THE PURIFICATION OR CLEANSING PROCESS FOR DIVIDENDS AND CAPITAL GAINS

Condition # 1

Condition # 2

Allocation of Funds to Islamic Charities

Change in direct core

activities of Company
from Islamic at point of
Purchase to Non-Islamic
activities

No change in direct core

activities of Company but
indirect activities are NonIslamic in nature

A) Treatment
for Shareholding

1) Disposed off
immediately

1) Shares maybe retained or

disposed off subject to
decision of Shariah Panel

1) Not Applicable

B) Treatment
for Dividend

1) Since shares are

disposed immediately upon
change of core activity,
there are no dividends to be
treated

1)If shares retained, dividend

to be cleansed by removing
that part of the dividend
attributable to the indirect
activity that is Non Islamic in
nature

1) Formula for cleansing dividend:Value on Non-Islamic activities X Dividend

Total worth of the company

2) If shares are to be
2) Formula for cleansing dividend:disposed, to establish date of
disposal to facilitate
(Value of Non-Islamic activities/ Total worth of the company) X
computation of amounts to be
Dividend X (Holding period (in days) since on-set of Nondeducted from dividends and
Islamic activities/365)
donated to charity using
same formula indicated
above
3) If interest from deposits
e 3) Formula used
constitute part of the dividend
Interest earned X Number of shares held
paid, then the interest earned
Issued share capital
must be deducted from the
dividends and given to charity

C) Treatment of
Capital Gains

1) When shares are

disposed off immediately,
there will be no Capital
gains attributable to NonIslamic activities as there is
no time for profits or gain
from Non-Islamic activities
to permeate through

D) Effect of
Borrowings on
Dividend

E) Effect of
Borrowings on
Capital Gain

1) When a Company has

borrowings and capital
gains are made upon
disposal of the shares, we
will have to compute the
proportional contribution of
the loans to the gains and
deduct the amount for
donation to charity

1) When shares are retained 1) Formula for cleansing Capital Gains

for a period of time before
subsequent disposal, then the
Percentage rise in price attributable to indirect Non-Islamic
capital gain made due to the
activity X Capital Gains
percentage rise in price from
the indirect Non-Islamic
activity must be deducted
from the capital gains and
given to charity. No
deductions will be made
when there are losses
incurred
1) When a Company has
1) Formula used
borrowings, we must ascribe
X Dividend
a portion of the dividend to
Borrowings
Total Capital Employed
the borrowed funds for
donation to charity
1) Formula used
Borrowings
Total Capital Employed

NOTE
Purification should commence from the point of purchase only

Monitoring of the activities of the Company should be an on-going exercise until the shares are disposed off
Borrowings to be taken into consideration should be loans exceeding one (1) year duration

X Capital Gains