The Past, Present, and Future of Shariah-Compliant Equities

This paper critically examines the evolution, operationalization, and future direction of Shariah-compliant equities, nearly three decades after their initial permissibility by Al Rajhi Bank's Shariah Board. It highlights persistent challenges in standardizing compliance criteria, income purification, and disclosure practices. Drawing on archival analysis and comparative regulatory review, the study explores how differing screening methodologies—particularly in quantitative thresholds and purification rules—have led to inconsistencies across jurisdictions. It offers a conceptual framework to transition from Shariah-compliant to Shariah-based equities, rooted in AAOIFI principles and ethical finance theory. A phased reform roadmap is proposed to guide this shift, emphasizing transparency, consistency, and integration of ESG considerations. The paper contributes to the literature by synthesizing fragmented debates, proposing structured benchmarks for reform, and identifying gaps in current practices. For practitioners, it offers a scalable model for aligning ethical objectives with regulatory requirements. For scholars, it lays the groundwork for future empirical inquiry into investor behavior, market performance, and the role of fintech in enhancing Shariah compliance. Ultimately, the paper positions Islamic equities not as a niche product, but as a credible, principled asset class capable of contributing to global standards of ethical and sustainable finance.