What Makes a Stock Halal?

Determining whether a stock is halal involves a two-part screening process used by major Islamic finance bodies worldwide.

Part 1: Business Activity Screening

The company's core business must be permissible under Islamic law. Companies primarily involved in the following are typically excluded:

Conventional banking and interest-based finance
Alcohol production or distribution
Pork-related products
Gambling and gaming
Tobacco
Adult entertainment
Weapons manufacturing

Part 2: Financial Ratio Screening

Even if a company's business is halal, its financial structure matters. Screening bodies examine ratios like debt levels, interest income, and impermissible revenue to ensure the company isn't overly entangled with interest-based finance.

Both Parts Must Pass

A technology company with a halal business model could still fail screening if it carries too much interest-bearing debt. Conversely, a company with clean finances but core haram revenue (like a brewery) would fail at the first step.

Screening standards vary between bodies — the thresholds differ, but the two-part structure is consistent across all major methodologies.