The first Islamic index was launched in the market in 1998, it is the “socially aware muslim index” (SAMI). Since then, the main suppliers of conventional index extended their range and now offer a wide panel of Sharia index to accompany the accelerated development of Islamic finance, and in particular “Sharia Compliant” funds. Standard & Poors has till now more than 30 Sharia index while the Dow Jones Islamic Market range has nearly one hundred. Through this range of Sharia index, all geographical areas are covered as well as all business sectors and all levels of capitalization. We also find index representative of the Sukuk market as well as Sharia ISR index. In their majority, Islamic index are subsets of the reference indices in this sense that their construction results from filtering of their parent index.
Islamic indices use different screening method for securities to be included in their selection. Thus, the Dow Jones Islamic Market Index (DJIM) reflects the prices of 2700 companies, mostly belonging to the Dow Jones, but whose activities are compatible with the foundations of Sharia. The approach of DJIM takes place on several levels. The first level examines the ratios of indebtedness of the company in question: the debt/stock market capitalization ration was fixed by the Sharia Board of Dow Jones less than 33%. Then a screening is set in relation to the level of revenues wih non-exploitable interests which should be reduced to minimum; the Haram share of the revenue must be purified via a charitable donation. In terms of liquidity, many Muslim scholars consider that it is permissible for an Islamic investor to buy shares of a company whose debts do not exceed 45% percent of the total of assets. Djim screening also states that an Islamic investor cannot but securities, with a predetermined rate of return and a guaranteed capital, and it cannot buy the shares of companies whose main activity is illegal. In contrast, the Sharia Board for the index recommends inclusion of companies with pro-environmental policies, or which provide humanitarian services.
In 2006, the Dow Jones as well as the “sustainable asset management” Sam group had even launched the Dow Jones Islamic Sustainability Index. The special feature of this index is to specify the investment criteria in accordance with the criteria of Islamic finance at once and sustainable development. This in order to correlate Sharia and socially responsible investment.
Among other main indices used in the market, we can also cite:
- The Global Islamic Index Series (GIIS) declined the International Financial Times Stock Exchange. This reflects the securities of more than 1,000 companies whose businesses are compatible with Islamic law.
- ¡S&P 500 Sharia is composed of the values of S&P 500 deemed compliant with Sharia. With 257 values on 31 August, 2008, it constitutes a subset of its parent index, consisting as for him 500 largest American companies due to their stock market capitalization.
- FTSE Global Islamic Index Series, which are designed to monitor the performance of the main publicly listed companies whose activities are compatible with Islamic investments. FTSE Group works and collaborates with Yassar Research Inc for definition of the methodology and selection process of this index. Other FTSE indices compliant with Sharia, especially FTSE SGX Shariah Index Series, and FTSE DIFX Shariah Index Series, as well as FTSE Bursa Malaysia Series Index which was launched in August 2006.