Transparency
Shariah screening methodology
A transparent guide to automated halal investment analysis — how Akinda evaluates every stock against internationally recognized AAOIFI standards.
At Akinda, we believe faith-based investing must be accurate, transparent, and grounded in real data. To ensure every stock on our platform aligns with Islamic financial principles, our system is built on the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) standards.
Our Shariah oversight and screening methodology are independently reviewed on HalalWallet, the independent comparison platform for halal investing in the US.
How we gather our data
Financial reports can be highly complex. To ensure maximum accuracy, Akinda uses a dual-layer data verification system:
1. Structured market data
We use institutional-grade financial APIs (such as FMP) to pull exact, real-time pricing and standard balance sheet metrics.
2. AI-powered SEC extraction
For hidden details — e.g. breaking down sources of interest income or complex debt structures — our custom AI auditor reads and extracts variables from official SEC company filings.
Phase 1: Business activity (sector tolerance)
Before analyzing financial ratios, we examine the core business. A company cannot be considered halal if its primary operations involve prohibited (haram) activities.
Automatic exclusions (0% tolerance): a company is flagged as haram if its primary business involves conventional banking, insurance, or interest-based financial services; alcohol; pork; gambling and casinos; adult entertainment; tobacco; or weapons manufacturing.
The 5% incidental income rule: large permissible companies may earn a small fraction of revenue from interest in bank accounts or minor non-compliant side businesses.
Formula
(Non-permissible revenue ÷ Total revenue) × 100
If non-permissible income is greater than 5% of total revenue, the stock is marked haram. If it is under 5%, it passes this screen.
Phase 2: Financial ratio screening
Even if a company sells permissible products, it can still fail if it relies on excessive debt or earns money by hoarding cash for interest. We calculate three ratios based on AAOIFI standards.
36-month market capitalization rule: for debt and investment ratios, AAOIFI requires comparing financials to the company's 36-month average market value. We use:
Average market cap
(Sum of market capitalization at the end of the last 12 quarters) ÷ 12
To pass this phase and be labeled halal, the company must meet all three limits below.
1. Debt limit (< 30%)
A permissible company cannot be built on excessive interest-bearing loans.
Formula
(Total interest-bearing debt ÷ Average 12-quarter market cap) × 100 < 30%
Variables: short-term debt + long-term debt + capital lease obligations. Operating liabilities (e.g. payables) are excluded when they do not bear interest.
2. Interest-bearing investment limit (< 30%)
Cash should support real operations — not mimic a bank by parking funds in interest-bearing instruments.
Formula
(Total interest-bearing securities and deposits ÷ Average 12-quarter market cap) × 100 < 30%
Variables: interest-bearing cash equivalents + short-term investments + long-term interest-bearing investments.
Phase 3: Final verdict & purification
After our AI auditor processes SEC filings and API data through these formulas, each stock receives a clear status:
Halal
Passed both business activity and financial ratio screens (permissible).
Haram
Failed the 5% revenue rule or one of the 30% financial limits.
Doubtful
Data incomplete, or a major merger/acquisition temporarily obscures true financials.
A note on purification: if a halal stock has a small amount of non-permissible income (e.g. 2%, which passes the 5% rule), the investor should purify dividends by donating that portion to charity. Akinda calculates and provides this purification percentage in detailed reports so you know exactly what to do.
Shariah advisor
Dr. Muhammad Nazir Khan
Dr. Khan advises Akinda on Shariah screening methodology and alignment with AAOIFI-oriented principles. His guidance helps us keep our rules transparent, consistent, and grounded in recognized Islamic finance practice — including certification perspectives relevant to compliant securities analysis (CSAA).
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