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Thursday, December 22, 2016

Shariah-compliant securities

Shariah-compliant securities are securities (ordinary shares, warrants and transferable subscription rights) of a Bursa Malaysia-listed company, which have been classified as Shariah permissible for investment based on the company's compliance with Shariah principles in terms of its primary business and investment activities.

The Shariah-compliant securities list was introduced in June 1997 by the Shariah Advisory Council (SAC) of the Securities Commission (SC). The list is updated twice a year, in May and November, by reviewing the companies' annual financial reports, responses to a survey aimed at obtaining detailed company information and through specific inquiries made to the respective company's management.
In the process of determining the Shariah status of listed securities, the SAC developed several basic Shariah criteria as guidance. The criteria were based on the Quran and the Sunnah, as well as the general principles of Syara'. In this process, the SAC focused on the core activities of the companies, such as goods and services that were offered to their customers. The SAC gave further consideration to companies that were involved in both Shariah-compliant and non-compliant activities by applying the concept of maslahah (public interest) and umum balwa (common plight). For this purpose, specific benchmarks and additional criteria, such as interest income and image were formulated to enable the SAC to determine the Shariah status of such companies. In such cases, where the financial contributions from the non-permissible activities fall below the benchmark level, the SAC will classify the securities of these companies as Shariah-compliant.
The release of the list has, to large extent, given investors the necessary guidance, opportunities and also confidence to choose and invest in listed securities that comply with Shariah principles. The list also stimulates the development of other Shariah-compliant products and services.

Source: MIFC

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