Sharia-Compliant Screening (Part 2 of 3)

Afiyah
Post : September 20, 2021

Islam doesn’t allow trading of haram business activities, whether one is involved in manufacturing, selling or promoting such products and services. Any income generated from such activities will be considered impermissible. The list of haram business activities are explained below:

Alcohol

Any activity including producing raw material, manufacturing, packaging, supplying and promotion of alcohol can’t be considered in halal stocks.

Other activities to look for:

  • Farmers income who is growing crops that are used for manufacturing of alcohol
  • Machinery income that is sold for production and packaging such products.
  • Supply chain income, transport that is used for transferring or selling alcohol-based products is also considered non-permissible.

Income under a threshold of 5%

This benchmark is for mixed business. Mixed businesses are those that might not directly trade alcohol products but a minor part of their income coming from such activity. In that case, the benchmark of 5% will be applied to such income.

For example, hotels and restaurants' major income is from providing services to customers. However, these types of concerns sometimes sell alcohol products. The Sharia screening method suggests that rather than categorizing whole income as haram, more than 5% of the revenue generated from such activity will be considered prohibited. Let’s assume:

  • A hotel or a restaurant earns $5000 per month.
  • Income from non-permissible activities will be calculated and then divided with the total income of the restaurant of $5000.
  • The non-permissible income must not exceed 5% of the total income of the hotel. Otherwise will be purified and given to the charity.

Income from Financial institution

There are various financial houses that are offering interest-based services and products. Their major income relay on interest earned from these services. Therefore, investing in these kinds of financial institutions is impermissible according to sharia perspective. The institutions that are included in this list are:

  • Commercial Banks
  • Asset management Institutions including banks, agencies and firms
  • Mortgage lenders and agencies
  • Investment in Sharia non-compliant stocks
  • Financial brokerage companies
  • Stockbrokers
  • Insurance companies brokers, agencies and companies

Institutions that are not included in the list are:

  • Islamic Banks
  • Islamic asset management banks, agencies and firms
  • Takaful companies

All the Islamic institutions that are exempted from this list must be under the supervision of the Centralized Sharia Advisory Council (SAC). SAC works with the Islamic Sharia audit and compliance unit that ensures transparency in financial and operating matters of Islamic finance institutions.

In absence of centralized sharia supervisory board; Islamic bank, asset management agencies and takaful companies can use a market based approach where every Islamic financial body have its own sharia board that authenticates all the business activities are as per the guidelines of Sharia.

In the case of Conventional institutions converting into Islamic financial institutions

However, if any of the commercial banks, investment agencies and Insurance Companies is converting from conventional to Islamic or operating with a window then that business concern must have a Sharia supervisory board that comprehends all the standards of Shariah. Any revenue from non-compliant activities must be less than 5% to pass the sharia screening criteria.

Gambling

Direct or indirect inversion of activities and any income generated from such activities will be considered as haram.  Income directly from lottery casino operations and online betting games is not permissible. Indirect activities that include software developers developing betting games, machinery manufactured for casino games and advertisement income must be excluded from Sharia compliant investments.

Tobacco

Just like Alcohol, the tobacco industry has the same characteristics that are categorized under Sharia non-compliant stocks. Any income; from production to promotion, from Research and development in tobacco to selling in the wholesale and retail market will be considered non-permissible.

 Pornography

Any business or non-business activity that generates income from the selling of adult content is strictly prohibited. The content includes income from:

  • Online websites that showing such kind of content.
  • Productions companies financing such business
  • Magazines that publish sexual content.
  • Online websites, cable operators and magazines in promoting adultery content.

Show business and Music Industry

Any income from production, acting and advertising of movies and music content is non-permissible. Islam strictly prohibits such activities that can mislead the thoughts of mankind.

Income earned in the below cases will be considered prohibited:

  • Income from production firms, agencies and cinema operators.
  • Income from airing, distributing and promoting content that includes inappropriate language or visuals is not allowed.

In Addition to the above:

  • Hotel and restaurants that are renting space for music shows is prohibited
  • Google Ads that don’t contain any violating content are permissible.
  • Supermarkets, stores, or shops selling content related to showbiz and the music industry is not allowed.

However, income from sports, news, children, and educational channels is permissible. These channels are considered to be creating self-awareness and educating society.

Trading of Gold and Silver on a spot basis

Gold and silver is medium of exchange that should be traded on a spot basis in exchange of cash. It can’t be used in deferred contracts. Companies who are mining or selling gold and silver are considered to be halal but they can’t use these commodities in forwarding contracts.

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