Screening.
How to screen any stock, ETF, or fund for Shariah compliance in 10 minutes.
Most Muslims who want to invest halal get stuck in the same place.
They hear "screening" and assume it's a black box. Some fatwa committee, some ETF sticker, some app that tells you yes or no. So they either buy whatever is labeled "Islamic" and hope for the best, or they give up and park everything in cash that quietly loses value to inflation.
Neither is investing. One is outsourcing, the other is surrender.
The real answer is that Shariah screening is a public, documented process with clear thresholds. Once you understand the five filters, you can screen any stock, any ETF, any fund in about ten minutes, and you stop needing anyone else's sticker to sleep at night.
That's what this guide is. Five filters, in the order they're applied, with the actual thresholds and what to do with the result. It is the same framework institutions use, written for someone buying their first twenty shares.
Two things before you start:
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Filter #1: Sector Screening
This one is the fastest cut. If the company's primary business is a prohibited industry, nothing else matters. You don't calculate the debt ratio. You don't look at the interest income. You walk away.
The prohibited sectors are well-defined across all major Shariah standards: alcohol production and distribution, tobacco manufacturing, gambling and casinos, pork processing and distribution, conventional banking, insurance, and financial services, weapons and defense, adult entertainment, and conventional cinema and music where the dominant content is impermissible.
The practical screen: read the company's annual report or 10-K filing and look at the revenue breakdown by segment. If more than 5% of revenue comes from any prohibited sector, the company fails sector screening. Hard stop.
Edge cases matter here. A hotel chain that derives 15% of revenue from alcohol sales in hotel bars is handled at the revenue filter, not the sector filter. A tech company that processes payments for gambling sites as one service among many is handled at the revenue filter. Sector screening catches companies whose entire business model is prohibited. Revenue screening catches the companies with problematic side activity.
Filter #2: Debt Screening
Once sector is clear, you move to the balance sheet. The first check is total interest-bearing debt.
The threshold most standards use: total debt divided by the 24-month trailing average market capitalization must be less than 33%.
You are not banning debt. A company can owe money. The question is whether the company's capital structure is built on riba. A business with $50 billion in market cap and $10 billion in interest-bearing debt is operating with reasonable leverage. A business with $50 billion in market cap and $45 billion in debt is, functionally, a finance company with an operating arm attached.
Where to find the number: the 10-K balance sheet, line items for short-term borrowings and long-term debt. Add them up. Divide by the average market cap. Done.
One note. Trailing 24-month average is the preferred denominator because spot market cap can swing wildly during a market panic, and a company that was fine yesterday shouldn't fail the screen today because of a bad week. If you can only find current market cap, use that and recheck in 90 days.
Filter #3: Cash and Interest-Bearing Assets
This is the mirror of Filter #2. Debt is what the company owes. This filter is what the company holds.
The threshold: cash plus interest-bearing securities divided by the 24-month average market cap must be less than 33%.
Why this filter exists: a company sitting on a massive pile of cash is, by default, earning interest on that cash. Even if they never take out a loan, their idle balance sheet is generating riba. Microsoft with $70 billion in cash reserves is earning meaningful interest income on that pile. The screen catches that.
Where to find it: balance sheet, current assets section. Cash and cash equivalents, plus short-term investments, plus any marketable securities that pay interest. Divide by average market cap. If it clears 33%, you stop.
This filter is the one that trips up tech companies most often. Apple, Alphabet, and Microsoft all have historically held enormous cash positions. They pass or fail this filter depending on the quarter, which is why a "halal" portfolio from a year ago might need re-screening today.
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Filter #4: Interest Income Screening
This filter addresses the income statement instead of the balance sheet. Even a company with clean revenue and acceptable debt can fail this filter if it parks its cash in interest-bearing instruments that generate substantial interest income.
The threshold: interest income must be less than 5% of total revenue.
Same 5% threshold, applied to a different line on the income statement.
Why this is a separate filter: revenue screening captures non-compliant operating revenue. Interest income screening captures non-compliant financial revenue. A software company with $10 billion in cash reserves earning 4% in money market funds generates $400 million in interest income. If that equals or exceeds 5% of total revenue, the stock fails this filter regardless of how clean the operating business is.
Practical implication: this filter disproportionately affects companies with large cash reserves and relatively modest operating revenue. Some early-stage tech companies, biotech firms, and cash-heavy conglomerates fail here. The fix on the company's side would be to hold cash in non-interest-bearing deposits or Shariah-compliant instruments. Most corporate treasurers don't think in those terms.
Filter #5: Receivables and Purification
The last filter has two parts.
First, the receivables check. Accounts receivable divided by the 24-month average market cap must be less than 49% (some standards use 33%, but 49% is the more widely accepted AAOIFI threshold). A company whose entire balance sheet is IOUs is effectively a debt trader, and Shariah standards flag that structure.
Second, purification. Even if a stock passes all five filters, there is almost always some residual non-compliant income in the mix. A software company might have 0.8% of revenue from interest earnings. A retailer might have 2% of revenue from vending-machine rentals that include prohibited goods. You can own the stock, but the compliant position is to calculate that non-compliant slice of your returns and donate it to charity.
The formula: (Non-compliant revenue percentage) x (Dividends received + realized capital gains) = Purification amount.
Most halal investing tools publish the purification percentage for each screened stock so you don't have to calculate it yourself. If you want the long version, I wrote a dedicated guide on purification, link below.
How to actually use this checklist
Three practical notes before you run it on a real stock.
Use screened tools as your first pass, not your final answer. Apps like Zoya, Musaffa, and Islamicly run the five filters automatically against a fresh data feed. Use them to eliminate 90% of tickers in thirty seconds. Then open the 10-K for the shortlist and verify the numbers yourself. The tools are fast. You are accountable.
Re-screen quarterly. A stock that clears all five filters today can fail next quarter if the company takes on debt, sells a business unit, or parks a windfall in treasuries. Set a calendar reminder and re-run the checklist on your full holdings every 90 days. The five-minute version: check the apps for compliance status changes. The thorough version: re-read the new 10-Q.
Keep a purification log. Open a simple spreadsheet with three columns: ticker, dividend or gain received, purification amount owed. Update it whenever you receive a dividend or realize a gain. Donate the accumulated amount annually, and keep the record. This matters for Zakat calculations, and it matters if you ever want to tell your grandkids where the money came from. (Most grandkids will not ask. Keep the record anyway.)
Three common mistakes
Mistake 1: Trusting the label. Not every product marketed as "Islamic" or "Shariah-compliant" runs the five filters the way you'd expect. Some use a looser interpretation. Some haven't been re-screened in a year. Read the methodology disclosure on every fund you buy.
Mistake 2: Skipping purification because the percentage is small. The percentage is always small. That's the point. Compounded over twenty years and hundreds of trades, small-percentage purification amounts become real money going to real charity. Skipping it doesn't save you anything meaningful. It just breaks the framework.
Mistake 3: Applying screens only at purchase. A stock you bought in 2023 is not the same stock in 2026. The balance sheet moves. The revenue mix shifts. The debt load changes. If you never re-screen, you will eventually own companies you would not have bought fresh.
Next step
If you made it this far, you already know more about Shariah screening than 95% of Muslim investors.
The natural next move is to run the five filters on whatever you currently own. Pick your largest position. Pull the 10-K. Walk it through the checklist. If it passes, log the purification amount. If it fails, decide whether to exit or rebalance on your next contribution date.
Ten minutes of work, one stock at a time, and inside of a month your entire portfolio is screened.
I am not affiliated with any app or screener.
I don't earn a commission from Zoya, Islamicly, or any tool mentioned here. I wrote this because it's the guide I wish I had when I started.
My goal is to be the clearest voice on halal investing in America. Every guide in the Library is free.
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Educational content only. Not investment, tax, legal, or religious advice. The Shariah thresholds referenced above (33% debt, 5% non-compliant revenue, 49% receivables) reflect widely-used AAOIFI-aligned positions but scholarly opinions vary. Consult a qualified advisor and a qualified scholar for guidance on your specific circumstances.