AAOIFI

AAOIFI was founded in 1991 and is based in Manama, Bahrain. It issues Shariah standards, accounting standards, and auditing and governance standards that are adopted, fully or in part, by regulators and Islamic financial institutions in more than 45 countries. Before AAOIFI, individual scholars and institutions often issued their own rulings on the same question, sometimes reaching different conclusions. AAOIFI's purpose is to harmonize that practice so investors, auditors, and regulators can rely on a consistent, published rulebook rather than case-by-case opinions.

The specific standard used to screen individual stocks is AAOIFI's Shariah Standard No. 21. It applies two tests in sequence. First, a qualitative business-activity screen excludes companies whose core operations involve alcohol, gambling, conventional interest-based finance, pork products, tobacco, weapons, or adult entertainment. Second, for companies that pass the first test, a quantitative financial-ratio screen checks the balance sheet and income statement: interest-bearing debt and interest-bearing deposits or investments must each stay below 30% of the trailing 12-month average market capitalization, and income from non-permissible sources, including interest, must stay below 5% of total revenue.

AAOIFI is not the only Shariah screening methodology in use. The Dow Jones Islamic Market Index and MSCI Islamic indices apply a looser 33% debt-ratio ceiling instead of AAOIFI's stricter 30%, and the standards also differ in how they treat liquidity and cash-flow ratios. This is why the same stock can receive a "compliant" verdict from one screening provider and a "needs review" verdict from another. PureInvest applies AAOIFI's stricter thresholds as its baseline, since it is the most widely cited standard globally and errs on the conservative side.

PureInvest's screening engine mirrors AAOIFI Shariah Standard No. 21 directly: every stock is checked against the business-activity exclusions first, then against the financial-ratio thresholds. Verdicts are presented in three bands: Compliant (impure income below 5% of total revenue), Needs Review (5% to 33%), and Non-Compliant (above 33%), alongside the separate debt and interest-asset checks. The full breakdown of these thresholds, along with the reasoning behind them, is published on the methodology page.