The Shariah screening of listed securities is a foundational process within the Islamic capital market, enabling investors, fund managers, and financial planners to identify equity instruments that are permissible for investment under Shariah principles. In Malaysia, this responsibility rests exclusively with the Shariah Advisory Council (SAC) of the Securities Commission Malaysia (SC), established under the Securities Commission Act 1993. The SAC is the sole authoritative body empowered to determine the Shariah compliance status of listed securities on Bursa Malaysia, and its resolutions carry the force of regulatory authority.

Since its inaugural screening in 1995, the SAC's methodology has undergone two significant structural revisions: first in November 2013 and most recently in 2025. Each revision was driven by a different set of market conditions, scholarly discourse, and the overarching ambition to position Malaysia as a globally competitive Islamic capital market. This supplementary note provides a comprehensive analytical narrative of all three eras, the rationale underpinning each reform, and the practical implications for Islamic financial planners advising clients on Shariah-compliant investments.

The SAC of the SC established its methodology for undertaking the Shariah screening process for listed companies in 1995. The first official List of Shariah-Compliant Securities was subsequently introduced in June 1997, giving investors a regulatory reference point for identifying securities on Bursa Malaysia that were permissible for investment from a Shariah perspective.

The methodology was developed at a time when Malaysia's Islamic capital market was still emerging. Its purpose was to provide a practical screening framework for companies whose principal activities were generally permissible, but which might also derive limited income from activities or elements that were not fully Shariah-compliant. In applying this framework, the SAC relied on Shariah principles such as ijtihad (scholarly reasoning), maslahah (public interest), umum balwa (widespread difficulty), and urf (custom), together with an assessment of public perception and the image of the company from the perspective of Islamic teachings.

The original methodology comprised both qualitative and quantitative assessments. The qualitative assessment considered public perception and the image of the company's activities from the perspective of Islamic teachings — a company could be excluded where its activities or overall character were considered inconsistent with Shariah values, even if it appeared to satisfy the numerical benchmarks.

The quantitative assessment applied four business activity benchmarks, comparing the contribution of Shariah non-compliant activities to the company's overall revenue and profit before tax:

• The Malaysian framework allowed several benchmark levels above 5% (10%, 20%, 25%), whereas many international methodologies applied a stricter, more uniform tolerance — meaning some Malaysian Shariah-compliant securities were excluded under international Islamic indices
• The absence of balance sheet screening meant a company could satisfy business activity benchmarks even while carrying substantial conventional interest-bearing debt or maintaining significant cash in conventional accounts
• This gap became increasingly important as Malaysia sought to strengthen the credibility, comparability, and international acceptance of its Shariah-compliant securities list

In June 2012, the SC announced that the SAC would revise the Shariah screening methodology for companies listed on Bursa Malaysia. The revision was made in response to the development and sophistication of Malaysia's Islamic finance industry and was aligned with the Capital Market Masterplan 2 (CMP2) objective of building scale in Shariah-compliant equity and investment management while expanding the Islamic capital market's international reach.

The revised methodology was first applied to the List of Shariah-Compliant Securities released on 29 November 2013. The revision restructured the quantitative assessment by adopting a two-tier approach comprising business activity benchmarks and newly introduced financial ratio benchmarks, while retaining the qualitative assessment of public perception and image.

The earlier four-benchmark structure (5%, 10%, 20%, 25%) was streamlined into two thresholds:

The most significant structural addition in the 2013 revision was the adoption of two financial ratio benchmarks, extending the assessment beyond business activities to the company's statement of financial position. Both ratios measure riba and riba-based elements within a listed company's balance sheet:

The first application of the revised methodology in November 2013 had a significant but managed market impact. The updated list released on 29 November 2013 contained 653 Shariah-compliant securities, representing 71% of the 914 securities listed on Bursa Malaysia. It included 16 newly classified Shariah-compliant securities and excluded 158 securities that had appeared in the May 2013 list.

• A six-month grace period was granted from 29 November 2013: investors could dispose of excluded securities where market price ≥ investment cost; dividends and capital gains during this period could be retained without purification
• Where market price was below investment cost, investors were permitted to hold until dividends received and market value equalled original cost, after which securities were to be disposed of, with any excess channelled to baitulmal or charitable bodies
• By February 2024, approximately 841 securities (78% of Bursa-listed) had Shariah-compliant status — demonstrating the revision strengthened credibility without causing lasting contraction in the investable universe

The SAC of the SC revisited the business activity benchmarks used in the Shariah screening methodology for listed securities on Bursa Malaysia. At its 288th Meeting held on 24 February 2025 and its 296th Meeting held on 13 November 2025, the SAC resolved to revise the quantitative business activity benchmark by introducing a single 5% benchmark and removing the previous 20% benchmark.

The 2025 resolution should be read as part of the SAC's continuing effort to strengthen the robustness, consistency, and credibility of the Shariah screening framework.

• Companies with financial years ending before 31 Dec 2025 continue to be assessed based on the applicable methodology for that assessment cycle (two-tier: 5% and 20%)
• Companies with financial years ending on or after 31 Dec 2025 will be assessed using the single less-than-5% business activity benchmark, together with the existing financial ratio benchmarks of less than 33%
• Highest re-screening risk: companies with exposure to activities formerly assessed under the 20% benchmark — share trading, stockbroking business, cinema, rental from Shariah non-compliant activities — as those activities must now remain below 5% when assessed under the revised methodology
• IFP practitioners should monitor the SAC's May 2026 List carefully for clients holding such equities

Table 1: Comparative Summary of SAC Shariah Screening Methodology (1995, 2013, 2025)

Table 2: Benchmark Movement by Activity Category (Pre-2013, 2013, and 2025). Note: Share trading and stockbroking were assessed at 25% pre-2013, consolidated into the 20% benchmark in 2013, and tightened to <5% in 2025.

The 2025 SAC resolution has practical implications for Islamic Financial Planners (IFPs) and Shariah Registered Financial Planners (ShRFPs) advising Muslim clients on equity investments. Where a security is subsequently reclassified as Shariah non-compliant because it no longer satisfies the revised benchmark, advisers should review the affected client's portfolio, explain the change in Shariah status, and recommend an appropriate course of action consistent with the SAC's treatment of reclassified securities and the client's investment mandate.

Even where a security remains classified as Shariah-compliant, part of the company's income may arise from activities that fall within the permitted benchmark. From a client-advisory perspective, IFPs should explain the concept of purification (tahara) and, where relevant information is available, assist clients in identifying the portion of dividend income attributable to non-compliant sources so that it may be channelled to baitulmal or charitable bodies without expectation of reward.

For Islamic funds, the purification process is normally handled at fund level under the supervision of the fund's Shariah adviser. Advisers should verify the fund's disclosure and Shariah governance arrangements before making recommendations.

With the removal of the 20% business activity benchmark, Malaysia's SAC methodology moves closer to the income-screening approach commonly used by major global Islamic equity screening frameworks, which generally apply a 5% tolerance for non-permissible income. However, convergence is not complete — methodologies differ in important technical respects including the denominator used for financial ratios, the treatment of receivables, review frequency, and the role of qualitative Shariah assessment.

Table 3: Comparative Overview of Major Shariah Equity Screening Methodologies (2025). TA = Total Assets.

For Islamic financial planners, this evolution is directly relevant to client advice. It explains why Shariah-compliant status can change over time, why periodic portfolio review is necessary, and why clients should understand both purification of incidental non-compliant income and the disposal treatment for securities that are later reclassified.

The SAC's continuing willingness to refine its methodology in response to market development, regulatory experience, and Shariah deliberation demonstrates ijtihad in practice — showing that Islamic jurisprudence in the capital market is not static, but is applied dynamically to contemporary financial realities while remaining anchored in Shariah principles.

• Securities Commission Malaysia (2013). Revised Shariah Screening Methodology for Shariah-Compliant Securities. SC Malaysia. www.sc.com.my
• Securities Commission Malaysia (2025). Resolutions of the SAC: 288th Meeting (24 February 2025) and 296th Meeting (13 November 2025). SC Malaysia.
• Securities Commission Malaysia (May 2026). List of Shariah-Compliant Securities. SAC, SC Malaysia.
• AAOIFI (2015). Shariah Standard No. 21: Financial Papers (Shares and Bonds). Bahrain.
• Mat Nor, F. et al. (2019). Revised Malaysian Shariah Screening: Its Impact on Islamic Capital Market. Research in World Economy, Sciedu Press.
• Bursa Malaysia / SC Malaysia. FAQs on Revised Shariah Screening Methodology. www.sc.com.my
• Zahidi Ahmad (2025). IFPCS Day 5 Trainer Notes: Shariah Compliant Securities and Cleansing Methodologies. Emzek Academy, Kuala Lumpur.