Educational disclaimer: this article explains the methodology used by HalalStack to classify listed stocks. It does not constitute financial advice, a buy or sell recommendation, nor a fatwa. For any doubt about your personal situation, consult a qualified scholar.
The real question
"Apple has almost 100 billion dollars in debt. How can a company like that be classified as halal?"
This is the most frequent — and most legitimate — question from users discovering Islamic screening. The answer fits in a single sentence: the absolute amount of a debt says nothing. Its ratio relative to the size of the company says everything.
The principle: relative debt, not absolute debt
In Islamic finance, the problem with interest-bearing debt (riba) is not its existence in absolute value — it is its proportion within the company's financial structure. A small business with 1 million euros of bank credit can be more "indebted in ratio terms" than a CAC 40 group with 10 billion of bond debt.
The method adopted by the major Islamic indices is therefore a ratio:
Ratio = Interest-bearing debt / Average market capitalization (24 months)
This ratio measures the share of the company's value that is "financed by interest-bearing debt".
The rule in HalalStack
HalalStack applies the reference threshold used by the DJIM and S&P Shariah indices:
| Criterion | HalalStack threshold | Consequence |
|---|---|---|
| Interest-bearing debt / Avg. market cap 24m | > 33% | Haram verdict |
| (Cash + interest-bearing securities) / Avg. market cap 24m | > 33% | Haram verdict |
| Haram revenue / Total revenue | > 5% | Haram verdict (or doubtful if close) |
Note on the thresholds — 30% (strict AAOIFI) vs 33% (mainstream indices): AAOIFI Sharia Standard No. 21 (§3/4), the foundational doctrinal reference, sets the debt threshold at 30% — the strictest bound. The major investable Sharia indices — Dow Jones Islamic Market (DJIM), S&P Shariah, MSCI Islamic — adopted 33% (one third), slightly more permissive, relative to average market capitalization. HalalStack uses 33% (the DJIM/S&P/MSCI bound), and not the strict 30% AAOIFI, because this threshold corresponds to the methodology most widely deployed in investable products accessible to the European public. This decision is documented in DECISIONS.md and will be revised if the docteur-scholar-aaoifi recommends aligning on 30% before the beta.
A concrete example: a large technology company
<!-- TICKER: AAPL — gate AMF -->Let us take a fictional company of the "large global technology group" type to illustrate the calculation — let us call it TechCorp.
- Interest-bearing debt: $95 billion
- Average market capitalization over 24 months: $2,800 billion
Ratio = 95 / 2,800 = 3.4%
3.4% — far below the 33% threshold.
It is counter-intuitive but mathematically inescapable: when a company is worth nearly 3,000 billion dollars, 95 billion of debt represents a marginal fraction of its total value. This group could in theory repay all of its debt with less than 5% of its market value.
The ratio captures exactly what Islamic screening is looking for: does this company depend on interest-bearing financing to operate? Here, the answer is no.
Operational debt vs interest-bearing debt: the critical distinction
Not all debts are equivalent in screening.
Interest-bearing debt (counted in the ratio):
- Corporate bonds at fixed or variable rates
- Syndicated bank loans
- Interest-bearing commercial paper
- Capitalized leases carrying interest
Not counted in the ratio:
- Trade payables — classic operational debt, without interest
- Social provisions (leave, pensions)
- Deferred revenue
- Deferred taxes
A retailer that "owes" 8 billion to its suppliers because it pays at 90 days has no riba problem: no one charges it interest on that delay.
AAOIFI screening specifically targets interest-bearing indebtedness — the debt on which a counterparty receives forbidden interest.
Why this threshold and not zero?
The rigorous position would be: zero interest-bearing debt. Some scholars have defended it. The practical problem: almost no listed company in the world has exactly zero bond debt, including the most "halal" of companies. Refusing all companies with the slightest interest-bearing debt would empty the market of available stocks to the point of making any diversified portfolio impossible.
The scholars of AAOIFI and the Sharia committees of the major indices therefore adopted a pragmatic tolerance: interest-bearing debt exists, it is a minority within the structure, the investor "tolerates" it on condition of purifying their share of it (see the article on purification). This is not the doctrinal ideal — it is a rukhsa (concession) granted to allow participation in modern markets.
The one-third (33%) threshold adopted by the mainstream indices is anchored in the fiqhi principle whereby one third is considered "a lot" in many classical texts — without this being an intangible sacred figure. The strict AAOIFI SS21 bound is more restrictive: 30%. Some independent scholars even go down to 25%. HalalStack adopted 33% (the DJIM/S&P/MSCI bound) and clearly documents this choice so that each user can assess whether it suits them or whether they prefer to apply the stricter AAOIFI bound.
What this article does not do
- It does not claim that a specific stock is halal or haram (the verdict depends on the three ratios combined + the core activity).
- It does not guarantee that the data used for the calculation is accurate or up to date — the sources (Financial Modeling Prep, etc.) may have a delay.
- It does not replace the opinion of a qualified scholar for your personal situation.
- It does not constitute an investment recommendation of any nature whatsoever.
Sources
- AAOIFI Sharia Standard No. 21 — Financial Papers (Shares and Bonds)
- DJIM Screening Methodology — S&P Global / Dow Jones Indices
- FaithScreener — AAOIFI Standard 21 Explained
- Amanah Advisors — Making Sense of the 30% Rule
- Mufti Faraz Adam — islamicfinanceguru.com (articles on halal stock screening)