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As a new trader, you would want to ensure your stock investments have less risk so you can mitigate your loss. Especially for new Muslim investors or traders, it is essential that you know the types of stocks and whether there are shariah compliance stocks in Malaysia.
Shariah-compliant in the context of investment in Malaysia means the shares and services offered by any financial institution meet the requirements of Islamic law from three aspects, namely:
Riba or usury is roughly translated as earning unfair, exploitative profits made in trade or business under Islamic law.
New investors need to ensure that the company they want to invest in or the broker they wish to choose from does not practice usury in their organisation and services.
Gharar in Islam means uncertainty, danger, opportunity, or risk. This is a negative element in the Islamic context, just like riba. An Islamic dictionary describes it as “the sale of what does not yet exist.”
Therefore, investors must ensure that the trading contract with the company they want to invest in or with the broker of choice is legit and transparent.
Gambling is strictly forbidden in the Islamic context. Therefore, new investors need to acquire comprehensive trading knowledge before starting trading.
Investors should also know if a stock company conducts gambling or unethical activities.
There will be an ethical body or organisation in Malaysia that will determine if the companies listed on Bursa Malaysia are shariah-compliant. The body of this organisation was appointed to facilitate new Muslim investors in Malaysia to trade.
Known as the Shariah Advisory Council, this organisation will conduct investigations into stock companies and place shariah-compliant status on them, based on the methods below.
The Shariah Advisory Council will consider the percentage contribution of Shariah non-compliant activities to the overall revenue and profit before tax (PBT) of a company. Calculations will be made and compared with the benchmarks of related business activities as follows:
The 5% benchmark is used to measure the level of activities that are illegal or not following the Shariah law.
The percentage contribution of shariah non-compliant activities should be less than five per cent of group income or group profit before company tax. Supervised activities are like the businesses listed below.
The 20% benchmark used for business activities listed below and the percentage contribution of Shariah non-compliant activities should be less than 20 per cent of group income or group profit before company tax:
The Shariah Advisory Council also stipulates that the company's usury does not exceed 33% of the company's profit in the activities below.
Cash deposits in bank accounts and conventional instruments of total value must be less than 33%. Cash savings in Islamic banking are excluded in the calculation because they do not have usury.
Debt taken into account is interest-based debt, and it must be less than 30%. While Islamic financing or ‘Sukuk’ is not taken into account in this calculation.
The Shariah Advisory Council will also ensure that the public's opinion on a company is positive. The image and activities of the company should be in line with the Islamic perspective and context.
After passing all three shariah-compliant conditions, only the Shariah Advisory Council will place shareholding status to these companies.
The following is a list of companies that have complied with Shariah shares in Malaysia by 2020. For a more comprehensive report, you can check on the official website of the Securities Commission Malaysia.
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To start building your portfolio of shariah-compliant and halal stocks you'll need a broker that is regulated, has low fees and a user-friendly platform. Finding one can be a daunting task, which is why we've selected some of our favourites that tick all of these boxes to help you get started.
As an Islamic investor, it is advisable to get halal profits from transparent and ethical sources. Thus, with a shariah-compliant investment that has undergone a rigorous audit or screening process, you no longer have to doubt your investment intention.
As an Islamic investor who is new to the trading scene, it is crucial to make sure that the stock investment you choose is shariah compliance. To make the right choice, you need to be well versed with proper stock investment knowledge before embarking on your investment journey.
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