How AAOIFI Shariah Screening Works

AAOIFI — the Accounting and Auditing Organization for Islamic Financial Institutions — publishes the most widely adopted standards for Shariah-compliant finance. Its screening methodology is what Ethiqly applies to every stock.

Step 1 — Business-activity screen

First, the company's core business must be permissible. If its primary activity is haram — alcohol, tobacco, gambling, conventional banking or insurance, pork, adult entertainment, or weapons — it fails immediately, regardless of how healthy its balance sheet looks.

Step 2 — Financial-ratio screen

A permissible business must also stay within four financial limits. Ethiqly computes each as a percentage and requires the company to be strictly below the threshold (a company sitting exactly at the limit is not certified — the conservative reading wins):

• Debt ÷ market cap < 33% — interest-bearing debt must be a minority of the company's value.
• Interest income ÷ revenue < 5% — only a small, incidental fraction of income may come from interest.
• Accounts receivable ÷ market cap < 45% — limits how much of the company is illiquid receivables.
• (Cash + interest-bearing securities) ÷ market cap < 33% — limits interest-bearing liquid assets.

Why "unknown" is not the same as "fail"

Sometimes a data provider doesn't report a line item Ethiqly needs. Rather than silently assuming zero — which would falsely pass a stock — we mark that ratio unknown and hold the overall verdict as "unknown" until we have the data. A stock we can't screen is not the same as a stock that fails screening, and we never certify on incomplete information.

The 5% rule and purification

Because up to 5% of income may be incidental interest, scholars require that you purify the corresponding slice of any dividends you receive by donating it to charity. Ethiqly estimates this purification ratio for you.

You can see all four ratios for any stock on its analysis page, and run the full screen across the market in the screener.