Exactly how we decide what's compliant
Every criterion below, with the primary source it comes from. No proprietary black-box scoring. If you disagree with a threshold, you can go read the same document we did.
The standard: AAOIFI Shariah Standard No. 21
There is no single global regulator for Islamic finance. We use the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) Shariah Standard No. 21 ("Financial Paper (Shares and Bonds)") because it's the strictest of the three mainstream frameworks and the one most Islamic financial institutions reference. Where we depart from it (approximations, gaps in data), we say so explicitly rather than quietly filling the gap.
1. Business activity screen
A qualitative test, applied first. If a company's core business falls into any of the categories below, it's excluded regardless of its balance sheet. No ratio can offset a non-compliant core business.
Excluded outright
Conventional banking, insurance & interest-based finance
Excluded outright
Alcohol production or retail
Excluded outright
Gambling & wagering
Excluded outright
Pork & non-halal food production
Excluded outright
Adult entertainment
Excluded outright
Weapons & tobacco
This list is consistent across AAOIFI, DJIM and MSCI. The three standards diverge on the financial ratios, not this qualitative list. See references below.
2. Financial ratio screen
Three balance-sheet ratios, each checked against market capitalisation, plus one income-composition test. A company has to clear all four to pass.
| Test | Threshold | What it catches |
|---|---|---|
| Interest-bearing debt | < 30% of market cap | Companies structurally dependent on conventional interest-based borrowing |
| Cash & interest-bearing securities | < 30% of market cap | Companies effectively functioning as cash/interest vehicles rather than operating businesses |
| Accounts receivable | < 30% of market cap | Excess exposure to debt-like receivables, unique to AAOIFI, absent from DJIM and MSCI |
| Impermissible income | < 5% of revenue | Interest income, gambling revenue or other non-compliant income mixed into an otherwise clean business |
How the three major standards compare
AAOIFI isn't the only framework in use. Here's how it differs from the two other standards most global screening apps run on.
| Standard | Debt / market cap | Receivables test | Income-purity limit |
|---|---|---|---|
| AAOIFI | < 30% | Yes, < 30% | < 5% of revenue |
| Dow Jones Islamic Market (DJIM) | < 33% | No | < 5% of revenue |
| MSCI Islamic | < 33.3% | No | < 5% of revenue |
Full explanation, including a real ASX example where the receivables test changes the answer, in our AAOIFI vs. DJIM vs. MSCI guide.
Primary sources
Read the actual methodology documents rather than taking our word for it:
AAOIFI Shariah screening methodology
Presented by Dr. Hamed Merah, Secretary-General of AAOIFI, at the OIC Member States' Stock Exchanges Forum, the closest thing to a primary-source explanation of AAOIFI's own screening approach available outside AAOIFI's paid standards catalogue.
S&P Dow Jones Islamic Market Indices Methodology
S&P Dow Jones Indices' official, current methodology document for its Islamic Market and Shariah index families, including the full business-activity and financial-ratio screening rules (Appendix A).
MSCI Islamic Index Series Methodology
MSCI's official current methodology document, describing its business-activity and financial-ratio screens (Total Assets or Average Market Cap denominator, depending on series).
Data on individual stocks (debt, cash, receivables, market cap) is pulled from company financial filings via stockanalysis.com, cross-checked against primary-listing figures for dual-listed stocks. Every figure is dated on the ASX Screener and ages as companies report new results. We recommend treating anything more than two quarters old as due for a recheck.