Screening Methodology
HalalScreener uses the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) Shariah Standard No. 21 to screen stocks for compliance. Here is exactly how it works.
Two-Stage Screening Process
Every stock goes through two independent screens. A stock must pass BOTH to be considered halal:
Stage 1: Qualitative Screen
Examines the core business activity. If the company is primarily involved in prohibited activities, it fails immediately.
Stage 2: Quantitative Screen
Analyzes three financial ratios against AAOIFI thresholds. Ensures the company's financials are within permissible limits.
Qualitative Screen: Business Activity
The qualitative screen checks whether a company's primary business involves activities that are prohibited in Islam. A company fails this screen if its core revenue comes from any of the following:
Alcohol Production & Sales
Breweries, distilleries, wine makers
Gambling & Betting
Casinos, lottery operators, sports betting
Pork Products
Pork processing, distribution
Tobacco
Cigarette manufacturing, distribution
Conventional Banking
Interest-based financial services
Conventional Insurance
Non-takaful insurance providers
Adult Entertainment
Pornography, adult content
Weapons & Ammunition
Arms and ammunition manufacturing
HalalScreener analyzes the company's sector, industry classification, and business description to identify prohibited activities using a combination of industry codes and keyword analysis.
Quantitative Screen: Financial Ratios
Even if a company passes the qualitative screen, it must also meet three financial ratio thresholds set by AAOIFI. Each ratio is measured against the company's market capitalization:
Debt-to-Market Cap Ratio
< 30%Total interest-bearing debt must be less than 30% of the company's average market capitalization. This ensures the company is not overly leveraged with conventional (interest-based) debt.
Total Debt Ă· Market Cap < 30%
Interest-Bearing Deposits Ratio
< 30%Cash and interest-bearing securities must be less than 30% of market capitalization. This limits exposure to interest-earning assets.
Cash & Short-Term Investments Ă· Market Cap < 30%
Prohibited Income Ratio
< 5%Income from non-permissible activities (primarily interest income) must be less than 5% of total revenue. Even compliant companies may earn small amounts of interest; this threshold ensures it remains minimal.
Interest Income Ă· Total Revenue < 5%
Compliance Grading System
Beyond simple pass/fail, HalalScreener assigns a compliance grade from A+ to F based on how far each ratio is from its threshold. A stock with all ratios well below limits scores higher than one that barely passes:
A+
Excellent
90-100
A
Very Good
80-89
B+
Good
70-79
B
Acceptable
60-69
C+
Fair
50-59
C
Marginal
40-49
C-
Borderline
30-39
F
Non-Compliant
Haram
The “Doubtful” status is assigned when a stock passes all screens but one or more ratios approach the AAOIFI threshold (within 83% of the limit). This serves as a caution zone: the stock is technically compliant but may need closer monitoring.
Data Sources & Freshness
Financial Data: Sourced primarily from SEC EDGAR (issuer filings), supplemented by FinancialModelingPrep (FMP) for company profiles, pricing, and gap-fill.
Stock Prices: Updated daily via automated batch processing.
Screening: Re-screened when data is older than 7 days or when a user visits an unscreened stock page.
Crypto: Screened qualitatively based on use case and protocol mechanics. No financial ratio screening applies.
Methodology Integrity
Honest limitation: Business-activity screening can produce edge cases. Every verdict shows its math so you can verify. Not a fatwa. Consult a qualified Islamic finance advisor before investing.
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Disclaimer: This screening methodology is for informational purposes only and does not constitute a fatwa (Islamic legal ruling). Compliance determinations are based on publicly available financial data and AAOIFI guidelines. Individual scholars and Shariah boards may have different interpretations and thresholds. Always consult with a qualified Islamic finance advisor before making investment decisions.