Ask ten Muslims in a London office whether their ISA is halal and you will get ten different answers — most of them uncertain. The difficulty is not lack of intention; it is lack of a clear, documented methodology that can be examined, questioned, and trusted. This article sets out exactly how Wealth8 applies Sharia screening to every holding in your portfolio.
Two stages of screening
Wealth8 applies the framework published by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) — specifically Sharia Standard No. 21 on Financial Paper Securities. Screening proceeds in two stages: first, qualitative (sector exclusion); second, quantitative (financial ratio filters).
A company that passes sector screening may still fail on financial ratios. A company with a borderline sector activity may be excluded entirely regardless of its financial ratios. The two stages are sequential, not parallel.
Stage one: sector exclusion
Any company whose primary business involves the following is excluded entirely. There is no revenue threshold — these are absolute exclusions:
- Alcohol production, distribution, or retail
- Pork and pork products
- Conventional finance (riba-based banking, insurance, conventional bonds)
- Gambling and gaming, including online betting platforms
- Tobacco production or distribution
- Conventional armaments and cluster munitions
- Adult entertainment and obscene content
A technology company that incidentally provides payment processing to a gambling operator is not automatically excluded — the Sharia Board evaluates materiality. A company whose primary revenue derives from gaming is excluded without further analysis.
Stage two: financial ratio screens
Companies that pass sector screening are then assessed against three quantitative filters, each referenced to AAOIFI Sharia Standard No. 21:
Debt ratio: interest-bearing debt / market capitalisation < 33%
The denominator is a 24-month rolling average market capitalisation — this prevents companies from gaming the ratio at a single point in time during a market downturn. A company carrying excessive leverage relative to its value is excluded because the Islamic principle of avoiding gharar (excessive uncertainty) is engaged: a highly leveraged company's equity is substantially a claim on riba-based debt obligations.
Interest income / total revenue < 5%
Companies that earn interest income — typically from cash held on deposit — up to 5% of total revenue can be included, subject to purification (see below). Above 5%, the company is excluded. This threshold reflects the AAOIFI position that incidental, unavoidable interest income (such as interest on corporate current accounts) is a reality of operating in a conventional financial system, not a deliberate engagement with riba.
Haram revenue / total revenue < 5%
Revenue from prohibited activities — even if not the company's primary business — is screened. A diversified retailer that earns 3% of revenue from alcohol sales would require purification; one that earns 7% would be excluded. The threshold is applied strictly, using the most recent audited annual financial statements.
What happens when a holding drifts out of compliance?
Wealth8's Sharia Supervisory Board conducts a formal quarterly review of all portfolio holdings. At each review, updated financial data is assessed against the thresholds above. A holding that previously passed but now fails a ratio screen is flagged for removal. The timeline for selling depends on market conditions — the Board sets the standard for orderly disposal — but the intention is to exit the position within the review quarter.
If a material event occurs mid-quarter — for example, a company announces an acquisition that would place it in a prohibited sector — our Sharia Liaison Officer can trigger an interim review. The Board's internal governance document sets the threshold for interim action.
Income purification: what it is and how it works
Even a screened stock may earn a small amount of incidental interest — the balance sitting in a corporate current account overnight earns interest whether the company wants it to or not. Excluding every company with any such income would eliminate most of the global equity universe; the accepted scholarly approach, known as Tazkiyah al-Mal (purification of wealth), is to calculate and donate the proportionate amount rather than exclude the company entirely.
For each holding, we calculate: (interest income ÷ total income) × your proportional share of dividends or distributions received. The resulting amount is donated automatically to your designated charity, or to Wealth8's default charitable pool if no preference has been stated. Your quarterly purification report shows this calculation for every holding.
On most screened equities, the purification amount is very small — often a fraction of a penny per £1,000 held. The practical impact on your portfolio return is negligible; the spiritual significance is what the process addresses.
The Sharia Supervisory Board's role
Wealth8's independent Sharia Supervisory Board comprises Islamic finance scholars qualified to AAOIFI standards, with expertise in fiqh al-muamalat (Islamic commercial jurisprudence). The Board operates independently of the investment management function — there is a formal governance boundary between the two. Investment management cannot override a Board decision on Sharia permissibility.
The Board certifies compliance quarterly and publishes its rationale for any significant inclusion or exclusion decision. Where scholarly opinion is divided — as it is on certain Sukuk structures — the Board adopts the more conservative position and documents the reasoning transparently.
What Wealth8 does not claim
Wealth8 does not claim formal AAOIFI institutional certification. We apply AAOIFI-aligned standards as interpreted by our Board; formal certification is a separate audit process. We do not claim that our methodology will satisfy every madhab (school of Islamic jurisprudence) — Hanafi, Shafi'i, Maliki, and Hanbali scholars do not agree on every financial question, and we are transparent that some investors may follow a scholar whose interpretation differs from our Board's. What we do claim is that our methodology is documented, consistent, independently reviewed, and disclosed openly.
Past performance is not a reliable indicator of future returns. Sharia compliance does not guarantee investment returns. Capital at risk.