Halal investing
Why does Shariah compliance depend on a methodology?
Why clear screening rules matter more than a generic label, and what to check in a methodology document.
The short answer
A Shariah claim depends on the method used to check investments. Our platform uses AAOIFI Shari'ah Standard No. 21 as its default practical benchmark for shares. A good methodology explains exclusions, financial tests, data, calculations, review frequency, oversight and how exceptions are handled.
A conclusion needs a traceable process
AAOIFI is a scholar-led standards setter, and Standard 21 is widely used as a practical benchmark for screening shares. First, the company's main business must be acceptable. Then the common AAOIFI application checks: below 5% non-permissible income; no more than 30% interest-bearing debt; and no more than 30% interest-bearing cash or securities, with each ratio tested against market value.
The standard is practical because it gives readers a clear checklist. But the way a provider applies data dates and market-value periods can differ. State the method used and do not claim it is the only scholarly view.
Shariah-compliance considerations
A good methodology answers practical questions: is AAOIFI Standard 21 used, who reviews it, which company data is used, how often screens are updated, what happens after a downgrade and how cash and derivatives are treated?
Methodology transparency should sit alongside FCA regulation, custody and risk disclosures. Readers need both religious governance and financial safeguards to be clear.
What this means in practice
- 1Download or save the methodology rather than relying on a short web summary.
- 2Check the date, reviewer, data source and review cycle.
- 3Look for published policies on purification, cash and non-compliant holdings.
- 4Compare methods before assuming two halal funds should own the same shares.