Abstract

In 2016, the Securities and Exchange Commission of Pakistan (SECP) launched All Shares Islamic Index in collaboration with Pakistan Stock Exchange to measure the performance of Sharīʿah compliant companies. This index is made up of over 250 companies. The stocks and shares that meet the Sharīʿah Screening criteria are included in the All Shares Islamic Index. As part of the selection process, each company’s financial report is reviewed and their Sharīʿah compliance status checked against technical filters and Sharīʿah screening criteria prescribed by the Securities and Exchange Commission Pakistan. The criterion for All Shares Islamic Index is developed by SECP to examine whether a particular stock conforms with Sharīʿah or not. This article aims to analyze the screening criteria for companies developed by the SECP. According to All Shares Islamic Index, a company that borrows with interest up to 37% is considered as a Sharīʿah-compliant company. Similarly, a company that invests on interest up to 33% is also considerd as Sharīʿah compliant. The author argues that the criterion for lending and borrowing by the companies does not conform to Sharīʿah since Sharīʿah does not allow dealing in ribā, no matter the quantity of ribā is big or small. It has been observed that a comprehensive legal, regulatory, and operational framework does not exist for Sharīʿah-compliant dealing in shares /securities in the stock exchange. Although the SECP has attempted to provide a benchmark and a criterion for Sharīʿah-compliant trading, but that criterion itself suffers from flaws and involves Sharīʿah issues. In order to develop an Islamic capital market, it is imperative to amend the current legal and operational framework and the screening criterion needs to be revisited to make it a genuinely Sharīʿah-compliant screening criterion.

Keywords

Islamic Stocks Index, core business, financial ratios for stocks screening, Screening criteria, purification criteria, qawā’id al-fiqhīyah.