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Analysis of Sharī‘ah Based Equity Screenings: Developing a Sharī‘ah-Compliant Index for Qatar Stock Exchange

Author

Listed:
  • KAHF, MONZER

    (Hamad Bin Khalifa University)

  • AL-HAJJAJI, EMAN MOHAMMED

    (Hamad Bin Khalifa University)

Abstract

Although, any amount or portion of Haram is not permissible in Sharī‘ah. An exception has been addressed on the basis of the Sharī‘ah-established maxim of “necessities call for relaxation of prohibition.” 1 This allows investing in companies that engage in some non-permissible transactions (mixed companies) to a certain tolerable extent, provided that the financial outcomes of these transactions are purified by giving the part that is not-permissible to charity. Identifying mixed companies that Muslims can invest in is done by using specific Sharī‘ah screening criteria that exclude out of the universe of all listed companies in a specific market those companies with returns emanating from non-permissible activities beyond certain threshold limits. This paper identifies the screening criteria used by seven Islamic indices, compares and contrasts between them and tries to examine whether it is time to have an Islamic index with no tolerance to non-permissible activities using Qatar as a case study. It is found that there exists a number of differences among Islamic indices which have impact on the Muslim investors level of freedom through their impact on the universe of Halal equity assets. It is also found that an Islamic index with zero-tolerance to non-permissible activities may be constructed for Qatar Stock Exchange without losing much of freedom of choice in this market. A comparison between the proposed zero-tolerance index and the already existing Al Rayan Islamic index shows that there are no differences in their respective behaviors. Thisindicates that having companies that do some non-permissible activities and having non-permissible income in the “Islamic basket” of listed companies is not necessary in Qatar. This paper consists of five sections. The first section provides an introduction to the presented topic. The methods that are used for Sharī‘ah investment screening are discussed in section two. The third section includes a comparison of the screening criteria that are currently used by major index providers. The creation of an Islamic index with Zero-tolerance in Qatar Stock Exchange is illustrated in section four. The last section consists of conclusions and recommendations.

Suggested Citation

  • Kahf, Monzer & Al-Hajjaji, Eman Mohammed, 2019. "Analysis of Sharī‘ah Based Equity Screenings: Developing a Sharī‘ah-Compliant Index for Qatar Stock Exchange," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 26, pages 1-41.
  • Handle: RePEc:ris:isecst:0175
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    References listed on IDEAS

    as
    1. Dawood Ashraf, 2016. "Does Shari’ah Screening Cause Abnormal Returns? Empirical Evidence from Islamic Equity Indices," Journal of Business Ethics, Springer, vol. 134(2), pages 209-228, March.
    2. Ashraf, Dawood & Felixson, Karl & Khawaja, Mohsin & Hussain, Syed Mujahid, 2017. "Do constraints on financial and operating leverage affect the performance of Islamic equity portfolios?," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 171-182.
    3. Khatkhatay, M. H. & Nisar, Shariq, 2007. "Shari[Ah Compliant Equity Investments: An Assessment Of Current Screening Norms," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 15, pages 48-76.
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    More about this item

    Keywords

    Islamic Equity Market; Equity Screening; Islamic Finance; Qatar;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • Z12 - Other Special Topics - - Cultural Economics - - - Religion

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