Understanding the Screening Criteria for Shariah-Compliant Stocks

Islamic finance operates as an alternative system meeting the investment requirements of individuals adhering to Islamic beliefs. While conventional finance prioritizes stock exchanges facilitating small-scale investments, challenges arise for Muslims investing their savings in stocks due to potential conflicts between companies' activities and revenues and religious principles. This situation prompts Islamic scholars to deliberate on the permissibility of purchasing specific company stocks. Diverse scholars and Shariah boards have established precise criteria for determining the permissibility of buying a company's stocks, resulting in the development of indexes aimed at identifying compliant companies. Shariah-compliant stocks or companies adhere to the principles of Shariah law, governing various life aspects, including financial and economic activities. This study investigates Shariah screening methods, exploring their rationale, foundations, and potential religious influences, particularly focusing on five prominent Islamic indices. The study investigates Shariah justifications and motives behind these methods, discussing their evaluation through different standards. Despite scholars' varying opinions and evolving methodologies, the primary objective remains consistent: to facilitate halal income for Muslim investors while maintaining Islamic ethical principles in financial practices.