ICM Corporate Governance
ICM Corporate Governance
Islamic capital market governance layers Shariah compliance onto ordinary board accountability. The exam tests who holds authority over Shariah matters, how products are screened and purified, and how the board remains answerable when it delegates.
Rules and structures
- The Shariah Advisory Council (SAC) of the Securities Commission is the highest authority for the Islamic capital market; its rulings bind ICM participants, while Bank Negara Malaysia's SAC governs Islamic financial institutions.
- The SC publishes the list of Shariah-compliant securities twice a year, in May and November, applying a business-activity screen and financial-ratio benchmarks - commonly interest-bearing debt and interest-bearing cash measured against one-third of assets, with 5% and 20% tolerance benchmarks for mixed activities.
- Issuers and fund managers appoint a Shariah adviser or Shariah committee, but the board retains responsibility; a favourable opinion does not transfer accountability.
- An annual Shariah review or audit tests whether operations actually matched the approved structure, and income from non-compliant sources is purified.
Worked example
An Islamic equity fund considers a company whose core business is halal but which holds a large interest-bearing deposit. Reasoning: the business-activity screen passes; the financial-ratio screen then decides - cash is measured against the benchmark, and if the limit is breached the stock is excluded. If it passes with a small impermissible income element, the fund may buy and purify the dividend. Governance trail: the Shariah adviser documents the ruling, the board approves the screening policy, and the annual Shariah review confirms the fund followed it.
Traps
- Confusing the SC's SAC with Bank Negara's SAC.
- Assuming Shariah screening happens once at launch and never again.
- Believing a Shariah adviser's ruling removes board liability.
- Forgetting purification of incidental non-compliant income.