Short answer
Dividends from a compliant company are lawful, on one condition: purifying the part that corresponds to its non-compliant income (interest, a small unlawful activity). That part is given to the poor or to charitable works, without expecting any reward (AAOIFI, standard 21).
What the institutions say
Official positions, with their reference. The badge sums up the institution’s position, not an opinion of Assabile.
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AAOIFI Accounting and Auditing Organization for Islamic Financial Institutions, BahrainUnder conditions
Dividends from an admitted company are lawful, after purification of the part corresponding to its non-compliant income; the investor purifies his share even if the company distributes nothing, according to the common reading of the standard.
Shariah standard 21
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Diyanet Presidency of Religious Affairs, Türkiye (High Council of Religious Affairs)Under conditions
Unlawful income is given to the poor without expecting any reward; this rule applies to the non-compliant part of a dividend.
Decision on zakat on shares; fatwa of 2024 on unlawful income
Positions are reported as they stand; other scholars may hold other views. Method and disclaimers
Depending on your country
- Türkiye
- For shares in the participation index, arındırma (purification) rates are published by some providers; failing that, the screener calculates them.
- Gulf states
- Saudi lists of “pure shares” often give a purification rate for each company.
Why purify?
Even a company admitted by the screens often earns interest on its cash or makes a small part of its revenue from a non-compliant activity. That part of its profits does not belong to you. The methods that admit these companies make purification a condition (AAOIFI, standard 21).
Two methods
- Based on the dividend: dividend received × the company’s share of non-compliant income (for example 2%). This is the method used by Islamic indices and many funds.
- Based on the company: the company’s non-compliant income divided by the number of shares, multiplied by the shares you hold, even if the company pays no dividend.
Most Shariah boards do not require capital gains to be purified; some scholars advise it as a precaution.
In practice
- Find the company’s rate with the Shariah screener or in your fund’s documentation.
- Enter your dividends in the purification tool: it calculates the amount to give, line by line.
- Give that amount to the poor or to works of public benefit, and record it in the year’s log.
See also the guide purifying your dividends and interest.
The hadiths
O people, indeed, Allah is good and does not accept except what is good. Indeed, Allah has commanded the believers with what he commanded the messengers
"O people, indeed, Allah is good and does not accept except what is good. Indeed, Allah has commanded the believers with what he commanded the messengers. He says: {O messengers, eat from the lawful things and act righteously, for I am All-Knowing of what you do.} [Surat al-Mu’minūn: 51] And He…
أَيُّهَا النَّاسُ إِنَّ اللَّهَ طَيِّبٌ لاَ يَقْبَلُ إِلاَّ طَيِّبًا وَإِنَّ اللَّهَ أَمَرَ الْمُؤْمِنِينَ بِمَا أَمَرَ بِهِ الْمُرْسَلِينَ فَقَالَ { يَا أَيُّهَا الرُّسُلُ كُلُوا مِنَ الطَّيِّبَاتِ وَاعْمَلُوا…
Frequently asked questions
Do dividends from an Islamic ETF need to be purified?
Yes, if the fund does not do it itself: in that case it publishes a rate to apply to your dividends. Some funds purify directly; check the fund’s documentation.
Does purification replace zakat?
No: they are two separate obligations. Zakat on shares is calculated separately, according to its own rules.