Halal Stock Screening Methodology
Every halal-stock verdict on Halalytic comes from the same transparent process: a business-activity screen followed by the AAOIFI 30/30/5 financial ratios. This page explains exactly how it works, what each verdict means, and — just as importantly — where automated screening reaches its limits.
A Two-Stage Screen
The AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) sets the most widely adopted standard for judging whether a publicly traded stock is permissible (halal) for Muslim investors. Its methodology — the 30/30/5 rule — is applied in two stages.
First, a business-activity screen asks what the company does. Then three financial ratios ask how the company is financed and where its income comes from. A stock must clear all four checks to be considered compliant.
Stage 1 — Business Activity Screen
Companies whose core business is prohibited are rejected outright: alcohol, gambling, tobacco, conventional (interest-based) banking and insurance, pork products, adult content, and weapons manufacturing.
Some categories are genuinely debated among scholars — payment networks, defense, and certain media. We route these to Needs Reviewrather than a silent pass or a blanket rejection, and we surface the reason so you can apply your own madhab's position.
Stage 2 — The 30/30/5 Financial Ratios
Debt < 30%
Interest-bearing debt divided by market capitalization must be below 30%, limiting reliance on riba-based financing.
Cash < 30%
Cash plus interest-bearing securities divided by market cap must be below 30%, screening out interest-heavy balance sheets.
Income < 5%
Non-permissible income (e.g. interest) divided by total revenue must be below 5%. Any small amount must be purified.
We use spot market capitalization as the denominator (permitted by AAOIFI). Note that some index providers use a 36-month trailing average instead, so a verdict can move on a price swing alone near the 30% lines.
What Each Verdict Means
Compliant
The business activity is permissible and all three financial ratios pass. Most compliant stocks still carry a small non-permissible income figure that should be purified.
Non-Compliant
The company operates in a prohibited sector, or at least one financial ratio breaches its threshold. We list the specific failing reason on the stock's page.
Needs Review
We do notshow a confident green pass when a screen could not actually be evaluated. The most common case: AAOIFI's non-permissible-income screen needs an itemized figure that public data does not always expose. When we cannot verify it — or when a business category is genuinely debated — the verdict is held at Needs Review with the reason shown, rather than defaulting to Compliant.
Data Sources & Limitations
Screens run on public financial data (market cap, balance sheet, and income statement) and are refreshed weekly. Compliance can change every quarter as companies report new figures, so a verdict is a snapshot, not a permanent label.
Automated screening is a strong first filter, but it cannot replace a qualified scholar — especially for borderline ratios, debated sectors, and the precise itemization of non-permissible income. For high-stakes decisions, cross-reference dedicated screeners such as Zoya, Musaffa, or Islamicly, and consult your scholar.
Purification (Tazkiyah)
Even a compliant company usually earns a little non-permissible income. Shareholders should donate the proportional amount — (non-permissible income ÷ revenue) × dividends received — to charity, expecting no reward. This keeps the remaining return pure.
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Sources
- AAOIFI Shariʿah Standard No. 21 (Financial Papers — Shares & Bonds): the business and 30/30/5 financial screens.
- Dow Jones Islamic Market & S&P Shariah index methodologies: the trailing-average market-cap denominator alternative.
Disclaimer: This methodology automates the AAOIFI ratios but does not replace scholarly review. Compliance status changes over time — always verify current data and consult a qualified Shariah advisor for definitive rulings.
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