Shariah Screening Change Monitoring Workflow
A share or fund that passes a Shariah screen today can fail later because its business mix, debt, cash, receivables or screening methodology changes. A monitoring workflow defines what evidence is checked, who decides and how the portfolio responds without relying on an old label.
This workflow is general information, not investment advice or a Shariah ruling. Use the family’s adopted methodology and current guidance from qualified professionals.
1. Record the adopted methodology
Name the standard, provider or Shariah adviser used for each mandate. Save the version date, business-activity rules, financial ratios, calculation basis and purification approach. Do not combine thresholds from different standards without an approved policy.
2. Build a security register
List the exact security, exchange, identifier, share class, owner, account, acquisition date and current screen status. For funds, record the manager, benchmark, screening process and evidence source. Similar names can represent different legal instruments.
3. Set evidence dates
For every holding, record the financial statements, holdings data or screen report used and the date reviewed. A pass with no evidence date becomes unreliable as the issuer publishes new results or a fund changes its portfolio.
4. Define monitoring frequency
Set a normal review cycle and event-driven triggers. Triggers may include new financial results, acquisitions, disposal of a major division, index removal, methodology changes, corporate actions or an alert from the screening provider.
5. Separate business and ratio failures
Record whether a concern arises from the issuer’s core activity, a prohibited revenue threshold, debt, cash, receivables or another test. The reason affects the evidence needed and may affect the treatment under the adopted methodology.
6. Verify alerts before acting
Check the instrument identifier, reporting period, data source and methodology. Resolve stale or conflicting data with the provider or adviser. Avoid selling a holding merely because an unverified social-media post says it is non-compliant.
7. Apply a documented decision rule
State who may classify the holding, whether a grace period applies and which authority guides disposal. Record the decision date, evidence, reviewer and any dissent. The rule should be known before a disputed holding appears.
8. Calculate purification consistently
If purification is required, record the applicable income, ratio, holding period, calculation and payment evidence. Do not present one universal formula where the adopted methodology or adviser requires a different approach.
9. Control trading and tax effects
Before selling, check liquidity, settlement, transaction cost, capital-gains records and the effect on the remaining portfolio. A compliance action should be implemented promptly under the adopted rule while keeping accurate tax and trade evidence.
10. Review replacement exposure
A sale may create a sector, currency or risk gap. Compare potential replacements under the same screening method and investment mandate. Do not buy an unreviewed substitute solely to keep the portfolio fully invested.
11. Monitor funds and index products
Confirm how the manager handles deletions, cash, purification, securities lending and index rebalances. Save current fund documents and holdings evidence. A Shariah index name does not remove the need to confirm the exact fund and share class.
12. Report to the family
Summarise new passes, failures, watch-list items, disposals, purification and unresolved evidence. Link each item to its source and responsible person. Keep the report with the investment decision register.
Official starting points
Practical outcome: every holding should have a current evidence source, review date, status, decision owner and documented response when its classification changes.
