What is AAOIFI?
In short
The Accounting and Auditing Organization for Islamic Financial Institutions. Its Shariah standard is widely used for stock screening.
Key thresholds: interest-bearing debt and interest-bearing assets each below 30% of market capitalisation, impermissible income below 5% of total revenue.
Learn more →AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) is an international non-profit body that sets accounting, auditing, governance and Shariah standards for Islamic financial institutions. It is based in Bahrain and has been operating since the early 1990s.
The standard for stocks
For investors the most important one is Shariah Standard No. 21, which covers shares and bonds. It defines when investing in a company's shares is permissible: the core business must be permissible, and the financial ratios must stay within these limits:
- Interest-bearing debt — below 30% of market capitalisation (debt ratio).
- Interest-bearing assets (deposits, interest-bearing securities) — below 30% of market capitalisation (interest-bearing assets ratio).
- Impermissible income — below 5% of total revenue (impermissible income).
The standard also requires purification of the portion corresponding to impermissible income.
Why it matters
The AAOIFI standard serves as the basis for many Islamic banks, funds and screening services. But some index providers and bodies use other formulas (for example total assets instead of market cap, or an average market cap), so results can differ. How limitup applies it is explained on the methodology page.
For information only, not a fatwa.
All three ratios are below the limit (line) — it passes the financial stage. The numbers are illustrative.
Example
An illustrative company with a market capitalisation of $40B, making industrial equipment:
- Interest-bearing debt $14B → $14 ÷ $40 = 35% — above the AAOIFI standard's 30% limit.
- Interest-bearing assets $6B → $6 ÷ $40 = 15% — below the limit.
- Impermissible income is 3% of total revenue — below the 5% limit.
Even though the business is permissible and two ratios are fine, the debt ratio means this company does not meet the standard's criteria. If it cut its debt to $11B ($11 ÷ $40 = 27.5%), the picture would change.
Mistakes and tips
When you see a claim of "halal according to AAOIFI", check which formula and which report date were used.
The AAOIFI limits are the standard's numbers; some screening services apply stricter limits as a precaution.
The standard is not only about ratios — the company's core business is checked first.
Halal finance terms are explained for general information — not a fatwa. Not investment advice either.
Frequently asked questions
- When is a stock halal under the AAOIFI standard?
- When its core business is permissible, interest-bearing debt and interest-bearing assets are each below 30% of market capitalisation, and impermissible income is below 5% of total revenue. The impermissible portion must also be purified.
- Are AAOIFI and S&P Shariah indices the same?
- No. The idea is similar, but the formulas differ — for example, some indices use an average market cap over several months. So results for the same stock can differ.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Halal investing basicsHow a stock passes a Shariah screen: business activity, the three AAOIFI ratios with numbers, doubtful cases and what is off-limits.Open lesson · 12 min
- Financial health: balance sheet, debt and FCFReading the balance sheet, liquidity and leverage, the cash flow statement, FCF and cash conversion, dilution, red flags and the 30% halal screening ratios.Open lesson · 12 min
- Purification and zakatHow to calculate the impermissible share of dividends and capital gains: three methods with examples, ETFs, timing and how it differs from zakat.Open lesson · 11 min
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