Why halal stock screeners disagree
One app says a stock is halal and another says it is not. Usually neither has made a mistake: they use different limits, measure debt against different things and read different filings. Here is each difference, and how to check a stock yourself.
Six reasons for different answers
They measure debt against different things. AAOIFI compares interest-bearing debt with today's market value. Dow Jones and S&P use an average market value over 24 or 36 months, and MSCI uses total assets. A stock that has just fallen looks worse on today's value and better on an average, so the same company can pass one and fail the other.
The limits differ. AAOIFI's debt limit is 30%. Dow Jones, S&P and MSCI use about 33%. A company at 31% passes three of those and fails the fourth, and neither side is making a mistake.
They count debt differently. Some include lease liabilities and others do not. Some use long-term debt only and others add short-term borrowing. For a retailer or airline with large leases, that alone can move the ratio by several points.
They read different filings on different days. Some use the latest quarter and others the latest year. Market values change daily. Two honest screens checked on the same day can be working from numbers months apart.
Business activity takes judgement. Most companies do not report income from alcohol, interest or gambling as a separate line. A hotel chain rarely says what it earned from its bars. One provider may mark it doubtful because of what the business usually does, while another passes it because nothing impermissible is reported.
Scholars differ on some industries. Defense, insurance brokers and a few others are permitted by some scholars and not by others. Providers follow their own Shariah advisers, so a label of "doubtful" can be a real difference of opinion rather than a data problem.
The same company, four answers
An invented company with $32 billion of debt, a market value of $100 billion today, an average market value of $90 billion and $150 billion of assets:
32 of 100 = 32%
Fails
32 of 100 = 32%
Passes
32 of 90 = 36%
Fails
32 of 150 = 21%
Passes
What to do when they disagree
- Look at the numbers, not only the label. If one app says 29% debt and another says 31%, you are looking at a borderline company.
- Ask what each app divides by and which filing it read. Most differences end there.
- If the stock fails on business activity on one app, find out what that app saw. That is usually the disagreement that matters most.
- When two screens disagree and the stock is borderline, many investors take the stricter answer or simply pick another stock.
- Ask a scholar you trust. A screen, ours included, is a tool and not a fatwa.
Questions
Why do Zoya and Musaffa give different answers on the same stock?
Both say they follow AAOIFI, but providers can differ on which filing they read, how they count debt, and how they judge a company's business. We do not know each provider's full inputs for a given stock, so the useful step is to compare the numbers each one shows for it.
Which halal screener is right?
There is no single right one for a borderline stock. For a clear-cut stock, such as a conventional bank or a debt-free software company, serious screeners almost always agree. Disagreement is mostly in the grey zone.
What does invest-like check?
A permitted main business, debt under 30% of market value, cash under 30% of market value, and impermissible revenue under 5%, following AAOIFI Shariah Standard 21. We also fail a stock when cash plus receivables reach 49%, as S&P's Shariah indices do.
What are the limits of invest-like's halal check?
We use the latest yearly balance sheet rather than the latest quarter, we count all cash because filings rarely split out deposits that earn interest, and we can only see impermissible revenue a company reports as its own segment. No scholar has reviewed it. Those limits are why we show every number.
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invest-like publishes this page and has its own halal check. It is not a religious ruling.