Question 1

How do I check if a stock is halal?

Accepted Answer

To check if a stock is halal, use AAOIFI Shariah screening which involves two steps: first, a business activity screen to ensure the company does not operate in prohibited industries (alcohol, gambling, tobacco, conventional banking, pork, weapons); second, three financial ratio checks known as the 30/30/5 rule.

Question 2

What is the AAOIFI 30/30/5 rule?

Accepted Answer

The AAOIFI 30/30/5 rule is the standard for Shariah-compliant stock screening. It requires that a company's interest-bearing debt divided by market capitalization is less than 30%, cash and interest-bearing securities divided by market capitalization is less than 30%, and non-permissible income divided by total revenue is less than 5%.

Question 3

Is it haram to invest in stocks?

Accepted Answer

Investing in stocks is not inherently haram. Stocks in companies that operate halal businesses and pass Shariah financial screening are considered permissible investments. The key is to avoid companies involved in prohibited industries and those with excessive debt, interest income, or non-permissible revenue.

Question 4

What makes a stock Shariah-compliant?

Accepted Answer

A stock is considered Shariah-compliant when it passes both the business activity screen (the company must not operate in haram sectors like alcohol, gambling, or conventional banking) and the financial ratio thresholds (debt, cash, and non-permissible income ratios must all be within AAOIFI limits).

Question 5

Can a stock's halal status change?

Accepted Answer

Yes, a stock's halal status can change over time. Companies report financial results quarterly, and changes in debt levels, cash holdings, or revenue sources can push ratios above or below the AAOIFI thresholds. Regular re-screening is recommended to ensure ongoing compliance.

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The AAOIFI 30/30/5 Rule

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