Malaysia is making its guidelines for equities that qualify for Islamic investment more stringent.
Under the previous standards, investment was banned or restricted in companies that were involved in industries deemed to be unethical, such as gambling, alcohol and tobacco.
These restrictions are now being made more stringent, so that a lower level of exposure to those industries is unacceptable for Islamic investment, according to a statement by the securities commission.
This move could increase the appeal of the country's sharia-compliant funds industry to Gulf investors.
The revision of the guidelines by Malaysia's securities commission also include two new financial standards which filter out excessively cash-rich and debt-ridden companies, in order to limit exposure to interest payments and pure monetary speculation, which are unacceptable in Islam.
Enhancing the "robustness" and "competitiveness" of Malaysia's fund management industry at the domestic and international levels was a motive behind the revisions, the commission said in a statement.
The new guidelines will come into effect in November, and Islamic fund managers will then have six months to comply with them.
The attractiveness of Malaysia's sharia-compliant funds to investors from the Gulf has been limited by the fact that Malaysian standards have been less strict than those advocated by many Islamic scholars in centres such as Bahrain and Saudi Arabia
"This is a step in the right direction," said Monem Salam, president of investment firm Saturna Sdn Bhd in Malaysia, adding that the move would help harmonise industry practices across the globe.
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