How We Screen Stocks for Shariah Compliance
Every “is this stock halal?” verdict on HalalWallet is screened against the AAOIFI standard — the most widely used and most conservative mainstream Shariah screening standard. This page explains exactly what we test, how the major standards differ, and why two reputable screeners can reach different conclusions on the same company.
HalalWallet screens stocks using AAOIFI Shariah Standard No. 21: a business-activity screen (no conventional finance, alcohol, gambling, tobacco, pork, weapons, or adult entertainment) plus three financial ratios — interest-bearing debt under 30% of market cap, interest-bearing cash and securities under 30% of market cap, and impermissible income under 5% of revenue. AAOIFI is the strictest of the mainstream standards; Dow Jones Islamic, S&P Shariah, MSCI Islamic, and FTSE Yasaar use ~33% limits and some screen against total assets instead of market cap, which is why screeners sometimes disagree on borderline names.
- We use AAOIFI (Standard 21) — 30% debt, 30% cash/securities, 5% impermissible income
- AAOIFI uses market cap as the denominator and a point-in-time figure (no smoothing)
- Dow Jones, S&P, MSCI, and FTSE use ~33% limits; MSCI and FTSE screen against total assets
- A stock between 30% and 33% can pass one standard and fail another
- Every verdict is dated because market-cap ratios move with the share price
The two screens every stock must pass
Shariah equity screening has the same two-step logic across all major standards. A company must pass both to be considered compliant.
1. Business-activity (sector) screen
The company's core business must be permissible. We exclude companies whose primary activity is conventional banking or insurance, alcohol, gambling, tobacco, pork, adult entertainment, or weapons. A company can have a tiny amount of incidental impermissible revenue (see the 5% income screen below), but its main line of business cannot be haram. This is why a profitable, low-debt insurer or bank fails at step one regardless of its ratios.
2. Financial-ratio screen (AAOIFI)
The company's balance sheet must stay within AAOIFI's limits:
- Interest-bearing debt < 30% of market capitalization
- Cash + interest-bearing securities < 30% of market capitalization
- Impermissible income (interest + other non-compliant revenue) < 5% of total revenue
Note: AAOIFI's earlier illiquid-asset / receivables ratio was removed in Shariah Standard No. 59, so the current standard relies on the two ratios above plus the income screen.
AAOIFI Standard 21 is a framework, not a turnkey product — faithful screening still benefits from qualified scholarly oversight and judgment on edge cases. That is why, alongside the ratios, every verdict reports the documented positions of scholars and other screeners rather than presenting a single number as the final word.
How the major standards compare
There is no single global Shariah screening standard. The most widely cited methodologies share the same logic but differ on three things that actually change verdicts: the threshold (30% vs ~33%), the denominator (market cap vs total assets), and the averaging window (point-in-time vs multi-year average).
| Standard | Denominator | Debt | Cash & securities | Receivables/liquidity | Impure income |
|---|---|---|---|---|---|
| AAOIFI (Standard 21/59)What we use | Market cap (point-in-time) | ≤ 30% | ≤ 30% | None (removed in Std 59) | ≤ 5% |
| Dow Jones Islamic Market | 24-month avg market cap | ≤ 33% | Screen removed (Sep 2023) | Screen removed (Sep 2023) | ≤ 5% |
| S&P Shariah | 36-month avg market cap | ≤ 33% | Screen removed (Sep 2023) | Screen removed (Sep 2023) | ≤ 5% |
| MSCI Islamic (main series) | Total assets | ≤ 33.33% | ≤ 33.33% | ≤ 70% (cash + receivables) | ≤ 5% |
| MSCI Islamic M-Series | 36-month avg market cap | ≤ 33.33% | ≤ 33.33% | ≤ 49% (cash + receivables) | ≤ 5% |
| FTSE Yasaar (→ HLAL) | Total assets | ≤ 33.33% | ≤ 33.33% | ≤ 50% (cash + receivables) | ≤ 5% |
Thresholds verified against primary methodology documents (AAOIFI Shariah Standards 21/59, S&P Dow Jones Indices, MSCI Islamic Index Series methodology, and FTSE Russell / Yasaar ground rules), June 2026. In September 2023, Dow Jones Islamic Market and S&P Shariah retired their cash and accounts-receivable ratios, retaining only the debt ratio (against a trailing-average market cap) and the 5% income screen.
Why we use AAOIFI
- It is the most internationally recognized standard. AAOIFI is adopted by Islamic financial institutions, Shariah boards, and regulators across the Gulf, Southeast Asia, and beyond, which makes our verdicts comparable to what most Muslim investors will encounter elsewhere.
- It is the most conservative. At 30%, AAOIFI's debt and liquidity limits are stricter than the ~33% used by Dow Jones, S&P, MSCI, and FTSE. A stock that clears AAOIFI clears the others on leverage — passing the strictest mainstream screen is the safer default.
- It is transparent and auditable. The thresholds are public and the inputs come from company filings, so anyone can re-derive our ratios. We publish the figures and the date behind every verdict.
Why two screeners can disagree on the same stock
If you look up the same company on two apps and get different answers, it is almost never an error — it is a methodology difference. Three levers drive it:
1. Denominator: market cap vs total assets
AAOIFI, Dow Jones, and S&P divide debt by market capitalization, which rises and falls with the share price. MSCI and FTSE divide by total assets, a stable balance-sheet number. The same debt load can look like 25% of market cap but 35% of total assets (or vice versa), flipping the verdict.
2. Threshold: 30% vs 33%
AAOIFI draws the line at 30%; the index providers draw it at roughly 33%. A company whose debt ratio sits at 31–32% fails AAOIFI but passes the others. These borderline names are exactly where you see “compliant on one app, non-compliant on another.”
3. Averaging window: point-in-time vs multi-year
AAOIFI uses today's market cap. Dow Jones smooths over a 24-month average and S&P over 36 months. After a sharp rally or sell-off, the point-in-time figure and the smoothed figure can sit on opposite sides of the limit for months.
This is why our verdict pages show the documented positions of scholars and screeners side by side and date the figures: we report the disagreement honestly rather than hiding it behind a single label.
Want to see it in practice? See the real stocks where the standards disagree →
How to read our verdicts
- Halal — passes the business and financial screens on our AAOIFI basis, as of the stated date.
- Not halal — fails the business-activity screen (impermissible core business) or breaches a ratio limit.
- Conditional — passes the screens we can compute, but a line (often impermissible income) needs verification against the latest filing.
- Scholars differ — qualified scholars genuinely disagree; we present both sides rather than forcing a verdict.
Because AAOIFI ratios are measured against market cap, a verdict is always dated. We re-review names whose financial data is more than two quarters old, and we recommend a continuous halal stock screener for active holdings. Even compliant companies usually earn a little incidental interest, so the standard practice is to purify the small proportional share of dividends.
Important: HalalWallet is an educational comparison platform. We do not provide financial, legal, or religious advice.
Product structures and Shariah-compliance oversight vary by provider. Before applying:
- Verify halal compliance directly with the provider.
- Review the contract structure (Murabaha, Ijara, Musharakah, etc.) and any disclosed Shariah board opinions.
- Consult a qualified Islamic finance advisor or scholar for guidance on your individual circumstances.
Frequently asked questions
Frequently Asked Questions
Sources and review process
This page is reviewed against HalalWallet editorial standards and source documentation.
Reviewed by: HalalWallet Editorial Team
Last reviewed: 2026-06-14
- AAOIFI — Shariah Standards (No. 21 & No. 59)
- S&P Dow Jones Indices — S&P Shariah Indices Methodology
- S&P Dow Jones Indices — Dow Jones Islamic Market Indices Methodology
- MSCI — Islamic Index Series Methodology
- FTSE Russell / Yasaar — Global Equity Shariah Index Series
- HalalWallet — Product Evaluation Methodology
- HalalWallet — Editorial Policy
How to cite this page
Preferred format:
For time-sensitive claims (rates, fees, state availability), please verify directly with the provider's official documentation and note the retrieval date.
Editorial Team, HalalWallet
Independent halal finance research
Reviewed when any screening standard updates its methodology.