SHARI(AH COMPLIANT EQUITY INVESTMENTS: AN ASSESSMENT OF CURRENT SCREENING NORMS

Abstract

The preferred Islamic investment format is equity. However equity comes along with ownership. Hence Islamic investors have to ensure that the selected company’s activities and structuring are not repugnant to Shari[ah norms. Due to exigencies of modern business and particularly the pervasiveness of interest transactions, fully Shari[ah-compliant equities are extremely rare. So, Shari[ah scholars have arrived at minimum compliance criteria which, while excluding companies in gross violation, yet provide investors a reasonably wide choice of Shari[ah-compliant equities. The authors have reviewed and compared the norms set by three organizations. A critical and analytical assessment of the different criteria follows. Empirical data of the Bombay Stock Exchange is used to assess the impact of the different norms. Based on the empirical results and analytical arguments and in the backdrop of an Islamic perspective, an independent set of norms is proposed, which better reflect the objectives of formulating Shari[ah compliance norms.

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