Investment in equities : shariah appraisal of screening norms

Abstract EN

Investment in equities is an important but controversial topic in the literature on Islāmic Finance.

Keeping in view its need for both the investors and the companies, different Sharī‘ah Screening Criteria have been developed to determine legitimacy or illegitimacy of stocks of a particular company from the point of view of investment.

These Screening Criteria use some Sharī‘ah maxims as the basis for tolerating various prohibited things up to a limit (mostly up to 33%) in case of mixed business activities.

Scholars who are involved with the Islāmic finance industry accept these criteria keeping in view the need for existence of capital market for Islāmic financial institutions, but some other scholars challenge the validity of these screens and consider the use of Sharī‘ah maxims as improper.

This paper aims to review and analyze the arguments of both the groups and to discuss the need to review the basis of screens or the extent to which these criteria could be used and where their use might not be as necessary as presently considered.