Our Shariah Screening Methodology

We most closely follow the Indonesia Shariah Stock Index (ISSI) standard

The standard adopted at Muslim Xchange (MX) follows the Indonesia Shariah Stock Index (ISSI) with a couple of exceptions. We believe our methodology offers a reasonable and problem-free solution to semi-automated Shariah screening. To understand the context and background of the Shariah standards, please refer to this article on Muslim Ink, which also explains how anyone could manually screen for halal stocks.

The following is a breakdown of the standard adopted at MX.

Business Screen

We screen against the following types of companies

Alcohol

Gambling

Movies, music & related Haraam entertainment

Tobacco

Financials

Insurance

Pork

Cannabis*

*We make an exception for cannabis used solely for medical treatments and research. This exception is based on the fatawa of major scholars and boards around the world. For the Defense sector, we allow it with a warning: CONCERN: This company may be involved in *Defense* category. While a few Shariah standards allow Defense, many do not.

So, how does the ISSI compare with the rest of the standards in the Business Screen?

Source: ISLAMIC LEGAL METHODOLOGIES AND SHARIAH SCREENING STANDARDS: APPLICATION IN THE INDONESIAN STOCK MARKET

We screen against music, movies, and production of advertisements although this may not be explicitly mentioned as noted above.

For companies with mixed revenues, the ISSI allows up to 10%, which includes interest income. We split them to make it stricter — Haraam Revenues < 5% and Interest Income < 5% –, i.e., a company with more than 5% impermissible revenues or Interest income will not pass the screen even if the overall is less than 10%.

Companies with mixed activities but without clear information on the percentage of prohibited activities need a thorough research and analysis, which may not be feasible to do. They have been marked as “MUTE,” indicating they need more analysis.

Financial Ratio Screen

We only screen for debt and interest income

In this screen, the ISSI standard checks for interest-based debt only and does not screen for Cash, Short-Term Investments or Accounts Receivables as other standards do. It appears the ISSI standard compensates by including Interest income in its screening process. Some standards like S&P 500 and DJIM have excluded Interest income from their screening because they check for Cash et al. We adopt this method because we believe in it. Companies can have excessive cash depending on various situations and their line or stage of business. An automated Cash screen can unfairly screen out companies. The Interest income portion adequately covers this requirement. Allah knows best.

There may be a concern among Muslims that such a methodology may be watering down rules or akin to “fatwa shopping.” Please be reassured that this is not the case here. Such a concern can be valid if, for instance, clear prohibitions are being made permissible — for example, an alcohol or riba-based business. The financial ratio rules are not divine laws but an effort to develop a framework for screening the financial operations of a company. This effort may and will be continuously revised. An example to illustrate: AAOIFI dropped the requirement to check for illiquid assets in August 2020. Had this rule been divine like the rule against alcohol, it would not have been dropped.

The financial ratios screen is based on such an ijtihaadi framework that scholars have developed. It is very much possible that the scholars may come up with something even better than the current criteria. Also, this is why standards differ in the details. For example, what should the interest-based debt be compared against: Market Cap or Assets. We are neutral in this regard as we believe both have their pros and cons. The Debt criteria most standards follow is around 33%. Indonesia’s standard is at 45%. We check the stock’s debt against three screens: Debt to Assets < 33%, Debt to Assets < 45% and Debt to 12-month Average Market Cap <33%.

This is to give the user the choice to go with the rule they are comfortable with. For our screening, the Financial Ratio is considered a PASS if the numbers clear either of these conditions.

One of our current limitations is that we assume debt in non-Muslim countries is interest-based. If a company has interest-free debt, then our screener will not differentiate.

Conclusion

The ISSI standard is our base. We make exceptions in two places:

1. The percentage of haraam income: ISSI allows 10% (including Interest income). We allow 5% in impermissible income and 5% in interest income. The overall will still be less than 10%.

2. The Debt screen: ISSI allows Debt/Assets <45%. We have two options — Debt/Assets and Debt/Market Cap. If a company’s debt is less than 33% of its Market Cap (12-month avg.) as per AAOIFI’s standard, then the company passes the screen even if its Debt/Assets > 45%, and vice versa.

No work is without error and we are always a work in progress. We pray this initiative benefits the ummah. We welcome your feedback, questions, and criticisms. Jazaakumullahu khairan!


Last updated: 29 June 2021

53 thoughts on “Our Shariah Screening Methodology”

      1. I have pre selected mutual funds through my jobs 401k plan. I have selected 100% stock fund with no bonds. What can I do with the percentage of non halal companies the mutual fund is invested in?

  1. Assalamo alaikum Br Faraz,
    Jzkl khair an for this great tool!

    The members of the Sisters Trading Community in Canada are very excited to use the screener. We love the detailed information and the layout and interface also look great alhd.

    Two questions came up from the group, will you be adding UK tickers to the screen and are there any plans for MX to be offered as an App?

    Jzkl khairan for your hard work, may Allah SWT reward you for your service.

    1. Walaikum assalaam wa rahmatullah Sr Ayesha,
      Aameen, thank you so much! Jazaakumullahu khairan! Yes, in sha Allah, we will be adding more markets in the coming months, starting with Canada and UK, and mobile apps as well. Alhamdulillah really happy to hear your feedback.

  2. Above states “We check the stock’s debt against three screens: Debt to Assets < 33%, Debt to Assets < 45% and Debt to Market Cap <33%. The Financial Ratio is considered a PASS if the numbers clear either of these conditions. "

    Sorry if I'm being dumb but I don't get that…why not just say Debt to Asset < 45% and Debt to Market Cap < 33%?
    i.e. leave out the Debt to Assets <33%.

    Because if it's 33.1% Debt to Assets it will pass. Or am I missing something?!

    1. Ah ok figured it out sorry.
      It’s either
      A) Debt to Assets < 33% OR
      B) Debt to Assets < 45% AND Debt to Market Cap <33%

      1. You’re first inference was right brother. The stock has to clear either of the three. Certainly it’s kind of redundant when you say 33% and 45%. But we have that in place because many Standards are around 33% with the exception of the Indonesian one at 45%.
        So just pointing it out that this particular stock either passes all three types or only two or only one.

        Just additional info for investors to help in their decision making.

  3. It is really a very good initiative, in sha Allah might be a helpful tool for many Muslims across the globe. May Allah SWT guide and bless you for all the hard work.

  4. Salaam.

    Just to be clear, I can create a company with $1million of capital investment and then take on $300,000 conventional interest bearing loan from the bank and then start selling shares in my company and I’m Islamic?

    1. Walaikum assalam wa rahmatullah brother,

      If your business is not “dodgy”, then Shariah-compliant, yes. Islamic, no 🙂 Please have a look at this article to understand the background and reasoning for why scholars have approved it.

  5. Assalam-o-Alaikum brother, Jazakallah for the effor. There is a great need for such Sharia compliance screeners for ETFs as well. If you can kindly look into it as well, it will be a great service for the community.

  6. Asalamualaikum Br Faraz,

    Jazakallahu Khayr for developing this application. I have a question. I currently reside in North America and usually trade on USA stocks. I see that few of the stocks that I usually trade on are shown compliant over here but on other apps it’s shown as Non Compliant. Could you please clarify on this matter? Thank you for the keeping service as free. 🙂

    1. Walaikum assalam wa rahmatullah brother,

      Baarak Allahu feek. Thank you for kind comments. There may be more than one reason why this may happen. The Shariah screening methodology may be different in the other apps. It is best if we know the reason why a stock has been labeled non-compliant and then perhaps we can compare and provide a clear explanation 🙂

      1. Dear Brother Faraz,

        as salamu alaikum wa Ramadan Karim,

        Mabruk to your easy to use tool. Which market cap you use, last day, at reporting time of the financials or any smoothening method? A lot of differences can be explained by that.

        I added your website to the names of screening tools. Myself did an open source google sheet to calculate AAOIFI debt and liquidty filter plus zakat for investors based on zakatable assets method.

        Please join my telegram group on Islamic Stock Screening: https://t.me/islamicstockscreening

        All the best,
        Michael

        1. Walaikum assalam wa rahmatullah brother Michael

          Welcome to MX! Happy to hear your comments, alhamdulillah, jazaak Allahu khairan!

          Yea, we’re using last reported for market cap and we update every month. In sha Allah we are also considering if a 12-month avg would be better, but there’s pros and cons.. Allahu Alam

  7. السلام عليكم ورحمة الله وبركاته
    One thing that I would like it to be addressed is “Purification” , I know purity on Dividends is due, but what about on profits made from stocks.
    I mean, one earns profit from buying and selling stocks as an active trader and doesn’t not hold stocks longer then a week or month.
    The Aim is to make active Income from trading. So in this case does one has to purify their earnings, if yes, then at what percentage ? .

    جزاكم الله خيرا

    1. Walaikum assalamk wa rahmatullah wa barakatuh,

      Apologies for the late reply. Regarding profits from stock trading, there is a difference of opinion among scholars if one needs to purify capital gains. While some scholars say we must purify capital gains as well, many scholars say it is not necessary to do this because it is not possible to calculate the small % of the haraam portion in the share price, when the majority of the company’s assets are halal. Allah knows best.

    2. Mostly Dividend is suggested to be purified, you may consider the higher Earnings per Share, which can be found easily and calculate the 5% on that. This should be covering the aspect sufficiently inshallah.

      Capital Gains are mostly not considered and as a trader you pay already full rate of 2.5% Zakat for trading goods.

  8. Salaam.
    Very nice website. Found through google. Allah make you successful and jazakAllah for this website. Please include UK stocks FTSE 100/250 and AIM stocks.

    1. Walaikum assalam wa rahmatullah,

      Thank you and welcome to MX! In sha Allah we will in the coming months 🙂

  9. As salam alaikum Brother Faraz, great work MashaAllah. May Allah SWT reward you immensely, ameen. I couldn’t find some tickers eg. SLGG, UVXY, TZA. Would you kindly be able to add them as well. JazakAllahu khairan.

  10. Mustapha Saidykhan

    Can you guys please add otcs again. I use it as a general reference in order to decide whether it’s halal. The information needed to determine if a otc is halal is all on otc market.com. That’s has the most up to date description along with financials.

    1. Assalamu alaikum brother,
      OTC’s QX and QB US are available. International and Pink aren’t. We excluded Pink because of the limited information and regulation, even according to the OTC Markets itself. Quoting from their website:

      The Pink Open Market provides brokers a platform for transparent trading and best execution in any security. There are no financial standards or disclosure requirements. A wide spectrum of companies are traded on this market, including foreign companies that limit their disclosure in the U.S., penny stocks and shells, as well as distressed, delinquent, and dark companies not willing or able to provide information to investors.

      OTC Markets Group segments Pink companies based on the information they provide to investors into Current, Limited or No Information. Companies can make disclosure available pursuant to one of the following Reporting Standards:

      Filing required reports with the SEC, U.S. Bank Regulatory Authority, or home country if listed on a Qualified Foreign Exchange

      Companies that do not meet one of the above standards can provide disclosure to investors directly to http://www.otcmarkets.com via the Alternative Reporting Standard

      The Pink Market is for professional and sophisticated investors with a high risk-tolerance for trading companies with limited information available and limited regulatory oversight. Investors are strongly advised to proceed with caution and thoroughly research companies before making any investment decisions.

      We found that many companies provided false/misleading/incorrect descriptions to their actual business activity. This makes it impossible to give accurate screening results unless we manually investigate the thousands of companies listed in the Pink market.

  11. I like the science behind your screener, but some of the compliant stocks are not tayyeb. It’s the equivalent of eating halal versus “organic” halal. The companies may have good leverage but their non-Islamic mission automatically rules them out as halal (ie: Pfizer/Moderna [harmful ineffective genetically-modifying mRNA vaccines], Tattoed Chef [harmful pea protein], Microsoft [Bill Gates!] and so forth. You are gleaning stocks in terms of their mixed assets but the halal nature of the investment is IMPORTANT. We must strive not to invest in things that are destroying mankind, for some of these imposters will reflect as shariah-compliant with impressive debt-to-equity ratios and be ultimately haraam. And Allah Knows Best!

  12. Abdalrahman Azab

    Masha Allah!, what a wonderful effort !
    Everyone really needed a site like this
    Thank you to all the brothers involved in the project and I hope you will continue to develop it
    I wish you guys good luck

  13. Dear MuslimXchange,

    Thank you for such a good and free to use website and Data, may Allah give you ajar.

    I am curious to know whether do you have any scholars in your screening committee, can you share information about your screening committee.

    Amin Khan

    1. Aameen, jazaak Allahu khairan. We consulted scholars and reviewed the rules while building it. We do not have an official shariah board at present but are working on it and hopefully we’ll have one soon in sha Allah.

  14. It would be great if you could provide lists with complaint stocks, within each category.

    What I mean is, let’s say you would have one list called semiconductors, all the complaint stocks under that category would be listed. Same for Online Services, REITs etc.

    Let’s say I would like to invest in REITs, this would allow me to see all the companies I can invest in

  15. Assalamualaikum MuslimXchange,
    I’m so glad for finding this page and thanks to everyone involved in this screener and shariah assessment
    All the company I want to search were available in this page, however I can’t find NEWEGG COMMERCE, INC (NEGG)
    Please advice

    1. Walaikum assalam wa rahmatullah
      Jazaak Allahu khairan brother. In sha Allah we’ll be adding more stocks very soon.

  16. Walaikum assalam wa rahmatullah brother
    Alhamdulillah, jazaak Allahu khairan. In sha Allah we’ll be adding more features soon and releasing an app as well.

  17. Assalam alaikum!
    could the brothers analyze Russian stocks?
    Great site! may Allah strengthen you on the way

  18. Assalamu alaikum,

    I wondered if the Nintendo stock is halal regarding business numbers.
    Also i read Nintendo wants to start a theme park and make movies about their characters like Seuper Mario.
    The question ist will the stock become haram then or must be checked if the movies are including haram ?

  19. Assalamu alaikum Warahmatullahi wabarakatuhu,

    my Name is Bilal and im from germany.

    I wanted to ask if you can add the following Stocks to this website and to see if they are okay to invest in:
    Snowline Gold (SNWGF) WKN: A2QQBD ISIN: CA83342V1040
    MMC NORILSK NICKEL PJSC (NILSY) WKN: A2DHRG ISIN: CA49741E1007
    Impala Platinum Holdings WKN: A0KFSB ISIN: ZAE000083648
    Energy Fuels Inc. (UUUU) WKN: A1W757 ISIN: CA2926717083 (I did find it on the Website but there wsnt enough information if it is Halal or not.)

    I thank you very much for making these Matters easier for the ummah to reasurch throu you.
    I would love to support you in any way possible. if there is a way i could support this Website Please let me know.

    Jazakallahu Khairan
    Bilal Shaikh

    1. Walaikum assalam wa rahmatullah wa barakatuh Brother Bilal

      Welcome and jazaak Allahu khairan for your kind comments! in sha Allah we’ll try to check. We’ll have an update soon in sha Allah in which there will options for paid add ons/subscription. Just remember us in your du’aas brother! Thank you very much.

  20. Salam Aleykum.

    I wanted to know how often you update the compliance of the stocks?

    I.e.
    $BBIG shows here as compliant, whereas in Zoya it shows as non compliant, and i am stuck tbh.
    Thank you.

  21. Assalamu alaikum, hope you’re well.

    On what basis can anyone in the world legalize stock trading when there is as stated: “Debt to Assets < 33%, Debt to Assets < 45% and Debt to 12-month Average Market Cap <33%."

    What Islamic source is this based from? The salafi scholars have said that it isn't allowed at all to invest in companies with interest bearing loans (regardless the percentage).

    Jazakum Allahu Khairan

  22. (apologies, reposting this same post so that I get notified by email if someone replies. please ignore previous post. thanks)

    Assalamu alaikum, hope you’re well.

    On what basis can anyone in the world legalize stock trading when there is as stated: “Debt to Assets < 33%, Debt to Assets < 45% and Debt to 12-month Average Market Cap <33%."

    What Islamic source is this based from? The salafi scholars have said that it isn't allowed at all to invest in companies with interest bearing loans (regardless the percentage).

    Jazakum Allahu Khairan

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