Why does a stock's halal status change?

One of the most common questions we get: "This stock was halal yesterday — why is it doubtful today?" Halal status is not a stamp applied once. Companies change, their filings change, and so the verdict can change too.

Here are the four main reasons a status moves.

1. A new quarterly report came out

Debt, cash and interest income come from the company's latest quarterly filing. Every quarter brings a new report, and the numbers move:

• it took on a new loan — the debt ratio went up;
• it raised cash by selling shares — the share of interest-bearing assets went up;
• it earned more interest on deposits — the share of non-permissible income went up.

If any one of the three ratios breaches its limit, the stock is rejected. The limits and formulas are shown live on the methodology page.

2. Market capitalisation moved

The denominator of the debt and interest-bearing-asset ratios is market capitalisation. But we don't use today's price — we use the average over the last 12 quarters.

The reason is simple: if a stock jumps 40% in a week, its debt ratio drops by itself, yet the debt hasn't gone anywhere. The average removes that noise. Even so, a long decline drags the average down too, and a ratio can end up over the limit.

3. The business changed

A company can acquire another one, enter a new line of business or merge. If a food company buys an alcohol brand, it is rejected at the business-activity step no matter how clean its ratios look.

Some impermissible activity isn't visible from the industry label, so we review such cases by hand and keep a separate list. The full list: blocked categories.

4. The data is stale or missing

If a company files late, or we can't obtain a number, the stock becomes "undetermined" — not "halal". This is the fail-closed principle: doubt is never resolved in favour of halal.

A false "halal" label is the worst possible error. When we aren't sure, the stock stays out of the universe.

"Doubtful" does not mean "haram"

In some companies permissible and impermissible activity are mixed and can't be measured precisely, or scholars disagree (film and music, for example). We keep these out of the universe, but we don't label them "haram" either.

What this means for you

• Re-check the stocks in your portfolio from time to time — especially after each quarterly earnings season.
• Don't panic when a status changes: look at the reason first. Every stock page shows the ratios and the last check date — open any company from the halal stocks list.
• Even a halal stock can earn a little interest. It is recommended to compute that share of your dividend and give it to charity (purification).

This article is for information only and is not a fatwa. Consult your own scholar for a final religious ruling. Not investment advice either.