Methodology

How We Screen Stocks for Shariah Compliance

Every stock screener on this site applies the same two-gate screen, based on the AAOIFI-style methodology used by major Islamic index providers. Gate one looks at what the company does. Gate two looks at its finances. This page explains both - the same standard behind all 450+ of our stock screeners.

By the Canadian Halal Investor Editorial Team · Updated October 1, 2026

Gate one: the business-activity screen

A company fails the business-activity gate if its core business is in an industry widely considered non-compliant under AAOIFI-style screening. That includes:

• Conventional financial services - interest-based lending and banking, conventional insurance, mortgage financing. (Companies whose financing is conventional but whose business is not financial - e.g., a manufacturer with a bank loan - are assessed at gate two, not here.)
• Alcohol production and distribution, including breweries, distilleries, and wineries.
• Gambling and casinos, including lottery operators and sports-betting companies.
• Pork production and processing.
• Adult entertainment.
• Conventional weapons manufacturing.
• Tobacco production.
• Derivatives and speculative trading venues - futures exchanges and similar businesses, where the dominant scholarly position holds the underlying contracts to be non-compliant.

We assess what the company actually does - its revenue-generating operations as disclosed in its own filings - not just its industry label. A diversified company earns a closer look: if a non-compliant segment dominates the business, the gate fails.

Gate two: the financial ratios

A company that clears gate one is measured against three ratios, computed from its latest published financial statements:

• Interest-bearing debt / market capitalization ≤ ~33%. Total interest-bearing debt from the balance sheet, divided by market capitalization (share price x shares outstanding) at the screening date.
• Cash and equivalents / market capitalization ≤ ~33%. Cash, cash equivalents, and short-term investments, divided by market capitalization at the screening date.
• Non-compliant income / total revenue ≤ ~5%. Interest income and income from non-compliant activities, divided by total revenue from the income statement.

These thresholds follow the AAOIFI-style convention used by major Shariah index providers (33% for balance-sheet ratios, 5% for income). They are approximations - "about 33%" - because market capitalizations move daily and accounting classifications vary. When a ratio is not computable in its standard form (for example, a pre-revenue company with no reported revenue), we say so explicitly and apply the business gate and the computable ratios with a conservative reading.

What PASS and FAIL mean

• PASS - the company's business cleared gate one, and all computable financial ratios cleared gate two, based on the figures cited on the page.
• FAIL - the company's business or at least one ratio did not clear the screen. The page shows exactly which gate failed and why.
• Provisional PASS* - the company clears the screen on available information, but a required figure could not be verified from primary sources (for example, a pre-revenue company with no disclosed interest income). Treat it as "passes on what we could verify" and read the caveats.

A screening result is the output of applying a published methodology to published numbers. It is not a fatwa. Scholars differ on thresholds, on whether market capitalization or total assets is the right divisor, and on how to treat borderline cases. Consult a qualified scholar for personal rulings.

Purification

Passing stocks can still earn small amounts of non-compliant income (up to the ~5% ceiling). Purification is the practice of estimating the portion of dividends attributable to that income - commonly using the company's non-compliant-income ratio - and donating it to charity. Scholars differ on when and how purification applies. Our purification calculator runs the arithmetic; whether and how to purify is a question for your scholar.

Data sources and re-screening

Figures come from primary sources: the company's SEDAR+ filings (financial statements, MD&A, annual information forms), investor-relations disclosures, and exchange data for market capitalization. Every screener states its screening date and the filings it used. We re-check screeners against newly published quarterly and annual statements; a result can change as a company's business or financials change, and the updated screener carries the new date.

Limitations

• Screening is a point-in-time assessment. Financial ratios move with share prices and quarterly results.
• Company disclosures vary in granularity. When a required figure is not disclosed, we do not invent it - we say so and either mark the result provisional or skip the company.
• The methodology applies AAOIFI-style thresholds. It does not represent any single scholar's ruling, and it does not cover every scholarly position.
• Nothing on this site is financial advice. Screening results are educational information to help you do your own research.

Frequently asked questions