Owning a share is owning a slice of a company, so the question is not really about the share. It is about whether you may own part of that business, and then about what to do with the part of its income that is not clean.
The first screen: what the business does
A company whose core activity is prohibited is excluded regardless of its accounts. The usual list is conventional banking and insurance, alcohol, tobacco, pork, gambling, weapons in some formulations, and adult entertainment.
Most standards allow a small tolerance for incidental income — a supermarket that sells alcohol among a thousand other things is treated differently from a brewery. Five per cent of revenue is the threshold most commonly applied, and income within it is dealt with by purification rather than by exclusion.
The second screen: what the balance sheet looks like
A lawful business can still be financed in a way that makes owning it problematic. The financial screens vary between standards, and the differences are real enough that the same company can pass one and fail another.
- Interest-bearing debt, usually capped at a third of market capitalisation or of total assets depending on the standard.
- Interest-bearing investments and cash, capped similarly.
- Receivables, capped in some standards on the reasoning that a company which is mostly debts owed to it is trading in debt.
AAOIFI, the Dow Jones Islamic Market indices and several national boards each publish their own thresholds. Where they disagree, the disagreement is about where a reasonable line falls rather than about the principle.
Purification, which almost everyone forgets
A company that passes both screens still earns a little interest on its cash. Your share of that is not yours to keep, so a proportion of the dividend is calculated and given away — disposed of, in the same manner as bank interest, without intending charity and without expecting reward.
Screening services publish a purification ratio per share for exactly this. It is usually small, and it is the difference between owning a compliant share and owning it compliantly.
Where this leaves the practical investor
Screening every holding by hand is not realistic for most people, which is why compliant funds and screening apps exist. What is worth knowing is which standard your fund or app applies, since the answer can differ, and whether it handles purification or leaves it to you.
Once the holdings are settled, zakat on them is a separate question again — and one where the positions differ by more than threefold depending on whether you hold to trade or to keep.
This is not a fatwa. It sets out the positions scholars hold and where they part, so that you know what you are asking about. Your own case turns on facts a page cannot see — put it to someone qualified.
More on money and work
- What should I do with the interest my bank has paid me?Give it away without expecting reward for it, and to whom. Why leaving it in the account is the one option scholars agree against.
- Are credit cards haram?The card is not the problem; the contract behind it is. Why paying in full each month is the pivot, and why some scholars object even then.
- Is conventional insurance haram?The three objections scholars raise, why compulsory cover is treated differently, and what takaful actually changes.