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Shari'ah Screening Methodology- New Shari'ah Compliant Approach

Author

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  • Yildirim, Ramazan
  • Ilhan, Bilal

Abstract

The purpose of this paper is to address to a long-standing criticism of the various Shari’ah screening methodologies implemented by Islamic index providers. This study aims to provide evidences derived from the Islamic sources (Qur’an and Sunnah) and offers a potential solution for the harmonization of Shari’ah screening methodologies. Strong evidences from the Qur’an reveal that the most righteous and fair judgment is provided when the only factors that are considered are the entirely endogenous factors. This study further emphasizes the importance of using a screening methodology that supports the main notions of Islamic finance as a whole, and adheres to the essence of the ayah (Al-Baqarah: 275). This study exhibits a potential towards the harmonization of Shari’ah screening methodologies which encourages the participation of Muslim investors by ensuring better awareness and confidence regarding stock investments. This paper fulfils an identified need to study how Shari’ah screening methodologies can be derived from the Islamic sources yet is based on “out-of-the-box” thinking.

Suggested Citation

  • Yildirim, Ramazan & Ilhan, Bilal, 2018. "Shari'ah Screening Methodology- New Shari'ah Compliant Approach," MPRA Paper 90277, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90277
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    File URL: https://mpra.ub.uni-muenchen.de/90277/1/MPRA_paper_90277.pdf
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    References listed on IDEAS

    as
    1. Grais, Wafik & Pellegrini, Matteo, 2006. "Corporate governance and Shariah compliance in institutions offering Islamic financial services," Policy Research Working Paper Series 4054, The World Bank.
    2. Ivo Welch, 2011. "Two Common Problems in Capital Structure Research: The Financial‐Debt‐To‐Asset Ratio and Issuing Activity Versus Leverage Changes," International Review of Finance, International Review of Finance Ltd., vol. 11(1), pages 1-17, March.
    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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    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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    More about this item

    Keywords

    Shariah Screening; Islamic Equity Index; Market Capitalization; Total Debt; Quran & Sunnah;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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