A stock is generally considered halal, or Shariah-compliant, when the company’s main business is permissible and its finances pass three tests: interest-bearing debt, cash and interest-bearing securities each below about 30 to 33 percent of its market value or assets, and income from prohibited activities below 5 percent of revenue. Investors then donate the small impure share of dividends.
This article was first published in December 2023. It has been updated with the screening thresholds of AAOIFI, S&P Dow Jones Indices, MSCI, FTSE and Malaysia’s Securities Commission, including S&P’s September 2026 changes, a worked purification example and current fund data.
Reviewed by Hafiz Maqsood Ahmed.
The rules matter because most Muslim investors now reach the stock market through screened products. The SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS) had $3.375 billion in net assets on Oct. 14, 2026, according to SP Funds. Every one of those holdings passed the screens described below. The tests are set by scholars and standard setters; The Halal Times reports them and does not issue rulings.
Step 1: Check what the company does
The first screen excludes companies whose core business is prohibited. All the major methodologies exclude:
- Conventional banking, insurance and interest-based finance (Islamic banks and takaful insurers are allowed)
- Alcohol
- Pork and other non-halal food
- Gambling
- Tobacco
- Adult entertainment
Methodologies differ on the edges. MSCI, FTSE and the Dow Jones Islamic Market indices exclude weapons and defense makers, while the S&P Shariah indices do not, according to S&P Dow Jones Indices. Malaysia’s Securities Commission applies a 5 percent revenue limit to clearly prohibited activities and a 20 percent limit to others, such as share trading and rental income from non-compliant tenants, according to its screening methodology.
Step 2: Test the balance sheet
A company in a permissible business can still fail if it borrows heavily at interest or holds large interest-bearing cash balances. The thresholds below are the published limits; note the different denominators.
| Standard | Interest-bearing debt | Cash and interest-bearing securities | Receivables | Prohibited income | Denominator |
|---|---|---|---|---|---|
| AAOIFI Shariah Standard No. 21 | 30% or less | Interest-bearing deposits 30% or less | — | 5% or less of total income | Market capitalization |
| S&P Shariah indices (from Sept. 21, 2026) | Below 30% | Below 30% | Below 49% (pre-change rule) | Below 5% of revenue | 36-month average market cap |
| Dow Jones Islamic Market (from Sept. 21, 2026) | Below 30% | Below 30% | — | Business screen | 24-month average market cap |
| MSCI Islamic | Below 33.33% | Below 33.33% | Receivables plus cash below 33.33% | 5% or less of revenue | Total assets |
| FTSE Yasaar Shariah | Below 33.333% | Below 33.333% | Receivables plus cash below 50% | 5% or less of revenue | Total assets |
| Securities Commission Malaysia | Below 33% | Conventional cash below 33% | — | 5% or 20% by activity | Total assets |
Sources: AAOIFI Shariah Standard No. 21 (copy hosted by the Philippine Stock Exchange); S&P Dow Jones Indices, Aug. 20, 2026; Dow Jones Islamic Market update, Aug. 20, 2026; MSCI methodology, Oct. 30, 2024; FTSE Yasaar ground rules; Securities Commission Malaysia (linked above).
The September 2026 change matters for anyone using an older checklist. S&P Dow Jones Indices lowered its debt and cash limits from 33 percent to 30 percent for both of its Shariah index families. On July 2026 data, the share of stocks passing the S&P Shariah screens fell from 54.7 percent to 46.1 percent of 21,299 companies, the company said in its announcement. Many screening apps and websites still show the 33 percent figure.
The denominator also matters. A tech company with a high share price can pass a market-cap test and fail an assets test, while a falling share price can push a company out of compliance under the market-cap method even if its balance sheet has not changed.
Step 3: Purify the impure share of dividends
Even a compliant company may earn a small amount of interest or other prohibited income. AAOIFI’s standard says the shareholder at the end of the financial period must give away that share: the company’s total prohibited income divided by its shares outstanding, multiplied by the number of shares held, according to clause 3/4/6/4 of Shariah Standard No. 21. Index providers use a simpler dividend-based ratio.
Example (dividend method). If 2 percent of a company’s revenue comes from interest income and you receive $500 in dividends, you would donate $10 to charity. Under the AAOIFI method, if the company earned $4 million in prohibited income and has 200 million shares, the impure amount is 2 cents a share; an investor holding 1,000 shares would donate $20, whether or not a dividend was paid.
Step 4: Use a screen, then check it
Few investors calculate ratios themselves. Shariah index families, ETFs and screening apps do it for them, but they use different standards, so a stock can be compliant on one app and not on another. Musaffa, a screening app, says its ratings are based on AAOIFI standards, according to its own explainer. Funds that track a Shariah index, such as SPUS or the Wahed FTSE USA Shariah ETF (HLAL), apply that index’s rules; our guide asks whether index funds are halal more broadly.
Before relying on any tool, ask three questions: which standard does it use, how often does it update company data, and does it calculate purification?
Step 5: Recheck regularly
Compliance is not permanent. Companies take on debt, build up cash or enter new businesses. FTSE changes a stock’s status only after two consecutive quarters outside a band around its limits, and S&P now removes a stock after three consecutive breaches, according to their published rules. Investors who pick stocks themselves should rescreen at least quarterly, after each set of financial results.
Step 6: Ask a qualified scholar about hard cases
Some cases need judgment: a company with a small conventional finance arm, a holding company, or a stock that sits near a threshold. Malaysia’s Securities Commission adds a qualitative assessment to its numerical screens for this reason. Investors with complex portfolios can consult a scholar with Islamic finance training or an institution’s Shariah board.
Trading style matters too
Screening answers whether a company can be owned. Scholars also discuss how it is traded, including short selling, margin accounts that charge interest and options. Our explainer on whether day trading is halal covers those questions.
For the wider market, from Islamic banks to sukuk and digital platforms, our guide to Islamic finance and fintech sets out the main players and rules.
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