Written by Haider Saleem
Financial and Political Analyst | LinkedIn / X

Date: May 8, 2025

Introduction: Investing With Integrity

Halal investing isn’t just about avoiding obvious prohibited industries like alcohol or gambling – it also involves ensuring companies align with Islamic financial principles behind the scenes. Crucially, this involves just three financial numbers.

In this article, we’ll discuss:

1. The Origin and Importance of the Numbers – Understanding how Mufti Taqi Usmani and AAOIFI set these standards.

2. The Three Essential Numbers Explained – Clearly breaking down each ratio with practical examples.

3. Actions to Take if Stocks Fail the Screening – What to do when your selected stocks don’t meet the criteria.

4. Why Ethics Matter Beyond Numbers – How to apply ethical values alongside these financial thresholds.

Whether you’re new to halal investing or want clarity on Islamic stock screening, this guide simplifies everything you need to know.

Section 1: The Origin and Importance of the Numbers

The 30% and 5% thresholds originated from renowned Islamic scholar Mufti Taqi Usmani and were standardized by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the leading global authority for Islamic financial standards.

These numbers are grounded in Islamic legal principles, including a hadith in which the Prophet ﷺ described one-third as “too much” to give in charity (Sahih al-Bukhari, Hadith 5659) — a benchmark later applied to financial excess in modern investing.

Now let’s go into the 3 key numbers.

Section 2: The Three Essential Numbers Explained

1) Interest-Based Debt ≤ 30% of Market Capitalization

This number measures how reliant a company is on loans involving interest (riba).

Why it matters:

Islam strictly prohibits involvement with interest. However, due to the complexity of modern business, AAOIFI guidelines allow a tolerance of up to 30% debt relative to market capitalization (whether long-term or short-term debt).

Example:

A company valued at $100 million should not have interest-based debts exceeding $30 million.

2) Interest-Based Assets ≤ 30% of Market Capitalization or Total Equity

This ratio assesses whether the company earns money from interest-bearing investments.

What’s included:

·   Bonds

·   Interest-yielding deposits

·   Savings accounts

·   Treasury bills

Why it matters:

Islam prohibits benefiting from interest. A limit of 30% ensures companies don’t rely excessively on interest-generating assets, whether short, medium, or long-term.

Practical Insight:

Less reliance here indicates stronger financial discipline and greater alignment with Islamic principles.

3) Haram Income ≤ 5% of Total Revenue

This figure examines revenue earned from prohibited sources.

Examples include:

–   Airlines serving alcohol

–   Supermarkets selling pork

–   Companies benefiting indirectly from gambling or media with impermissible content

Why it matters:

If this revenue is less than 5% of total income, scholars permit investment, provided investors purify earnings.

Important:

Even minimal haram revenue requires purification—donating the equivalent percentage from dividends to charity.

Section 3: Actions to Take if Stocks Fail the Screening

Stocks exceeding these thresholds typically receive statuses like:

–   Not Halal: Avoid investing entirely.

–   Doubtful: Further investigation needed due to insufficient data.

–   Purification Required: Minor breaches (especially the 5% income threshold) allow investment, but purification is mandatory.

Tools like Musaffa simplify this process by automating the checks, highlighting non-compliance, and offering purification guidance.

Section 4: Why Ethics Matter Beyond Numbers

While the numbers are crucial, ethical investing doesn’t end there. Investors should also consider:

–   Labor practices

–   Environmental impact

–   Ethical governance

True halal investing merges Shariah compliance with broader ethical considerations.

Conclusion: Simplifying Halal Investing

Halal stock screening boils down to these straightforward numbers:

1) 30% interest-based debt

2) 30% interest-based assets

3) 5% impermissible income

You only need to remember three numbers: 30%, 30%, and 5% — the pillars of halal stock screening.

Remember these guidelines when investing. With clear standards from AAOIFI and insights from scholars like Mufti Taqi Usmani, your halal investing journey becomes simpler and clearer than ever.

Halal Screening Cheat Sheet

·   Interest-based debt ≤ 30%
·   Interest-bearing assets ≤ 30%
·   Impermissible income ≤ 5%

Plus:

–   Purify where needed.
–   Think beyond numbers.

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