What is Investment Purification?
Even Shariah-compliant stocks may have a small percentage (under 5%) of impure revenue from interest, prohibited activities, or non-permissible sources. Islamic scholars require investors to donate the proportional amount to charity.
📚 Scholarly Basis: AAOIFI Shariah Standard No. 21 requires purification of income derived from impermissible sources.
When Do You Need to Purify?
Purification is required when your investment generates income from:
- 💰 Interest income: Cash held in interest-bearing accounts
- 🏦 Conventional banking revenue: Company earns from lending/interest
- 🎰 Prohibited activities: Gambling, alcohol, tobacco (even if <5%)
- 📺 Impure entertainment: Indecent media, adult content
Step-by-Step Purification Process
Step 1: Find the Impure Revenue Percentage
Check the company's annual report (10-K) or use screening tools:
- Look for "Interest Income" or "Non-operating Income"
- Divide by total revenue
- Example: Apple has 1.9% impure revenue (services with questionable content)
Step 2: Calculate Purification Amount
Use this formula:
Example 1 - Capital Gains:
- You bought Apple stock for $10,000
- Sold for $12,000 (Gain = $2,000)
- Apple's impure revenue = 1.9%
- Purification = $2,000 × 1.9% = $38 to charity
Example 2 - Dividends:
- You received $500 in dividends from Microsoft
- Microsoft's impure revenue = 0.5%
- Purification = $500 × 0.5% = $2.50 to charity
Step 3: Donate to Charity
The purified amount must be donated to:
- ✅ Poor and needy (most recommended)
- ✅ Islamic charities and relief organizations
- ✅ Mosques, Islamic education
- ❌ NOT for your own benefit or family
⚠️ Important: This is NOT Zakat
Purification is separate from Zakat. You cannot count purified income toward your annual Zakat obligation.
Purification Frequency
| Event | When to Purify |
|---|---|
| Dividends Received | Immediately upon receipt |
| Stock Sale (Capital Gains) | At time of sale |
| Yearly Portfolio | Once per year (conservative approach) |
Tools to Simplify Purification
- 🔢 HalalSignalz Premium: Automatic purification calculations
- 📱 Zoya App: Stock screening with purification data
- 📊 Musaffa: Portfolio tracking with purification alerts
- 📄 Company 10-K: Manual calculation from financial statements
Common Questions
What if the company has 0% impure revenue?
No purification needed! Stocks like pure tech companies (e.g., Salesforce, ServiceNow) often have 0% impure revenue.
Can I donate to my local mosque?
Yes, but scholars differ. Majority opinion: Direct charity to the poor is better. Minority opinion: Mosques and Islamic education are acceptable.
What if I held the stock for multiple years?
Most scholars say purify only realized gains (when you sell). Conservative approach: purify annually based on current value.
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