FTSE Shariah Suite of Indexes

Access to global investments in accordance with Shariah investment principles

What is Islamic Finance?

Islamic finance (or Shariah-compliant finance) is finance that conforms with the moral precepts of Islam. It differs from conventional (Western) finance in its approach to money, in that there is a ban on “making money from money” in the form of interest. Islamic finance also prohibits investment in goods or services seen as “harmful” (“haram”). This prohibition covers a range of activities seen as harmful in the eyes of Shariah law. This includes, but is not limited to, the production or sale of alcohol, tobacco and the promotion of gambling.

The opportunity

The global Islamic finance market covers more than USD 3 trillion in assets. The Gulf Corporation Council region accounts for the largest proportion of Islamic finance assets, followed by Malaysia and the Southeast Asian regions. Europe and South Asia are also prominent Islamic finance markets. The FTSE IdealRatings Islamic Index Series provides you with the opportunity to invest in global equities in a way that complies with Shariah investment principles.

FTSE Russell’s legacy in Shariah Indexes

FTSE Russell is proud to have been an active participant in the Shariah-compliant global investment space for a number of years. We originally started out by providing Shariah solutions to our clients as part of a customised index solution. In the last decade, we have evolved this proposition to include a suite of Shariah-compliant solutions across equities, fixed income (sukuk) and real estate. Based on our existing flagship index series, we work with our key Islamic Financial ratings partners, Yasaar and IdealRatings, to undertake business and financial screening and provide you with market capitalisation-weighted and total asset solutions that are designed to meet your investment needs.

The products

We have developed a broad range of Shariah-compliant indexes to provide additional depth and choice for global investors. The indexes combine our high standards of benchmark index design and governance with a choice of robust screening and selection processes based on Shariah principles.

Our key Shariah index series include:

  • FTSE Global Equity Shariah Index Series
  • FTSE IdealRatings Islamic Index Series
  • FTSE IdealRatings Broad US Dollar Sukuk Index Series
  • FTSE EPRA Nareit IdealRatings Global Islamic Index Series

Our flagship Shariah products leverage the capabilities of 2 of the leading authorities in the Islamic Finance industry, Yasaar and IdealRatings. Each provider offers a different screening methodology to ensure you are provided with different options to meet your index needs. Users of the indices are secure in the knowledge that they are based on a transparent and rigorous structure and methodology. The key differences in their approaches have been outlined below:

Yasaar IdealRatings
Business Activity Screening

Companies involved in any of the following activities will be filtered out as non-compliant:

  • Conventional finance (non-Islamic banking, finance and insurance, etc.)
  • Alcohol
  • Tobacco
  • Pork-related products and non-halal food production, packaging and processing or any other activity related to pork and non-halal food
  • Entertainment (casinos, gambling and pornography)
  • Weapons, arms and defence manufacturing

 

 

Investment is not allowed in companies deriving more than 5 percent of their total revenue from any of the following activities:

  • Conventional finance (non-Islamic banking, finance and insurance, etc.)
  • Alcohol
  • Pork-related products
  • Defence/Weapons
  • Gambling/Casino
  • Music
  • Cinema
  • Adult entertainment
  • Advertising services in TV, newspapers and billboards
  • Gold and silver hedging
  • Not slaughtering according to Islamic principles
Financial Ratios

The remaining companies are then further screened on a financial basis. The following financial ratios must be met for companies to be considered Shariah-compliant:

  • Debt is less than 33.333% of total assets
  • Cash and interest-bearing items are less than 33.333% of total assets
  • Accounts receivable and cash are less than 50% of total assets
  • Total interest and non-compliant activities income should not exceed 5% of total revenues

 

 

The remaining companies are then further screened on a financial basis. The following financial ratios must be met for companies to be considered Shariah-compliant:

  • Total debt over the larger average daily market cap (for the previous 24 months) to be 33% or less
  • Sum of cash and interest-bearing items over the larger average daily market cap (for the previous 24 months) or total assets to be 33% or less
  • Total interest and non-compliant activities income should not exceed 5% of total revenues
  • No investment in fixed income preferred shares allowed
  • No investment in trust units is allowed
Other
  • Total-Cap
  • Market-Cap

IdealRatings Product page

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Yasaar Product page

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IdealRatings Index Overview

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Ground Rules

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