Capital Markets 177
acquire the stock on two conditions. First, the shareholder must express
his disapproval against such dealings, preferably by raising his voice
against such activities at the company’s annual general meeting. Second,
a cleansing of interest income should be done through a contribution to
charity. It is suggested that the proportion of interest income in the divi-
dend paid to the shareholder must be given in charity, and must not be
retained by the shareholder. For example, if fi ve percent of the company’s
income is derived from interest - bearing deposits, an equal percentage of
the dividend must be given to charity to purify the income derived.■ (^) Negotiability of shares (liquidity test): According to Shari’ah scholars,
the shares of a company are negotiable only if the company owns some
illiquid assets. Although there is no fi xed tolerance level for illiquid
assets, a ratio of 33 percent is typically used. The reasoning behind
this constraint is that if all the assets of a company are in liquid form
(that is, money), they cannot be purchased or sold except at par value,
because money cannot be traded except at par.
■ (^) Ordinary vs. preferred stock: Although there is general consensus among
Shari’ah scholars on the permissibility of ordinary shares, since they rep-
resent undivided ownership in the business of the company by the share-
holders, other forms of shares such as preferred stock and warrants do
not have the same permissibility. This is because, unlike ordinary shares,
preferred stock and warrants promise a defi nite return to their holders.
■ (^) The demand for Islamic equity funds and the successful application of
the screening process have been supported by the introduction of sev-
eral equity indices. The Dow Jones Islamic Market Index (DJIMI), for
example, was launched in February 1999, and was followed later that
year by the Kuala Lumpur Shari’ah Index (KLSI) and the FTSE Global
TABLE 9.1 Business activities excluded by the Dow Jones Shari’ah Board
Distillers and vintners Restaurants and bars
Food products and tobacco Conventional banks and fi nancial institutions
Recreational products/services Full - line insurance and insurance brokers
Harmful environmental records/
bad employee records
Conventional fi nancial services
Food retailers and wholesalers Property and casualty insurance
Broadcasting and entertainment /
media agencies
Reinsurance and life insurance
Gambling / hotels / cinemas /
pornography
Consumer fi nance
Alcohol and pork-related products Human cloning and aborted human fetuses
Source: Dow Jones Islamic Market Index