ISRA-Bloomberg Sharīʿah stock screening and income cleansing methodologies: a conceptual paper

The purpose of this paper is to explain and critically analyse the Shariah screening criteria and cleansing process for income generated from stocks with a special focus on a newly developed ISRA-Bloomberg methodology. The paper focuses on the methodology of ISRA-Bloomberg in terms of Shariah screening of stocks and the income cleansing process. To achieve this objective, this paper adopts a descriptive approach. Findings: The methodology of ISRA-Bloomberg is unique in terms of its criterion for screening stocks, the cleansing process and coverage of the universe of stocks. It facilitates the investors by offering a novel colour-coding scheme to indicate the Shariah compliance of a stock. It also provides the exact ratios of the Shariah-compliance criteria to the investors so they can closely observe changes in the trend of ratios and decide beforehand whether or not a company is likely to remain within the Shariah-compliant list. The paper further discusses the issues in the screening and cleansing practices faced by the industry. Research limitations/implications: This research is limited to the criteria of screening and income purification of stocks which have been used by ISRA-Bloomberg from a Shariah perspective. Practical/implications: The robust screening criteria and comprehensive analysis of the stocks will enhance the confidence of Islamic capital market participants. The investors, regulators and index providers will be equally able to benefit from this initiative. Originality/value: The paper focuses on the recently established methodology of ISRA-Bloomberg, which has not been discussed in the literature until now. The methodology, because of its exceptionality, may add a new dimension to Shariah screening and cleansing of stocks. © 2017, Ashraf Md. Hashim, Farrukh Habib, Ziyaat Isaacs and Mohamed Anouar Gadhoum.