If you invest on Bursa Malaysia, you have probably seen the Shariah-compliant label on certain stocks. But what does it actually mean? Who decides? And can a stock lose its status over time? This guide breaks down Malaysia’s Shariah stock screening process from start to finish — including a major rule change in November 2025 that every investor needs to know about.
- The SC’s Shariah Advisory Council (SAC) decides which stocks are Shariah-compliant — list updated every May and November
- A stock fails if more than 5% of revenue comes from non-halal activities — unified benchmark tightened in November 2025
- Yes — status CAN and DOES change. The May 2026 review removed 18 stocks and added 44 new ones
- 886 stocks on Bursa Malaysia are currently Shariah-compliant — roughly 75% of all listed companies when accounting for all ~1,200 total counters
Who Decides Which Stocks Are Shariah-Compliant?
The Shariah Advisory Council (SAC) of the Securities Commission Malaysia is the sole authority. Its decisions are final and binding on all Islamic capital market participants — Islamic unit trust funds, Takaful funds and Islamic stockbroking companies must all follow the SAC’s classification.
The list of Shariah-compliant securities was first introduced in 1997 and is updated twice a year in May and November, based on each company’s latest audited financial statements. As of May 2026, 886 stocks on Bursa Malaysia are classified as Shariah-compliant. Bursa Malaysia has approximately 1,200 listed companies in total, meaning roughly 75% of all counters carry the Shariah-compliant status — remarkably high by global standards and a reflection of Malaysia’s position as the world’s leading Islamic capital market.
The Four-Step Screening Process
Step 1 — Core Business Activity Screen
The first question the SAC asks is simple: what does this company actually do? Companies primarily involved in any of the following activities automatically fail the Shariah screen regardless of their financial ratios:
- ✗Conventional banking and finance (riba)
- ✗Gambling and gaming
- ✗Alcohol production or sales
- ✗Pork and non-halal food products
- ✗Tobacco and e-cigarettes
- ✗Conventional insurance
- ✗Adult entertainment
- ✓Technology and software
- ✓Halal manufacturing
- ✓Islamic banking and finance
- ✓Construction and property
- ✓Healthcare and pharmaceuticals
- ✓Utilities and energy
- ✓Telecommunications
Step 2 — The Unified 5% Business Activity Benchmark
For companies with mixed activities, the SAC measures the contribution of non-permissible activities to total income. Since November 2025, a single unified 5% benchmark applies to ALL non-compliant activities — replacing the old system which had thresholds of 5%, 10%, 20% and 25% for different categories. Companies that previously relied on the higher 20% or 25% thresholds for hotel operations or share trading now face a much tighter 5% limit.
💡 Real World Example: A Malaysian supermarket that sells alcohol can still be Shariah-compliant as long as alcohol contributes less than 5% of total revenue. If it grows to 6%, the stock loses Shariah status at the next review. This is why large diversified retailers with small alcohol sections often remain on the list while dedicated liquor businesses do not.
Step 3 — Financial Ratio Benchmarks
Even if a company passes the business activity screen, it must also pass two financial ratio tests. Both must be below 33%:
This means even a fully halal business can fail if it is heavily funded by conventional interest-bearing loans. A company can improve by refinancing into sukuk or moving cash deposits to Islamic bank accounts.
Step 4 — Qualitative Assessment
Beyond the numbers, the SAC considers public perception of the company from an Islamic values perspective. A company passing all financial thresholds but whose business is widely perceived as inappropriate under Islamic teaching could still be classified as non-compliant.
Can a Stock’s Shariah Status Change? Absolutely Yes
The May 2026 review saw 18 stocks removed and 44 new ones added to the official SC Malaysia list. Notable additions included SkyeChip Bhd, VisDynamics Holdings Bhd and Wasco Greenergy Bhd. Notable removals included Foodie Media Bhd, Globetronics Technology Bhd and Semico Capital Bhd.
- →Expands into a prohibited business
- →Non-halal revenue exceeds 5%
- →Interest-bearing debt exceeds 33%
- →Acquires a non-compliant company
- →Divests a prohibited business unit
- →Refinances conventional debt into sukuk
- →Moves cash to Islamic bank accounts
- →Obtains halal certification
What Happens When a Stock Loses Its Status?
Islamic institutional investors are legally required to liquidate their positions, creating forced selling pressure. Recent examples: IOI Corp Bhd fell 2.7%, Selangor Properties Bhd dropped 3.2%, and Hong Leong Industries Bhd fell 3.4% — all within days of reclassification. For individual Muslim investors, capital gains and dividends received before the reclassification date can be kept, but positions must be liquidated promptly.
💡 Opportunity for Conventional Investors: Selling pressure from reclassification events can create buying opportunities for investors not bound by Shariah rules. Quality stocks are sometimes sold indiscriminately, creating temporarily depressed prices. Watch the May and November announcement dates.
Shariah vs Non-Shariah — Key Differences
“Shariah compliance is not a permanent label — it is a dynamic status that evolves with the company’s business decisions and financial management. Treat it as a living filter, not a one-time check.”
— MyFinanceMemo Editorial Team
With the stricter unified 5% benchmark now in place and semi-annual reviews affecting dozens of stocks each cycle, understanding this process is no longer optional for serious Malaysian investors. Always verify the current status of any stock on the official SC Malaysia list before investing. For a broader investing perspective, read our guide on KLCI vs S&P 500 for Malaysian investors.
Disclaimer: For informational purposes only. Shariah status is subject to change. Consult a licensed financial planner and check the official SC Malaysia list before investing.
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