Determining Syariah - Compliant Securities

Syariah-approved securities are securities of companies listed on Bursa Malaysia whose activities conform to the Syariah criteria. How are these securities determined and who determines them? This article will shed some light on the process involved.

Who decides?
Syariah-approved securities are determined by the Syariah Advisory Council of the Securities Commission (SAC). The members of the SAC, who are appointed by the SC, consist of Islamic scholars, jurists and financial experts. They decide which shares comply with the Syariah principles.

How SAC determines Syariah status
In determining the Syariah status of a company, the SC will monitor the activities of all companies listed on Bursa Malaysia. Information on public-listed companies are gathered from various sources, such as company annual reports, companies’ responses to survey forms and through inquiries made to companies’ management. This information represents a vital input to SAC’s decision in determining Syariah-approved securities.

In general, securities will be classified as Syariah approved if they are not significantly involved in the following activities:

Financial services based on riba (interest)
Gambling
Manufacturing of non-halal products (e.g. pork, liquor etc)
Conventional insurance
Entertainment
Manufacture or sale of tobacco-based products or related products
Stockbroking or share trading in non-approved securities
Other activities deemed non-permissible



In addition, the SAC will also take into account other factors that are not activities based, such as:

the level of contribution of interest income received by the company from conventional fixed deposits or other interest bearing financial instruments.
the dividends that the company received from its investment in Syariah non-approved securities.