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Shariah Screening Process of Capital Markets: An Evaluation of Methodologies عملية التدقيق الشرعي لأسواق رأس المال: تقييم المنهجيات

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  • Muhammad Hanif

    (Assistant Professor Finance, College of Business Administration, Ajman University, UAE)

Abstract

This study highlights the issues in the screening process of Shariah-compliant stock universe from Shariah and professional perspectives. We have critically analyzed Shariah-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 haram-elements), variations in the use of calculation methods (total assets and market capitalization), insufficient income purification mechanism, and confusions about the application of bay' al-sarf and bay' 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 Shariah-compliance rankings mechanism for Islamic stock markets, within agreed upon framework, based on the degree of violations. تسلط هذه الدراسة الضوء على أساليب وعمليات تصنيف الأسهم وفقا لمتطلبات الشريعة الإسلامية لتصنيف الأسهم من ناحية مهنية وشرعية. قمنا بتحليل نقدي لثمان مؤسسات لاختبار مدى التوافق مع مبادئ الشريعة الإسلامية. خلصت نتائج الدراسة إلى وجود العديد من السلبيات العملية منها: ما هو مخالف لأسس الشريعة الإسلامية، الاختلاف في أسس التقييم (قيمة الأصول للقيمة السوقية)، عدم كفاية أساليب تطهير الدخل وفقا للمنهج الإسلامي، عدم وضوح تطبيق نظم البيع، ضعف مراجعة حدود التفاوت، الفجوة في مواكبة نمو سوق التمويل الإسلامي، وكذلك الإخفاق في بعض الجوانب المتعلقة بعدم التحقق من بعض الممارسات البيئية وواقع عمليات البيع. تقترح الدراسة نموذجاً متوافقاً مع مبادئ الشريعة الإسلامية لتصنيف أسهم الأسواق الإسلامية في إطار متفق عليه ومبني على درجة الانحراف عن المبادئ الشرعية.

Suggested Citation

  • Muhammad Hanif, 2019. "Shariah Screening Process of Capital Markets: An Evaluation of Methodologies عملية التدقيق الشرعي لأسواق رأس المال: تقييم المنهجيات," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 32(1), pages 23-42, January.
    • Handle: RePEc:abd:kauiea:v:32:y:2019:i:1:no:2:p:23-42
    DOI: 10.4197/Islec.32-1.2
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    References listed on IDEAS

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    1. Mohammad Obaidullah, 2009. "Some Issues In Shari’ah Compliance and Regulation of Islamic Funds بعض القضايا في الشريعة وتنظيم الأموال الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 22(1), pages 191-193, January.
    2. Rehman Scheherazade S. & Askari Hossein, 2010. "An Economic IslamicityIndex (EI2)," Global Economy Journal, De Gruyter, vol. 10(3), pages 1-39, October.
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    Cited by:

    1. Abdullah Muhammad Ahmed Ayedh & Muhammad Iqmal Hisham Kamaruddin & Amir Shaharuddin, 2019. "Challenging the Current Shariah Screening Methodology Assessments in Kuala Lumpur Shariah Index (KLSI)," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(4), pages 253-268, October.

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