How We Assess Stocks for Shariah Compliance
Every stock listed on HalalStocks.co.uk undergoes a rigorous four-screen assessment based on the globally recognised AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) standards. Here is exactly how we determine whether a stock is halal, haram, or doubtful.
Overview
Our screening process evaluates each stock against four independent criteria. A stock must pass all four screens to be classified as halal. If the business activity screen fails, or two or more screens fail, the stock is classified as not halal. If only one financial screen fails, the stock is marked as doubtful.
Halal
4/4 screens pass
Doubtful
1 financial screen fails
Not Halal
Business fails or 2+ fail
The Four Screens
Screen 01
Business Activity Screening
Core business must be halal
The company's primary business activities are assessed to determine whether they are permissible under Islamic law. This is the most important screen — if a company's core business is haram, it cannot be considered shariah compliant regardless of its financial ratios.
- •Alcohol production, distribution, or significant retail revenue from alcohol sales
- •Gambling, betting, or casino operations
- •Pork and pork-related products
- •Tobacco manufacturing
- •Conventional interest-based financial services (banking, insurance)
- •Adult entertainment
- •Weapons of mass destruction
Screen 02
Debt to Market Capitalisation
Threshold: ≤ 33% of market cap
This screen measures the company's reliance on interest-bearing debt. Islam prohibits riba (interest), so companies with excessive debt funded through conventional loans are considered non-compliant. The ratio is calculated by dividing total interest-bearing debt by the trailing 12-month average market capitalisation.
- •Total interest-bearing debt includes all conventional loans, bonds, and credit facilities
- •Market capitalisation is used as the denominator (AAOIFI standard)
- •This threshold is widely accepted across major Islamic finance bodies
- •Companies with zero debt automatically pass this screen
Screen 03
Interest Income Ratio
Threshold: ≤ 5% of total revenue
Even halal businesses may earn some interest income incidentally — for example, from cash deposits. This screen ensures that interest-based earnings remain a negligible portion of overall revenue. If interest income exceeds 5% of total revenue, the company fails this screen.
- •Interest income is taken from the latest annual income statement
- •Revenue is the company's total reported revenue for the same period
- •This captures both direct interest income and income from interest-bearing investments
- •Any dividends received from non-compliant sources should also be purified
Screen 04
Cash & Interest-Bearing Securities
Threshold: ≤ 33% of market cap
This screen examines whether a company holds excessive amounts of cash and interest-bearing securities relative to its market capitalisation. High cash holdings in conventional interest-bearing accounts indicate the company may be earning significant returns from riba.
- •Includes cash, cash equivalents, and short-term investments
- •Data is sourced from the latest annual balance sheet
- •Companies in certain sectors (e.g. tech) may hold large cash reserves — context matters
- •This screen works alongside the debt screen to give a full picture of financial compliance
Data Sources
We source our financial data from Financial Modeling Prep (FMP), a widely used financial data provider covering global stock markets. For each stock, we pull:
- •Company profile (sector, industry, description, market cap)
- •Annual income statement (revenue, interest income, net income)
- •Annual balance sheet (total debt, cash, equity, current assets)
AI-powered analysis is then used to generate detailed business activity assessments and plain-English summaries of each stock's shariah compliance status.
AAOIFI Standards
AAOIFI is the leading international body setting accounting, auditing, governance, and shariah standards for Islamic financial institutions. Founded in 1991 and headquartered in Bahrain, AAOIFI's standards are followed by institutions in over 45 countries.
Our screening thresholds (33% for debt and cash ratios, 5% for interest income) are derived from AAOIFI Shariah Standard No. 21, which provides guidelines for equity investment screening. These thresholds represent a widely accepted middle ground among Islamic scholars.
It is important to note that some scholars and screening bodies (such as DJIM or MSCI Islamic) may use slightly different thresholds or methodologies. We encourage investors to consult with their own scholars if they follow a specific school of thought.
Screening Frequency
Stocks are screened using the most recent annual financial data available. Screening results are reviewed and updated regularly to reflect new filings. Each stock page shows the date it was last screened.
Because financial ratios can change with each earnings report, a stock's shariah status may change over time. We recommend checking back periodically, especially after quarterly and annual earnings releases.
Disclaimer
This methodology page is provided for educational and informational purposes only. It does not constitute financial, investment, or religious advice. Screening criteria are based on widely accepted AAOIFI standards, but individual scholars may differ in their opinions on specific thresholds and sector classifications. Always consult with a qualified Islamic scholar and a licensed financial advisor before making investment decisions.