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Shariah-Compliant Equities
Shariah-compliant securities are securities (ordinary shares, warrants and transferable subscription rights) of a stock exchange-listed company that have been classified as being admissible for investment based on the company's compliance with Shariah principles in terms of its primary business and investment activities.
In Malaysia the Shariah-compliant securities list was introduced in June 1997 by the Shariah Advisory Council (SAC) of the Securities Commission (SC). This list is updated twice a year (May and November) by reviewing each company’s annual financial reports, as well as by reviewing responses to a survey aimed at obtaining detailed company information, and through specific inquiries made to the respective company's management.
In order to determine the Shariah status of listed securities, the Shariah Advisory Council uses several basic criteria, based on the Quran and the Sunnah, as well as the general principles of Syara'.
The process focuses on the core activities of said companies, such as goods and services that are offered to customers. The SAC gives further consideration to companies that are involved in both Shariah-compliant and non-compliant activities by applying the concept of maslahah (public interest) and umum balwa (common plight).
Specific benchmarks and additional criteria, such as interest income and image, have been 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.