Shariah Portfolio Purification in South Africa
A share can pass a Shariah screen today and fail at the next review. A company can change its business mix, borrow more, acquire a subsidiary, receive more interest income or publish financial statements that change the screening ratios. An index provider can also update its methodology.
These changes create two separate questions for a South African Muslim investor. First, should the security still be held under the portfolio's approved screening method? Second, does any dividend or other receipt require purification under that method?
Purification is not a label added after the event. It is a controlled process that needs a named methodology, an as-of date, source evidence, a calculation and a record of what was done. This guide explains that process without declaring any particular security permissible or impermissible.
It is general education, not personal financial, tax or Shariah advice. A qualified Shariah reviewer should resolve methodology interpretation, while an appropriately authorised financial professional should address portfolio suitability and implementation.
Key takeaways
Shariah screening is time-specific and methodology-specific; there is no permanent status that survives every business, market or methodology change.
Business-activity screening and financial-ratio screening answer different questions and require different evidence.
Purification does not convert a clearly prohibited business or a failed mandatory screen into an acceptable investment.
Different index methodologies can produce different results because they use different definitions, denominators, review cycles and transition rules.
Every calculation should preserve the source, period, formula, result, decision, reviewer and payment evidence.
What is Shariah portfolio screening?
Shariah equity screening is a rules-based process used to assess whether a listed company's activities and financial characteristics meet a specified Shariah methodology. Most published index approaches use two broad stages.
The first stage examines the company's business activities. The second applies accounting or financial ratios to companies that pass the activity screen. A complete determination may also require qualitative review where the business, subsidiaries or revenue disclosures are ambiguous.
The Johannesburg Stock Exchange explains that Yasaar performs the Shariah screening for the FTSE/JSE Shariah indices. Its Shariah All Share Index is drawn from the FTSE/JSE All Share Index and reviewed quarterly in March, June, September and December.
That index membership can be useful evidence, but it is not a universal ruling for every investor or methodology. A MuslimFin determination should identify its own approved method, version and as-of date rather than imply that the JSE, FTSE Russell, S&P Dow Jones Indices or another provider issued MuslimFin's conclusion.
Why can a security's status change?
Screening inputs move even when the company's main products appear unchanged.
Business-model changes
A company may acquire or sell a division, introduce a new product, change its customer mix or increase revenue from an activity treated as prohibited by the chosen method. The group structure matters: a parent can own subsidiaries whose activities are not obvious from a short company description.
Financial-statement changes
Debt, interest-bearing cash, receivables, revenue and non-permissible income can change between reporting periods. Restated financial statements may also replace values used in an earlier screen.
Market-value changes
Some methodologies use an average market-capitalisation denominator for one or more ratios. A substantial share-price change can therefore affect a result even when the balance sheet has not changed. Other methods use total assets, creating a different sensitivity and reporting lag.
Methodology changes
An index provider or Shariah board may amend exclusions, financial definitions, thresholds, buffers or review timing. The S&P Shariah methodology available in 2026, for example, contains explicit rules for review periods and transition treatment. The FTSE Yasaar Global Equity Shariah Index Series also publishes versioned ground rules.
Evidence quality changes
A screen may move from “Not Checked” to a resolved status because reliable evidence becomes available. Missing data must not be treated as zero, a pass or a failed result. Evidence quality is separate from Shariah outcome.
Why do methodologies disagree?
The major approaches overlap but are not identical. FTSE Russell's current educational material explains that different Islamic index approaches may use market-capitalisation-based or asset-based financial screens. S&P's published material shows differences even between its S&P Shariah and Dow Jones Islamic Market configurations.
Potential differences include:
prohibited-activity definitions and revenue allocation;
treatment of defence, media, mixed financial services or medical cannabis;
debt, cash, investments and receivables concepts;
market capitalisation versus total assets as denominator;
the averaging period used for market value;
strict thresholds versus entry, retention or exit buffers;
annual, quarterly or monthly reviews;
treatment of newly listed or recently acquired companies; and
dividend-purification calculations.
A cross-method comparison is descriptive. It does not create consensus where one method lacks evidence or is inapplicable. The investor should know which method governs the portfolio before responding to a status change.
What does a complete screening record contain?
A reproducible record should allow an independent reviewer to reach the same result from the same evidence and rules.
Identity
Record the legal issuer name, instrument type, ISIN, ticker, exchange, share class, currency, domicile and active or delisted status. Do not silently substitute an American depositary receipt, offshore line, ETF or similarly named issuer.
Methodology
Record the methodology owner, title, edition, effective date, version identifier and approved MuslimFin interpretation. Include the exact rule definitions, denominators, thresholds, operators, rounding policy and missing-data treatment.
AAOIFI identifies Shariah Standard 21 for financial papers, shares and bonds. The public AAOIFI page identifies the standard but does not supply every operative rule needed for an implementation. MuslimFin should not turn remembered summaries into production rules; authorised text and an approved mapping are required.
Evidence
For each input, record the document, publisher, reporting period, publication date, page or note, raw value, unit, currency and any transformation. Prefer regulated filings and audited statements over aggregators.
Calculations
Show every numerator and denominator component, the formula, exact result, threshold, comparison operator and rounding. Financial facts should use consistent reporting periods. South African cents and rands, foreign currencies and scale must be reconciled explicitly.
Decision and review
Separate analyst classification from qualified Shariah judgement. Record approvals, warnings, unresolved conflicts, publication state and the next review date. For an actual portfolio result, identify the responsible Shariah supervisory board or qualified reviewer, the financial-data source, the exact as-of date and whether the result is a point-in-time assessment or part of continuous monitoring. A public label should never hide an incomplete evidence trail.
What do the four MuslimFin outcomes mean?
MuslimFin's governed screening workflow uses four outcomes.
Halal means every required applicable rule has usable evidence and passes under the named methodology.
Not Halal means the configured aggregation policy resolves a mandatory rule as failed.
Doubtful means evidence exists but an ambiguity, conflict, borderline result or qualitative interpretation requires qualified review.
Not Checked means required evidence is missing, stale, unusable or cannot lawfully be used.
“Not Checked” is not a negative ruling. “Doubtful” is not a convenient bucket for missing data. A completion percentage is not a Shariah result.
The methodology or operating policy must define when evidence becomes stale. The record should distinguish a security that has never been screened from one whose earlier result has expired. “Not Checked” also does not decide whether a holding is retained, suspended or excluded: the portfolio mandate needs a documented disposition rule while evidence is unresolved. Any reported portfolio-compliance percentage should disclose how Not Checked holdings affect its denominator.
The public result should also state the method and as-of date. “Halal forever” is not an acceptable representation of a time-dependent screen.
What is dividend purification?
Some methodologies tolerate limited incidental income from non-permissible sources while requiring the related portion of a dividend to be removed from the investor's benefit and directed to an appropriate charitable destination.
FTSE Russell describes dividend purification as deducting a calculated percentage associated with interest or prohibited activities and giving it to charity. S&P's 2026 methodology publishes a constituent-level dividend-purification ratio and expressly states that this is a purification measure rather than a compliance ratio.
The distinction matters. The screen determines whether the company remains eligible under the method. Purification is a post-compliance income-cleansing process for the limited incidental income recognised by that method; it is not a route into compliance. The purification ratio determines the portion of a relevant distribution to be purified. A low purification amount does not override a failed mandatory business or financial screen, although any borderline result or transition treatment must still follow the named methodology and its qualified reviewer.
How should a purification amount be calculated?
Use only the formula prescribed by the portfolio's approved methodology. Do not combine the numerator from one index method with the denominator from another.
A controlled calculation should capture:
the security and share class;
the methodology and version;
the dividend declaration and payment date;
the investor's gross and net dividend entitlement;
the published or independently calculated purification ratio;
the exact multiplication and rounding rule;
the resulting rand amount;
currency conversion evidence where relevant;
the charitable payment date and recipient; and
the reviewer and supporting documents.
Where an index, fund or manager publishes a purification figure, confirm what it represents. It may be expressed per share, as a percentage of a dividend, as an index-level adjustment or through an automatic fund process. Do not apply the same number twice.
A simple illustrative example
Assume an approved methodology supplies a 1.20% purification ratio for a specific dividend and the investor receives a gross dividend entitlement of R5,000. Under a direct percentage calculation, the indicated amount would be:
R5,000 × 1.20% = R60
This example explains arithmetic only. It does not confirm that the ratio, gross-versus-net base, rounding or payment process is correct for any real investment. The operative methodology and Shariah guidance control the calculation.
Gross dividend, net dividend and South African tax
SARS explains that dividends tax is generally levied on the beneficial owner when a dividend is paid, normally through withholding by the company or regulated intermediary. The standard rate is 20%, subject to exemptions and treaty relief in qualifying circumstances.
The Shariah purification base and the South African tax base are separate questions. One methodology may state a ratio against the declared or gross dividend, while the investor receives a net amount after tax. Do not automatically calculate purification only on the bank deposit.
The investor should record:
gross dividend declared;
dividends tax withheld;
net amount received;
methodology-prescribed purification base;
purification amount; and
residual amount retained.
Giving an amount to charity for purification does not automatically make it deductible for South African income-tax purposes. SARS states that a donation deduction generally requires a bona fide donation to a section 18A-approved organisation supported by the required section 18A receipt, subject to the statutory limits and conditions. For most taxpayers, qualifying deductions are limited to 10% of taxable income calculated on the statutory basis; SARS guidance says an excess disallowed solely because it exceeds that limit may be carried forward, subject to the limit in later years. A fund-level payment is not automatically a donation made by the investor. Obtain tax advice rather than assuming the purification payment produces a deduction.
What happens when a holding becomes non-compliant?
Do not react before confirming identity, method, effective date and evidence. A data error, stale classification or different methodology can look like a status change.
Step 1: Freeze the old conclusion
Preserve the prior result and evidence. Do not overwrite history. Record when the potential change was detected and which new source or rule triggered it.
Step 2: Recalculate under the same method
Use the approved version and correct reporting period. Determine whether the change comes from business activity, a financial ratio, evidence quality or a methodology amendment.
Step 3: Apply transition rules
Some methodologies use entry, retention, exit or multi-period buffers. S&P's current method, for example, contains transition treatment around its leverage screen. A single threshold observation must not be interpreted outside the method's own rules.
Step 4: Obtain the required review
Route ambiguous activities, conflicting filings, borderline results and non-obvious interpretations to qualified review. The portfolio manager should not invent a religious conclusion to meet a trading deadline.
Step 5: Plan implementation
If the approved result requires disposal, decide timing under the methodology and reviewer guidance. Consider market liquidity, settlement, tax and mandate constraints. This is implementation planning, not permission to retain an impermissible holding indefinitely.
Step 6: Address receipts and gains
Ask the qualified Shariah reviewer how dividends or gains received before, during or after the transition should be treated. Purification rules can differ by methodology and circumstances.
Step 7: Issue a superseding record
The new result should link to the earlier one and explain the change. Notify relevant portfolio decision-makers without deleting the audit trail.
What happens when a holding becomes compliant again?
A new pass does not erase the prior period. Confirm that the methodology's re-entry or transition rules have been satisfied, that the evidence period is current and that the instrument remains suitable for the portfolio.
Shariah eligibility is not an investment recommendation. Valuation, diversification, liquidity, risk, fees and the investor's objectives still require assessment. A portfolio should not buy a security merely because it has returned to an eligible universe.
How should ETFs and managed funds be handled?
An ETF or managed fund is not screened by copying the result of its largest holding. Review the instrument itself, its mandate, benchmark, holdings coverage, derivatives, cash treatment, securities lending, rebalancing and Shariah oversight.
The JSE notes that the Satrix MSCI World Islamic Feeder ETF listed in 2024 tracks an Islamic benchmark and describes a dividend-purification process. That is product-specific evidence, not a conclusion about every Islamic-labelled fund.
Map the entire chain before calculating anything: the underlying company’s incidental income, any index-supplied purification data, any purification performed by the fund, and any amount left for the investor or portfolio manager to purify. Check the fund’s current Shariah certificate or supervisory-board report instead of inferring treatment from an Islamic label or exchange listing.
Ask whether purification is performed inside the fund, disclosed for the investor to perform, reflected in distributions or embedded in an index data service. Also distinguish distributing funds from accumulation funds, where income is reinvested, and look through feeder funds, funds of funds, wraps and model portfolios for additional layers. The answer determines the investor's record and helps avoid omitting or duplicating purification.
The MuslimFin managed-portfolios page describes the coordinated investment service, while the portfolio-construction guide explains allocation, risk and implementation questions beyond security screening.
A monthly and quarterly monitoring process
The review frequency should match the governing methodology and portfolio risks.
Every data update
reconcile new filings and restatements;
confirm periods, units and currencies;
rerun data-quality checks before Shariah rules;
preserve conflicting candidates rather than selecting silently; and
compare new outputs with the prior immutable result.
Every distribution
confirm the dividend and payment details;
obtain the applicable purification ratio or approved calculation;
check whether the fund already performed purification;
calculate with the specified precision;
record tax withholding separately; and
retain payment and section 18A evidence where relevant.
Every scheduled review
verify instrument identity and listing state;
confirm methodology version and approval;
review business activities and subsidiaries;
recalculate all required financial screens;
resolve warnings and qualitative gates;
document additions, removals and status changes; and
update the next review date and monitoring owner.
Every methodology change
archive the old version;
produce a semantic comparison of rules and concepts;
obtain methodology and qualified Shariah approval;
run boundary, missing-data, conflict and regression tests;
approve an effective date and re-screening plan; and
publish only a new version, never silently mutate prior results.
Portfolio-level checks after screening
Security screening does not replace portfolio management. After eligibility is established, review concentration, volatility, currency, liquidity, valuation and tax.
A Shariah equity universe can be concentrated in technology, resources or other sectors because conventional financial companies and highly leveraged businesses are excluded. An investor can hold only screened securities and still have an unsuitable portfolio.
Coordinate the security results with the investment policy, cash-flow needs and retirement plan. The MuslimFin retirement-income guide explains why drawdown, sequence risk and liquidity must be tested separately from Shariah eligibility.
Common mistakes to avoid
Treating an index constituent list as permanent.
Using a ticker without confirming the legal instrument and share class.
Mixing AAOIFI, FTSE, MSCI, S&P or DJIM rules into an unnamed hybrid.
Taking thresholds from an old article instead of a versioned methodology.
Treating missing or stale data as zero.
Calculating a ratio from mismatched annual and interim periods.
Rounding before comparing a result with the threshold.
Calling a borderline or ambiguous result “Halal” without the required review.
Using purification to excuse a clearly prohibited business.
Applying an index-level figure as if it were a per-share amount.
Purifying a fund distribution twice.
Assuming a charitable payment automatically qualifies for a section 18A deduction.
Deleting the old result when a classification changes.
Frequently asked questions
Is a JSE Shariah-index constituent automatically Halal under every method?
No. It has passed the index provider's applicable process for that review. Another approved methodology may use different rules or evidence. State the index, method and as-of date.
Does purification make any share permissible?
No. Purification addresses specified incidental non-permissible income under an approved framework. It does not override a failed mandatory business or financial screen.
Should purification use the gross or net dividend?
Use the base required by the governing methodology. Record gross dividend, tax withheld and net receipt separately so the calculation can be reviewed.
Can a screening app replace a Shariah board or reviewer?
An app can apply approved deterministic rules and organise evidence. It should route ambiguity and interpretation to the qualified review required by the methodology and never claim an approval that has not occurred.
How often should shares be rescreened?
Follow the approved method. The JSE states that its FTSE/JSE Shariah indices are reviewed quarterly, while other published methodologies use different cycles and event-driven changes.
Is the purification donation tax-deductible?
Not automatically. South African section 18A deductions have recipient, purpose, receipt and limit requirements. Keep Shariah purification and tax treatment as separate determinations.
Bringing the process into the family office
Reliable Shariah portfolio governance connects screening decisions, portfolio management, tax records, charity payments and family reporting. It replaces one-off screenshots with reproducible evidence and a clear correction path.
MuslimFin Family Office can help organise screening records, coordinate managed portfolios, monitor status changes and integrate the investment process with retirement, trust and estate objectives. Any published MuslimFin security label should remain a rule-based determination under a named methodology—not a universal fatwa, investment recommendation or promise of future status.
Primary and official sources
FTSE Yasaar Global Equity Shariah Index Series Ground Rules — LSEG
Financial Advisory and Intermediary Services Act 37 of 2002 — South African Government
This article is general education. It is not personal financial, tax, legal or Shariah advice and does not screen or recommend a specific security.
