Shariah Stock Classification

Approved Shariah stocks in Bursa Malaysia would be determined by the Shariah Advisory Council (SAC) thru a standard filtering criteria, focusing on the core activities of the listed companies.

Therefore, any listed companies which activities are not contrary to the Shariah principles will be recognized as halal stocks.

The activities that are considered against the Shariah principles as for the following:

• the operations based on riba
• the operations involving gambling
• the activities involving the manufacture or sale haram products
• the operations containing element of gharar (uncertainty)

For the companies whose activities comprise both permissible and non-permissible elements, the SAC would decide based on the follwing criteria:

• the core activities must be clearly halal and the non-permissible activities are very small percentage compare to the core activities.
• the public preception and image the public listed company must be good.
• the core activities of the companies must have 'maslahah' to ummah and country and the non-permissible elements must contain the matters of 'umum balwa' (commom plight), urf (custom) and rights of the non-muslims which are accepted by Islam.

The approved stocks (securities) are ordinary shares, warrants and transferable subscription rights (TSR).

To classify whether the stocks are either permissible or non-permissible , the SAC goes thru two phases of analysis which are:

• the quantitative method
• the qualitative method

The quantitative method focuses in the calculation of percentage contribution of non-permissible activities to company's income and profit before tax.

There is a benchmark used by the SAC to determine whether the mixed company will be considered as permissible or non-permissible stocks:

• the 25% benchmark
• the industry of hotels and resorts.
• if the non-permissible earning is more than 25% from PBT, it would be considered as non-permissible.
• the 20% benchmark
• the rental payment from liquor and gambling premises.
• if the non-permissible earning is more than 20% from PBT, it would be considered as non-permissible.
• the 10% benchmark
• the interest income from fixed deposits in conventional banks.
• if the non-permissible earning is more than 10% from PBT, it would be considered as non-permissible.
• the 5% benchmark
• if the non-permissible earning is more than 5% from PBT, it would be considered as non-permissible.

The qualitative method is the public perception or the image of the company, whether the core activities of the companies are:

• having maslahah to ummah and country
• non-permissible activities are very small
• having umum balwa, urf and rights of non-muslim which is accepted by Islam.