What is Shariah screening?
Halol skrining
In short
Checking a stock in two stages: business activity (no prohibited lines of business) and financial ratios (debt, interest-bearing assets, impermissible income).
Learn more →Also known as: shariah, halal, screening
Halal (Shariah) screening is the process of checking whether a stock meets the requirements of Islamic finance. It usually has two stages.
1. Business activity
The company's core business must not be in a prohibited sector: conventional interest-based banking and insurance, alcohol, pork products, gambling, adult content and similar. A company whose main business is one of these fails regardless of its financial ratios.
2. Financial ratios
Even companies with permissible businesses often borrow at interest or keep cash in interest-bearing deposits. So three ratios are checked: the debt ratio, the interest-bearing assets ratio and the share of impermissible income. In the AAOIFI standard the limits are: interest-bearing debt and interest-bearing assets each below 30% of market capitalisation, and impermissible income below 5% of total revenue.
Why status changes
The ratios change every quarter with new reports, and market capitalisation changes every day with the price. So a stock that passes today may fail later — and vice versa. If data is insufficient or a ratio sits right at the limit, the result may be doubtful. Different bodies use slightly different formulas; our approach and thresholds are on the methodology page, and the results are in the halal stocks list.
For information only, not a fatwa.
All three ratios are below the limit (line) — it passes the financial stage. The numbers are illustrative.
$17bn debt ÷ $50bn market cap = 34%. Even with the other two ratios looking fine, one breach is enough — the stock fails.
Example
An illustrative company with a market capitalisation of $50B, in software (a permissible business):
- Interest-bearing debt $10B → $10 ÷ $50 = 20% (AAOIFI standard: below 30%).
- Cash and interest-bearing securities $8B → $8 ÷ $50 = 16% (standard: below 30%).
- Total revenue $20B, of which interest income $0.4B → $0.4 ÷ $20 = 2% (standard: below 5%).
In this example all three ratios are below the AAOIFI standard's limits. But if the share price fell sharply, market capitalisation would shrink and the first two ratios would rise.
Mistakes and tips
Don't treat a screening result as permanent — recheck every quarter and after big price moves.
Don't look only at the financial ratios: the first stage, business activity, matters even more.
Different screening services can reach different conclusions on the same stock; the reason is usually differences in formulas and thresholds.
Halal finance terms are explained for general information — not a fatwa. Not investment advice either.
Frequently asked questions
- How do I know if a stock is halal?
- Its business activity and financial ratios are checked against a standard such as AAOIFI. The result can change over time, so rely on screening based on the latest financial report.
- Why does one site say a stock is halal and another says it isn't?
- They may use different standards, formulas (for example market cap versus total assets) or reports from different dates. Reading each service's methodology explains the difference.
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
- Fundamental analysis basicsThe three financial statements, reading the income statement line by line, margins, EPS, share count, ROE/ROIC and a business-quality checklist.Open lesson · 12 min
- Growth vs value stocksDefinitions and metrics of both styles, growth quality, value traps, interest-rate sensitivity (with a discounting example), style rotation, the halal universe's tilt and a blended portfolio.Open lesson · 12 min
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