We are pleased to announce that Raqaba has launched “Raqaba Shari’ah Index” for the financial markets in the GCC countries; Saudi Arabia, Kuwait, UAE, Qatar, Bahrain and Oman. This index is the first phase of Raqaba Indices Project that consists of five indices:

  1. Raqaba Shariah Index
  2. Raqaba CSR Index
  3. Raqaba Financial Expectations Index
  4. Raqaba Impact Investing Index
  5. Raqaba Maqasid Index

New trends in the financial markets

Dr. AbdulBari Mashal, the managing partner of Raqaba, explained the purpose of this project in two main objectives. First, it aims to improve the professional practices of market players in the asset management industry, especially asset managers and capital owners.  Second, it aims to influence the behaviour of markets through empowering financial advisors and asset managers to actively manage their asset allocation as per each index objectives and respective companies’ scores.  

Hence, Raqaba Indices Project aligns Raqaba Company with the emerging business strategies and professional practices of social finance and impact investing in the global and Islamic financial industry.  In social finance and impact investing, companies aim to maximize both financial and social returns in their investment and operational policies and procedures.  

Index Objectives

“Raqaba Shariah Index” enables asset managers along with their clients to measure their compliance scores, which they achieve in their portfolios or funds through their asset allocation, and benchmark their respective scores against the index.  The score of portfolio/fund is basically the score of each of the assets in a portfolio or fund as per “Raqaba Shariah Index” multiplied by the respective weight of each of these assets.  This feature goes beyond the current reality of Shariah compliance services that only classifies companies, which their core activities are permissible, into Shariah compliant and Non-Shariah compliant without further considerations.  Therefore, “Raqaba Shariah Index” establish a basis to asses and compare funds and portfolios in terms of the score they achieve through their assets allocation as per the assigned score to each asset on Raqaba Shariah Index.  

The Basis of the Index 

“Raqaba Shariah Index” measures the compliance scores of financial institutions listed on stock exchanges in the GCC markets over the following matrix:

  1. Shariah governance of Islamic financial institutions which are committed to operate in accordance with Shariah principles. 
  2. Shariah compliance of the financial structure and revenues of each company with Shariah compliant objectives as per its article of association.   
  3. The opinion of the Independent financial auditors for Islamic companies and Shariah compliant companies.
  4. The opinion of the independent Shariah auditors for the Islamic companies.  

According to these considerations:

  1. Shariah compliant companies on “Raqaba Shariah Index” may achieve a 57% score as the highest degree of compliance.  This score means that the company does not have any of non-compliant investments, liabilities or revenues. In addition, it has a clear and an unqualified opinion that is issued by the independent financial auditor regarding its financial statements. 
  2. Islamic companies on “Raqaba Shariah Index” may score 100% when it:  
    1. Disclosed its the Shari’ah reference;
    2. Satisfied the Shariah governance elements which are examined by the index;
    3. Publicly published an independent Shari’ah Auditor’s Report;
    4. Awarded a clean opinion by the independent financial auditor; and
    5. awarded a clean opinion by the independent Shari’ah auditor. 

Along with the main score assigned to each company on “Raqaba Shariah Index”, Raqaba rates the degree of compliance over the following four sub-matrices:  

  1. Shari’ah governance for Islamic companies; 
  2. compliance with the AAOIFI standards for compliant companies; 
  3. type of the financial auditor’s report; and 
  4. type of the Shari’ah auditor’s report. 

Concerning each financial market, “Raqaba Shariah Index” assigns a score that is calculated based on the score of each company on the index list and its weight which is based on the market value of the equity.  The index excludes (a) companies with non-compliant objectives as per our Shariah screening, (b) companies with non-compliant investments, liabilities or revenues that exceed the compliance ratios as per the AAOIFI Shariah Standards.  

Boursa Kuwait on “Raqaba Shariah Index”

The following are the main readings of “Raqaba Shariah Index” for Boursa Kuwait, the Kuwaiti stock exchange, regarding the first quarter of 2019:

  1. Kuwait Boursa scored 75% on “Raqaba Shariah Index” With a market value of 14.37 billion KD.
  2. 24 companies out of 94 companies on the index achieved a score of 100%.
  3. The number of Islamic companies on the index reached 60 companies with a market capitalization of 9.65 billion KD.
  4. 60 companies on the index gained a full score with respect to the sub-matrix score concerning type of the financial and Shari’ah auditors’ reports since the auditor’s opinion were unqualified.  
  5. 27 companies out of 60 Islamic companies gained a full score in terms of the Shariah governance considerations in the index.  These institutions defined their Shariah reference according to AAOIFI Standards, and publicly published an independent Shariah auditor’s report.
  6. 9 compliant companies scored 100% on the sub-matrix concerning their compliance ratio with the Shariah standards of AAOIFI since they did not have any of non-compliant investments, liabilities and revenues.
  7. The total weighted sub-index compliance score for non-Islamic companies was 83% for a total of 34 companies with a market value of 4.72 billion KD.

Finally, the number of the Shariah compliant companies in Boursa Kuwait would rise from 34 companies with a KD 4.72 billion in equities to 49 companies with a KD 5.37 billion in equities for managers who adopt the same Shariah compliance ratios as in AAOIFI’s Shariah Standards relative to the book value of total assets rather than the market value of equities as per AAOIFI Shariah Standards.