Presents a revolutionary positive approach to Islamic screening for investments presented at the 2nd Oxford Islamic Finance roundtable held at Oxford on the 15th of April, 2009.
06_Joeri Van Speybroek_Dell_MeetupDora&Cybersecurity.pdf
A Positive Approach to Shariah compliance screening
1. A Universal Platform for Shari'a Compliant Equity Screening 15 April 2009 Dr. Mohd. DaudBakar and Dr. Sayd Farook Second Oxford Islamic Finance Round-Table The Frontiers of Islamic Finance Innovation 1
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3. Key current credible index providers: MSCI, DJIMI, S&P and FTSE Shari'a Global Equity Index Series
16. Can produce significantly different results e.g. intellectual property based companies such as pharmaceutical or IT software companies may have low asset values but high market capitalisation
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18. Market trend is moving towards socially responsible investment
19. AAOIFI will be mandating CSR governance standard for IFI's from January 2010
27. Instead of a binary (in or out) system, each criteria will be given a rating allowing stakeholders to gauge how close or far companies are from the threshold for each criteria
28. This will facilitate comparison across companies and industries and motivate companies close to the threshold to change
29. Introduce a SR criteria in tune with Islamic ethos and CSR standards
30. Differentiates between clear haraam/halaal and “grey/difference of opinion” areas by assigning commensurate weightings
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32. Activity: Will seek to differentiate between clear haraam and “difference of opinion” acivities
33. Structure: Will seek to address Shari'a issue of company incurring interest on debt.
34. Tradability: Will seek to address issue of cash/liquid assets/debt (due from & due to) not to be traded except at par – only relevant for those not wishing to hold the stock
37. UA – Haram income (Universally Agreed) e.g. tobacco
38. DO – Haram income (Difference of opinion) e.g. arms manufacturing
39. IS – Haram income (Indirect Secondary activity) e.g. hotel
40. Relief given to DO activities by the Shari'a board assigning a “relief” factor against this income based on the fact that it is a “grey area”.
41. Indirect secondary activities refer to an actvity which in essence is halale.g supermarket but will incidentally sell haram products e.g alcohol, pork etc.
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44. Current screens on debt seem to amalgamate this issue with the shari'a issue of not trading debt except at par
45. DI/OIF seeks to clearly separate the two issues by having two separate criteria
46. DI/OIF proposal is to have a traffic light weighting based on a commonly used corporate ratio and measure – the gearing ratio = interest bearing debt/equity
56. Illiquid assets used instead of liquid assets because with liquid assets the argument can always be made that any fluctuation in share price, as long as the share price is above the value of liquid assets, is due to the fluctuation in illiquid and intangible assets
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58. 20% < Illiquid assets/market cap < 35% not acceptable but close to threshold