Halal & ethical investing

What "halal investing" means

Halal investing is equity investing constrained by Islamic law (Shariah). In practice, it means the company's business activity and financial structure have to pass a defined screen. The most widely-used framework is AAOIFI — the Accounting and Auditing Organisation for Islamic Financial Institutions, based in Bahrain. AAOIFI publishes the criteria; we apply them algorithmically.

This page is not a fatwa. It explains what the AAOIFI standards say so you can read our screen output with informed eyes. Religious rulings on specific names belong to qualified scholars, not to a software product.

Business activity criteria

A company is excluded if its primary business is in any of these areas. The list comes from a long tradition of Islamic jurisprudence; AAOIFI codified it for modern listed equities:

• Conventional finance — banks (interest-based lending), conventional insurance, brokerages whose revenue is interest, mortgage lenders
• Alcohol — production, distribution, retail
• Pork and non-zabiha meat processing
• Gambling — casinos, sports betting, online gambling platforms
• Tobacco — cigarettes, e-cigarettes, smokeless
• Adult entertainment
• Weapons manufacturing — particularly offensive systems (some scholars distinguish defensive systems and dual-use)

Financial ratio criteria

The activity screen is necessary but not sufficient. AAOIFI also screens out companies whose balance sheets are too dependent on interest-bearing finance. The rules below use 33% as the threshold (some derive it from "thuluth wa thuluth katheer" — "a third, and a third is much"):

Note that different scholars and indices use slightly different ratios. The Dow Jones Islamic Market index uses 33% over trailing 12-month average market cap; some scholars argue for total assets in the denominator instead. S&P Shariah uses 33% over market cap. AAOIFI itself is the most widely-cited standard. Our screen uses AAOIFI.

Why scholars disagree

Islamic jurisprudence on listed equities is comparatively new — public stock markets postdate most classical fiqh. Modern scholars apply classical principles to new structures, and they don't always agree. The main disagreements:

• The 33% threshold. Why 33% and not 25%? Why market cap and not assets? Different scholars derive different numbers from the same underlying principle.
• What counts as "interest-bearing". Lease-based sukuk, convertible bonds, hybrid instruments — different scholars classify these differently.
• Mixed-business tolerance. Is 5% the right number? Some scholars say zero-tolerance; others go to 10%.
• Sin-stock proximity. A grocery chain that sells alcohol on shelves vs. a hotel chain whose restaurants serve it — same activity, different framing.

This is normal in any living legal tradition. Khabir surfaces names that pass the AAOIFI standard. If your community follows a different standard, you'll need to verify each name against your own reference.

Halal vs ethical mode

We offer two modes because they target different users.

Halal applies the full AAOIFI screen — both the business activity rules and the financial ratios. Strict by design.

Ethical applies the activity exclusions (no weapons, no tobacco, no gambling, no adult content) but does not enforce the financial ratios. It's for investors who care about what the company does but don't have the religious requirement on its balance sheet structure.

Every Khabir subscriber sees both modes. You toggle between them on the dashboard.

What changes a stock's compliance

A stock that passed last quarter can fail this quarter. Companies are living entities — their balance sheets shift. The most common reasons a name falls out of AAOIFI compliance:

• Took on conventional debt (bond issue, bank loan) and pushed interest-debt-to-market-cap above 33%.
• Market cap dropped during a sell-off — debt didn't change but the ratio's denominator shrank, breaching 33%.
• Acquired or invested in a non-permissible business above the 5% revenue threshold.
• Pivoted into a new business line that crosses the activity screen.

ETFs, REITs, and crypto — quick FAQ

ETFs

Conventional broad-market ETFs (SPY, QQQ, VTI) hold many non-compliant names and so are themselves not halal. There are Shariah-screened ETFs (e.g., HLAL, SPSK in the US; iShares MSCI Islamic in EU) that apply roughly equivalent screens. Khabir focuses on individual equities; we do not screen ETFs because the underlying constantly rotates.

REITs

Most conventional REITs fail AAOIFI on debt ratios — the REIT business model is leverage-heavy. A handful of equity-focused REITs pass the ratios; the activity screen depends on the type of property (residential and industrial generally pass; hotels and casinos generally don't). Most halal investors avoid REITs as a category.

Crypto

No scholarly consensus. Some argue crypto is permissible because it's a digital commodity; others argue speculative volatility makes it closer to gambling. Stablecoins backed by interest-bearing reserves are problematic. Crypto is outside Khabir's scope.

What this is not

We say this on every page, but it bears repeating:

• Not a fatwa. We are not qualified to issue religious rulings. Our screen applies AAOIFI's published criteria mechanically. A name passing our screen does not mean "this stock is halal" — it means "this stock matches the published AAOIFI criteria as we measured them on this date with these data sources."
• Not investment advice. Compliance is one input; whether a name is a good investment for you requires considering risk, time horizon, position size, and your own circumstances — none of which we know.
• Not a guarantee of accuracy. Our data comes from financial-data vendors. Errors, delays, or restatements can cause a name to be screened correctly today and incorrectly tomorrow. Verify before acting.

Going deeper

If you want to study the source material:

• AAOIFI Shariah Standard No. 21 — "Financial Papers (Shares and Bonds)" — the canonical document for the rules summarized above.
• Dow Jones Islamic Market Indices methodology — a parallel widely- used standard.
• AMJA (Assembly of Muslim Jurists of America) resolutions — English-language scholarly opinions for North American context.

When in doubt about a specific name, the right move is always to ask a qualified scholar or to follow a recognized advisory board.