This page sets out clear rules for checking if a listed firm fits Sharia (Islamic finance) rules. The rules come from AAOIFI Shariah Standard No. 21, a public standard used by many groups. This page states the rules only. It does not judge any one firm.
How This Screening Works
A firm is checked in two steps. First, we check its main line of work against a list of banned lines. Second, we compare three money ratios against a set limit. A firm passes only if its line of work is not on the banned list. It must also meet all three ratio limits.
Screening Rules
| Ratio | Threshold | What it measures |
|---|---|---|
| Debt to market cap | 33% or less | Total interest-bearing debt, divided by market capitalisation. |
| Cash and interest-bearing securities to market cap | 33% or less | Cash plus interest-bearing securities held, divided by market capitalisation. |
| Non-permissible income share | 5% or less | Interest and other non-permissible income, divided by total revenue. |
All three ratios must be known and within the limits above. If even one ratio is missing, this page gives no verdict at all.
Excluded Business Activities
A firm fails the screen if its main line of work falls into any group below. This is true no matter what its ratios are.
Quick Answers
- What ratios does this Sharia screening method use?
- This method uses three ratios. The first is debt to market cap, capped at 33%. The second is cash and interest-bearing securities to market cap, capped at 33%. The third is non-permissible income share of revenue, capped at 5%.
- Does this page list which stocks are Sharia-compliant?
- No. This page sets out the 3-ratio method only. It does not name or rate any single firm.
- What business activities are excluded no matter the ratios?
- This method excludes 8 lines of work. They include mainstream banking and insurance. They also include alcohol, gambling and tobacco. A firm in any of these fails the screen, no matter its ratios.
Frequently Asked Questions
What is Sharia (Islamic finance) stock screening?
It is a set of public rules used to sort a firm as passing or failing Islamic finance rules. It is a method only, not investment advice.
Where do the thresholds on this page come from?
They come from AAOIFI Shariah Standard No. 21, a widely-used public standard. Several Islamic index groups use forms of this standard. This page states the numbers it uses. Other groups may use other numbers.
Why does this page not rate any single firm?
Checking a firm needs its fundamentals. Fundamentals means debt, cash, income data and line of work. This page does not guess those numbers or copy them from another site, so it states the method only.