​Islamic Finance – Islamic Capital Finance - shares of companies engaged in non-core, illegal activities
The standards used to evaluate shares of businesses with non-Halal operations are simple. Shares of businesses engaged in non-Halal activities, such as those engaged in the entertainment, tobacco, alcoholic beverage, and interest-based financial services, cannot be listed among the investable shares. The screening procedures must follow the requirements. Yet, some businesses have non-compliant non-core operations despite having compliant core activity. One example of these may be construction firms with a small equity position in alcoholic beverage-serving hotels and resorts. It is obvious that selling alcohol is a non-core activity. The income from the sale of alcohol, as in this case, cannot be 5% or more of the company's total revenue, which is the benchmark set at 5% in this situation. Nevertheless it is challenging to quantify this.

​Islamic Finance – Islamic Capital Finance - Receivables
Receivables are frequently sums of money that customers owe the business. Receivables can be produced by loan or deferred payment sales. Businesses that only engage in lending are excluded as being uninvestable. As a result, it is presumable that the creation of receivables in businesses included in Islamic ownership occurs through the sale of products and services on a basis of deferred payment. Receivables must equal more than 50% of the company's total assets or market capitalization, which is the fundamental standard employed here. This makes sure that the bulk of the assets used to represent the shares being traded are not debt. The requirement has to do with whether it is legal to permit trading of the shares on a secondary market for their market value. The Shari'ah's view on debt serves as the foundation for this. Shari'ah forbids the sale of debt to a third party other than for its face value. So, the sale and purchase of shares of this firm would not be permitted if the only assets of the company were receivables since doing so would amount to selling debt to a third party at a price other than the nominal value. According to the selection criteria, the investee company's receivables should be less than 45% or 49%, as appropriate, of its total assets or market capitalization.

​Islamic Finance – Islamic Capital Finance - Cash and securities that bear interest
In contemporary finance, liquidity is crucial. The most liquid class of assets is cash and interest-bearing assets, which are essential for a business to continue operating profitably. Since it produces little to no return, liquidity has a cost. The standard for determining whether a firm has sufficient cash and interest-bearing assets is that their combined value cannot be greater than 30% or 33% of the company's market capitalization or total assets. Experience demonstrates that many businesses have used this criteria to permit them to include minimal investments in interest-bearing instruments. This may be the outcome of a practical belief that neither the company nor its shareholders should be required to "pay a price" as a result of the absence of Shari'ah-compliant liquidity instruments on the global market. However, this cannot be justified in terms of Shari'ah and might only be a temporary solution.

Islamic Finance – Islamic Capital Finance - Total Outstanding Debt 
The capital structure of a normal business will be made up of both equity and debt. Debt typically costs less to finance since interest payments are tax deductible. Normal loan repayment terms also include a fixed rate of interest or a benchmark rate such as LIBOR or another variable return. The majority of businesses are leveraged, meaning they have some debt. It is crucial to determine whether the capital structures are suitable because debt accrues interest. Debt must not be more than 30% or 33% of the company's total capital, according to the norm. The 30% or 33% criterion has been created to permit investment in the shares of firms that have some debt, albeit this does not imply that the debt per se is acceptable given that the majority of businesses have debt as a component of their financial structure.

 The legal justification for allowing a firm to borrow a conventional loan up to 30% or 33% of its market value or total assets. Fundamentally, this tolerance is granted since many publicly traded companies that are included in numerous worldwide Islamic indexes are situated in countries where Islamic financing options are either unavailable or limited. These companies frequently borrow conventionally, if not always. To prevent over-involvement in interest-bearing financing schemes, a restriction of 30% or 33% has been placed on this borrowing. Without this forbearance, many shares of publicly traded firms around the world would not be allowed.

​Islamic Finance – Islamic Capital Finance - Islamic stocks
All share must go through a selection process before it can be traded as a Shari'ah-compliant stock to make sure that the underlying assets of the issuing company fulfil market criteria and are Shari'ah-compliant. The financial assets that the business uses to make money are a matter for the Shari'ah. Such income is acceptable if the sources are acceptable. The Dow Jones Islamic Market Index (DJIM) requirements are one of the most widely utilised measures for determining if a company's shares are compliant. Outstanding debt, cash, interest-bearing securities, and receivables are three of the main criteria considered. In addition to these, a fourth guideline states that the company's non-core, non-Halal operations must be separated from its main or core activities if it is to receive income from those activities. An operator of a resort that serves alcohol in its restaurants is an example of a non-core non-Halal enterprise.

Islamic Finance – Islamic Capital Finance - Islamic mutual fund dealing with Tainted Income
When a mutual fund that invests in Islamic enterprises receives dividends from investee companies that have tainted income, the Shari'ah governance mechanism in the ICM is also put to use in this situation. This may come from interest revenue or other non-Halal activities, but these are not the main operations of the business. The mutual fund's SSB will provide the fund managers instructions on how to purge the tainted money by giving a portion of the payouts to predetermined charity. The value of the interest or illegal income is divided by the overall revenue produced by the investee company to determine the percentage. For instance, Islamic fund A recently received $150,000 in dividends from its investee business E, which earned interest income of 2% of its annual sales. As a result, Islamic fund A requires $3,000 ($150,000 x 2%) in income to clean up. Just $147,000 of the dividend can legally be disbursed in this situation since the remaining $3,000 must be donated to charity.

​Islamic Finance – Islamic Capital Finance - Implementing shariah governance: Islamic mutual funds
 
Transfer of unapproved shares A Shari'ah-compliant stock may be held in the portfolio of an Islamic mutual fund even though it is no longer on the list of "authorised" stocks. The mutual fund's Shari'ah compliance officer, who is an essential component of the Shari'ah governance structure, is likely to have seen this. The Islamic mutual fund's SSB will then receive the information from the compliance officer and direct the fund management to sell the shares. If the current sale price is equivalent to or higher than the original share purchase price, as is frequently done in different jurisdictions, the disposition should take place right away. If the current market value of the shares is less than the initial cost of investment, the SSB may provide the fund management, in accordance with the relevant Shari'ah regulations, a reasonable amount of time to dispose of the shares. Any earnings that arise between the discovery and the disposal should be given to approved charity in order to avoid profiting from non-Halal income.

​Islamic Finance – Islamic Capital Finance -  Islamic Financial Services  Board (IFSB)
The IFSB has created guiding principles on corporate governance for IFIs in addition to AAOIFI. IFSB's guidelines stipulate that for internal Shari'ah compliance reviews, the SSB of an IFI should work on the needed scope of the audit or review, either with a separate Shari'ah control department or with designated internal auditors/Shari'ah reviewers. The audit committee must make every effort to guarantee that external auditors can and do undertake post-Shariah compliance reviews within the scope of their mandates for external Shari'ah compliance assessments. Countries without a centralised Shari'ah supervisory structure, like Bahrain, now demand their IFIs to adhere to AAOIFI and IFSB criteria. AAOIFI and IFSB standards are also starting to be adopted by IFIs from nations with centralised supervisory regimes as they continue to trade internationally and participate in the global Islamic financial system.

​Islamic Finance – Islamic Capital Finance - The function of the Audit and Governance Committee ( AGC) 
Maintaining the integrity of the financial reporting process, protecting the interests of shareholders, investors, and other corporate stakeholders, and providing additional assurance on the reliability of financial information presented to the board of directors are all functions that the AGC performs to assist boards of directors in exercising independent and objective monitoring. • serving as an impartial intermediary between the management of the islamic Finance institutions/ IFI and its constituents. The AGC's responsibility is to make sure that the IFI has adequate and effective controls in place to track how the management's plan is being carried out.

​Islamic Finance – Islamic Capital Market - The function of AAOIFI
The AAOIFI has four governance criteria covering:
No. 1: Appointment, Comprising, and Report of the Shari'ah Supervision Board
Shari'ah Review, No. 2, and Internal Shari'ah Review, No. 3
Number 4: IFIs' Audit and Governance Committee
The definition of an SSB is provided in Standard No. 1, which also addresses the selection, appointment, compensation, and makeup of the board. Additionally, it clarifies what is covered in an SSB report that has an immediate impact on the governance of an IFI. The standards Nos. 2 and 3 lay out guidelines and create guiding principles for the internal Shari'ah review in an IFI. The main goal of the internal review is to make sure that an IFI's administration fulfils its obligations with regard to putting Shari'ah norms and principles into practise as decided by the SSB.

 Depending on the size of the IFI, these guidelines specify that the review shall be carried out by a separate division or department or a portion of the internal audit department. The review functions in accordance with the IFI's set policies and is an essential component of its governance processes. The responsibilities and duties of an Audit and Governance Committee (AGC) in ensuring that an IFI meets its goals are outlined in Standard No. 4.

 This is necessary to ensure increased financial reporting openness and disclosure and to raise public trust in the IFI's sincere adherence to Shari'ah norms and principles.