Screening Process
Business Sector Screening
The business of a company will be conducted in accordance with Shariah principles as interpreted by the Shariah Advisor.
Alcohol
The business of a company will be conducted in accordance with Shariah principles as interpreted by the Shariah Advisor.
Does the company generate revenue from support functions for the alcohol industry (e.g., manufacturing brewing machines, packaging materials, labels)?
Does the company own or lease real estate to businesses that sell alcohol (e.g., bars, restaurants, supermarkets)?
If so, calculate the percentage of revenue derived from such activities based on the area used for non-permissible activities: Non-permissible revenue = Total rental income × (Area used for alcohol sales / Total leased area)
Conventional Financial Services
Is the company involved in conventional interest-based financial services (e.g., commercial banks, investment banks, mortgage lenders)?
Does the company invest in or derive income from non-permissible financial activities, even if its primary business is Islamic (e.g., an Islamic bank without a Shariah supervisory board)?
Gambling
Is the company involved in gambling or related activities (e.g., casino operations, online gambling, gambling machine manufacturing)?
Pork-Related Activities
Does the company engage in the production, distribution, or sale of pork or pork-related products (e.g., restaurants, supermarkets, livestock companies)?
Pornography
Does the company produce, distribute, or market pornographic content or materials (e.g., adult entertainment producers, bookstores with explicit content)?
Tobacco
Is the company involved in the production, processing, packaging, or retailing of tobacco products?
Advertising
Does the company generate revenue from advertising non-permissible activities (e.g., alcohol, gambling, pornography)?
Does the company produce or distribute media content that is considered inappropriate from a Shariah perspective (e.g., certain television shows, movies, or music)?
Media & Entertainment
Does the company derive revenue from the production or distribution of non-compliant entertainment content (e.g., movies, television shows)?
Does the company operate cinemas or other venues that primarily show non-permissible content?
Gold and Silver Trading
Does the company derive revenue from the production or distribution of non-compliant entertainment content (e.g., movies, television shows)?
Does the company operate cinemas or other venues that primarily show non-permissible content?
Financial Ratios Screening
1 / Interest-Bearing Debt
Does the company’s interest-bearing debt exceed 30% of its market capitalization?
Calculate the ratio as follows: Interest-Bearing Debt Ratio = Total Interest-Bearing Debt / Market Capitalization < 0.30
Market Capitalization is calculated as: Market Capitalization = Average Share Price over the Last 12 Months × Total Number of Shares Outstanding
where the average share price is the moving average daily closing price of the company’s shares over 12 months.
2 / Interest-Earning Assets
Does the company’s interest-earning assets exceed 30% of its market capitalization?
Calculate the ratio as follows: Interest-Earning Assets Ratio = Interest-Earning Assets / Market Capitalization < 0.30
3 / Income from Prohibited Activities
Does the company generate more than 5% of its income from prohibited activities (e.g., alcohol, gambling, pork products)?
Calculate the ratio as follows: Prohibited Income Ratio = Income from Prohibited Activities / Total Income < 0.05
Classification of Companies
Compliant Company
A company is considered Halal if it passes all the business sector screenings and financial ratio screenings outlined above.
Non-Compliant Company
A company is considered Haram if it fails to pass any of the business sector screenings (e.g., involvement in alcohol, gambling, pork, etc.) or if it fails to meet any of the financial ratio thresholds.
Questionable (Requiring Purification)
- Compliant Company.
Non Compliant Company.
Dividend Purification Requirement: Calculate the Dividend Purification Ratio (DP Ratio) as follows: DP Ratio = Non-Permissible Revenue including interest income / Total Revenue.
The corresponding proportion of dividends received from such a company must be given to charity to purify the income based on the DP Ratio.
- Example of Purification: If the DP Ratio is 0.10 (10%), then 10% of the dividends received should be given to charity to purify the income.
Calculation Methodologies
(For Listed Companies)
Calculation Methodologies (For Listed Companies)
Market Capitalization = Average Share Price over Last 12 Months × Total Shares Outstanding
For recent IPOs or companies without sufficient trading history
Market Capitalization = P_avg / P_last × Current Market Capitalization
where P_avg is the moving average daily closing price over the available trading period and P_last is the last closing price.