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Sharīʿah Screening Process of Capital Markets: An Evaluation of Methodologies

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  • Hanif, Muhammad

Abstract

This study highlights the issues in the screening process of Sharīʿah-compliant stock universe from Sharīʿah and professional perspectives. We have critically analyzed Sharīʿah-compliance methodologies of selected (eight) institutions in the light of Islamic principles of business. The findings suggest multiple weaknesses in the process, including variations in tolerance limits (for harām elements), variations in the use of calculation methods (total assets and market capitalization), insufficient income purification mechanism, and confusions about the application of bayʿ al-ṣarf and bayʿ al-dayn regulations. In addition, we find lack of revisions in the tolerance limits, corresponding to the expansion of the Islamic finance market. We also find that certain important areas, such as questionable marketing and sales practices and environmental damages, are ignored in filtration. This study proposes a Sharīʿah-compliance rankings mechanism for Islamic stock markets, within agreed upon framework, based on the degree of violations.

Suggested Citation

  • Hanif, Muhammad, 2018. "Sharīʿah Screening Process of Capital Markets: An Evaluation of Methodologies," OSF Preprints enx3p, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:enx3p
    DOI: 10.31219/osf.io/enx3p
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    References listed on IDEAS

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    1. Rehman Scheherazade S. & Askari Hossein, 2010. "An Economic IslamicityIndex (EI)," Global Economy Journal, De Gruyter, vol. 10(3), pages 1-39, October.
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