Sharia-compliant investing: screening, purification, Islamic accounts

What this guide does and does not do

This guide describes how two official bodies — a securities regulator and an index provider — publish their Shariah screening rules for listed shares. It does not tell you what is permitted: scholars and Shariah boards differ, and that decision belongs to you and the scholar or board you follow.

Two tests: business activity and financial ratios

Both methods below work in two steps. First, a business activity screen looks at where a company’s income comes from. Then a financial ratio screen looks at how much interest-bearing debt, cash or receivables it carries. The thresholds and definitions differ between methods, so a share can pass one screen and fail another.

Example 1: the Securities Commission Malaysia

Malaysia’s capital-market regulator classifies listed securities through its Shariah Advisory Council (SAC), which “adopts a two-tier quantitative approach”.

• Business activities: income from activities such as “conventional banking and lending”, “conventional insurance”, “gambling”, “liquor and liquor-related activities”, “pork and pork-related activities”, tobacco and interest income from conventional accounts is added up and compared with the group’s total income. It “must be less than 5%”.
• Financial ratios: cash over total assets, and debt over total assets. Only cash in conventional accounts counts, and “Debt only includes interest-bearing debt whereas Islamic financing or sukuk is excluded from the calculation.” Each ratio “must be less than 33%”.
• Qualitative check: the SAC also considers the “public perception or image of the company’s activities from the perspective of Islamic teaching.”

Example 2: an index provider’s ground rules

FTSE Russell’s ground rules for the FTSE Yasaar Global Equity Shariah index series (version 4.6, February 2026) screen companies every quarter. Revenue from non-permitted sectors — conventional finance, alcohol, pork and non-halal food, entertainment including gambling, tobacco, and “weapons, arms and defence manufacturing” — “should not exceed 5% of total revenue”, and the rules say the list “is not exhaustive”. Companies that pass must then meet four ratios:

• “debt is less than 33.333% of total assets”;
• “cash and Interest-bearing items are less than 33.333% of total assets”;
• “accounts receivable and cash are less than 50% of total assets”;
• “total interest and non-compliant activities income should not exceed 5% of total revenue.”

Compared with the Malaysian method, the FTSE list names weapons and defence, which the Malaysian list does not name, and there is an extra test on receivables. That is why a fund, an ETF or an app that calls itself Shariah-compliant should tell you which method it follows and who supervises it.

Purifying dividends

A company can pass a screen and still earn a small part of its income from sources the screen treats as non-compliant. Purification means giving away the matching part of the dividend. The FTSE Yasaar rules state: “Appropriate purification of dividends at 5%. This ratio calculates the recommended purification amount to be paid by the investor.” They also note: “Dividend cleansing adjustments are not made within the total return index.” In other words, the index provides the information and the purifying is left to the investor.

If you hold a Shariah fund or ETF, read whether the fund purifies income itself or leaves it to you, and how it reports the amount. How and where to give the purified amount is a question for your scholar.

Questions to ask an investment platform

• Does a “halal” or “Shariah” filter follow a named methodology, and how often is it updated?
• Is there a Shariah board or certificate, who issued it and what does it cover?
• Does uninvested cash earn interest, and can you switch that off?
• Does the account use margin or securities lending?
• Can you buy sukuk instead of conventional bonds?

For leveraged trading accounts, which work differently, see our guide on swap-free (Islamic) accounts.