Most Muslim investors in Singapore who want to invest in equities face the same question: is this stock halal? The answer is not always obvious. A company selling everyday consumer goods sounds permissible, but if 35% of its assets are held in interest-bearing instruments, it fails the Shariah screening test.
The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has established the most widely accepted international standard for Shariah-compliant equity screening. Understanding these ratios allows investors to evaluate any publicly listed company against a clear, objective checklist.
The Two-Stage Screening Process
Shariah screening for equities works in two stages. The first stage is a business activity screen. The second is a financial ratio screen. A company must pass both.
Stage 1 — Business Activity Screen
Certain business activities are prohibited outright, regardless of the financial ratios. These sectors are excluded entirely from a Shariah-compliant portfolio:
- Conventional banking and financial services (interest-based lending)
- Insurance (conventional, interest-based)
- Alcohol production and distribution
- Tobacco
- Weapons and defence manufacturing
- Gambling and casino operations
- Pork and non-halal food production
- Adult entertainment
A technology company, a healthcare firm, a consumer goods brand — these pass the business activity screen by default. A conventional bank does not, regardless of its financial health.
Stage 2 — Financial Ratio Screen (AAOIFI Standards)
Once a company passes the business activity screen, three financial ratios are checked. All three thresholds must be met:
Ratio 1 — Debt Ratio
Rule: Interest-bearing debt must be less than 30% of total assets.
This screens for companies with excessive reliance on interest-based borrowing. A company with S$1 billion in total assets and S$320 million in interest-bearing debt fails this ratio (32% > 30%).
Why it matters: owning a share in a heavily leveraged company means indirectly participating in interest-bearing obligations. The 30% threshold acknowledges that most large companies carry some debt, but sets a ceiling on how much interest exposure a Muslim investor implicitly holds.
Ratio 2 — Liquidity Ratio
Rule: Cash and interest-bearing securities must be less than 30% of total assets.
This screens for companies whose primary asset base is cash deposited in interest-bearing accounts or invested in conventional bonds. A large technology company holding US$50 billion in Treasury bills as its primary cash reserve would fail this screen despite being in a permissible industry.
Practical implication: some well-known global technology companies with significant cash hoards have historically failed this ratio. The holding of cash itself is not the issue — the issue is where and how the cash is stored.
Ratio 3 — Revenue Purification Threshold
Rule: Prohibited revenue must be less than 5% of total revenue.
Prohibited revenue includes interest income, revenue from alcohol, tobacco, gambling, weapons, and other excluded activities. The 5% threshold reflects the reality that many large conglomerates have minor revenue streams from incidental activities. A supermarket chain earning 1% of revenue from alcohol sales passes this screen. A food company earning 8% from alcohol distribution does not.
When a company passes this screen but still earns a small amount of prohibited income, investors are expected to purify their returns by donating the equivalent proportion of dividends received to charity.
Shariah Compliance Is a Filter, Not a Strategy
Passing all three AAOIFI ratios confirms a stock is permissible to hold. It does not make the stock a good investment. A company fully compliant with Shariah screening in a sector experiencing structural decline will still underperform.
This is why Shariah compliance sits inside the Stock View layer of the Rizq Intelligence framework — after the macro phase and sector rotation have already identified the most favourable environment. Compliance filters the eligible universe. Fundamentals and macro alignment determine which companies within that universe are worth buying.
Where to Find Shariah Screening Data
Several providers publish Shariah compliance ratings for global equities. MSCI, Refinitiv, and Idealratings maintain databases covering thousands of listed companies. For Singapore-listed stocks, the Monetary Authority of Singapore does not publish a halal equity list, but most Islamic fund managers operating locally use AAOIFI or MSCI screening methodologies as their standard.
Individual investors without database access can perform a basic screen manually using a company's annual report: check total debt, total cash and fixed income holdings, and revenue breakdown against the three ratios above.
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