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You have just registered a CDS account and are interested in Shariah compliant investment stocks on Bursa Malaysia? In general, the Malaysian stock market is divided into two parts, the conventional capital market and the Islamic capital market. If you choose to make sharia-compliant investments, you must first understand the concept of sharia-compliant investments. This article will help you identify sharia-compliant stock investments and a list of sharia-compliant stock investments in Bursa Saham Malaysia.
Shariah Compliant Investment Features
In addition to other sharia-compliant shares such as real estate investment, unit trust investment or gold investment, you can also consider investing in shares on the Malaysian Stock Exchange. In Islam, the law of stock transactions is said to be obligatory by the scholars who unanimously think that buying and selling shares is the same as buying and selling other commodities.
This is because, stock transactions can help investors’ business and economy grow. The most important main condition that investors should remember is that it must comply with the terms of sale and purchase when managing the sale and purchase of shares.
The main difference between Shariah-compliant investments and conventional investments is that Shariah-compliant investments do not engage in activities or matters that do not comply with and are prohibited by Shariah such as riba, gharar, gambling and the like, while for conventional investments, there are no conditions imposed to ensure that all sources of funds or activities are Shariah compliant. The following are the characteristics of sharia-compliant stock investments:
Riba Is Not Allowed
Basically, riba means al-ziyadah which means increase. The practice of riba is an act that is forbidden and forbidden in Islam. This is because, in usury activities there is no exchange of property with fair property. Investors will enjoy easy profits without any effort through riba. Therefore, as a sharia-compliant investor, you need to ensure that your investment is not involved in the element of riba. Here are two types of usury:
Riba Fadhl
Is an excess of usury that is different from the original weight or number specified in the sale and purchase.
Riba An-Nasi-ah
Charged with interest due to late payment. Say you’re late paying off a debt, you could be charged a higher interest rate.
Not Involved in Gharar
Gharar is a business transaction that contains ambiguity and is not clear for the parties involved. Terminologically, Gharar means Al-Mukhtharah (betting) and Al-Jahalah (obscurity). This uncertainty violates the principle of Sharia which should be transparent, real and beneficial to both parties.
Thus, Islam sees that gharar is something that is harmful especially for the buyer. For this reason, Shariah-compliant investors must ensure that the trading contract is clear and transparent whether with the company or with the broker. If you engage in gharar, you are exposed to risk, uncertainty and fraud.
No Gambling or Any Unethical Activities
Basically, the concept of gambling depends solely on luck where one party will gain a profit while the other party will experience a loss. In Islam, gambling is illegal and as a Sharia-compliant investor, you must ensure that the company you invest in is not involved in gambling or money laundering activities.
4 Ways to Identify a Shariah Compliant Investment in the Malaysian Stock Exchange
There are two parties responsible for the screening process and the process of identifying sharia-compliant shares, namely the Sharia Advisory Council (MPS) and the Malaysian Securities Commission (SC). This sharia screening process is done twice every year. You may be wondering, “How does this screening process work?”.
The SC will obtain and collect information such as the company’s annual report and interviews conducted on a company. Then, MPS will scrutinize the information data collected by the SC to ensure that the shares involved are Shariah compliant or otherwise. You can identify sharia stock investments in the following ways:
1. Check Online
You can check online through CDS account, Bursa Malaysia website and BURSAMCTPLC. Here are the steps you can follow:
i. Shariah Compliant CDS Account Register
You as an investor can open a Shariah compliant trading account. You can buy sharia-compliant shares that have been listed on Bursa Malaysia and have been approved by MPS. If you use a sharia-compliant CDS account, you automatically cannot buy non-shariah-compliant stocks.
ii. Go to the Bursa Malaysia Website
Follow the steps below:
- Go to the Bursa Malaysia website
- Enter the name of the company you want to check in the ‘Get Quote’ section
- Click on the company name and go to ‘Company Overview’
iii. Make a Check on BursaMKTPLC
You can also visit the BursaMKTPLC website and register for free. Set to Sharia Mode settings when using this website. All stocks displayed are sharia compliant.
2. Review the Company’s Business Activities
Revenues from non-Shariah compliant company and business operations must meet certain percentage criteria. Just so you know, this percentage varies by industry. If the income from the above activities exceeds the benchmark, then it will cause the securities to fall into the Sharia non-compliant category. Here are two examples of benchmark percentages:
i. Benchmark (5%)
The MPS will ensure that the contribution of non-Sharia compliant activities is less than five percent of the group’s total income or profit before company tax. The activities supervised by the PMS panel members are as follows:
- Conventional banking
- Conventional insurance
- Gambling
- Liquor or alcoholic beverages
- Food and drinks are not halal
- Entertainment does not comply with sharia
- Tobacco
- Income from interest and interest income
ii. Benchmark (20%)
This 20 percent benchmark concept is used to supervise listed business activities and the contribution percentage of non-Shariah-compliant activities must be less than 20 percent of the group’s total income or group profit before company tax. Here are the activities involved:
- Stock trading
- The business involves stock broking
- Rental income from activities that do not comply with sharia
- Other business activities that do not comply with sharia law
3. Check the Company’s Financial Ratio Benchmarks
MPS has determined that the interest rate cannot exceed a certain rate which is 33 percent of the company’s profit in the following activities:
i. Cash to Assets Amount
The percentage of cash savings in bank accounts and conventional instruments must be less than 33 percent. Because deposits in Islamic banking have no usury element, deposits in them are excluded from the calculation.
ii. Debt to Total Assets
MPS panelists will ensure interest-based debt is less than 30 percent. Whereas Islamic financing or Sukuk are not taken into account in this calculation and screening.
4. Make a Shariah Compliant Status Review
The MPS will ensure that sharia compliant companies have a positive public image and perception. Companies that pass all sharia compliant conditions will officially get sharia compliant status.
List of Shariah Compliant Stocks 2022
According to sources from the Securities Commission, as many as 79 percent (751 out of 953) of shares on Bursa Malaysia are Shariah compliant. The following are among the newly listed IPOs as syariah compliant since December 2021:
- Aurelius Technologies Bhd
- Swift Haulage Bhd
- Coraza Integrated Technology Bhd
- Senheng New Retail Bhd
- Siab Holdings Bhd
- Farm Fresh Bhd
- Cengild Medical Bhd
- MN Holdings Bhd
You can choose any sharia-compliant company that has been listed by MPS and SC. To get the full list, you can click here.
When you want to invest in stocks, you need sufficient knowledge so that you can make better decisions to gain profit. Make sure you do research about the background of the company you are going to invest your money in, read the company’s financial report, the company’s management method, the company’s financial status, corporate announcements and so on.
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