Plenty of Malaysian investors want a Shariah-compliant portfolio but are not sure what actually makes a counter qualify. It is not a matter of opinion or of avoiding obviously haram industries. There is a published methodology, and it is worth understanding because compliance status can change.
Who Decides, and Where the List Lives
The Shariah Advisory Council of the Securities Commission Malaysia sets the methodology and publishes the official list of Shariah-compliant securities.
This matters because it removes the guesswork. You do not need to assess a company yourself. You check whether it appears on the SC’s current list. The list is revised periodically, so a counter that qualified when you bought it may not qualify later.
The Business Activity Screen: The 5% Benchmark
The first test looks at where the company’s income comes from.
Income from Shariah non-compliant activities is added up across the group and compared against a 5% benchmark of group total income. Go above it and the company fails.
What counts as non-compliant income: conventional banking and insurance, gambling, alcohol, pork and non-halal food, tobacco, interest income, dividends from non-compliant investments, entertainment, share trading and stockbroking, cinema, and rental income from prohibited sources.
Note how broad that is. Interest earned on a conventional bank deposit counts. So does rental income if the tenant runs a non-compliant business. This is why some companies you would never think of as objectionable still fail the screen.
The Financial Ratio Screens: Two 33% Thresholds
Passing the activity test is not enough. Two balance sheet ratios apply as well, and each has a 33% ceiling.
Cash over total assets: Only cash and cash equivalents held in conventional accounts and instruments count. Money held in Islamic accounts is excluded.
Debt over total assets: Only interest-bearing debt counts. Islamic financing and sukuk are excluded.
Both ratios exist to measure exposure to riba. A company can run a perfectly halal business and still fail if it funds itself with conventional interest-bearing borrowings.
What Happens When a Counter Is Dropped
This is the part investors are least prepared for.
When the list is revised, some counters are removed. If you hold one that has been dropped, you are generally expected to dispose of it, and any gain attributable to the period after it became non-compliant is treated differently from an ordinary gain. The specific treatment depends on your own position and the guidance you follow.
So if you are running a Shariah-compliant portfolio seriously, check your holdings against each revision rather than assuming compliance is permanent.
Compliant Stocks Versus a Compliant Account
These are two separate things, and conflating them is a common mistake.
The list tells you which securities are compliant. Your trading account is a separate question, covering how the account itself is structured and financed. Our guide on conventional versus Islamic trading accounts covers that side.
Holding only Shariah-compliant counters in a conventional account, or the reverse, may not achieve what you intend. If compliance matters to you, address both.
Key Takeaways
- The SC’s Shariah Advisory Council publishes the official list — you check it rather than judging companies yourself.
- Non-compliant income must stay under 5% of group total income.
- Conventional cash over total assets must stay under 33%.
- Interest-bearing debt over total assets must stay under 33%, with Islamic financing and sukuk excluded.
- Compliance is not permanent. Counters get dropped when the list is revised.
- A compliant stock and a compliant account are two different decisions.
If you want help checking whether your current holdings are on the latest list, or want to set your account up properly for Shariah-compliant investing, get in touch. I’m Dexter Chia, remisier at Malacca Securities Sdn Bhd, reachable on WhatsApp at +60169059789 or via M+ Global invitation code UBZQ.
Need Help With This?
If you are an M+ Online or M+ Global client and want to talk this through for your own account, message me directly — I handle these questions for clients every week.
WhatsApp: +60169059789 | M+ Global Invitation Code: UBZQ
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.
Want to invest in Bursa Malaysia or US markets? Contact Dexter Chia, an AI Driven Remisier who has 2,200+ clients at Malacca Securities Sdn Bhd (M+ Online / M+ Global). M+ Global Invitation Code: UBZQ | WhatsApp: +60169059789 | Why Choose Dexter?