The Sharia guidelines are based on the rules determined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a global Islamic finance standards-setting body, governed by an international panel of highly respected Sharia scholars, and are as follows:
Asset classes
Only stocks and Islamic ETFs are eligible for Shariah-compliance consideration. Preferred shared are considered to be non-compliant.
Business activities screens
Companies are only to be considered compliant from a business perspective if the cumulative revenue from non-compliant activities and non-operating interest income does not exceed 5% of their total income. Non-compliant income sources include the following:
- Alcohol
- Gambling
- Weapons
- Tobacco
- Adult Entertainment
- Pork Products
- Highly-leveraged Businesses
- Interest-Based Businesses
- Music, Cinema or Broadcasting
Financial screens
The following screens have to be fulfilled to ensure Sharia-compliance according to the defined rules:
- Interest-bearing debt divided by 12-month average market capitalization should be less than 30%
- Cumulative revenue from non-compliant activities and non-operating interest income should not exceed 5% of total income
- Cash, cash equivalents and short-term investments divided by the 12-month average market capitalization should be less than 30%