How Are Halal Stocks and Funds Screened?

A stock passes two tests: its main business must be permissible, and its finances must stay within set limits on interest based debt and interest income.

The business test removes companies in alcohol, pork, gambling, conventional banking and insurance, adult entertainment and similar industries. The financial test is where most people are surprised. Under the AAOIFI Shariah Standard 21, used by many Islamic funds worldwide, interest bearing debt must be under 30% of the company's market value, interest bearing cash and securities under 30%, and income from impermissible sources under 5% of revenue. Some index providers use 33% instead of 30%. Shariah funds re screen their holdings regularly and sell any that fail.

Want to know if your own accounts pass? Book your complimentary review with me.