11 - Shariah Negative List

As earlier emphasized, the purpose of financing must be Shariah compliant. Bank is not allowed to finance any prohibited activities i.e. working capital for non-halal business. More examples of non halal business activities:-

# Financial services based on riba (interest);
# Gambling;
# Manufacture or sale of non-halal products or related products;
# Conventional insurance;
# Entertainment activities that are non-permissible according to Shariah;
# Manufacture or sale of tobacco-based products or related products;
# Stock broking or share trading in Shariah non-compliant securities; and
# Other activities deemed non-permissible according to Shariah.

For companies with activities comprising both permissible and non-permissible elements, two (2) additional criterias must be considered i.e. public perception or image of the company must be good;

The core activities of the company are important and considered maslahah (public interest) to the Muslim ummah (nation) and the country, and the non-permissible element is very small and involves matters such as `umum balwa' (common plight and difficult to avoid), `uruf ' (custom) and the rights of the non-Muslim community, which are accepted by Islam.

To determine the tolerable level of mixed contributions from permissible and non-permissible activities for turnover and profit-before-tax of a company, the SAC (Shariah Advisory Council and applicable to Malaysia) has established several benchmarks based on 'ijtihad' (reasoning from the source of Shariah by qualified Shariah scholars). If the contributions from non-permissible activities exceed the benchmark, the activity of the company will be classified as Shariah non-compliant. The benchmarks are:

# 5% benchmark - to assess the level of mixed contributions from activities that are clearly prohibited such as riba (interest-based companies like conventional banks), gambling, liquor and pork.

# 10% benchmark - to assess the level of mixed contributions from activities that involve the element of `umum balwa' which is a prohibited element affecting most people and difficult to avoid. An example of such a contribution is the interest income from fixed deposits in conventional banks. This benchmark is also used for tobacco-related activities.

# 20% benchmark - assess the level of contribution of mixed rental payment from Shariah non-compliant activities, such as rental payments from premises used in gambling, sale of liquor, etc.

# 25% benchmark - to assess the level of mixed contributions from the activities that are generally permissible according to Shariah and have an element of maslahah (public interest), but there are other elements that may affect the Shariah status of these activities. Among the activities that belong to this benchmark are hotel and resort operations, share trading, and stock broking as these activities may also involve other activities that are deemed non-permissible according to the Shariah.

The above benchmark is being used by the Securities Commission of Malaysia but such benchmark may not be applicable in other countries. If we are to look at it strictly, not only the investment of the company must be "halal", the type of business and it's funding source MUST also be "halal". Nevertheless, in today's world where we live in a "multi-faith society" couple with the element of maslahah (public interest), it would be best for us to leave the decision to determine the right benchmark to the "ulama' (religious teacher) and the SAC. Thus, the writer will only be focusing on the ' practical operation" side of Islamic banking rather than arguing on the Shariah decision. If we are to argue on "shariah decision", it will never end but the writer pray for a convergence on shariah decisions for the good of the ummah. Simple understanding to determine whether a company is running "halal" business activities can be graphically described as follows:

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