AAOIFI Shari'ah Standard No. 21
AAOIFI is the Accounting and Auditing Organisation for Islamic Financial Institutions, and Standard No. 21 is the part of its Shari'ah Standards that decides whether a listed company's shares may be held. It is the most widely adopted reference in Islamic finance, and it is the standard Akinda's own verdict follows.
This page explains what the standard requires. For how those rules are implemented against real filings — the fields, the review cadence, and what Akinda deliberately does not implement — see how Akinda applies AAOIFI.
The four tests, in order
A company must clear every one. Failing the activity screen ends the question immediately; the three financial tests are then applied to the audited accounts.
1. Excluded activities
The base list: conventional banks and regional banks, mortgage lenders, asset managers, stock and securities exchanges, derivatives dealers and clearing houses, insurance and life insurance, healthcare plans, tobacco, alcohol (brewers, distillers, vintners), gambling and casinos, and pork / non-halal meat.
2. Non-compliant income
prohibited income (interest + prohibited) > 5% → NOT HALAL; impure income (including half-weighted doubtful) > 5% → DOUBTFUL The denominator is total revenue (gross sales + other income).
3. Debt
(short-term + long-term debt) ÷ 12-quarter average market cap — fails at ≥ 30%
4. Cash and liquidity
(cash + short-term investments) ÷ 12-quarter average market cap — fails at ≥ 30%
Tolerance buffer applied by the standard's owner: None. Akinda publishes the raw ratio rather than a buffered one, so a company sitting just under a threshold is visible as such. Review cadence: On every new audited statement — Akinda re-screens nightly.
Two things the standard leaves open
- No averaging window is written into the standard. Akinda uses a 12-quarter average market cap, and says so rather than leaving it implied.
- The doubtful category and its half-weighting are an Akinda convention that follows AAOIFI. The four index methodologies have no doubtful state — their result is pass or fail.
AAOIFI and the four index rulebooks
AAOIFI is a standard; the others are index methodologies written by index providers for their own Islamic index series. They screen the same companies against different denominators and different thresholds, so they disagree — and that disagreement is information rather than an error. Akinda screens 12,500+ companies under all five and publishes every verdict.
Common questions
What is AAOIFI?
The Accounting and Auditing Organisation for Islamic Financial Institutions. It is the standard-setting body whose Shari'ah Standards are the most widely adopted reference for Islamic finance, and Standard No. 21 is the one that governs whether a listed company's shares may be held.
What are the AAOIFI screening thresholds?
Three tests after the activity screen. Prohibited income above 5% of total revenue makes a company impermissible. Debt divided by the 12-quarter average market cap fails at 30% or more. Cash and short-term investments divided by the same denominator fail at 30% or more. A company must pass all of them.
Is AAOIFI the same as the Dow Jones or S&P Islamic screens?
No. AAOIFI is a standard written by a standard-setting body; DJIM, FTSE, MSCI, S&P are index rulebooks written by index providers. They use different denominators and different thresholds, so the same company can pass one and fail another. Both answers are correct under their own rules, which is why all five verdicts are published side by side rather than reconciled into one.
Does AAOIFI specify an averaging window for market cap?
No averaging window is written into the standard. Akinda uses a 12-quarter average market capitalisation and states that choice openly rather than leaving it implied, because the window materially changes where a borderline company lands.
What is purification, and how is it calculated?
Purification is the share of a holding's value attributable to income the standard does not permit, which an investor gives away rather than keeps. It follows the company's non-compliant income proportion, so it is a percentage of dividends or of gains, not a flat fee, and it changes as the company's own accounts change.
What does DOUBTFUL mean? AAOIFI does not define it.
It is an Akinda convention that follows AAOIFI rather than a category from the standard. Where impure income, counting doubtful revenue at half weight, passes 5%, the company is published as doubtful instead of being forced into a pass or a fail. The four index rulebooks have no such state: their result is pass or fail.
Screen a company against the standard
Every verdict Akinda returns carries the ratios it was derived from, under all five rulebooks, so a reviewer can reproduce it from the same numbers rather than take it on trust.
AAOIFI writes and maintains the Shari'ah Standards referred to on this page. Akinda is not affiliated with them and does not use their name to imply review, certification or approval of its data. The primary document is published by AAOIFI at Shari'ah Standard No. 21 — Financial Paper, Shares and Bonds.