Investing in Listed Equities
Malaysian Shariah screening methodology for stocks
The Securities Commission Malaysia uses a two-tier quantitative screening: business activity benchmark (5% for clearly prohibited activities; 20% for mixed/questionable activities) and financial ratio benchmark (liquid assets comprising cash/receivables must not exceed 33% of total assets).
Full Ruling
Under the SC Malaysia Shariah Screening Methodology 2023, a listed security is Shariah-compliant if: (1) Business Activity Benchmarks — activities strictly prohibited (riba, gambling, liquor, pork, non-halal food) must not exceed 5% of revenue or profit; activities in the grey zone (tobacco, weapons, mixed entertainment) must not exceed 20%. (2) Financial Ratio Benchmark — total cash, cash equivalents, and accounts receivable must not exceed 33% of total assets (to prevent excessive debt-based or interest-earning asset structures).
Rationale & Reasoning
Malaysia's methodology reflects the Shafii school's pragmatic approach and the need for a liquid domestic capital market while maintaining Shariah standards. The dual-benchmark system allows nuanced assessment of conglomerate companies with diverse business units.
Rule Basis (Daleel)
- 01SC Malaysia Shariah Screening Methodology 2023
- 02Shafii jurisprudence on permissibility thresholds
Conditions for Permissibility
- ✓5% threshold for clearly haram core activities
- ✓20% threshold for grey-area activities
- ✓33% financial ratio threshold on liquid/debt assets
Citations & Sources
Securities Commission Malaysia – Shariah Screening Methodology 2023
Securities Commission Malaysia · 2023
Ref: SC/2023/SSM