1. | Why has the Securities Commission Malaysia’s (SC) Shariah Advisory Council (SAC) revised the Shariah screening methodology for companies listed and to be listed on Bursa Malaysia? | |||||||||||||||||||||||||||
In 1995, the SC’s SAC established the methodology to undertake Shariah screening process for listed companies. The methodology comprises quantitative and qualitative assessments.In view of the current development and sophistication of the Islamic finance industry, the screening methodology has now been revised by adopting a two-tier approach to the quantitative assessment which applies the business activity benchmarks and the newly-introduced financial ratio benchmarks while at the same time maintaining the qualitative assessment.This revision is in line with the SC’s initiatives to further build scale in the Shariah-compliant equity and investment management segments as well as expand the Islamic capital market’s (ICM) international reach, as outlined in the Capital Market Masterplan 2. | ||||||||||||||||||||||||||||
2. | What are the changes in the Shariah screening methodology? | |||||||||||||||||||||||||||
The changes are as follows:
Business Activity Benchmarks The 5% benchmark would be applicable to the following business activities:
The 20% benchmark would be applicable to the following activities:
The contribution of Shariah non-compliant activities to the overall revenue and profit before tax of the company will be calculated and compared against the relevant business activity benchmarks. Note:
Financial Ratio Benchmarks The financial ratios applied are as follows:
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3. | What is the primary implication of the revised screening methodology? | |||||||||||||||||||||||||||
The streamlining of the business activity benchmarks and the inclusion of the financial ratio benchmarks will enhance the robustness of the screening methodology for listed securities and, in turn, is expected to bolster the competitiveness of the Malaysian Islamic equity market and Islamic fund management industry. | ||||||||||||||||||||||||||||
4. | How does the revised methodology affect the Shariah-compliant status of listed companies? | |||||||||||||||||||||||||||
The Shariah-compliant status of the company may be affected in the following manner:
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5. | When is the effective date? | |||||||||||||||||||||||||||
The outcome of the revised methodology will be reflected in the List of Shariah-compliant Securities by the SC’s SAC effective from November 2013.To ensure a smooth transition under the revised methodology, investors are given six months[1] from the effective date of the List of Shariah-compliant Securities on 29 November 2013 to dispose of securities that are excluded from the list, in the event that the respective market price of such securities exceeds or is equal to the investment cost. During the six-months period, dividends received and capital gain realised from the disposal of such securities may be retained by investors, without the need to channel any portion of the dividends and capital gains to baitulmal and/or charitable bodies.Note: Original investment cost may include brokerage cost or other related transaction costs. | ||||||||||||||||||||||||||||
[1] Collective investment schemes and other funds approved by the SC as Shariah-compliant are advised to follow the existing SAC guidance for the disposal of Shariah non-compliant securities after the end of the six-month grace period.