Shariah Screening Explained
Shariah screening filters companies through two layers. First, a sector screen removes businesses involved in alcohol, gambling, pork, weapons, conventional finance, and entertainment. Second, a financial screen ensures the company's debt-to-assets ratio, interest income, and impure revenue all fall below acceptable thresholds.
Major index providers like MSCI and S&P Dow Jones offer Shariah-compliant indices. Several asset managers build ETFs and mutual funds tracking these screened indices, making it easy to invest in diversified halal portfolios.
Frequently Asked Questions
What makes an investment halal?
A halal investment must avoid interest (Riba), excessive uncertainty (Gharar), and gambling (Maysir). Companies must also pass sector and financial screening—they cannot earn revenue from prohibited industries or carry excessive debt.
Can I invest in the S&P 500 and stay halal?
Not directly, as the S&P 500 includes non-compliant companies. However, several Shariah-screened ETFs and funds track a filtered subset of the S&P 500, giving you diversified exposure while staying compliant.
What are Sukuk?
Sukuk are Islamic bonds structured as asset-backed certificates. Instead of paying interest, they share profits from an underlying tangible asset. They offer fixed-income-like returns without Riba.
How do halal robo-advisors work?
Halal robo-advisors automatically build and manage diversified portfolios using only Shariah-screened stocks and Sukuk. They handle rebalancing and purification for you.