Enhancing Shariah Stock Screening Criteria: A Proposed Framework for Evaluating Shariah Compliance Degree
Enhancing Shariah Stock Screening Criteria: A Proposed Framework for Evaluating Shariah Compliance Degree

Summary/Abstract: The study aims to enhance the current Shariah stock screening methodologies by proposing a scoring mechanism that assigns a measurable Shariah Compliance Degree (SCD) to listed scripts. This approach seeks to simplify the assessment process, enabling investors to compare and make informed decisions based on the relative level of Shariah compliance. A descriptive research methodology is employed to analyze the limitations of existing Shariah stock screening criteria, such as those used by Dow Jones, AAOIFI, MSCI, FTSE, S&P, and KMI-30 in Pakistan. The study develops a scoring mechanism that consolidates qualitative and quantitative criteria into a single percentage representing the level of Shariah compliance of each script. The proposed SCD framework addresses a critical limitation of the KMI-30 Index by providing a a more detailed assessment of compliance levels for listed stocks. Unlike the binary categorization of "compliant" or "non-compliant," the SCD framework assigns specific compliance scores, reflecting varying degrees of adherence to Shariah principles. For instance, while both POL and Meezan Bank are compliant under the KMI-30 Index, SCD assigns POL a 95% compliance score and Meezan Bank 100%, offering stakeholders greater clarity in their investment decisions. This enhancement promotes transparency, encourages ethical investment, and motivates companies to achieve higher compliance standards. This study introduces an innovative scoring mechanism for Shariah stock screening results, which enhances the existing methodologies by providing a measurable and comparative degree of compliance. This approach offers a more transparent and practical tool for investors, thereby promoting greater participation and growth in Islamic capital markets.

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