Sharia-compliant investing in Egypt: how stock screening works

A sharia-compliant share passes two screens: the company's main business must be permissible, and its debt, interest-bearing cash and non-compliant income must stay under set limits, usually 30% to 33%. Small amounts of non-compliant income are then given away through purification. Different standard-setters use different limits, so one company can pass one screen and fail another.

This guide explains how screening works. It does not give religious rulings. For a ruling on your own situation, ask a scholar you trust.

Why many investors want sharia-compliant options

Islamic finance prohibits riba (interest). AAOIFI, a standard-setter for Islamic finance, notes that sharia does not allow investing in companies with non-halal activities, such as conventional banking, pork, alcohol and gambling.

Almost every listed company holds some bank deposits or loans, though. AAOIFI's own material (October 2017) describes two scholarly views. Some scholars allow only "pure" companies with no interest-based deposits or loans at all. Others allow "mixed" companies whose main business is permissible, as long as their financial ratios stay under set limits and the investor purifies the non-compliant income.

Screening applies that second view to listed shares.

Screen 1: what the company does

The first screen removes companies whose core business is not permitted. Lists differ, but share a core:

• conventional, interest-based banking and finance
• conventional insurance
• alcohol
• gambling
• pork and non-halal food
• tobacco

MSCI's October 2024 methodology also excludes weapons, music, hotels, cinema and adult entertainment. A company also fails if more than 5% of its revenue, counted together, comes from these activities, including interest income.

Screen 2: the financial ratios

A permissible business can still fail if it borrows or deposits too much at interest. Each provider compares these amounts with either the company's total assets or its market value (the share price times the number of shares).

Most providers add a receivables test too. FTSE requires receivables plus cash under 50% of total assets. MSCI's main series uses 33.33%, and S&P used receivables under 49% of market value.

Worked example: one company, two answers

These figures are made up. Company B has total assets of EGP 900 million and an average market value of EGP 1,200 million. It owes EGP 330 million in interest-bearing loans and holds EGP 150 million in cash and interest-bearing deposits.

On debt, Company B fails FTSE's and MSCI's 33.33% total-assets limit. It passes AAOIFI's 30% and S&P's 33% market-value limits. Same company, same accounts, different results.

Purification: giving away the non-compliant part

Purification means giving the non-compliant share of your income to charity. AAOIFI's material says it cannot be counted in the investor's profit. The Muscat Stock Exchange's guide adds that you can't use it in any way, even to pay taxes.

There are two common ways to work it out.

Method 1: a share of the dividend. MSCI applies a "dividend adjustment factor" to dividends in its indexes. It is total income minus non-compliant income (including interest), divided by total income. The rest is purified.

Method 2: an amount per share. The Muscat Stock Exchange guide, based on AAOIFI standards, divides the company's non-compliant income by its number of shares, then multiplies by the shares you own.

Worked example: purifying EGP 2,000 of dividends

These figures are made up. You own 1,000 shares of Company C. It pays a dividend of EGP 2.00 a share, so you receive EGP 2,000. Company C has 150 million shares. Its total income was EGP 1,500 million, of which EGP 45 million (3%) was interest income.

Check: 45 ÷ 1,500 = 3%, 2,000 × 0.03 = 60, and 0.30 × 1,000 = 300. Method 1 purifies only the part of the dividend you received. Method 2 assigns you your share of all the company's non-compliant income, paid out or not. Ask your scholar which method they follow.

Sharia-compliant investing in Egypt

The EGX33 Shariah Index

The Egyptian Exchange (EGX) announced its first sharia-compliant stock index, the EGX33 Shariah Index, on 12 June 2024. Business Today Egypt reported it was built with S&P and approved by the FRA's main sharia supervisory committee. At launch it was described like this:

• Universe: EGX100 companies, plus listed companies with their own sharia board.
• Size: 33 companies from 16 sectors.
• Screens: core activities must be permissible. Ratios cover non-core revenue against total revenue, liquid assets against total assets, and interest-bearing investments and debt against total assets or average market value, whichever is higher.
• Liquidity: companies must meet a minimum trading level accepted by the index's sharia committee.
• Cap: no company can weigh more than 15%.
• Start date: the index's history starts on 1 January 2022.
• Board: the index's sharia board includes Al-Azhar scholars.

The launch reports did not give the exact percentage limits. Check the EGX's published methodology before relying on any number.

Islamic investment funds in Egypt

As of September 2025, the FRA says Egypt had 24 sharia-compliant investment funds, with a total value of EGP 11.5 billion. The FRA says they can be run as mudaraba, musharaka (partnership) or wakala (agency for a fee) contracts.

The FRA's list includes these fund types: equity, money market, debt instruments, fixed income, capital protection, diversified, precious metals, index, real estate and charitable funds. A sharia-compliant mutual fund is a pooled fund that only buys what its sharia board approves.

Each Islamic fund is committed to a sharia supervisory committee. The FRA says this committee approves the fund from its first concept, through its prospectus, to its periodic reports. Above the funds sits the FRA's Central Sharia Supervisory Committee for non-bank financial activities.

Sukuk, briefly

Sukuk are sharia-compliant certificates tied to assets, used where conventional bonds would pay interest. Egypt's Sukuk Law No. 17 of 2018 amended the Capital Market Law. In February 2023 Egypt issued its first sovereign sukuk: USD 1.5 billion over three years at an 11% yield, listed in London, with about USD 6.1 billion of orders.

Why results differ, and change

• Different denominators. Total assets move slowly. Market value swings with the share price, so a falling price can push a company out.
• Different limits. 30% under AAOIFI, about 33% under FTSE, MSCI and S&P.
• Different sector lists. Hotels or music are excluded by some providers, not others.
• Regular reviews. FTSE reviews quarterly, and MSCI's sharia advisors certify its lists quarterly. FTSE watches companies near the limit (31.667% to 35%) and changes their status after two consecutive quarters. MSCI uses a stricter 30% limit for new entrants.

A company that passed last year can fail this year, and vice versa.

Your plan

1. Decide which standard you follow. Ask a scholar you trust whether they accept mixed companies, and which limits and purification method they use.
2. Check a fund's sharia board and method. The prospectus should name the board's standard, limits and review frequency, not just a label.
3. Compare costs. Look at the management fee and other charges, as for any fund.
4. Review periodically. Recheck holdings at least each quarter, or when a fund's or index's list changes.
5. Purify on time. Work out the amount when you receive dividends or sell, using your chosen method, and give it to charity.

What to watch out for

• Labels without a published method. "Halal" or "Islamic" on a product means little unless its sharia board and screens are disclosed.
• Concentration. Conventional banks and insurers are excluded, so a sharia portfolio leans on fewer sectors. That can reduce diversification.
• Fees. Screening and sharia oversight cost money, and a higher fee compounds against you every year.

This guide is for education only. It is not a religious ruling or advice to buy or sell any security or fund.