Sharia-Compliant Screening: Part 1 of 3

Post : September 20, 2021


Investment in equities is highly lucrative for individual investors, venture capitalists and other asset management institutions. The stocks can earn quick returns, importantly, give great weightage to the investment portfolio. Australia continues to be home for investors where 9 million adults have their savings invested, out of which more than half of them have capitalized in the stock market.

With the growing population of Muslims in Australia, the demand for Islamic investments is on the rise. Muslims, as well as non-Muslims, are showing keen interest in Riba-free stocks. However, to earn an interest-free return, one needs to be aware of the Sharia screening process where each stock has to pass a screening test and then be labeled as “Sharia Compliant investment”.

What is Sharia Screening Process? How it is done and what are the various techniques?  If you are a keen shareholder and looking for all these answers then this three-part blog post is a way to give you an insight to how the Shariah screening process is completed.

What is Sharia-Compliant Screening?

The structure of Islamic finance is different from conventional finance as it follows principles and guidelines defined in Quran and Sunnah. Similarly, there are various standards defined for Sharia-compliant investments that testify the quantitative and qualitative attributes of stock to verify if it is a “Halal Stock” or not?

Principles of Islamic finance are discussed in another e-book by Afiyah Wealth Management. You can switch to guide “What is Islamic Finance?” to know some of the basics of Islamic finance.

Afiyah Wealth's Screening Methods

Afiyah Wealth utilises the skills of Rating Intelligence who provides the most updated and effective screening criteria for equities. This criterion is adopted after carefully analysing the requirements of the Islamic capital market. This method has acceptance worldwide that is been endorsed by some of the major market indexes and Islamic scholars. Afiyah Wealth uses the most advanced data analytics techniques to screen the financial position of the stocks and auditors carefully analyse the nature of the business as per the Sharia principles and guidelines.

This method has acceptance worldwide that is been endorsed by some of the major market indexes and Islamic scholars.

Three levels for Screening Equities

Every stock need to pass three levels of screening, these levels are explained below:

  1. Business Screening
  2. Financial ratio screening
  3. Dividend Screening

Please click here to read Part 2 where we explore the First Level: Business Screening.

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