SHARI’AH-COMPLIANT STOCKS

In still another financial realm, the Philippine Stock Exchange (PSE) opened its doors for Muslim investors after seeing the huge potential of Islamic finance.

In 2013, the bourse unveiled an initial batch of 47 listed companies that satisfy Shari’ah principles after partnering with IdealRatings Inc. to screen companies in accordance with the Accounting and Auditing of Islamic Financial Companies (AAOIFI) standards.

That list, which is updated quarterly, increased to 60 in June — the biggest complement so far since October 2015.

The maintenance of a list of Shari’ah- compliant stocks was aimed at improving liquidity in the local stock market and enabling the exchange to tap global Islamic funds.

Prior to the release of the list of Shari’ah-compliant firms, there were no Muslim investors in the Philippine stock market, with most of them opting to trade in Malaysia’s bourse.

These Shari’ah- compliant equities do not derive sales from conventional interestbased lending, financial institutions, pork, alcohol, intoxicants, tobacco, arms and weapons, gambling, casinos, derivatives, pornography, music/entertainment and human stem- cell research.

In terms of financial ratios, their cash and interest- bearing investments must not exceed 30% of the total, interest bearing debts must not go beyond 30% and accounts receivables must not surpass 67% of market capitalization.

Standards for Shari’ah compliance are different from the set of filters that govern other PSE sub-indexes such as market capitalization, public float and liquidity.

Gauged according to these standards, only six component companies of the bellwether PSE index were deemed Shari’ahcompliant in June.

Identifying Shari’ah- compliant stocks sets the stage for the creation of more products catering to Islamic investors.

One product that the PSE hopes to create is a sub- index that will facilitate the launch of mutual funds or exchange-traded funds for Shari’ah- compliant stocks. That initiative has yet to take off, with the bourse focusing on other initiatives such as its merger with the Philippine Dealing and Exchange Corp. — with