves and updates shares classified as Shari'ah compliant Securities, listed on Bursa Malaysia. The list is updated twice a year. The list provides investment reference for Islamic unit trust funds, Takaful funds, Islamic stock broking companies/services and investors looking for Shari'ah compliant investment. The list shall meet several objectives as follows:
- Facilitate investors seeking investment in Shari’ah compliant shares listed on Bursa Malaysia.
- Centralisation of Shari’ah decisions domestically.
- Enhance disclosure and transparency.
- Promote the development of Islamic Capital Markets.
- Encourage the development of Islamic instruments.
What is the methodology used for screening?
The SAC screens listed shares based on certain methodology and the list is published twice a year. As a preliminary screening, companies which activities are not contrary to Shari’ah principles will be classified as Shari’ah compliant securities. On the other hand, companies will be deemed as Shari’ah non-compliant if they are involved in the following core activities
- Financial services based on riba (interest)
- Gaming and gambling
- Manufacture or sale of non-halal products or related products
- Conventional insurance
- Entertainment activities that are non-permissible according to Shari’ah
- Manufacture or sale of tobacco-based products or related products
- Stock broking or share trading on Shari’ah non-compliant securities, and
- Other activities deemed non-permissible according to Shari’ah
For companies with activities comprising both permissible and non-permissible activities, the SAC measures level of mixed contributions from permissible and non-permissible activities towards turnover and profit before tax of a company. The SAC uses benchmarks based on Ijtihad (Shari’ah based reasoning). Where the contributions of non-permissible activities exceed the benchmark, the securities shall be classified as Shari’ah non-compliant.
The SAC also looks at two additional criteria, namely public perception that the company must be good, and the core activities of the company are important and considered maslahah (benefit) to the Muslim generally and the non-permissible activities are very small and involve matters such as umum balwa (common plight and difficult to avoid), uruf (custom) and the rights of Muslim community which are accepted by Islam.
Please click here for more information.
Bursa Malaysia, in the context of Shari’ah screening process, has two comprehensive and transparent screening methodologies which are set up by SAC and Yasaar Ltd. These screening methodologies that look at both quantitative and qualitative measures help us meet local requirements and align us with international standards.
How many securities are Shariah compliant?
As at 25 May 2012, 825 securities are classified as Shari'ah compliant. They represent 89% of securities listed in Bursa Malaysia. Please click here for full list of Shari’ah compliant securities, which are marked by "[S]".
Is there an Islamic equity index?
Bursa Malaysia has launched two indices to track the performance of Shari’ah compliant securities – the FTSE Bursa Malaysia EMAS Shari’ah Index (FBM EMAS Shari’ah) and FTSE Bursa Malaysia Hijrah Shari’ah Index (FBM Hijrah Shari’ah). They are designed for the creation of structured products, index tracking funds and ETFs or as a performance benchmark. The constituents are screened and tested on market capitalisation, free-float and liquidity.
The FBM EMAS Shari’ah is a benchmark index that applies the principles set out by the SAC. Companies that make up this index are those in FTSE Bursa Malaysia EMAS Index and whose business activities are not involved in:
- Financial services based on riba (interest);
- Gambling and gaming;
- Manufacture or sale of non-halal products or related products;
- Conventional insurance;
- Entertainment activities that are non-permissible according to Shari’ah;
- Manufacture or sale of tobacco-based products or related products;
- Stockbroking or share trading in Shari’ah non-compliant securities; and
- Other activities deemed non-permissible according to Shari’ah.
Please click here for FBM EMAS Shari’ah factsheet.
These Shari’ah compliant companies are further filtered for FBM Hijrah Shari’ah. The screening methodology used is the one set up by Yasaar Ltd, a leading global Shari’ah consultancy, to meet the requirements of international Islamic investors. The largest 30 companies that make up the index must not be involved in:
- Banking or any other interest related activity, such as lenders and brokerages, but excluding Islamic financial institutions;
- Alcohol;
- Tobacco;
- Gaming;
- Arms manufacturing;
- Life insurance; and
- Pork and non-halal food production, packaging and processing or any other activity related to pork and non-halal food
Companies that have the following criteria are also excluded from the index:
- Companies whose ratios of debt and debt service in combination are unacceptable and indicative of an inappropriate use of leverage relative to their assets;
- Companies that have income from cash or near cash equivalents or inappropriate levels of receivables to assets, the metrics by which shares are included or excluded are designed to be in keeping with Islamic Shari’ah principles and commonly accepted philosophies;
- Companies whose liquid assets to illiquid assets exceeds the percentage permitted under Shari’ah principles and commonly accepted philosophies; and
- Companies whose cash and cash equivalent to total assets exceeds the percentage permitted under Shari’ah principles and commonly accepted philosophies.
Please click here for FBM Hijrah Shari’ah factsheet.