Just to share and reinforce Vaanaan statement!

Yes, the SC Syriah Advisory Councill does not take into account the debt equity ratio in the criteria for syariah compliant, unlike Dow Jones Syariah Councill.

The criteria is more of the activities and source of its derived income.

I am a consultant myself, that’s how I will answer you if asked! But it is unethical for me to pinch somebody else clients.

But I will always offer my help if required!

Just to share some info:

Talking about ABC’s borrowings, as far as I know, based on what I read and heard, most of the borrowings are utilised to fund its acquisitions and expansions.

Recently, the company got into trouble and the stock price plummeted like there’s no tomorrow, and its creditors were nervous of its ability to service its debts. About a year ago, the price was hovering around 7 bucks. Yesterday, it closed at $1.32.

Yes, it is true that outside Malaysia, the chance of getting an Islamic-compliant debt is pretty much… zip.
However, assuming one is outside of Malaysia, does that mean that he can dive into non-Islamic debts as much as he wants? That’s also with the assumption that there’s no Islamic alternative.

If I’m not mistaken, Dow Jones syariah council will only label companies as syariah-compliant with one of the criterias being, the total debt of the company versus trailing market capitalisation must stay at 33% and below. Now, of course, Malaysia is not subjected to this.

Whatever it is, I accept Vaanan’s explanation in this matter.

Now, I’m still waiting for my unit trust consultant to respond to me. It’s been a month plus now. I am seriously considering changing my unit trust consultant.
Any takers out there? ;)

Would like to contribute here…..

If you have gone through the SC guidelines, the limitations are on income derived from permissible and non-permissible activities. The guidelines are tolerent on income derived indirectly from non-permissible activities.

where in ABC’s case, loan was taken to finance its operations. However not all of the debt taken are borrowings from the bank and the nature of the borrowings are not listed out fully. Some could be without the influence of interest (do update me on this if you could find the nature of borrowings).

Borrowings here are used to operate the business to derive profit.

Meanwhile the guidelines are focussing on direct activities like giving loans by charging interest as a business activity or directly involved in non-permissible activities as a core business activity to derive income/profit.

Therefore borrowings in ABC’s case are not core business activities but just means of funding to support the business. Eventhough to a certain extent interest is involved, this is still allowable.

According to shariah, interest (riba) is not allowed as most of the time profits the lender. Indirectly borrowers are not encouraged to take money from the lenders. However, having an objective view of the world today. What are ABC’s options, is there a Islamic Financing market to support ABC’s debt requirements in Australia?

ABC is doing a legitimate business and it brings goodness to the community at large (one of the Shariah requirement) and it has a good standing in the community (another requirement) - these two requirements fullfils the criteria of being a shariah compliant security. Taking a loan is non-avoidable here therefore looking at the situation, it is still within the permissible limits.

The limitations - 5, 10, 15, 20, 25% are on the profit deriving based activities of a firm.

Taking a debt is just a small indirect (among the many other activities done by ABC) and unavoidable part of the ABC’s activities

my humble views….open for comments.

Thank you
have a nice day.
Vaanan

I understand where you are coming from. Unfortunately I don’t have the answer for you right now but am certainly interested to know more about this.

I will go find out the answer (hope it doesn’t take my too long to do so) and share with you the same.

Cheers!