{"id":6415,"date":"2022-10-25T10:25:08","date_gmt":"2022-10-25T10:25:08","guid":{"rendered":"https:\/\/ethis.co\/blog\/?p=6415"},"modified":"2023-01-19T04:54:07","modified_gmt":"2023-01-19T04:54:07","slug":"shariah-screening-for-non-shariah-stocks","status":"publish","type":"post","link":"https:\/\/ethis.co\/blog\/shariah-screening-for-non-shariah-stocks\/","title":{"rendered":"Shariah Screening for Non-Shariah Compliant Stocks From Around The World"},"content":{"rendered":"\n

By Maria Zehra, Ph.D. candidate. at Jamia Millia Islamia<\/em><\/strong> – Share investment is permissible under Islamic principles but with certain restrictions. When an individual makes an equity investment, that individual automatically obtains a proportionate ownership stake in the company. The process of determining whether or not a company’s equity is suitable for investment by comparing it to shariah criteria developed by experts in the field of shariah is known as shariah screening.<\/p>\n\n\n\n

The shariah screening process classifies into two broad steps:<\/p>\n\n\n\n

1. Business screening\/Industry-based screening<\/strong><\/h2>\n\n\n\n
\"Shariah<\/figure>\n\n\n\n

The screening is qualitative. At this stage, we analyse the company’s active industry. We will only move on to the following screening stage if the company’s industry complies with Shariah law. Companies that, among other things, deal in selling pork, alcohol, gambling, betting, tobacco, adult entertainment, cloning, conventional banking, and advertising and media that do not comply with shariah law are included in this category. These spheres of the economy are generally acknowledged to lack compliance standards.<\/p>\n\n\n\n

Related:<\/strong> Should Cryptocurrency be Shariah Screened?<\/a><\/p>\n\n\n\n

2. Financial screening\/Accounting based screening <\/h2>\n\n\n\n

This screening is quantitative. At this stage, we analyse the company’s financial accounts to determine whether or not they comply with the accounting rules and methods based on shariah. This includes the items listed below:<\/p>\n\n\n\n

1. Shariah abhorrent debt to total assets<\/p>\n\n\n\n

2. Shariah Abhorrent income(including questionable income) to total revenue<\/p>\n\n\n\n

3. Extent of cash and cash receivables<\/p>\n\n\n\n

Although countries and Islamic financial institutions use the same financial screening criteria for the shariah screening of stocks, different indices and countries have adopted different shariah screening norms regarding specifications tailored to their country’s nature and circumstances. This is despite countries and Islamic financial institutions using the same fundamental financial screening criteria. <\/p>\n\n\n\n

Similarly, several nations and organisations have distinct ways of dealing with the limitations placed on the amount of money created through activities that do not comply with regulations.\u00a0<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Governments or Islamic financial institutions where the activity took place are responsible for establishing a ceiling for the income generated from business activities that are not per Islamic law.<\/p>\n\n\n\n

There are generally two perspectives on this:<\/p>\n\n\n\n

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