HALAL Stocks? Shari'ah Screening Mechanisms...

Any activity be one is a trade or manufacturing or service in view of Halal gain or income generation, shall be in total compliance with the integrated Divine principles of Shari’ah and that is; faith, law, morality and cooperation with utmost care, share and concern by complying the holistic universal character for the common benefit of all humanity by waiving the issue of one’s religion, race, colour, gender, status or nationality. An unfair gain through dishonesty, misappropriation, oppression, illegality and appreciating advantage at the expense of others, is totally opposed by the concept and the spirit of Halal.

Money managements involving usury (Riba') and gambling (Maysir), manufacturing and / or  selling of forbidden products (for example, liquor, pork and pornography related materials), engaging in operations evolved by  the elements of uncertainty and cheating, are forbidden by the Shari’ah. These activities are considered as un-Islamic (non-Halal), as regulated by the Shari’ah frameworks. Thus, neither capital market, stock market nor other related money matters are also governed by the Shari’ah principles with no exception per se. 

Therefore, the stocks and shares of companies involving in the above-mentioned practices are deemed non-halal. But, what if the core business of a company is halal in nature, while a smaller portion of the business activities are not align with the Shari’ah principles. Can such a company or its activities be regarded Halal? Or is it Halal to invest or participate in the above nature of companies or their activities? Or what are the Shari’ah screening mechanisms to determine one is Halal?

Companies under the category of non-halal  (Haram) activities are those who are involved in the non-permissible activities, under the Shari’ah principles. While activities comprise of both permissible and non-permissible activities means that the companies under this categories are performing mixed halal and non-halal activities.

The general procedure is the evaluation of the data of the company concern by the Shari'ah Council, if the Shari'ah Council is satisfied that the evaluated company is engaging its core businesses in halal (permissible) activities, then the stocks of this company will be duly approved as a Shari'ah compliant one. But if the company concern is found by the Shari'ah Council's assessment that it engages its core activities in non-halal elements the Shari'ah Council shall disapprove such company as the Halal one. Furthermore, if the company's activities comprise of both permissible and non-permissible elements, the Shari'ah Council will then adapt the following two mechanisms of evaluation:

i. The first phase adopts quantitative method of evaluation. The Shari'ah Council will calculate the percentage of contribution or ratio of haram activities to the turnover of group accounts and to the profit before tax of group accounts.

ii. The second phase applies qualitative method of evaluating companies, that is, looking at the society or public perception of the companies, and determining the importance and maslahah (benefit) of these companies to the ummah (nation); the haram element only involve matters such as ‘uruf (custom), ‘umum balwa (common plight), and fasad al-zaman.