How to Screen JSE Shares for Shariah Compliance: A Practical Checklist

Direct answer

To screen a JSE share for Shariah compliance, first test the company’s core business, then apply the financial ratios required by a clearly identified methodology. Review current financial statements, calculate any purification amount using that same methodology and repeat the process when results or corporate activities change. A once-off label is not enough because companies and screening outcomes change.

Key takeaways

• Start with the company’s actual revenue sources, not its name or sector label.

• Use one documented Shariah methodology consistently; ratio thresholds differ.

• Match figures from the same reporting period and document each calculation.

• A passing screen does not mean a share is suitable or attractively valued.

• Re-screen after results, acquisitions, disposals and major funding changes.

• Treat unclear cases as research questions, not automatic approvals.

Screening is a process, not a permanent badge

A company may pass today and fail after taking on debt, buying a prohibited business or changing its revenue mix. Another company may move from non-compliant to compliant. The investor therefore needs a repeatable method, evidence and a review calendar.

Shariah screening also does not replace investment analysis. A share can pass a Shariah screen and still be expensive, poorly governed or unsuitable for the investor’s time horizon. Keep compliance, valuation, diversification and personal suitability as separate decisions.

Step 1: identify what the company really does

Read the latest annual report, interim results, investor presentation and segment notes. Establish the company’s main products, customers and revenue sources. Commonly excluded activities under widely used screening approaches include conventional interest-based finance, gambling, alcohol, pork-related products and other prohibited activities defined by the relevant standard.

Conglomerates and holding companies require special care. A broad description such as “consumer services” may conceal several operating divisions. Check segment revenue and recent acquisitions. If the information is unclear, do not fill the gap with an assumption.

Business-activity checklist

• What are the principal products and services?

• Which business segments generate revenue and profit?

• Has the company acquired or disposed of a material operation?

• Does it own a conventional finance or insurance subsidiary?

• Is incidental non-permissible revenue separately disclosed?

• Does the methodology permit a limited incidental amount, and on what basis?

Step 2: choose and record the methodology

There is no responsible way to calculate a Shariah result without naming the standard used. Index providers and Shariah boards can use different definitions, thresholds, denominators and averaging periods. Record:

• the provider or Shariah board;

• the methodology version and access date;

• the financial period used;

• the exact numerator and denominator for each test; and

• the source page for every figure.

Do not mix a debt threshold from one standard with a cash test from another. That produces a result no recognised methodology actually approved.

Step 3: collect reliable financial data

Use the company’s latest published financial statements and official market disclosures. Data portals are helpful for discovery, but calculation inputs should be traced to primary documents where possible.

Typical inputs may include interest-bearing debt, cash and interest-bearing instruments, receivables, total assets, market capitalisation and revenue. The exact fields depend on the selected method. Pay attention to leases, preference shares, treasury assets and discontinued operations, because classification can affect the result.

Create a small evidence table:

This record allows another reviewer to reproduce the conclusion.

Step 4: calculate the financial screens

Financial screens are designed to limit exposure to interest-bearing debt, interest-related assets or income, and other balance-sheet characteristics addressed by the methodology. The exact equations and thresholds vary. Use the definitions in the current source document rather than a ratio copied from social media.

Common calculation mistakes

1. Using annual debt with a market value from a different date.

2. Using group revenue for one input and a segment figure for another.

3. Ignoring a methodology’s averaging rule.

4. Treating all cash as identical when the standard distinguishes instruments.

5. Omitting lease liabilities without checking the method.

6. Rounding a borderline result until it appears to pass.

7. Reusing last year’s spreadsheet after the company changes its reporting format.

For borderline cases, retain the unrounded calculation and escalate the interpretation to a qualified reviewer or Shariah scholar.

Step 5: assess purification

Some screening approaches permit a small amount of incidental non-permissible income within an otherwise acceptable company, subject to limits. Purification generally means donating the investor-attributable amount rather than retaining it as personal benefit.

The calculation may depend on the provider’s published purification factor, dividend received or another defined basis. Do not select an arbitrary percentage. Keep a record of the method, amount, date and disposal. Purification does not make a prohibited primary business acceptable.

See our detailed guide to screening ratios, purification and monitoring.

Step 6: perform conventional investment due diligence

After a share passes the chosen screen, ask whether it deserves a place in the portfolio:

• What is the business model and competitive position?

• Is the balance sheet resilient?

• Are earnings and cash flows understandable?

• Is governance credible?

• What price is being paid relative to reasonable value?

• Does the holding worsen sector or single-company concentration?

• Can the investor withstand a large decline without forced selling?

Shariah compliance narrows the investable universe; it does not forecast returns.

Step 7: set an ongoing monitoring rule

Review on a defined schedule and when a trigger event occurs. Useful triggers include new annual or interim results, capital raises, major acquisitions, disposals, restructurings or an index-provider status change.

Document the date, source documents, calculation and outcome. If a share becomes non-compliant, follow the disposal and purification policy prescribed by the methodology you follow. Treatment may differ depending on when and why the status changed, so obtain qualified guidance rather than acting from a generic internet answer.

Worked example without a false fatwa

Assume a hypothetical JSE manufacturer earns almost all revenue from permissible industrial products. Its annual report also shows interest-bearing funding, cash balances, trade receivables and a small interest-income line.

A defensible review would:

1. confirm the operating segments and incidental income;

2. select a named screening standard;

3. extract all inputs from the same reporting period;

4. calculate each ratio exactly as defined;

5. record pass, fail or review without rounding manipulation;

6. calculate purification only if the method calls for it; and

7. conduct separate valuation and portfolio-risk analysis.

This example cannot establish whether a real company is halal. A real conclusion requires current company data and the chosen methodology.

Frequently asked questions

Is a share halal because it appears on a Shariah index?

Index inclusion is useful evidence under that index’s methodology and review date. It is not a permanent universal ruling, and the investor should still understand the method and monitor changes.

How often should I screen a JSE share?

At minimum, review when new financial statements or official screening results appear. Also review after material acquisitions, disposals, funding changes or other events that can affect the business or ratios.

Can I use debt-to-equity from a finance website?

Not as a substitute for the chosen Shariah formula. The numerator, denominator and period may differ. Trace inputs to current primary documents.

Does a passing screen mean I should buy the share?

No. Compliance is only one gate. Price, quality, diversification, risk capacity, time horizon and personal suitability still matter.

What should I do when two screeners disagree?

Compare their methodologies, dates and data inputs. Do not average the answers. Follow the method you have adopted and seek qualified Shariah guidance for unresolved cases.

Next step

For diversified implementation and documented ongoing review, explore MuslimFin managed portfolios and the Shariah-compliant investing hub. Investors comparing pooled products can also read how to compare Shariah-compliant unit trusts.

Important: This guide is educational and is not a fatwa, personal financial advice or a recommendation to buy or sell a security. Methodologies, company data and screening outcomes change. Use current primary documents and qualified professional and Shariah review.