At Prosperia, we carefully check and analyze companies using a thorough method called AAOIFI*.
This helps us create reliable and detailed reports about Indian & Global company stocks.
At Prosperia, we carefully check and analyze companies using a thorough method called AAOIFI*.
This helps us create reliable and detailed reports about Indian & Global company stocks.
At Prosperia, we carefully check and analyze companies using a thorough method called AAOIFI*.
This helps us create reliable and detailed reports about Indian & Global company stocks.
Shariah equity screening is a dynamic process used to assess whether investing in the equity of a listed company is permissible according to Shariah principles.
The company will follow Shariah principles, as explained by the AAOIFI*. We avoid dealing with companies engaged in the following activities:
Companies which derive revenue of less than 5% from the above non permissible activities (including non-operating interest income) are still considered to have passed the Business Sector screening criteria.
After removing companies with non-compliant business activities, the aftermath companies are further examined for compliance with accounting ratios, as certain ratios may violate the compliance measurements.
Cash Compliance: For a company to pass the Cash compliance ratio its total cash and liquid deposits over its 3 years average market capital should be less than 33%.
Debt Compliance: For a company to pass the Debt compliance ratio the total interest bearing debt over its 3 years average market capital should be less than 33%.
Receivable Compliance: For a company to pass the Receivable compliance ratio its total business receivables over its 3 years average market capital should be less than 49%.
Companies having less than 5% of their revenues coming from the prohibited business activities are said to have passed the Sector-based Screens. But the proportion of dividends attributed to revenue generated from such non-permissible business activities and interest income will have to be purified.
Dividend income purification is the process of purging the income received from activities/ sources that are non-compliant as per Shariah principles from the total income.
When Shariah compliant securities receive dividend or any other prohibited income as per Ethical principle as part of a company’s normal business operation, a purification process takes place.
Any proportion of income received from activities that are non-compliant as per Ethical principles may be paid to Charity and thereby ‘purified’.
To determine Shariah compliance for inclusion in the S&P Shariah Indices, Prosperia relies on the latest available financial statements, whether they are quarterly, semi-annual, or annual. While annual statements are generally audited, quarterly and semi-annual statements may not be.
Prosperia prioritizes the most recent financial statements, whether quarterly, semi-annual, or annual. If all three formats are available, the annual statement is favored because it is typically audited and provides a more comprehensive view.
Companies that are fully Shariah-compliant are exempted from accounting-based screens, subject to Shariah Board approval. These companies are considered Shariah-compliant regardless of their leverage ratios. Although the following characteristics are not exhaustive, companies are usually deemed compliant if they exhibit the following:
