Shariah-Compliant Securities Screening Methodology

Introduction

The SAC adopts a two-tier quantitative approach, which applies the single business activity benchmark and the financial ratio benchmarks, in determining the Shariah status of the listed securities. Hence, the securities will be classified as Shariah-compliant if their business activities and financial ratios are below these benchmarks.

Business Activity Benchmark

The contribution of Shariah non-compliant activities to the Group total income¹ will be computed and compared against the 5% benchmark. The business/ activities are as follows:

conventional banking and lending;
conventional insurance;
gambling;
liquor and liquor-related activities;
pork and pork-related activities;
non-halal food and beverages (F&B) including F&B without halal certification²;
tobacco, cigarette, electronic cigarettes and their related activities and products;
interest income from conventional accounts and instruments (including interest income awarded arising from a court judgement or arbitrator, late payment charges and penalty charges);
dividends from Shariah non-compliant investments;
Shariah non-compliant entertainment;
share trading;
stockbroking business;
cinema;
rental received from Shariah non-compliant activities; and
other activities deemed non-compliant according to Shariah principles as determined by the SAC.

For the above-mentioned businesses/ activities, the contribution of Shariah non-compliant businesses/ activities to the Group total income must be less than 5%.

Financial Ratio Benchmarks

For the financial ratio benchmarks, the SAC takes into account the following:

(i) Cash over total assets
Cash only includes cash and cash equivalent placed in conventional accounts and instruments, whereas cash placed in Islamic accounts and instruments is excluded from the calculation.

(ii) Debt over total assets
Debt only includes interest-bearing debt whereas Islamic financing or sukuk is excluded from the calculation.

Each ratio, which is intended to measure riba and riba-based elements within a company’s statements of financial position, must be less than 33%.

In addition to the above two-tier quantitative criteria, the SAC also assesses the qualitative aspect which involves public perception or image of the company’s activities from the perspective of Islamic teaching.

Including revenue, other income, share of profit etc.
For listed companies whose activities involved in manufacturing, processing and marketing of food products, they shall obtain halal certification from Jabatan Kemajuan Islam Malaysia (JAKIM) or any other halal certification bodies recognized by JAKIM.