Shariah equity screening is a dynamic process to determine if investment in the equity of a listed company is permissible from a Shariah perspective. Shariah Equity screening is guided by a Shariah Equity Screening Criteria.

1. World 1st Shariah Certified App and Web Portal
ISLAMICLY Shariah
Screening Process

2. What is Shariah Screening?
Shariah equity screening is a dynamic process to determine if investment
in the equity of a listed company is permissible from a Shariah perspective.
Shariah Equity screening is guided by a Shariah Equity Screening Criteria.

3. Identif
y
Needs
Shariah Screening Criteria For Equities
ISLAMICLY with its shariah advisory board has developed shariah screening criteria which are
accepted by the majority of shariah scholars and Islamic index providers. Screening criteria are of
three levels:
Business Sector
Screening
Financial Ratio
Screening
Dividend
Purification

4. I. Business Sector Screening
The business of a company should be conducted in accordance with
Shariah principles as interpreted by the Shariah Scholars. Companies that
are involved in the activities mentioned in the next slide are screened out:

5. Prohibited Activities
Alcohol GamblingInterest Based
Activities
Pork

6. Prohibited Activities
Pornography Tobacco Advertisement Entertainment
Trading of Gold
and Silver as cash
on the deferred
basis

7. 5% tolerance limit for prohibited activities
Even if a company gets upto 5% of its revenue from prohibited activities, a company is
considered to have passed the Business Sector Screening.
This has been permitted because, it was observed that most companies globally were
found to be involved in doing some non-permissible activity, although their core
business was from permitted activity.
“
“

8. II. Financial Ratio Screening
After removing companies with non-compliant business activities, the resultant
companies are further examined for compliance with financial ratios, as certain ratios may
violate the compliance measurements.
Three areas of focus are leverage, cash, and accounts receivables. All of these are subject
to evaluation on an ongoing basis

9. Financial Ratio Screening
A. Cash Compliance C. Leverage ComplianceB. Receivable Compliance
(Cash + Interest Bearing
Securities) / Market value
of Equity (36 month
average) < 33%
Accounts Receivables /
Market value of Equity (36
month average) < 49 %;
Debt / Market Value of
Equity (36month average)
< 33 %

10. III. Dividend & Purification Ratio
Companies having less than 5% of their revenues coming from the prohibited business
activities are said to have passed the Sector-based Screens.
But the proportion of dividends attributed to revenue generated from such non-
permissible business activities and interest income will have to be purified.

11. Dividend & Purification Ratio
When Shariah compliant securities receive dividend or any
other prohibited income as per Shariah principle as part of a
company’s normal business operation, a purification
process takes place.
Any proportion of income received from activities that are
non-compliant as per Shariah principles may be paid to
Charity and thereby ‘purified’.

14. User Quotes
Love from Islamicly’s 40,000+ Users…
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“
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15. Thank you for
reading.
For more such information on Shariah compliant
investments, please visit or website
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