Shariah-approved securities are traded daily on the Malaysian stock market. Perhaps investors may have already been investing in them without realizing it. Essentially, Shariah-approved securities are the same securities traded on the Bursa Malaysia but they have to comply with a set of criteria before they can be deemed as such.
Shariah-approved securities are a mechanism to help Muslim investors to identify the Halal securities.
Permissible vs non-permissible activities Under Shariah principles, one of the most crucial aspects before an investment decision is made is the need to evaluate the business activities of a company to ascertain whether its activities are Halal (permissible) or non-Halal (non-permissible). So how do investors determine this?
Fortunately for the Malaysian investors, the Shariah advisory Council (SAC) of the Securities Commission (SC) has taken steps to evaluate the business activities of public-listed companies. Companies that fulfilled the criteria set by the SAC will have their securities classified as shariah approved.
The criteria Securities of companies that carry out any of the following activities will not qualify as Shariah approved:
| Categories | Examples of activities |
| Interest (riba) | Conventional financial activities that are offered by financial institutions such as commercial and merchant bank as well
as finance companies.
|
| Gambling | Horse racing, casino, lottery, etc. |
| Manufacture and/or sale of Haram(non-permissible) products and services | Manufacture and sales of liquor, pork, or animals that are not slaughtered according to Islamic rites. |
| Elements of uncertainty (gharar) | Conventional insurance products. |
However, for companies whose core business activities are comprised of both permissible and non-permissible elements, the SAC will apply additional criteria in evaluating the securities, which are:
- The percentage of Haram elements when compared with the overall core activities;
- The public perception or image of the company, whether good or otherwise;
- The core activity of the company, whether important and if they benefit in general (maslahah) to the community at large (ummah).
Loan stocks Loan stocks listed on the Bursa Malaysia are not considered as Shariah-approved securities because they are interest-bearing instruments and are not structured according to the Shariah principles. It is imperative for investors to understand this distinction because even though a company’s share may be classified as shariah compliant, its loan stock is not.
Helpful resources Over 80 per cent of the securities listed on the Bursa Malaysia are Shariah-approved and they are available in almost all sectors. This provide ample investment opportunities for investors desiring to invest in Shariah-compliant securities. Investors can do a quick check by reviewing the SC’s booklet on List of Securities Approved by the Shariah Advisory Council of the Securities Commission, which can be obtained free from the SC and updated every three to six months on the SC’s website at www.sc.com.my.
Nevertheless, Shariah-approved securities are only to indicate the permissibility or Halal status of securities. It is not an endorsement by the SC that the security is suitable for investment. Ultimately, investors should still make the investment decision themselves.
**This article was first published in The Halal Journal Mar/Apr 2005 edition, and was written by the Securities Commission Malaysia.