Malaysia's securities commission is revising its guidelines for equities which qualify for Islamic investment, in a move that could increase the appeal of Sharia-compliant funds industry to Gulf investors.

Under the previous standards, investment was banned or restricted in companies involved in industries deemed to be unethical, such as gambling, alcohol and tobacco.

These restrictions are being made more stringent, so a lower level of exposure to those industries is unacceptable for Islamic investment, according to the commission.

The revised guidelines include two new financial standards which filter out excessively cash-rich and debt-ridden firms to limit exposure to interest payments and pure monetary speculation unacceptable in Islam, the commission said.

The revision aims to enhance the "robustness" and "competitiveness" of the fund management industry at the domestic and international levels, it said.

The new guidelines will come into effect in November and Islamic fund managers will have six months to comply.

The attractiveness of Malaysia's Sharia-compliant funds to Gulf investors has been limited by the fact that Malaysian standards have been less strict than those advocated by Islamic scholars in some centres.

The new guidelines should help solve this problem, fund managers said. "This is a step in the right direction," Monem Salam, president of investment firm Saturna Sdn Bhd in Malaysia, said, adding it would help harmonise industry practices across the globe.

Malaysia's methodology is less strict, but the inclusion of too many standards could hurt equity portfolios, so the regulator opted for a moderate approach, he said. Islamic fund managers have additional standards of their own on top of those dictated by the commission, which will cushion the impact of the revision.-Reuters