The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is an international, autonomous, non-profit Islamic entity. It develops accounting, auditing, governance, ethics, and Shariah standards for Islamic financial institutions and the industry.
Here are the general guidelines:
The company's primary activity must be permissible. Any company whose primary business involves:
- Conventional banking and lending
- Conventional insurance
- Gambling
- Liquor and liquor-related activities
- Pork and pork-related activities
- Non-halal food and beverages
- Shariah non-compliant entertainment
- Tobacco and tobacco-related activities
- Interest income from conventional accounts and instruments (including interest income awarded arising from a court judgment or arbitrator)
- Dividends from Shariah non-compliant investments
- Other activities deemed non-compliant according to Shariah principles, as determined by the Shariah Advisor
The company's memorandum should not state any of the above activities as its objectives.Subsequent to these, the following financial ratios must be met:
- Interest-based debt to market capitalization ratio should be less than 30%
- Interest-earning deposits or securities to market capitalization ratio should be less than 30%
- Income from prohibited activity to total income ratio should be less than 5%
