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Looking to invest in the shariah-compliant stock market in Bursa Malaysia? Here are the criteria and how to identify them


The stock market in Malaysia consists of the conventional capital market as well as the Islamic capital market. Before investing in shariah-compliant stocks, you must first understand the concept of shariah-compliant investment.

shariah-compliant investment malaysia
© Koh Sze Kiat/ gettyimages

This article was translated from Nak melabur dalam pasaran saham patuh syariah di Bursa Malaysia? Ini kriteria dan cara kenalinya by Damia Norwin.

The shariah-compliant stock market is a platform that allows Muslims to channel wealth to carry out economic activities. It is an organisation that provides a place or facility to buy and sell shares listed on Bursa Malaysia. Stock transactions conducted on the Stock Exchange do not require the seller and buyer to transact face to face.

In general, stock transactions are categorised as permitted in Islam as scholars agree that stock trading is the same as trading of other commodities and it should meet the legal conditions of sale and purchase. Scholars who have issued such views agree to use the method of masalih mursalah because stock transactions can help grow the investors’ business and economy.

What are shariah-compliant stocks?

In Malaysia, the concept of shariah-compliant investment means that shares and services offered by any financial or investment institutions are not involved in riba, gharar, and gambling, or unethical activities.

What is shariah compliant?

Shariah-compliant investment means shares and services offered by any financial institution or investment do not involve the following three elements:

i. Riba (Interest)

Linguistically, riba means to increase or grow. On the other hand, in terms of terminology, riba is classified as an activity in which there is no exchange of property for fair property. Riba means that investors enjoy profits without any effort. The practise of riba is a reprehensible and forbidden activity in Islam.

There are two categories of riba:

  • Riba Fadhl

Is a surplus riba that is not the same as the original weight or number in the sale and purchase.

  • Riba An-Nasi-ah

Interest caused by delay in payment. For example, as a result of late payment of a debt, suddenly the amount of interest is increased by a few per cent and automatically added to the principal value to be paid. Therefore, investors who invest in shariah stocks need to ensure that the investments made do not involve riba.

ii. Gharar (Uncertainty, risk, hazard, and deceit)

Gharar in terms of terminology carries the meaning of Al-Mukhtharah (betting) and Al-Jahalah (ambiguity). The meaning of the term gharar is often found in Islamic Economics because its activities are included in the buying and selling process. Shariah-compliant investors should ensure that trading contracts either with companies or with brokers are clear and concise.

iii. Gambling or unethical activities

Maysir and qimar are two terms that have the same meaning, namely gambling. Gambling is an activity that involves betting from both parties. Gambling is also an activity that causes profits to occur only on one side and losses on the other. Gambling is an activity that depends solely on luck, i.e. each investor agrees that the winning party will get a share from the losing party. Maysir is illegal in Islam, and even if a transaction or contract is involved with the element of Maysir, it continues to be illegal in Islam. Therefore, smart investors should be sensitive to ensure that a stock company does not engage in gambling activities or any unethical activities such as money laundering.

READ: 7 best Robo advisors in Malaysia for newbie and pro investors

Who is responsible for auditing these shariah-compliant shares?

what is shariah compliant
© faizalramli/ 123RF

In Malaysia, the process of screening and identifying shariah-compliant stocks is known as shariah screening. This process is conducted twice a year by the Shariah Advisory Council (SAC) and the Securities Commission Malaysia (SC). This shariah screening process is based on information received from the SC. To ensure that the shares involved are shariah-compliant, the SAC will analyse data collected by the SC from various sources, including the company’s annual report and interviews conducted on the company.

The SAC will continuously review the Shariah Status of these listed companies based on their last audited annual financial statements. The SAC has established this method for screening Shariah-compliant stocks from 1995 to May 2013. Subsequently, a revised screening method was used to compile the Shariah Compliance List beginning in November 2013.

How do I find shariah-compliant stocks in Bursa Malaysia?

How do I find Shariah compliant stocks

The SAC will consider the total percentage of activities to the total revenue and profit before tax (PBT) of a company. The following calculations will be made and compared with the relevant business activity benchmarks:

i. Review the company’s business activities

Revenue from non-shariah-compliant business operations must meet certain percentage criteria. This percentage varies by industry. Examples of benchmark percentages:

  • The 5% benchmark

The 5% benchmark concept is used to measure the level of mixing of contributions of activities that are illegal or not in line with shariah principles. The SAC will ensure that the contribution of non-shariah-compliant activities should be less than 5% of the group’s total income or group profit before the tax of the company. The following are the business activities overseen by the SAC panel members:

    • Conventional banking
    • Conventional insurance
    • Gambling
    • Liquor and all related activities
    • Pork and all related activities
    • Food and beverages that are not halal
    • Non-shariah-compliant entertainment activities
    • Tobacco and all related activities
    • Income generated as a result of interest rates and interest rates
    • All types of related business activities that do not comply with shariah principles
  • The 20% benchmark

Next, the 20% benchmark is used to oversee listed business activities and the percentage contribution of non-shariah-compliant activities should be less than 20% of the group’s total income or group profit before tax of the company:

    • Stock trading
    • Stockbroking related business
    • Rental income received from non-shariah-compliant activities
    • Other business activities that are seen as not per shariah principles

ii. Check the company’s financial ratio benchmarks

The SAC will also stipulate that the total riba of the company should not exceed 33% of the profit of the company in the following activities:

  • Cash on total assets

Cash deposits in bank accounts and conventional instruments as a whole must be worth less than 33%. Cash deposits in Islamic banking are excluded from the calculation as they have no riba.

  • Debt on total assets

Debt taken into account is interest-based debt and SAC panel members will ensure that it must be less than 30%. While Islamic financing or Sukuk is not taken into account in this calculation and screening.

iii. Make an online check

You can also check on shariah-compliant stocks online or use an application uploaded to your device.

  • Register a shariah-compliant CDS account

This is the easiest way is for investors to open a shariah-compliant trading account. Please make sure that investors only buy shariah-compliant shares that have been listed on Bursa Malaysia and have been approved by the SAC.

  • Do your check on the Bursa Malaysia website

The review steps are as follows:

  1. Go to the Bursa Malaysia website
  2. In the ‘Get Quote’ column write the name of the company you want to check
  3. Click the company’s name and browse to ‘Company Overview’
  • Check at BURSAMKTPLC

    In addition to that, investors can browse the BursaMKTPLC website. Registration is free. Set to Shariah Mode settings while using this website. All stocks displayed are shariah-compliant.

    iv. Make a qualitative check

    Furthermore, SAC will also ensure that the public’s general perception of a company is positive and clean. The image and activities of the company should be in line with the perspective and line with Islamic principles. Finally, after passing all the shariah-compliant requirements, then the SAC will place the share-compliant status on the companies.

    List of shariah-compliant stocks 2021

    list of shariah compliant stocks
    © Keatanan Viya/ EyeEm/ gettyimages

    The SC has just released an updated list of Shariah-Compliant Securities effective 28 May 2021. The following is the list of companies:

    • Amtel Holdings Sdn Bhd
    • Anzo Holdings Bhd
    • A-Rank Bhd
    • BCB Bhd
    • BV Land Holdings Bhd
    • CAB Cakaran Corporation Bhd
    • Cuscapi Bhd
    • Eco World International Berhad
    • Eden Inc. Bhd
    • Flexidynamic Holdings Bhd
    • Golden Land Bhd
    • HPP Holdings Bhd
    • Jishan Bhd
    • Karex Bhd
    • Malaysian Pacific Corporation Bhd
    • Mobilia Holdings Bhd
    • Only World Group Holdings Bhd
    • PLB Engineering Bhd
    • Rexit Bhd
    • Ta Win Holdings Bhd
    • Tanco Holdings Bhd
    • UCI Resources Bhd
    • Volcano Bhd

    List of organisations that conduct stock trading per shariah principles

    The following is the List of Islamic Participating Organisations (Islamic POs)/ Islamic brokers that conduct share transactions per shariah principles. You can refer to the Bursa Malaysia website for detailed information.

    • Affin Hwang Investment Bank Berhad (window)
    • Alliance Investment Bank Berhad (window)
    • AmInvestment Bank Berhad (window)
    • BIMB Securities Sdn Bhd (full-fledged)
    • CGS-CIMB Securities Sdn Bhd (window)
    • Hong Leong Investment Bank (window)
    • Inter-Pacific Securities Sdn Bhd (window)
    • Kenanga Investment Bank Berhad (window)
    • Malacca Securities Sdn Bhd (window)
    • Maybank Investment Bank Berhad (window)
    • MIDF Amanah Investment Bank Berhad (window)
    • Public Investment Bank Berhad (window)
    • RHB Investment Bank Berhad (window)
    • TA Securities Holdings Berhad (window)
    • UOB Kay Hian Securities Sdn Bhd (window)
    • KAF Equities Sdn Bhd (window)

    The objective of stock transactions is to make a profit by buying shares at a low price and selling shares at a high price. For long-term investors, usually, they will choose stocks based on several factors, most of them have researched the background of the company to be invested in. They will read and understand the prospectuses, financial reports, and corporate announcements distributed by the company to shareholders and the general public.

    Other factors that influence investors’ decisions include the background of the company and its management, the company’s financial strength, the ratio of price-earnings and dividend yields, earnings growth prospects and the company’s ability to compete. Typically, a prudent investor will examine these factors before making any investment decision.

    READ: What you should know about Amanah Saham Bumiputera (ASB) and Amanah Saham Malaysia (ASM)

    Other shariah-compliant investments in Malaysia

    best shariah compliant investments
    © courtneyk/ gettyimages

    Apart from shares or stocks, you can also check out other shariah-compliant investments in Malaysia.

    • Real estate

    You can invest in commercial or residential properties such as Amanah Hartanah Bumiputera (AHB). Most banks in Malaysia offer shariah-compliant financing. Not only that, you can choose takaful coverage for your houses, such as Mortgage Reducing Term Takaful (MRTT) and Mortgage Level Term Takaful (MLTT). The conventional insurance option for a house is Mortgage Level Term Insurance or Mortgage Level Term Assurance (MLTA). If you are confused or unsure of the advantages and disadvantages of these two insurances, make a comparison first before you choose takaful or conventional insurance.

    • Unit trust

    Not all trust funds are shariah compliant. Choose a trust fund named ‘Sukuk’, ‘Islamic’, or ‘shariah’.

    • Gold

    Just like stocks or bonds, the value of gold also fluctuates. It is also a hedge against inflation, a financial hedge in the event of a downturn, and is also a good portfolio diversification. This is because its value is more stable compared to the currency. Read the complete guide to investing in gold in Malaysia if you are interested in this type of investment.

    READ: What are the differences between will, hibah, and faraid?

    With the availability of shariah-compliant investments that have undergone a rigorous audit or screening process, investors who are interested in investing in any shariah-compliant stock counter no longer need to feel hesitant and uncertain to continue investing. Prepare an umbrella before it rains and invests for your future.

    Edited by Rebecca Hani Romeli

    Disclaimer: The information is provided for general information only. Malaysia Sdn Bhd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

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