Mar 11 (edited) • 📊 Stock Screening
How to check if any stock is halal: The 5-point AAOIFI screening method explained
Want to know if Apple, Tesla, or any other company is halal to invest in? Here is the exact 5-point method used by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) — the most widely used Shariah screening standard.
WHY THIS MATTERS
You can't just guess. "It feels like a good company" isn't a screen. The AAOIFI method gives you a repeatable, objective test based on a company's actual financial data.
This is the same methodology used by apps like Zoya and Musaffa. Understanding it means you can verify their results and screen companies they don't cover.
THE 5-POINT TEST
SCREEN 1: BUSINESS ACTIVITY
First, look at what the company actually does. Automatic exclusions:
- Conventional banking and insurance (core business is interest)
- Alcohol production or distribution
- Tobacco
- Weapons and defence manufacturing
- Gambling and casinos
- Adult entertainment
- Pork products
If a company's CORE business is any of the above, it fails immediately. A company can have minor revenue from these areas (see Screen 3) and still potentially pass — but not if it's the main business.
SCREEN 2: DEBT RATIO
Formula: Interest-Bearing Debt ÷ Market Capitalisation < 33%
Important: This is specifically interest-bearing debt — conventional loans, bonds payable, credit facilities.
It does NOT include lease liabilities (IFRS 16 / ASC 842), trade payables, or deferred revenue.
This is the most common mistake beginners make — pulling "Total Debt" from Yahoo Finance and getting a wrong result because it includes lease liabilities that screening methodologies explicitly exclude.
Example: A company has a $10 billion market cap. It has $2 billion in bank loans and bonds, plus $1.5 billion in lease liabilities.
The correct debt figure for screening is $2 billion (not $3.5 billion). Ratio = 20% — pass.
SCREEN 3: NON-COMPLIANT INCOME RATIO
Formula: Non-Compliant Income ÷ Total Revenue < 5%
This includes more than just the "interest received" line item.
Non-compliant income covers: interest income, derivatives/hedging gains, income from prohibited transactions (gambling, alcohol, tobacco), and certain insurance proceeds.
Apps like Zoya and Musaffa calculate this correctly — if you're doing it manually, check the income statement notes carefully, not just the headline interest figure.
If non-compliant income is 8% of revenue, the stock fails this screen. If it's under 5%, the stock passes but that portion of your dividends must be purified (donated to charity).
SCREEN 4: ACCOUNTS RECEIVABLE RATIO
Formula: Accounts Receivable ÷ Total Assets < 49%
Why: This prevents investing in companies that are essentially in the business of extending credit, even if they don't call themselves a bank.
SCREEN 5: CASH AND INTEREST-BEARING SECURITIES
Formula: (Cash + Interest-Bearing Securities) ÷ Total Assets < 33%
Why: Companies sitting on huge piles of interest-bearing instruments are effectively in the money-lending business.
REAL EXAMPLES
Apple (AAPL): Passes all 5 screens. Core business is technology products. Debt ratio is manageable. Interest income is below 5%. ✅
JPMorgan Chase (JPM): Fails Screen 1. Core business is conventional banking — interest is the product. ❌
Tesla (TSLA): Generally passes. Core business is electric vehicles. Debt has been an issue in the past but has improved. Check current ratios via Zoya. ✅ (usually)
Diageo (DGE): Fails Screen 1. Core business is alcohol. ❌
HOW TO USE THIS IN PRACTICE
You don't need to calculate all of this manually. Zoya and Musaffa pull the financial data and apply the screens automatically. But understanding the methodology means:
1. You know WHY a stock passes or fails
2. You can check borderline cases yourself
3. You're not blindly trusting an app
Try it now: open Zoya and search for 3 companies you're interested in. Look at the breakdown — it shows you exactly which screen each company passed or failed.
What stocks are you unsure about? Drop the ticker below and let's screen it together.
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How to check if any stock is halal: The 5-point AAOIFI screening method explained
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