Impact of globalization on the consumers

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In 1987, prominent Muslim scholars grouped together and designed a criteria, allowing Muslim investors to own shares in listed joint stock companies. Among the scholars were Professor Saleh Teg from Turkey , Muhammd Taqi Usmani from Pakistan and Sheikh Muhammad Al- Tayyeb Al Najar of Egypt. The aim of the approach being that the companies whose nature of business is allowed according to the Shari'ah , it was not possible to go on with their financial operations and satisfy the principles of Shari'ah. Which resulted in Muslims taking a back seat in the flourishing global economy. A careful and in-depth analysis of the non - compliant elements in a company was vital, in order to identify and deal with them as per Shari'ah rules and regulations. The Shari'ah screening criteria was presented by the renowned scholars which stated that Muslim investors are free to obtain shares of the companies that satisfies the outlined criteria.

During 1996, Malaysia formed the Shari'ah Advisory Council (SAC) to develop an Islamic banking and finance sector. The Shari'ah Advisory Council advised the securities commission on dealings related to the development of the Islamic Capital market, it also operated as a reference body for issues related to Shari'ah. The SAC then issued a Shari'ah - compliant securities methodology whose aims and objectives were identical to the rationale and objectives of the scholars of the UAE.

The screening methodology and its rationale have been accepted and appreciated globally for almost two decades. Although some scholars still argue that companies which fulfill the Shari'ah principles are eligible for Shari'ah - compliant investments. They state that a company's share holder is a legal partner of the respective company and by becoming a partner, the individual consents to and authorizes the non-Shari'ah dealings of the company . Ample proofs could not be generated to allow an exception in the developed rule of law, which prohibits any participation in a non-Shari'ah compliant activity. According to the proponents of a Shari'ah screening methodology joint stock companies and traditional partnerships cannot be compared as modern joint stock companies are quite different from the typical partnership, where every partner enjoys the same authority and power.

The proposed screening methodology enables Muslim investors from deriving benefits from non-compliant activities of a company. These investors can also express their dislike of such activities. Companies conducting non-Shari'ah compliant business can be screened through the guidelines of the Shari'ah screening criteria. Those companies whose finances do not meet the minimum acceptable levels are also exempted by this criteria. In order to exclude the companies that do not comply with the Shari'ah principles, this criteria was developed. Business activities mentioned below are not allowed under Shari'ah. Companies will not qualify for Shari'ah - compliant investments if the following activities are practiced:

Tobacco, liquor or pork related items.

Hotels, gambling industry, movie/cinema, pornography etc.

Weapons and defense.

Biotechnology companies which deals in human/animal genetic engineering.

Conventional financial services, for instance banking or insurance.

At least 95 percent gross revenue of a company should be generated by activities other than those listed above. Printing and Media companies are also excluded by some Shari'ah scholars. The above mentioned industries are excluded because Muslims are instructed to involve in good deeds and strive for righteousness, the products of these industries are strictly prohibited in Islamic teachings. Benefits derived from transactions that includes interest is also strictly prohibited. Companies which deals in interest of any form are not applicable for Shari'ah - compliant investments.

The financial ratio criteria is being regularly updated according to the unique demands of the ever changing world. Financial ratio screen serves to eliminate companies that do not satisfy the required level of leverage, interest income and receivables. In order to satisfy the Shari'ah - compliant investments, a company should meet the following criteria in terms of level of debt, account receivables or impure interest income:

Total debts should be below 33 percent of the equity.

account receivables should be less than 49 percent of the total assets.

interest income should not exceed 5 percent of the total income.

Core Activities: The basic activities of the companies should not be Shari'ah incompatible. Companies whose financial services are based on interest (riba) are excluded, so are the companies with the following as their business activities: gambling; business of non-halal products or related products; entertainment activities that are condemned by Shari'ah; conventional insurance; businesses dealing in tobacco-based products; stock-broking; share trading of non-approved securities etc.

Mixed Activities, the SAC takes into account two additional criteria for companies dealing in permissible and non-permissible elements:

The image of the company must be excellent.

The core activities of the company should be in the public interest of the Muslim nation; and the non-permissible elements are insignificant and deals matters whose avoidance is difficult, the rights of the Muslim community are according to the Islamic rules and teachings.

Benchmarks of tolerance: In the case of marked activities, when the contributions in profit or turnover from non-permissible activities are greater than the benchmark, the securities of the company are not according to the Shari'ah. The benchmarks are;

The five percent Benchmark, which is used to analyze the mixed contributions from the prohibited activities like conventional banks, gambling businesses, pork or alcohol trades.

The ten percent Benchmark is to assess the degree of mixed contributions from prohibited element of affecting a number of people and is difficult to avoid, like interest income from fixed deposits in conventional banks.

The twenty five percent Benchmark assesses the level of mixed contributions that are permissible in Shari'ah, but there are some elements that might affect Shari'ah status of these activities. For instance share trading and hotel and resort operations.