Shariah-compliant stock screener

To create a Shariah-compliant stock screener on a platform like Screener.in, you can use specific filters and criteria to ensure the stocks align with Islamic investing principles. While Screener.in might not have built-in Shariah filters, you can manually set up filters based on the rules mentioned earlier. Here’s a step-by-step guide to setting up such a screener:1. Exclude Non-Permissible SectorsUse the "Sector" filter to exclude companies operating in haram sectors such as:Alcoholic BeveragesGambling & CasinosTobaccoFinancial Services (Conventional Banks & Insurance)Pork & Meat ProductsEntertainment (if applicable)Weapons & DefenseScreener.in might not have specific filters for all these sectors, so you may need to manually exclude them by selecting permissible sectors.2. Debt-to-Equity RatioFilter: Debt to Equity < 0.33This ensures that the company’s debt does not exceed 33% of its equity, aligning with the Shariah requirement to avoid excessive interest-bearing debt.3. Interest-Bearing InvestmentsFilter: Interest Coverage Ratio > 1.5While Screener.in doesn’t directly filter for interest-bearing investments, using the Interest Coverage Ratio as a proxy can help ensure the company isn’t overly reliant on interest income.4. Non-Permissible IncomeSince Screener.in doesn't directly filter for non-permissible income sources, you will need to manually review the company’s financial statements, particularly the "Other Income" section, to ensure it aligns with Shariah principles.As a workaround, you might filter for companies with Net Profit Margin > 5% to avoid companies that rely heavily on non-operating income (which could include non-permissible income).5. Ethical Business PracticesWhile ethical practices can be difficult to quantify directly in a screener, you can add a qualitative review step where you assess companies based on their governance, environmental impact, and social responsibility reports.You might use ROE > 10% or Return on Capital Employed (ROCE) > 12% to screen for well-managed companies, although this is not a direct Shariah filter.6. Continuous Monitoring and Shariah Board ComplianceAfter setting up the screener, you must continuously monitor the companies in the list to ensure ongoing Shariah compliance. You might also want to cross-reference your results with Shariah-compliant indices or consult with a Shariah Advisory Board.Example Screener.in Setup:Here’s how the setup might look on Screener.in:Sectors: Select permissible sectors manually (e.g., IT, Pharmaceuticals, FMCG, etc.).Debt to Equity: < 0.33Interest Coverage Ratio: > 1.5Net Profit Margin: > 5%ROE: > 10% or ROCE > 12%Final Note:After setting up these filters, you’ll get a list of companies. You should then manually check these companies for full Shariah compliance, especially reviewing their income sources and business practices, as some nuances might not be fully captured by the screener alone.

by Ahmed