Shariah screening
What are Shariah financial ratios?
An explanation of the common financial ratios used to screen shares for Shariah compliance.
The short answer
Shariah financial ratios are numeric tests applied to a company’s accounts to limit exposure to interest-based financing or non-permissible income. Typical ratios look at debt levels, interest-bearing assets and the proportion of non-permissible revenue.
Typical ratios explained
Commonly used thresholds include limits on interest-bearing debt relative to market value, and limits on non-permissible income as a share of total revenue. Each provider may calculate these slightly differently.
Shariah-compliance considerations
Our platform uses AAOIFI Shari'ah Standard No. 21 as a practical default benchmark for shares. Practically that means: non-permissible income under 5% of total income; interest-bearing debt ≤30% of market value; interest-bearing cash/securities ≤30% of market value. Provider data source and calculation conventions can change results.
What this means in practice
- 1Read a fund or vendor’s explanation of how they calculate each ratio.
- 2Check the date of the financials used and whether adjustments are applied.
- 3If ratios are close to a threshold, expect that updates could change compliance status.