Business

Shariah Screening of Stocks in Maldives.

Published

3 years ago

09/08/2021

Dr. Aishath Muneeza, Associate Professor at INCEIF

Shariah screening of stocks is essential for Muslim investors to understand whether they could invest in shares of a specific company or not within the ambit of Shariah. From a Shariah perspective, there are three kinds of companies operating in the world which is derived by looking at the types of activities they engage in. The first kind of companies are those companies whose main business activities conducted does not confirm with Shariah. For instance, if a company’s main activity is providing riba-based loans or conventional financing, then it will be prohibited for a Muslim to invest in such a company and receive dividends. This is because, buying a share of a company means that one will receive dividends from the profits made by the company and if the company engages in Shariah prohibited activities; the dividends received will be tainted with money made from Shariah non-compliant activities. The second kind of companies are those companies who engage in hundred percent Shariah compliant activities and one may ask whether in reality such companies exist in the world today or not. The typical example of such companies could be Islamic financial institutions that follow Shariah governance principles by implementing internal Shariah control mechanisms. One of the features that could be found in such a companies is having an internal Shariah Supervisory Board (SSB) or a Shariah Committee to ensure that the operations of the company is in compliance with Shariah. There is no Shariah issue in investing in such companies as their activities are in line with Shariah and in this case, by investing in shares of such a company, the dividends received would be Shariah compliant. The final kind of companies in this regard are the companies that engage in mixed activities whereby it is difficult to determine whether the majority of the activities they conduct is Shariah compliant (halal) or Shariah non-compliant (haram). Shariah screening of stocks is conducted for companies engaged in mixed activities to determine whether a Muslim can invest in shares of such companies. For the other two kinds of companies, Shariah screening is not required as even without conducting a screening, one is able to determine the Shariah compliant status of them.

What is Shariah Screening?

Shariah screening is conducted for companies engaged in mixed activities to determine the Shariah status of such companies using a process and benchmarks enacted by competent Shariah scholars using ijtihad. Generally, there are two stages involved in Shariah screening of stocks. The first stage is qualitative or business screening and the second stage is quantitative or financial screening of stocks. Apart from screening process, a purification process is also adopted by some of the Shariah screening bodies to purify the dividends received. The Shariah screening methodologies adopted in the world is not uniform as different Shariah screening authorities/bodies adopt different methodologies. Today in the world, Shariah screening is conducted by regulatory authorities in some countries like Malaysia and Maldives while in other parts of the world it is the companies such as FTSE and Dow Jones who engage in doing so. Islamic finance standard setting body, Accounting and Auditing Organization for Islamic Financial Institutions(AAOIFI) has also formulated a Shariah screening criteria for the purpose.

Shariah Screening Criteria of Capital Market Development Authority of Maldives

The screening of stocks in Maldives is found in the Regulation on Screening of Islamic Securities (2013/R-55) enacted under the Maldives Securities Act 2006 by Capital Market Development Authority (CMDA). This regulation sets out the shariah screening criteria used in Maldives by CMDA for the listed companies. In Maldives, it is the regulatory authority of the stock market who conducts the Shariah screening for listed companies who apply for the service. As such, it shall be noted that in Maldives, it is not all the companies listed in the Maldives stock exchange that will go through the shariah screening process. As per the regulation, the listed company shall apply to do the screening and a prescribed fee under the regulation shall be paid by the applying company. A company which is endorsed as selling shariah compliant equity will be screened semi-annually by CMDA and if the company does not pass the screening criteria at any time, the company will be classified as a ‘disqualified company’.

There are three stages involved in shariah screening of equity in Maldives. The first stage is the qualitative screening. The prohibited list of activities according to the said regulation are financial services based on riba (interest), gambling, manufacture or sale of non-halal products or related products and any other activities deemed non-permissible according to the Shariah principles. As such, according to the said regulation, none of these activities shall be the core business or a substantial part of the business of the company. It is imperative to note that this is a mandatory requirement for the company to pass through the first stage of shariah screening. The second stage of screening is conducting quantitative screening of the company where it is checked using the financial information of the company received that the revenue generated from business which consists any of the activities listed in the prohibited list of activities , does not exceed 5% of the total revenue of the company; the total amount of interest bearing debts of the company does not exceed 33% of the total tangible assets; and the total amount of interest bearing receivables does not exceed 33% of the total assets. The final stage of shariah screening is that, after the qualitative screening, if there is any tainted income of the company revealed, that tainted income portion shall be purified by giving to charity.

The only shariah compliant companies listed in Maldives Stock Exchange are Amana Takaful Maldives Plc and Maldives Islamic Bank Plc.

Conclusion

Shariah screening process is important to understand the Shariah compliant status of a company. Through this process the potential Muslim investors can decide whether they could invest in shares of a company and receive dividend which is halal. For Muslims, it is imperative to know that the business activities they engage in are Shariah compliant or not as they need to be accountable for their actions not only in this world; but in hereafter as well. As such, Shariah screening of stocks is an important mechanism that needs to be understood by the existing shareholders and potential shareholders of the companies.

Dr. Aishath Muneeza is an Associate Professor at the International Center for Education in Islamic Finance.

Business

MTCC reports staggering 82.9% net profit drop

Published

5 hours ago

01/05/2024

Maldives Transport and Contracting Company (MTCC) has reported a staggering 82.9% net profit decline for Q1-2024.

According to MTCC, it earned just MVR 5.2 million in net profit for the review quarter, which came down from MVR 30.8 million in the last quarter of 2023.

The company’s revenue for Q1-2024 stood at MVR 664.4 million, which is a 15.8% drop from MVR 789.2 million generated in the Q4-2023.

Moreover, MTCC reported a whopping 94.5% decline in its Gross Profit for the review quarter, registering MVR 2.5 million in Q1-2024 compared to MVR 44.3 million.

The operating profit for the review quarter stood at MVR 41.8 million, which is a 26% drop from MVR 56.5 million in Q3-2023.

The net asset value per share dropped from MVR 227.95 in Q4-2023 to MVR 226.98 to Q1-2024, while earnings per share saw a notable decline from MVR 3.83 in the preceding quarter to just MVR 0.65 in the review quarter.

Source(s): sun.mv

Business

STO opens showroom in Hulhumale’

Published

1 week ago

24/04/2024

State Trading Organization (STO) has opened a showroom specialized for construction in Hulhumale’.

The showroom was inaugurated by Construction Minister Dr. Abdulla Muthalib during a special ceremony held on Tuesday night.

Speaking at the ceremony, STO’s Managing Director Shimad Ibrahim stressed the role of the company’s former managements and board members in carrying forward the company and therefore extended them gratitude.

Situated at the same location as STO’s Hulhumale’ shop – next to STO’s Smart Store near Hulhuamle’ Hospital – the construction solutions showroom was opened following renovations up to modern standards.

STO reports that all construction-related products sold by the company will be available at the showroom including some of the most renowned brands sold by the company; Makita tools, Nippon paint and concrete from prominent mix designing brands among others.

The state-owned company is prominent in the local construction industry as STO’s constructions solutions is the largest importer and seller of construction-related products in the Maldives.

STO noted that customers can now place orders for construction-related products including Makita tools and Nippon paint via the Hulhumale’ showroom which would eliminate the need to travel to Male’ to make the purchases. Arrangements have been made in the showroom to prepare the colors of Nippon paint ordered by the customers on demand.

Henceforth, they attributed the opening of the new showroom as something which would bring easements to the lives of Hulhumale’ residents and construction industry partners operating in the suburb.

Source(s): sun.mv

Business

Economy thrives, projects speed ahead despite challenges

Published

2 weeks ago

18/04/2024

Before President Dr. Mohamed Muizzu assumed office, the economic condition of the Maldives was significantly deteriorating. Experts attribute the primary reason for the depreciation of the Maldivian currency to the excessive printing of money by the previous administration.

According to statistics from the Maldives Monetary Authority (MMA), more than USD 518.04 million was printed over the last three consecutive years, marking a historic high compared to USD 388.53 million printed over 40 years.

Additionally, upon assuming office, President Muizzu inherited a heavy debt burden. The total debt amounted to over USD 7.71 billion, with a significant portion owed to companies for upcoming parliamentary elections and previously initiated projects, totaling USD 584.88 million.

Despite these challenges, President Muizzu has been proactive in rejuvenating the Maldives’ economic status. Within three months of his tenure, USD 35 million has been deposited into the sovereign development fund. The President estimates that more than USD 100 million will be deposited into the fund by the end of the year.

discontinuation of printing money has been regarded as a pivotal step towards economic progression for the Maldives

President Muizzu’s commitment to revitalizing the Maldivian economy without resorting to the printing of money is indeed a significant pledge. By discontinuing the practice of printing money, the government aims to address economic challenges while ensuring fiscal responsibility and long-term sustainability.

The decision to immediately halt the printing of money upon assuming office underscores President Muizzu’s determination to prioritize sound monetary policy. This move reflects an acknowledgment of the risks associated with excessive money printing, including inflation and currency devaluation, and signals a commitment to addressing these challenges through prudent financial management.

Furthermore, President Muizzu’s plans to boost the country’s prosperity and income by reducing reliance on loans and settling debts owed to both foreign and domestic entities demonstrate a holistic approach to economic revitalization.

attracting a vast pool of investors

The efforts of the present administration to attract a wide range of investors reflect a strategic approach to addressing the significant development needs of the Maldives. By engaging in investment forums both domestically and abroad, the government has been successful in showcasing the diverse investment opportunities available in the country.

The decision to host investment forums in countries like China and the UAE demonstrates a proactive approach to international investment promotion. These forums serve as platforms for highlighting the potential for investment in key sectors such as infrastructure, tourism, and hospitality. By creating awareness about these opportunities, the government aims to attract investors who are interested in contributing to the development of critical projects, including the establishment of bridges, domestic airports, and resorts.

Over 500 projects underway

The continuation of 527 projects, including those that faced interruptions due to non-payment to companies during the government transition, underscores the commitment of President Muizzu’s administration to ensure continuity and progress in ongoing initiatives. Despite the challenges encountered, efforts have been made to address issues such as delayed payments and optimize project expenses to keep important projects on track.

It’s notable that the current year’s budget, initially approved by the prior administration, may not have fully aligned with President Muizzu’s priorities and rules for project implementation. This misalignment may have resulted in some projects not receiving adequate budget allocations or not being included in the budget at all. However, the administration has taken steps to optimize expenses and prioritize projects that align with President Muizzu’s vision for development

Initiatives to enhance economic growth and foster sustainable growth

The International Monetary Fund (IMF) has recognized President Muizzu’s initiatives as some of the strongest implementations seen among world leaders, emphasizing their potential for substantial progression. The IMF applauded the government’s decision not to overdraw the government’s account and expressed its readiness to provide any assistance needed. This endorsement from the IMF underscores the effectiveness of President Muizzu’s economic policies and strategies.

Additionally, the Maldives National Chamber of Commerce and Industries has voiced support for the government’s initiatives, recognizing them as favorable for the Maldivian future as a growing economy. Despite challenges such as a shortage of dollars for small businesses, the Chamber remains optimistic that the government’s decisive actions will lead to economic growth and stability in the value of the dollar.

The government has projected a 5.5 percent economic growth rate for this year, indicating confidence in the trajectory of the economy under President Muizzu’s leadership. Furthermore, President Muizzu revealed a significant reduction in the country’s primary debt balance, from USD 103.61 billion last year to USD 8.68 million in the current year. This reduction in debt, achieved within just four months, demonstrates the government’s commitment to fiscal responsibility and its ability to effectively manage the country’s finances.

Overall, these developments indicate that the government’s economic rejuvenation efforts have been successful, earning the confidence of global financial institutions in the Maldives’ future economic prospects.

Source(s): PsmNews