Tourism and Hotels as Asset Class for Investment and Financing from Shariah Perspective

Abstract

The objective of this paper is to initiate a debate on the issue of investment in and financing of the hotel business. The motive behind the discussion is the fact that the hotel business, as a stand-alone activity, is considered a Shari<ah non- compliant asset and is listed in the negative list in Malaysia. Hence, as a general Shariah rule, it is not allowed to invest in the hotel business or provide financing to it as a stand-alone entity. The case might be different if a hotel is subsidiary to a holding company, in case the holding company has a Shariah-compliant status. The revised Sharicah screening methodology (2013) by the Shariah Advisory Council (SAC) of Securities Commission (SC) Malaysia provides for a 20% benchmark being applicable to companies that generate part of their revenue or profit before tax from hotel and resort operations. Other screening methodologies like MSCI Global Islamic Indices do not allow investment in companies which are involved in or derive more than 5% of their revenue from such activities like hotels and cinemas. The same benchmark of 5% is applicable to hotels by the Russell-Jadwa Shariah Indexes. However, the present paper discusses the hotel business as a stand-alone entity and looks into its assessment and screening in the context of Malaysia which may have implication in other jurisdiction.