Q: Shariah screening: Non-Compliant Investments < 33%

This includes investments in conventional mutual funds, T-Bills, PIBs, bonds, fixed deposits, and any company declared Shariah non-compliant. The company may hold some such investments without losing compliance, as long as they stay below the threshold.

Q: Shariah screening: Non-Compliant Income < 5%

Includes interest income, income from gambling, derivatives, insurance claims from conventional insurers, and dividends from non-compliant companies. If this income exceeds 5%, the stock is removed from the index. If under 5%, the investor must purify that portion of their dividend income.

Q: Shariah screening: Illiquid Assets over 25%

Shariah law treats pure cash and liquid assets differently from physical assets. A company must have meaningful real assets — property, machinery, inventory, equipment — for its shares to represent ownership of something tangible rather than just money.

Q: Shariah screening: Market Price ≥ Net Liquid Assets

This prevents trading in shares that are essentially just cash at a discount, which would resemble currency exchange (Bai al-Sarf) and could involve riba. The market price must reflect the real value of the business, not just its liquid holdings.

Q: What is dividend purification in Islamic investing?

Even Shariah-compliant companies may earn a small amount of non-compliant income (under 5%). When you receive dividends, you must donate the equivalent proportion to charity. Amanat calculates this automatically based on the purification ratios published by Al-Meezan in their semi-annual KMI recomposition reports.

Question 1

Shariah screening: Halal Business

Accepted Answer

The company must not be involved in conventional banking, insurance, alcohol, tobacco, pork, gambling, weapons, or any other Shariah-prohibited activity. Even partial involvement disqualifies the company.

Question 2

Shariah screening: Debt Ratio under 37%

Accepted Answer

Companies that rely heavily on interest-based borrowing are considered non-compliant. This includes conventional bank loans, bonds, TFCs, leasing, and preference shares. The 37% threshold allows some tolerance for companies operating in mixed environments.

Question 3

Shariah screening: Non-Compliant Investments < 33%

Accepted Answer

This includes investments in conventional mutual funds, T-Bills, PIBs, bonds, fixed deposits, and any company declared Shariah non-compliant. The company may hold some such investments without losing compliance, as long as they stay below the threshold.

Question 4

Shariah screening: Non-Compliant Income < 5%

Accepted Answer

Includes interest income, income from gambling, derivatives, insurance claims from conventional insurers, and dividends from non-compliant companies. If this income exceeds 5%, the stock is removed from the index. If under 5%, the investor must purify that portion of their dividend income.

Question 5

Shariah screening: Illiquid Assets over 25%

Accepted Answer

Shariah law treats pure cash and liquid assets differently from physical assets. A company must have meaningful real assets — property, machinery, inventory, equipment — for its shares to represent ownership of something tangible rather than just money.

Question 6

Shariah screening: Market Price ≥ Net Liquid Assets

Accepted Answer

This prevents trading in shares that are essentially just cash at a discount, which would resemble currency exchange (Bai al-Sarf) and could involve riba. The market price must reflect the real value of the business, not just its liquid holdings.

Question 7

What is dividend purification in Islamic investing?

Accepted Answer

Even Shariah-compliant companies may earn a small amount of non-compliant income (under 5%). When you receive dividends, you must donate the equivalent proportion to charity. Amanat calculates this automatically based on the purification ratios published by Al-Meezan in their semi-annual KMI recomposition reports.

Learn

What makes a stock Shariah compliant?

What is Purification?