Shariah Stock Screening in South Africa: Complete Guide

Direct answer: Shariah stock screening tests both what a company does and how its finances are structured. A credible process identifies prohibited or materially non-permissible business activities, applies the exact financial ratios required by a named methodology, records the financial statements and market data used, calculates any purification factor and monitors the company after purchase. A share can pass one standard and fail another because providers use different denominators, thresholds, classifications and review dates. South African investors should therefore record the methodology, evidence date, result, reviewer and next review instead of relying on an undated “halal stock” label.

Buying shares makes the investor an economic owner of a business. The question is not only whether the share certificate or trading account avoids interest. The company's activities, revenue sources, debt, cash, receivables and financing arrangements can all affect the Shariah assessment.

Screening turns that assessment into a repeatable process. It does not eliminate scholarly judgement, accounting uncertainty or investment risk. It also does not show whether a security is attractively valued or suitable for a particular portfolio.

This guide explains the process for South African investors using current published methodologies as at 7 September 2026. It is general education, not a formal Shariah ruling, investment recommendation, tax opinion or guarantee that a security will remain compliant.

What is Shariah stock screening?

Shariah stock screening is a documented test used to decide whether an ordinary share is eligible for inclusion in a portfolio under an adopted Islamic-investment standard.

Most equity-screening systems use two broad stages:

1. Business-activity screening reviews the company's products, services and revenue sources.
2. Financial-ratio screening measures specified balance-sheet or income-statement items against the methodology's limits.

An eligible result may also create a purification obligation for a calculated portion of mixed or non-permissible income.

The process should identify the entity, share class, reporting period, methodology version, data sources, calculations, decision and reviewer. A ticker by itself is not a complete audit trail.

Why screening methodologies differ

There is no single global calculation used by every index, scholar, fund manager and screening application.

Differences can include:

• which industries are excluded;
• whether a small non-permissible revenue allowance is permitted;
• which accounting line items count as debt or interest-bearing cash;
• whether the denominator is total assets, market capitalisation or another measure;
• whether averages or point-in-time figures are used;
• how banks, insurers, REITs and holding companies are treated;
• which financial statements and currency conversions apply;
• review frequency and grace periods;
• treatment of corporate actions; and
• purification formulas.

The London Stock Exchange Group publishes the FTSE Yasaar Global Equity Shariah Index Series and its current ground rules. MSCI publishes a separate Islamic Index Series, including total-asset and average-market-capitalisation approaches. These are evidence that institutional methods are documented and can differ; neither should be silently substituted for the standard named in a fund mandate or client policy.

Step 1: identify the security correctly

A screening decision begins with identity control.

Record:

• issuer legal name;
• primary listing and exchange;
• ticker and ISIN;
• ordinary, preference or other share class;
• country of incorporation and main operations;
• reporting currency;
• group structure and major subsidiaries;
• financial year-end; and
• date and source of market data.

This avoids applying one company's financials to a similarly named issuer or treating a preference share as though it had the same rights as an ordinary share.

Screen the economic group

A listed holding company may earn income through subsidiaries. Review consolidated activities and material subsidiaries rather than relying on the parent company's short legal description.

Joint ventures, associates and discontinued operations can also matter. The methodology should say how they are treated.

Confirm the instrument

Ordinary equity, preference shares, depositary receipts, convertibles and debt instruments do not create identical rights. Passing an equity screen does not transform every security issued by the company into a Shariah-compliant instrument.

Step 2: test the business activities

The first substantive test asks how the company earns money.

Published Shariah index methods commonly exclude conventional financial services and activities connected to alcohol, gambling, pork, tobacco and adult entertainment. The exact categories and materiality rules must come from the adopted standard.

Use more than an industry code

Industry classifications are useful filters, but they can be too broad or too narrow. A diversified retailer, hotel group, media platform or conglomerate may combine permissible and non-permissible activities.

Review:

• segment revenue and profit;
• product and service descriptions;
• annual-report notes;
• acquisitions and disposals;
• material subsidiaries;
• financing and treasury income;
• regulatory filings; and
• management commentary.

Primary activity versus incidental income

Some methods immediately exclude a company whose primary activity is prohibited. Others also calculate whether incidental non-permissible revenue stays below a specified limit.

Do not confuse the two tests. A prohibited core business does not become eligible merely because one year's problematic revenue percentage is small. Conversely, a generally permissible operating business may still need a mixed-income calculation and purification review.

New and changing businesses

A company can change through an acquisition, disposal, restructuring or new product line. Screening must be repeated when the economic business changes, not only when the next annual calendar reminder arrives.

Step 3: select the financial statements

Financial ratios are only reproducible when their source period is clear.

Use the latest information required by the methodology, which may include audited annual financial statements, interim results and specified market data. Record publication dates as well as reporting dates.

Restatements and comparatives

Companies can restate prior periods or reclassify items. Retain the document used for the original decision and update the calculation when a material restatement appears.

Consolidated versus company-only figures

Listed groups usually report consolidated numbers and separate parent-company figures. The screening method should determine which set applies. Do not mix a consolidated numerator with a company-only denominator.

Currency consistency

Numerator and denominator must use compatible currencies and dates. A market-capitalisation denominator calculated in rand cannot be compared with an unconverted dollar debt figure.

Step 4: calculate the financial ratios

The adopted methodology controls the formulas. A ratio copied from a different provider can produce a false result.

FTSE Yasaar example

LSEG's current FTSE Yasaar Shariah page publishes the following headline financial tests:

• debt below 33.333% of total assets;
• cash and interest-bearing items below 33.333% of total assets;
• accounts receivable and cash below 50% of total assets; and
• total interest and non-compliant-activity income not exceeding 5% of total revenue.

Those formulas are an example of one current methodology. They must not be described as the only valid Islamic-equity standard.

Debt ratio

The debt screen seeks to limit material reliance on interest-bearing borrowing. The difficult work is often classification rather than division.

Questions include:

• Which loans, notes, leases, overdrafts and supplier-finance balances count?
• Are Islamic financing liabilities treated separately?
• Are discontinued operations included?
• Does the method use gross or net debt?
• What denominator and date apply?

A spreadsheet should link every included amount to a statement note.

Cash and interest-bearing securities

This screen considers cash, deposits or securities that may generate interest. Classification can be difficult where a company aggregates conventional deposits, non-interest-bearing cash and short-term investments.

Do not assume all “cash and cash equivalents” are economically identical. Record what the accounts disclose and how uncertainty is handled.

Receivables and liquidity

Some methods test receivables and cash because a company's asset composition affects the permissibility of trading its shares at a market price different from face value.

The calculation may require trade receivables, other receivables, contract assets or related balances. The methodology should define the inputs.

Non-permissible income

Interest income and revenue from non-permissible activities may be measured against total revenue or income under the selected method.

Review finance-income notes, segment disclosures, other-income lines and cash-flow information. A single “other income” number without explanation may require a conservative assumption or further evidence.

Step 5: document the calculation

A screening conclusion should be reproducible by another reviewer.

Minimum calculation record

For each ratio, retain:

• formula name;
• methodology and version;
• threshold and comparison operator;
• numerator components;
• denominator;
• source document, page and note;
• reporting and publication dates;
• currency and conversions;
• calculated result;
• pass, fail or unresolved status; and
• reviewer and review date.

Do not round away a breach

Keep sufficient decimal precision. A result just above a limit should not be rounded down and called compliant. The standard may define buffers, averaging or tolerances; an analyst should not invent them.

Treat missing data as unresolved

Silence is not a zero. If non-permissible income, debt classification or a denominator cannot be established, record the result as unresolved and escalate it. Do not turn an incomplete dataset into a pass.

Step 6: determine purification

Some accepted equity methodologies allow limited incidental non-permissible income and require purification.

MSCI's Islamic-index information states that dividend purification is incorporated into its Islamic-index total-return calculations. Other standards, funds or scholars may calculate a different base or may process purification inside the product.

Questions to record

• Which income is classified as non-permissible?
• Does the factor apply to dividends, capital gains or another base?
• Is the fund or investor responsible?
• Is purification already deducted before distribution?
• Which holding period and units apply?
• Where is the amount recorded?
• Which eligible charitable recipient receives it?

MuslimFin's portfolio-purification guide provides a detailed record and control framework.

Purification is not a cure for an ineligible core business

Purification generally addresses tolerated incidental income under the adopted method. It should not be used to justify ownership of a business that fails the core activity screen.

Step 7: review qualitative and structural issues

Numerical screens do not capture every question.

Additional review may include:

• preference-share rights;
• derivatives and hedging;
• share lending and short selling;
• treasury structures;
• conventional insurance arrangements;
• material litigation or regulatory change;
• accounting uncertainty;
• mergers and corporate actions;
• dividend sources; and
• exceptional transactions.

The screening policy should state which matters are automatic exclusions, which require scholarly review and which are recorded as investment risks.

Step 8: approve, reject or escalate

Use controlled outcomes rather than an undocumented yes or no.

Eligible

The security passes the selected method using sufficient current evidence. Record the next review and any purification obligation.

Ineligible

The security fails a business or financial test. Record the failed criterion and evidence date.

Unresolved

Material information is missing, ambiguous or disputed. Do not treat unresolved as eligible. Obtain more evidence or refer the issue to the appropriate Shariah reviewer.

Watchlist

A security near a limit, undergoing a major acquisition or waiting for new financials may require closer monitoring even when it currently passes.

Step 9: monitor after purchase

Shariah compliance is not a permanent characteristic.

Monitoring triggers include:

• annual and interim financial results;
• acquisitions, disposals and restructurings;
• changes in core revenue;
• new debt or refinancing;
• large cash balances or treasury changes;
• index additions and deletions;
• methodology revisions;
• restatements;
• changes in Shariah-board guidance; and
• corporate actions affecting the instrument.

The Johannesburg market's FTSE/JSE Shariah indices are listed on the LSEG FTSE/JSE page, which provides current factsheet and methodology resources. Index membership can be helpful evidence for the relevant index and date, but it does not prove that the security passes a different client-selected standard today.

What happens when a holding fails?

The investment policy should define:

• who confirms the breach;
• whether a grace period applies under the adopted method;
• whether purchases stop immediately;
• the sale timeline and execution authority;
• purification up to disposal;
• tax and transaction-cost considerations;
• communication to investors; and
• evidence retained after exit.

Do not invent a disposal rule after the breach occurs.

Screening direct shares, ETFs and unit trusts

The evidence differs by investment type.

Direct shares

The investor or appointed manager needs security-level screening, monitoring and purification records. Corporate actions must be tracked directly.

Shariah index ETFs

Review the underlying index methodology, current factsheet, ETF mandate, replication method, cash, derivatives, securities lending, fees and purification. A Shariah index does not answer every operational question about the fund that tracks it.

Actively managed Shariah funds

Review the fund mandate, manager process, current holdings, Shariah board, breach controls and purification arrangements. The manager may apply research beyond the benchmark.

Unit trusts and funds of funds

Check both the top-level portfolio and underlying funds. MuslimFin's halal unit-trust guide explains the manager, fee, wrapper and look-through tests.

Screening is not investment analysis

A compliant share can still be overpriced, unprofitable, illiquid, poorly governed or unsuitable for the household.

After Shariah eligibility, an investment process may still review:

• business quality and competitive position;
• management and governance;
• balance-sheet strength;
• earnings and cash-flow durability;
• valuation;
• liquidity;
• currency and country risk;
• portfolio concentration;
• expected return versus risk; and
• fit with the family's goals and time horizon.

The order matters: Shariah screening sets an eligibility universe; investment analysis and portfolio construction decide whether and how an eligible security should be held.

MuslimFin's guide to building a Shariah-compliant portfolio in South Africa covers diversification, asset allocation and governance after screening.

A reproducible screening worksheet

Use one row or case file per security with these sections:

Section	Required evidence
Identity	Issuer, ticker, ISIN, exchange, share class and group
Method	Standard name, version, reviewer and effective date
Business	Segments, prohibited activities and mixed-income calculation
Financials	Statements, notes, reporting date and publication date
Market data	Price, shares, market value and data timestamp if required
Ratios	Formula, numerator, denominator, result and threshold
Qualitative review	Instruments, derivatives, corporate actions and uncertainties
Purification	Method, factor, owner, holding period and record
Decision	Eligible, ineligible, unresolved or watchlist
Monitoring	Next review and event triggers

Store the source documents used. A live web dashboard can change after the decision date.

Quality-control checks

Before approving a result, a second reviewer or deterministic control should verify:

• identity and share class;
• current methodology version;
• correct reporting period;
• no mixed currencies;
• numerator line-item mapping;
• denominator and units;
• comparison operator;
• calculation precision;
• business-screen conclusion;
• purification responsibility;
• evidence links and saved documents; and
• next review date.

High-value or borderline cases benefit from independent calculation and reconciliation. Agreement between two screening apps is weaker evidence if both rely on the same stale dataset.

Common screening mistakes

• Treating a ticker search result as a permanent ruling.
• Failing to name the methodology.
• Mixing thresholds from different standards.
• Using old annual accounts after material interim results.
• Mixing consolidated and parent-company figures.
• Treating missing data as zero.
• Using total debt where the method specifies interest-bearing debt, or the reverse.
• Using a market-value denominator from the wrong date.
• Rounding a breach into a pass.
• Ignoring subsidiaries and segment revenue.
• Treating purification as permission for a prohibited core business.
• Forgetting cash, derivatives and securities lending inside a fund.
• Confusing Shariah eligibility with investment suitability.
• Failing to rescreen after acquisitions or methodology changes.
• Publishing a conclusion without its evidence date.

Frequently asked questions

Are all shares on the JSE halal?

No. The JSE includes companies from many industries and with different financial structures. A named screening method must be applied to the security and current evidence.

Does inclusion in a Shariah index prove a share is halal forever?

No. It records eligibility under that index's method and review process at a point in time. Company data, index membership and methodology can change.

Why do screening apps disagree?

They may use different methodologies, denominators, financial periods, data vendors, company classifications or update dates. Compare the calculation rather than only the result colour.

What debt ratio makes a stock compliant?

There is no universal ratio independent of methodology. The FTSE Yasaar example uses debt below 33.333% of total assets, while other standards can define the numerator or denominator differently. Apply the standard actually selected.

Can a company with interest income pass?

Some methodologies allow limited incidental non-permissible income below a defined threshold and require purification. The core business, exact income calculation and adopted Shariah view remain decisive.

Do I purify capital gains?

Purification approaches differ. Some methods focus on dividends; other advisers or scholars may consider additional amounts and holding periods. Follow the adopted written method and retain the calculation.

Is a screened stock a good investment?

Not necessarily. Screening addresses Shariah eligibility. Valuation, business quality, risk, diversification and household suitability require separate analysis.

How often should a stock be screened?

Use the frequency required by the methodology and add event-driven reviews for new results, acquisitions, refinancing, restructurings and other material changes.

Can MuslimFin screen a family portfolio?

MuslimFin Family Office can organise holdings, evidence dates and adopted methodologies; coordinate reproducible security and fund screening; maintain watchlists and purification records; and connect the results to the family's investment policy. Formal Shariah rulings and regulated investment recommendations remain with the appropriately qualified or authorised professionals acting on the complete facts.

Practical next step

Select one methodology before calculating anything. Download the latest annual and interim reports, record the security identity and data dates, then complete the business and financial tests in a version-controlled worksheet. Escalate uncertainty instead of forcing a pass.

The valuable output is not a list of labels. It is a dated, reviewable decision trail that another competent person can reproduce.

Sources and review date

Reviewed on 7 September 2026 using current index-provider and market material:

• LSEG: FTSE Yasaar Global Equity Shariah Index Series
• LSEG: FTSE Yasaar Ground Rules, February 2026
• LSEG: FTSE/JSE Africa Indices
• MSCI: Islamic Indexes

Methodologies, company data, classifications and index constituents can change. Recheck the source documents and security evidence when acting. This article does not issue a security-level ruling or promise that a share, fund, methodology, return or purification outcome is suitable for a particular investor.