Shariah Guidelines for Trading and Investment in Stocks
Shariah Compliant Stocks in France?
France is one of the emerging countries embracing Shariah Compliant Products and HALAL Stocks. The country is in the race to becoming a hub of Shariah based products for Shariah sensitive Investors. France is one among those developed economies that shows promise in promoting Shariah compliant products through Shariah friendly financial system laws. We will talk more about that in this blog as well.
French Readers of this blog and other Shariah investors interested in French listed stocks will be pleased once they explore an app that is committed to providing real time Sharia status of stocks listed in France. Reading this blog till the end will be worth your time and will equip you with a good understanding of the Shariah status of stocks in France.
Shariah Compliant Stocks in France
Most of you might be keen on knowing what are Shariah Compliant stocks? If a stock meets the Shariah standards and principles, then it is called a Shariah Compliant stock. Islamic investors are permitted to invest in stocks which are classified as Shariah compliant.
There are two parameters to filter stocks to keep them in the list of Shariah Equities.
What are those parameters? Let us discuss them in brief here:
1. Business activities filter
Business activities of companies are examined to ensure that either they are not involved in or should have less than 5% revenue from prohibited activities like alcohol, conventional financial services, gambling, pork, pornography, tobacco, un-Islamic adverting activities, un-Islamic media and entertainment.
2. Companies passing the above are also further examined over the financial screening ratios limited by a certain threshold as mentioned below
i- Cash Compliance Ratio
(Cash + Interest Bearing Securities) / Market value of Equity (36 month average) < 33%
ii-Receivable Compliance Ratio
Accounts Receivables / Market value of Equity (36 month average) < 49 %
iii-Debt Compliance Ratio
Debt / Market Value of Equity (36 month average) < 33 %
If a company passes both the tests, it is classified as Shariah Compliant and investment in the stock of such a company is permissible. For detailed Shariah screening criteria please Check Here: Shariah Screening Criteria
Shariah Compliant Stocks in France
Upon a review of all stocks listed in France, we found that 28% of stocks listed in France are Shariah compliant! These stocks present a good universe for investors wishing to invest according to Shariah principles.
Top 5 stocks in France by Market Capitalization
We also studied top 5 stocks by market capitalization and 3 of them (60%) are found to be Shariah Compliant as shown below. This is a positive indication for Islamic investors.
| Ticker | Name | Sector | Compliance |
| MC FP | LVMH MOET HENNESSY LOUIS VUITTON SE | Apparel/Accessories | Compliance |
| FP FP | TOTAL SA | Oil & Gas Operations | Not compliant |
| OR FP | L’OREAL SA | Personal & Household Products | Not compliant |
| SAN FP | SANOFI SA | Biotechnology & Drugs | Compliance |
| EAD FP | AIRBUS SE | Aerospace & Defense | Compliance |
i. LVMH MOET HENNESSY LOUIS VUITTON SE
You might be wondering why LVMH MOET HENNESSY LOUIS VUITTON SE is Shariah non-compliant as it seems to be a retail fashion luxury brand selling clothing and accessories?
The answer lies in the details and that is where Islamicly app helps you.
LVMH MOET HENNESSY LOUIS VUITTON SE, according to its 2019 annual report says it total sales for the year were EURO 53,670 million. If you see the revenue break up, it earned EURO 5,576 million from its “Wines & Spirits” division which is about 10% of its total revenue. Since the threshold for non-permissible income in a Shariah compliant company is 5%, LVMH MOET HENNESSY LOUIS VUITTON SE breaches the Shariah compliance criteria and is classified as Shariah non-compliant.
ii. TOTAL SA
Why would TOTAL SA be Shariah non-compliant? Doesn’t it sell Oil & Natural gas products?
Yes, TOTAL SA’s business activity comprises of exploration and production of Oil & Natural gas products and its related products. So, it passes the business sector screening.
But due to its high debt, TOTAL SA fails the debt compliance ratio (as on May 26, 2020) – which is in excess of 33% of its market cap. Hence, TOTAL SA’s stock is Shariah non-compliant.
iii. L’OREAL SA
How come L’OREAL SA is Shariah compliant? Does it sell alcohol based perfumes and what about its marketing techniques and advertising?
L’OREAL SA get revenues from 4 divisions:
Consumer Products
L’Oréal Luxe
Professional Products
Active Cosmetics
If we see by business segments, L’OREAL SA derives revenue from the following:
Skincare and sun protection
Makeup
Haircare
Hair coloring
Fragrances
Others such as hygiene products.
All the above seem Shariah compliant.
The question of alcohol in perfumes has been discussed with the Shariah scholars and they were of the opinion that the alcohol percentage in such perfumes is insignificant and normally does not cause intoxication. Hence, its permissible.
The questionable advertising techniques used by such companies has been discussed with the Shariah committee and they were of the opinion that the advertising techniques of the companies should not affect the compliance of the company as long as the products of the company being sold is Shariah compliant.
They further stressed that if more Islamic investors participate in such companies, they can voice their opinion to the company management to refrain from such advertising techniques.
Hence, L’OREAL SA is deemed Shariah compliant.
iV. AIRBUS SE
You may be wondering why AIRBUS SE can be Shariah compliant as they are a major aerospace weapons manufacturer?
As per the Shariah board, weapons are Shariah neutral in nature. It’s the user of such weapons who chooses to use it for compliant purposes such as defense or deterrent or in a non-permissible manner by being an aggressor. Hence, weapon manufacturers such as AIRBUS SE are considered Shariah compliant.
Shariah Screened Equities sector wise in France
We have studied companies listed in France sector wise for Shariah compliance. The sector wise percentage of Shariah compliant stocks listed in France is given below:
Sector wise Shariah Compliance in France
5 Years Shariah Compliance History of listed Stocks in France
| Sector | % of Compliant Stocks | % of Non Copliant Stocks |
|---|---|---|
| Auto | 25% | 75% |
| Basic Materials | 28% | 72% |
| Capital Goods | 59% | 41% |
| Consumer Cyclical | 26% | 74% |
| Consumer/Non-Cyclical | 50% | 50% |
| Energy | 8% | 92% |
| Food & Beverages | 17% | 83% |
| Financial | 4% | 96% |
| Healthcare | 51% | 49% |
| Insurance | 0% | 100% |
| Real Estate & Construction | 8% | 92% |
| Retail | 18% | 82% |
| Services | 5% | 95% |
| Technology | 61% | 39% |
| Transportation | 18% | 82% |
| Utilities | 0.1% | 0.9% |
We have conducted one more interesting study and examined the Shariah compliance history for the last 5 years for stocks listed in France. Let us see the Shariah compliance movement year by year in the below graph.
5 Years Shariah Compliance History of Stocks
As you can see there is very minimal change in the Shariah compliance history year by year. It means the number of Shariah compliant stocks in France are stable. This is positive news for Islamic investors as it reduces the compliance risk.
Capital Market in France
NYSE Euronext is the current name of the Paris Stock Exchange that was previously knowns as the Paris Bourse or the Bourse de Paris.
The foundation stone of the stock exchange in France was laid down in 1826 and saw many phases.
The Paris bourse saw a systematic reform in 1980 to regain the business captured by the London Stock Exchange and gradually it built a computer trading system and fully electronic automated trading platform in 1998.
NYSE Euronext is positioned as the seventh largest stock exchange by Market capitalization in the world after New York Stock Exchange, NASDAQ, Tokyo Stock Exchange, London Stock Exchange, Shanghai Stock Exchange and Hong Kong Stock Exchange.
NYSE Euronext and Shariah
In 2008, the French government appreciated the need of the Islamic finance market and the then Minister of economy Mr. Christine Lagarde issued a statement, “We wish to make Paris a better market for Islamic finance, particularly in this background of crisis, credit excess, volatility and cupidity”.
As a result, the French government and capital market authority allowed Sukuk to be promoted to attract Islamic Investors.
The capital market is also believed to be Shariah friendly to some extent and few laws are similar to Shariah Finance.
The notable Shariah Friendly laws are:
1. Contrats de commodat – akin to Mudarabah.
2. Sukuk and Murabaha to be used in tax convention a revolution initiated by the Financial Market Authority in 2007.
3. Interest element is not mandatory in credit and lending in France. Hence, Qard Hasan can be exercised.
4. Payment to Islamic Banker on the basis of profit and loss sharing is feasible. Here Mudarabah based finance and Musharakah based finance can be exercised.
5. Many others laws are influenced by the Islamic finance system too.
It has been observed that the French legal system is in general Shariah friendly.
This is the reason, France is now known as a possible leading emerging market playing a key role in enabling Halal investment options in the European markets.
France is believed to be a potential home for Takaful, Shariah compatible savings, Mudaraba, Sukuk, Ijaraha and Murabaha financial instruments. There is a good demand of Shariah compliant investments including Shariah Compliant REIT and Islamic Banking products for wholesale and retail in France. One of the main reasons behind this encouraging trend in France seems to be the significant Muslim population in France.
About France
The country houses 5.8 million Muslims out of a total population of 67 Million – the largest Muslim population among European countries.
The origins of the Muslim population in France comprise of Algeria, Morocco, Tunisia, Turkey, South- Saharan Africa and Middle East. The country is bordered by Belgium and Luxemburg from the north eastern side; Germany, Switzerland, Monaco and Italy from the Eastern side; Andorra and Spain from the Southern side.
Islamicly App
Islamicly App is your one stop destination that can help you manage your investments in a Shariah compliant manner.
This unique app provides the latest Shariah status of listed stocks in France as well as the world over. It enables users to create portfolios, track Shariah compliance status changes, calculates the purging amount (Dividend Purification). You can access forums and participate in stock related discussions as well as general discussions. It also provides current prices of each stock as well as the top gainers and losers in relation to Shariah and much more.
Islamicly also has a web/desktop version that allows you to manage your Shariah compliant investments on the web and has many more advance features. So, what you are waiting for? Download the app or access the web portal.
Do watch what one of the pioneering scholar of Islamic finance says about Islamicly here:
