"Is this stock halal?" is one of the most common questions a Muslim investor asks — and the answer is decided by a structured process called Shariah screening. It is how a company is judged compliant or non-compliant, and it runs in two stages: a qualitative business test and a quantitative financial test. This guide walks through exactly how the process works, the ratios involved, and why it has to be repeated continuously.
How do you know if a stock is halal?
A share is permissible to own when the company behind it passes both a business-activity screen and a financial-ratio screen, and any small amount of impure income is purified. Failing either screen means the stock is non-compliant — a company can have a perfectly halal business but fail on its finances, or vice versa.
Stage 1: The business-activity screen (qualitative)
First, the company's core business must be permissible. A firm is excluded outright if it earns significant revenue from:
- Alcohol, tobacco and pork products
- Gambling and adult entertainment
- Conventional, interest-based banking and insurance
- Weapons and defence (per many methodologies)
If the core activity fails here, the financials are irrelevant — the stock does not qualify.
Stage 2: The financial-ratio screen (quantitative)
A company with a permissible business must then pass financial thresholds, broadly following AAOIFI-aligned standards. The three most common ratios are:
- Interest-bearing debt — typically must be below ~33% of market capitalisation.
- Interest-bearing cash & investments — typically below ~33%.
- Impermissible (non-compliant) income — typically below 5% of total revenue.
Exact limits and the denominator used vary slightly between scholars and index providers, but the logic is consistent: a compliant company should not be financed mainly by interest or derive meaningful income from it.
Purification: the final step
Even a company that passes both screens may earn a tiny amount of incidental impure income. The proportion attributable to your shareholding is calculated and donated to charity — a step called purification — so your returns stay clean. (More in our halal investing guide.)
Why screening must be continuous
A stock's status is not permanent. Companies take on debt, change their revenue mix and shift their balance sheets every quarter, so a stock that is compliant today can breach a threshold tomorrow. Genuine screening therefore re-checks holdings regularly and flags or removes anything that drifts out of compliance — which is why "screened last year" is not the same as "screened today".
What about crypto?
Financial ratios built for company balance sheets do not apply to tokens. Crypto is instead assessed on its operating model, what backs it, how it earns and the degree of uncertainty (gharar) it carries, grounded in published fatwas.
At Rizq
Every security and token on Rizq is screened and certified, and any incidental impure income is purified automatically — so you never have to do the maths yourself. You can read more about our Shariah Screening product and the governance behind it.
Frequently asked questions
How do you know if a stock is halal?
The company must pass two screens: a qualitative business-activity screen (its core business must be permissible) and a quantitative financial screen (interest-bearing debt, interest income and impure income must each stay below accepted thresholds). It is then re-checked regularly.
What financial ratios are used?
Common AAOIFI-aligned thresholds: interest-bearing debt below ~33% of market cap; interest-bearing cash/investments below ~33%; and impermissible income below 5% of revenue. Methodologies vary slightly between scholars and providers.
What businesses are excluded?
Companies earning mainly from alcohol, gambling, conventional interest-based banking and insurance, pork, tobacco, weapons and adult entertainment are excluded at the business-activity stage, regardless of their financials.
Is crypto screened the same way as stocks?
No. Financial ratios for company balance sheets don't apply to tokens. Crypto is assessed on its model, what backs it, how it earns and the uncertainty (gharar) it carries, grounded in published fatwas.
