Saturday, May 25, 2019

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Jurisprudence Of Screening In Contemporary Islamic Finance Architecture

Dr Mohd Daud Bakar (Amanie Advisors)

Screening is a term which was never heard of in Islamic finance terminology in the past. However, screening has been very central in the modern Islamic finance landscape as it will ultimately determine what can be invested in and what is not. To this effect, one needs to understand the socio-economic background of this modern phenomenon that has led to the notion of screening to the central debate of Shariah compliance in some of the existing asset classes in Islamic finance.

Understandably, the investment activities in the past did not encounter any delicate investment issues with regards to the subject matter of the investment. As most of the investment activities were into entities that were managed according to prescribed Shariah principles, the need to screen the activities of these entities was almost absent. The central focus, as can be seen from the juristic debates amongst the classical scholars, was on the legitimacy of a particular contract or a term to a contract. The body of Islamic substantive law is a good manifestation of this historical dimension. Going through the literature of Islamic substantive law, the issue of screening was almost lacking.

Read more: Jurisprudence Of Screening In Contemporary Islamic Finance Architecture

The Case for a New Screening Methodology

Effendy Rahaman (Amanie Business Solutions)

The Shari’ah compliant equity screening methodology can often be viewed as the single most potent development within the sphere of Islamic Finance. On its account, there are some 700 funds within the Global Islamic Fund Management Industry by the first quarter of 2010, boasting an estimated Asset under Management to a tune of US$52.3 billion. No less than 4 global indices, ranging from Dow Jones Islamic to FTSE Islamic, push forth a version of their own. It is fundamentally a global phenomena; with the ability to be applied across any jurisdiction throughout the world. That is the beauty behind this methodology; universality, stability and ease of application.

Fundamentally, the Shari’ah compliant equity screening methodology provides an opportunity for any public listed to be considered as a destination for Islamic Investment funds. Each and every benchmark set within it has undergone countless hours of Ijtihad by our modern day scholars; the product of which is a pragmatic array of tolerance levels that can be applied to our modern day equities. Without it, the Islamic Investment sphere would have to revert to investing in completely Shari’ah compliant entities; much akin to most Islamic Private Equity investments. Plenty of restrictions, little diversification, focused mostly on investments only in Muslim countries. Apocalyptic for the modern day Islamic fund manager should he consider regressing back to it.

Read more: The Case for a New Screening Methodology