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Shariah RFP M3 study materials
Shariah RFP M3 study resources

Shariah RFP M3: Shariah-Compliant Asset Classes and Screening

Shariah RFP M3 · Work through your exam, one topic at a time.

All guide sections

Shariah-Compliant Asset Classes and Screening

What this domain tests

This domain tests whether you know the investable universe and can apply both stages of screening. Expect questions on sukuk structures, Islamic REITs, money-market instruments and the arithmetic of purification.

Asset classes

  • Equities: listed shares and private equity that pass business and financial screens.
  • Sukuk: ijarah (lease), wakalah bi al-istithmar, mudarabah, musharakah, murabahah and hybrid structures. Holders own an asset or a share of a venture, not a loan.
  • Islamic money market: commodity murabahah, mudarabah deposits and short-term sukuk.
  • Islamic REITs: real estate with Shariah-compliant tenants and takaful cover; conventional interest-bearing financing must be avoided.
  • Commodities and hedging: gold and silver traded with possession; hedging through wa'd or arboun rather than conventional forwards.

Screening stages

  1. Business activity screen excludes sectors such as conventional finance, alcohol, gambling, pork, tobacco, weapons and adult entertainment.
  2. Financial ratio screen applies the SAC benchmarks: interest-bearing debt to total assets of no more than 33%, and non-compliant income to revenue of no more than 5%. The compliant list is revised periodically.
  3. Purification donates the non-compliant proportion of income received.

Worked example

A client receives a dividend of RM0.20 per share. The company's non-compliant revenue is 4% of total revenue and it passed the debt test. Purification is RM0.20 × 4% = RM0.008 per share, donated to charity. The remaining RM0.192 is retained. If the debt ratio had been 36%, no purification would be relevant because the shares would not be held at all.

Traps that cost marks

  • Applying equity ratio tests to sukuk; a sukuk is assessed on its underlying asset and structure.
  • Treating an "Islamic" fund label as proof of compliance rather than checking holdings and purification policy.
  • Describing purification as a fee or tax; it is a charitable donation.
  • Forgetting that sector exclusions can push a portfolio into concentrated technology or healthcare weights.