Standards we follow
Our primary technical reference is AAOIFI — the Accounting and Auditing Organization for Islamic Financial Institutions, headquartered in Bahrain. The Sharia Standards we apply most often are 21 (equity screening), 59 (the 2023 receivables update), and 62 (sukuk, currently being phased in across major issuance markets).
We also reference the published methodologies of S&P Dow Jones Indices, MSCI, FTSE Russell, and Dow Jones Islamic Market. Where these differ from AAOIFI canonical positions, we flag the differences explicitly rather than glossing them.
The two-tier screen
Tier 1 — Business activity
We exclude companies whose primary revenue is derived from conventional banking and insurance, alcohol, tobacco, pork, gambling, pornography, and weapons (with scholarly variation on dual-use). The 5% impure-revenue allowance is applied per AAOIFI Standard 21.
Tier 2 — Financial ratios
We apply three ratios:
- Total interest-bearing debt over the relevant denominator — threshold 30% (AAOIFI on assets) or 33% (provider-specific).
- Cash plus interest-bearing securities over the same denominator — same threshold band.
- Accounts receivable over total assets — 33% to 70% across providers; we flag the choice on every report.
Purification
We apply the AAOIFI formula. Non-permissible income divided by total revenue, multiplied by dividends actually received, gives the purification amount. The amount must be donated to charity, cannot count toward zakat, and cannot be used to obtain a personal tax benefit.
Whether capital gains require purification is settled at the SAB level. Our default position follows the majority view: capital gains do not require purification because they reflect changes in business value rather than the impure income stream itself. Mandates that require capital-gains purification are accommodated on request.
Re-balance and grace periods
The eligible universe is updated quarterly. When a constituent crosses a threshold, a 30-day grace period applies for newly non-compliant holdings. Forced sales are documented in the rebalance log; the documentation is available to mandate clients on request.
Versioning and change-log
Every methodology change — even minor — produces a new version of this page with a dated change-log entry. Prior versions are archived and accessible. This is part of what makes our methodology auditable: nothing changes silently.
Current edition: 1.0 · Last reviewed by SAB: May 2026 · Next review: November 2026