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Shariah-Compliant Investment Criteria

Islamic scholars and Shariah financial boards have established clear guidelines to determine whether an investment is halal. At NoorVest, we refer to the standards published by AAOFI. Please refer to Halal Stocks Guidelines to learn more.

1. Business Activity Screening

A company is haram if it earns money from:

• Interest-based financial services (banks, mortgage lenders, insurance companies).
• Alcohol, tobacco, and gambling.
• Weapons and defense industries.
• Adult entertainment and other unethical services.

Allowed industries include:

• Technology, renewable energy, real estate, healthcare, and halal food.

2. Financial Ratio Screening

A company must also meet specific financial requirements:

📌 Debt-to-Asset Ratio:

• The company’s total interest-based debt should be less than 30% of its total assets.

📌 Interest-Based Revenue:

• Less than 5% of a company's revenue should come from interest-based sources.

3. Ethical and Social Considerations

• The company’s business model must align with fairness, social justice, and transparency.
• Any form of exploitation, unfair trade, or unethical labor practices should be avoided.

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Evaluating the Halal Compliance of the S&P 500

The standard S&P 500 is NOT shariah compliant/ halal because it includes companies that earn money through interest and haram industries.

Here’s why:

1. ‍Financial Institutions:
   Banks, credit card companies, mortgage lenders, and insurance providers earn through interest-based transactions, making them non-compliant.‍
2. Alcohol, Gambling & Tobacco:
   Companies such as Anheuser-Busch, MGM Resorts, and Philip Morris are involved in alcohol and gambling.‍
3. Weapons & Defense Contractors:
   Major defense contractors like Lockheed Martin and Raytheon manufacture weapons.‍
4. Debt Levels in Some Companies:
   Some companies in the S&P 500 have high-interest-based debt, exceeding the 30% debt-to-assets ratio, which violates Shariah-compliant investing rules.

Thus, investing directly in the S&P 500 is not permissible for a Muslim investor.

However, there are Shariah-compliant alternatives that provide similar benefits while filtering out non-halal companies.

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Top Shariah-Compliant Investment Options

If you want to invest in the S&P 500 while staying halal, consider these Shariah-compliant alternatives:

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1. S&P 500 Shariah Index

• This version of the S&P 500 excludes interest-based and haram companies.
• It retains broad market exposure while following Islamic finance principles.
• Managed by S&P Global, ensuring transparency and credibility.
• Adult entertainment and other unethical services.

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2. Dow Jones Islamic Market Index (DJIMI)

• Covers Shariah-compliant stocks from the U.S. and worldwide.
• Includes big tech names like Apple and Microsoft (if compliant at the time).
• Used by Islamic mutual funds and ETFs.

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3. FTSE Shariah USA Index

• Focuses only on Shariah-compliant U.S. stocks.
• Available via the Wahed FTSE USA Shariah ETF (HLAL).
• A great long-term investment option for passive investors.

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4. Halal ETFs (Exchange-Traded Funds)

ETFs are investment funds traded on stock exchanges, providing diversification and ease of access.

• SPUS (S&P 500 Shariah ETF) – Invests only in Shariah-compliant companies from the S&P 500.
• HLAL (Wahed FTSE USA Shariah ETF) – A diversified halal investment fund.

Allowed industries include:

• Technology, renewable energy, real estate, healthcare, and halal food.

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5. Individual Stock Selection

Manually pick stocks using Shariah screening tools like:

• NoorVest
• Zoya
• Wahed Invest

This method allows more control but requires extensive research.

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Halal Investment Options for Businesses and Institutions

For corporations, businesses, and Islamic institutions, halal investment options include:

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These options provide Shariah-compliant solutions for institutional investors.

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Challenges and Considerations in Halal Investing

While halal investing is growing, it comes with challenges:

1. Limited Investment Choices

Many mainstream index funds include haram companies, making Shariah-compliant stock selection difficult.

2. Complexity in Financial Screening

Islamic finance screening criteria require careful monitoring of debt ratios and interest earnings.

3. Market Volatility & Constraints

• Traditional investors can hedge risks with bonds, but halal investors cannot invest in conventional bonds.
• Fewer options may result in lower diversification

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Find a Faith-Aligned Middle Ground
For investors who want broad market exposure while staying within commonly accepted Shariah screens, a balanced option is Halal Custom Indexing. This approach lets you track the market but remove industries or companies that do not meet your preferred ethical or Shariah criteria—without relying on one-size-fits-all funds.

If you’re exploring how custom indexing works and whether it aligns with your personal values and risk profile, you can learn more here:
https://www.noorvest.com/start/hci

Note: This is educational information only and not a recommendation to buy or sell any security.

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