Five Percent Rule

The threshold comes from AAOIFI Shariah Standard No. 21, the specific standard covering shares and equities. It is grounded in a classical fiqh principle sometimes summarized as "the minor is overlooked for the sake of the major": a small, incidental amount of impermissible mixture does not contaminate an otherwise permissible whole, provided it genuinely stays minor and is purified rather than personally retained.

Interest income on cash and short-term investments is the most common source counted toward the 5% figure, but the bucket includes any other genuinely non-permissible revenue line a company discloses, such as a small hospitality subsidiary that serves alcohol, or minor gambling-adjacent licensing revenue. The percentage is calculated as total non-permissible income divided by total revenue: a revenue-share metric, not a profit-share or balance-sheet metric.

Crossing 5% does not automatically disqualify a stock. Under the common three-tier interpretation used across many screening providers, including PureInvest, a stock moves from Compliant into a Needs Review band once impure income passes 5%, and does not become flatly Non-Compliant until it exceeds roughly 33% (see the 33% rule). This reflects growing uncertainty about whether the mixture is still genuinely minor, rather than an immediate "no path to compliance" verdict.

A strict zero-tolerance standard would exclude virtually every large public company, since almost all of them hold some interest-bearing cash or short-term securities as ordinary treasury management. Scholars weighed that practical reality against the classical "minor is overlooked" principle and settled on a small, purifiable ceiling rather than shutting Muslim investors out of public equity markets entirely. The 5% figure is the compromise that keeps the screen meaningful without being unworkable.