New study focuses on quality of Shariah equity screening

SIRAJ WAHAB | Arab News Staff

Published — Monday 12 November 2012

Last update 12 November 2012 6:09 am

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ALKHOBAR: An indepth study, carried out by Ratings Intelligence, an organization that provides quality research resources for Islamic investors, has examined the quality of Shariah equity screening.
Authored jointly by CEO Dr. Mushtaq Shah, chairman Dr. Nabhan Al-Nabhan, and head of equity screening and audit Abdul Hadi Shaikh, the paper talks about how different results are obtained for a company under review by adopting different research approaches and how quality of Shariah screening can be improved.
The paper advocates an interactive, knowledge-based and Shariah board guided approach to Shariah equity screening. “The quality of equity screening is a key issue,” said Shaikh in a conversation with Arab News. “The Islamic equity fund industry derives credibility from such quality of screened data. Further, the GCC market has increasingly been seeking better research, as there is more awareness about Shariah funds in the region.”
According to Shaikh, Islamic equity funds are required to invest in such listed companies which are screened/examined and classified as Islamic using a Shariah equity screening criteria.
“Such screened/examined lists of companies are often provided by independent providers (ITES firms), international index providers as well as integrated Shariah advisory firms,” he said.
Shaikh described Shariah equity screening as a dynamic approach 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. Various scholars and group of scholars have laid such Shariah guidelines which govern Shariah equity screening. These broadly involve reviewing a company over its business sector and financial ratios,” he said.
Shaikh said screening and its methodologies are maturing with some index providers like the S&P following a “knowledge-based” approach. “This, I believe, is a step forward from the ‘information-based approach’ — which is an improvement over the automated approach — which most Islamic index screening providers use,” he added.
Shaikh is expected to explain in detail the paper during his presence at the two-day Islamic Finance News Saudi Arabia Forum 2012 in Riyadh beginning today.

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