How AAOIFI Halal Stock Screening Works
AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) sets the global standard for Shariah-compliant equity screening. A stock passes AAOIFI screening if it meets 4 criteria: debt ratio below 30%, interest income below 5%, cash and interest-bearing securities below 30% of market cap, and the company's primary business activity is halal.
The 4 AAOIFI Screening Criteria
For a stock to be considered Shariah-compliant under AAOIFI standards, it must pass all four of the following financial and business activity screens:
| Criterion | Threshold | What It Measures |
|---|---|---|
| 1. Debt Ratio | < 30% of market capitalization | Total interest-bearing debt divided by the company's market capitalization. High debt levels mean the company relies heavily on interest-based financing, which is prohibited in Islamic finance. |
| 2. Interest Income | < 5% of total revenue | Income earned from interest-bearing deposits, loans, or securities as a percentage of total revenue. Even halal companies may earn small amounts of interest from corporate cash management. |
| 3. Cash & Securities | < 30% of market capitalization | Total cash and interest-bearing securities divided by market cap. Excessive cash held in interest-bearing instruments raises compliance concerns. |
| 4. Business Activity | Primary activity must be halal | The company's core business must not involve prohibited activities: conventional banking/insurance, alcohol production, tobacco, gambling, pork products, weapons, or adult entertainment. |
Understanding Each Criterion
Criterion 1: Debt Ratio (< 30%)
This is often the most impactful screen. Many companies use debt financing extensively, and interest-bearing debt is prohibited (riba) in Islamic finance. The 30% threshold acknowledges that most publicly traded companies carry some debt, but limits exposure to a minority position. Companies in capital-intensive industries (utilities, telecommunications, real estate) may struggle to meet this criterion.
Criterion 2: Interest Income (< 5%)
Even companies with entirely halal operations may earn incidental interest from corporate bank accounts or short-term investments. The 5% threshold allows for this reality while ensuring interest income remains a negligible portion of revenue. If a stock passes this screen but has some interest income, the corresponding portion of dividends should be purified (donated to charity) through the tatheer process.
Criterion 3: Cash and Interest-Bearing Securities (< 30%)
This criterion examines the asset side of the balance sheet. A company holding large amounts of cash in interest-bearing accounts or investing heavily in bonds and fixed-income securities is generating impermissible returns on a significant portion of its value. The 30% cap ensures the majority of the company's value comes from productive halal assets.
Criterion 4: Business Activity (Halal)
This is a qualitative screen. Companies whose primary business involves the following are automatically excluded, regardless of their financial ratios:
- Conventional banking and financial services (interest-based lending)
- Conventional insurance (gharar — excessive uncertainty)
- Alcohol production or distribution
- Tobacco manufacturing
- Gambling and casinos
- Pork and pork-related products
- Weapons and defense (offensive weapons)
- Adult entertainment
Status Categories
Based on the screening results, Rafiq assigns one of three compliance statuses:
| Status | Meaning | Action |
|---|---|---|
| HALAL | Passes all 4 of Rafiq's screening checks | Permissible to invest. Purify any non-compliant portion of dividends via tatheer. |
| NOT HALAL | Fails one or more criteria significantly, or primary business is haram | Not permissible to invest. If already holding, consult a scholar about divestment. |
| QUESTIONABLE | Debt of 33–50% of market cap, interest income of 5–10% of revenue, or cash and receivables above 33%; scholars may differ | Exercise caution. Review the exact ratios shown and consult your scholar. |
What "Questionable" Really Means
A stock classified as QUESTIONABLE is not definitively halal or haram. In Rafiq's screening, it means the company is over a ratio limit, but not by enough to be classed Not Halal — for example, debt at 40% of market cap when Rafiq's limit is 33%. Different scholars and Shariah boards may reach different conclusions on cases like these.
Rafiq shows the exact ratios for each criterion so you can see precisely where the company stands. This transparency allows you to make an informed decision in consultation with your own scholar or Shariah advisor.
Financial ratios also change quarterly as companies report new earnings. A stock that is borderline today may shift to clearly compliant or non-compliant after the next quarterly filing.
Rafiq's Screening Data
In the Rafiq app, you can screen any publicly traded stock on demand. Rafiq fetches the latest debt, revenue, and income statement data from Financial Modeling Prep (FMP) to calculate its screening ratios, refreshed quarterly.
Rafiq's screener doesn't use AAOIFI's exact limits. It passes stocks whose debt, and whose cash, short-term investments, and receivables, are below 33% of market cap — the level used by the Dow Jones Islamic Market index — rather than AAOIFI's 30%. Rafiq has not yet been reviewed by a Shariah board.
Get Rafiq on the App Store →Sources & Methodology
- AAOIFI Shariah Standard No. 21: Financial Papers (Shares and Bonds)
- Dow Jones Islamic Market (DJIM) Index Methodology, S&P Dow Jones Indices
- S&P 500 Shariah Index Methodology
- Financial Modeling Prep (FMP) API: /stable/profile, /stable/income-statement endpoints
Rafiq is an educational screening tool, not a licensed financial advisor or Shariah board. Screening results are based on publicly available financial data and may not reflect the most recent filings. Always verify with a qualified Shariah advisor before making investment decisions.