Shariah-compliant investing has grown considerably in recent decades, as the Islamic investment community has demanded increasingly sophisticated investment solutions that adhere to the tenets of Islamic law. As a result, the need for high-quality, transparent, Shariah-compliant benchmarks has developed. Today, Islamic indices serve a critical role in Islamic finance; these unique indices identify the universe of securities available for investment and define the way Islamic investors measure the markets.
INTRODUCING ISLAMIC INDICES
Islamic indices are subsets of conventional benchmarks that include only companies that pass rules-based screens for Shariah compliance. The resulting Shariah indices tend to be highly correlated to their conventional non-Shariah counterparts and provide Islamic investors with Shariahcompliant versions of a wide variety of popular benchmarks. For example, the S&P 500® Shariah is a subset of the widely recognized S&P 500, and it includes only Shariah-compliant constituents of the S&P 500.
As with all Islamic financial products, a supervisory board of Islamic scholars oversees the rules governing Shariah-compliant indices. The board is responsible for defining and maintaining the rules governing the Shariah screening process. However, S&P Dow Jones Indices retains oversight on all other index methodology issues, including rules for company selection in the benchmark index, weighting, and index maintenance.