I received many inquiries since my last articles on the Shariah Investment, I use this opportunity to explain how Muslim can use the Shariah Compliant Rulebook to conduct the screening and monitor the Shariah Compliant-ness of their investment regularly.
Shariah Compliant Rulebook
There are 2 important aspects to ensure the investment is Shariah Compliant (a) Business Activities (b) Financial
Business To Avoid:
Investment is not allowed in companies generating income from any of the following activities:
• Adult Entertainment
• Defense & Weapons
• Financial services (insurance, conventional banking, conventional financial institutions, mortgage, etc.)
• Gold and silver hedging
• Interest-bearing investments
• Total sum of non-permissible income should not exceed 5% of the total
income generated by the company
• Total sum of interest-bearing cash and investments should not exceed 30% of the preceding 12-months average market capitalization
• Total sum of interest‐bearing debts should not exceed 30% of the preceding 12-months average market capitalization
• No investment in fixed income preferred shares is allowed
• Investment Purification
Investor purifies the non-permissible income per share regardless of any capital gain, dividend distribution, or compliance status for the stock.
Example #1: Apple
Apple is Shariah compliant as the stock passes Business Activity and Financial. If Muslim investors have invested in Apple shares, investors can keep the capital gain but dividends have to be donated away (according to the purification methodology).
Example #2: DBS Bank
DBS Bank is not Shariah compliant as the stock fails Business Activity due to Non-permissible income (i.e. Riba in this case) and Financial due to interest bearing investment and debts. If Muslim investors have invested in DBS Bank, all capital gain and dividends have to be donated away.
Muslim investors who would like to make sure your investment portfolio is Shariah compliant, you may write to Kenny Loh (email: firstname.lastname@example.org) to have a Shariah Compliant Portfolio Review.
Kenny Loh is a Senior Consultant and Certified Islamic Wealth Advisor of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair.