What is Shariah Screening?

Shariah equity screening is a dynamic process to determine if investment in the equity of a listed company is permissible from a Shariah perspective.

Shariah Equity screening is guided by a Shariah Equity Screening Criteria.

What is a Shariah-compliant Equity investment?

Investments made in equity stocks, screened in accordance with Shariah principles under the guidelines of Shariah supervisory board are called Shariah - compliant equity investments.

Such Shariah equity screening is used by Islamic investors to identify a list of Shariah permissible stocks to invest in, while managing their Shariah compliant portfolio of stocks.

A Shariah-compliant stock needs to pass sector based and accounting ratio screens.

Some of the Sector based Shariah exclusions are:

Revenues from sales of Alcohol, Pork, Tobacco, Gambling, Pornography, Conventional Financial Services, Conventional Insurance, trading of Gold & Silver on deferred cash basis.

Our Uniqueness

We follow established Shariah screening criteria set up by our well known Shariah Advisory Board.

Our Shariah Equity Screening platform enables Islamic investors an access to a pre-screened real time universe of stocks which are Shariah compliant.

We update the screening on a daily basis to reflect the most recent market cap information as well as the latest available financial numbers.

We are the only firm which has a team of dedicated researchers to manually review the business sectors of each company and carefully identify the non permissible revenues so as to assign the most accurate Shariah compliance status to each stock.

Remember the magic in Shariah equity screening lies in accurately understanding the business and revenue models of stock and assign compliance under the guidance of Shariah scholars. This process have been developed by Islamicly over its 20+ years of experience in this industry and conclusively sets us apart from the rest.

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Shariah Screening Criteria For Equities

Islamicly with its in-house Shariah Advisory Board has developed the Shariah screening criteria which is accepted by the majority of Shariah Scholars and Islamic index providers. It is in convergence with AAOIFI rules and further expands on the guidance given.

Screening criteria are of three levels:

Business Sector

Financial Ratio


Financial Ratio Screening

After removing companies with non-compliant business activities, the resultant companies are further examined for compliance with accounting ratios, as certain ratios may violate the compliance measurements.

Two areas of focus are leverage and the share of revenues derived from non-compliant activities. All of these are subject to evaluation on an ongoing basis.

Leverage Compliance

This compliance is measured as:

Debt / Market Value of Equity (36month average) < 33 %

Debt is measured as:

Long-term interest-bearing debt as disclosed by the company’s management

Short-term interest-bearing debt as disclosed by the company’s management

Current portion of long-term interest-bearing debt as disclosed by the management

Interest-bearing short-term liabilities such as overdrafts, bridge loans, etc.

We exclude:

Short-term non-interest-bearing operational payables/liabilities such as gratuity payable, creditors for goods and services, provisions, etc.

Long-/short-term Islamic debt

Long-/short-term non-interest-bearing debt

Loans from sovereign bodies which are non-interest based (as given by SIDF)

Average market capitalization of stocks

The average market capitalization of X over n months is calculated by multiplying the moving average daily closing price of X over n months (must be adjusted for corporate actions) (Pavg) with the total number of shares outstanding for X.

For stocks that have multiple share classes, this is estimated as Pavg/Plast * M, where M is the current market capitalization and Plast is the last closing price of X (for Pavg and Plast, the figures for the main share class are used).

For companies that do not have a sufficiently long price history (e.g., recent IPOs), the figure Pavg is calculated as the moving average daily closing price of X over n days where n is the number of days X has been trading or the number of days that a daily closing price for X has been available.

Other Notes

Use of audited results or unaudited results

In determining Shariah compliance for inclusion in the S&P Shariah Indices, we use the latest financial statement regardless of whether the latest statement is a quarterly, semi-annual, or annual statement. Annual statements are typically audited while quarterly and semi-annual statements are often left unaudited.

Interim or quarterly results

We use the latest statement regardless of whether the latest statement is a quarterly, semi-annual, or annual one. If the latest statement is available in all of these three formats, the annual statement will be preferred, since it is more likely to be audited and often more complete.

Companies that are fully Shariah-compliant not subject to accounting-based screens

Companies that are fully Shariah-compliant are not subject to accounting-based screens, subject to Shariah Board approval. Such companies are classified as Shariah-compliant irrespective of their leverage ratios. While the subsequent list is non-exhaustive and companies are reviewed on a case-by-case basis, companies are typically characterized by the following

  1. Presence of a Shariah Supervisory Board.
  2. All transactions (business and financial) are in accordance with Shariah principles.
  3. Incorporated and managed in a fully Shariah-compliant manner.
Shariah Stock Screening Process

Stock Screening Process

Islamicly Platform

[ Access through App & Desktop ]

Islamicly Database

Islamicly Shariah Committee

Research Team

Qualitative Analysis

According to ratio screens & movement screens

Fundamental Analysis

Company websites Company accounts Investor relations Company filings Third-party information

Stocks reviewed daily are published to the Islamicly APP & WEB platform
which enables ease of Compliance information retrieval by DIY investors.

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+91 9742926989
WHATSAPP Chat (24/7):
+91 8884478585

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© 2021 Islamicly. All Right Reserved