A Critical Review of the Malaysian Shariah Screening Framework: Lessons from Global Practices

Abstract

This paper presents a comprehensive and critical evaluation of Malaysia’s Shariah screening framework by benchmarking it against leading global standards, including those developed by AAOIFI, the Dow Jones Islamic Market Index (DJIM), MSCI, and S&P. The study synthesizes recent developments in Islamic capital market screening methodologies and examines how Malaysia’s hybrid, tiered-benchmark system—characterized by its 5%, 10%, 20%, and 25% thresholds for non-permissible business activities—differs conceptually and operationally from ratios-based approaches widely adopted internationally. Through comparative content analysis, this review identifies key areas of divergence such as the absence of debt and liquidity ratio filters in the Malaysian model, variations in non-permissible income limits, and differing interpretations of Shariah principles across jurisdictions. These methodological inconsistencies are shown to impact global portfolio integration, screening standard harmonization, and investor confidence. Overall, the findings demonstrate that while Malaysia’s framework offers flexibility, market depth, and contextual relevance to domestic economic structures, enhanced alignment with global practices could strengthen transparency, cross-border comparability, and international recognition of Shariah-compliant equities. The paper concludes by outlining several policy considerations to support greater harmonization and future improvements in Islamic equity screening governance.