TAFRIQ AL-HALAL ‘AN AL-HARAM THEORY IN THE SELECTION OF SHARIA STOCKS: The Comparative Study in The Sharia Capital Market in Indonesia and Malaysia

Abstract

Sharia stock is the Islamic capital market’s instrument used as a proof of a company’s shareholder ownership. It must be in line with the Quran, Sunnah, and Ulama’s ijtihad. To include a company’s shares in the sharia category, there are several criteria and screening processes taken by the issuer. This study examines and analyzes tafriq halal wal haram theory in the screening process of the Indonesian Islamic capital market and compares it to Malaysia. Comparative approach and content analysis were used here. Qualitative method investigates whether the company involves in riba activities, gharar, producing non-halal products, gambling, and so forth. This is a normative study to review Indonesia Financial Services Authority regulations and stock exchange regulations. The results indicate that the Indonesian Sharia Capital Market uses an interest-based debt ratio limit compared to a maximum total asset of 45% while Malaysia uses a 20% limit, and the ratio of non-halal income to total income should not be more than 10%. This study can be the reference for Muslim countries to apply the theory of tafriq halal ‘an haram in the selection of sharia stocks in sharia capital market.