Purification (tazkiyah) is the process of cleansing investment returns by donating the portion derived from non-compliant sources to charity. It addresses unavoidable exposure to prohibited income in otherwise Shariah-compliant investments.
Beginner
What It Means
Even Shariah-compliant companies may generate small amounts of non-compliant income—typically interest earned on cash holdings. Purification requires calculating this tainted portion of any dividends or gains received and donating it to charity, ensuring your net returns are halal.
Practical Example
You own shares in a technology company that is Shariah-compliant overall, but 2% of its revenue comes from interest on corporate cash holdings. If you receive $1,000 in dividends:
Purification amount = $1,000 × 2% = $20
Net halal dividend = $1,000 - $20 = $980
Why It Matters
Purification allows Muslims to invest in a broader universe of stocks while maintaining religious compliance. Without purification, investors would be limited to only companies with zero non-compliant income—an impractically small universe.
Advanced
Purification Calculation Methods
For dividend income:
Purification = (Non-compliant revenue / Total revenue) × Dividend received
Purification = Gain from reclassification date to sale date
Purification = 100% of interest received from brokers/banks
Purification Thresholds
| Income Type | Threshold | Treatment |
|---|
| Non-compliant business revenue | < 5% of total | Purify proportionally |
| Non-compliant business revenue | ≥ 5% of total | Company is non-compliant (divest) |
| Interest income | < 5% of net income | Purify proportionally |
| Broker/bank interest | Any amount | Purify 100% |
Timing and Documentation
Best practices for institutional purification:
- Tracking: Maintain records of non-compliant income ratios for all holdings
- Calculation: Compute purification amounts at least annually
- Approval: Charitable recipients should be approved by Shariah board
- Documentation: Retain donation receipts for audit purposes
- Reporting: Include purification summary in annual Shariah audit
Eligible Charitable Recipients
Purification funds are typically directed to:
- Poverty alleviation programs
- Education initiatives
- Healthcare access
- Humanitarian relief
- Community development
Purification is not zakat (obligatory alms). Purification funds cleanse tainted income and cannot be counted toward zakat obligations. The donor does not receive spiritual reward for purification—it simply removes the haram element.
Reclassification Protocol
When a holding is reclassified from compliant to non-compliant:
| Scenario | Action | Purification |
|---|
| Position shows gain | Sell within 5 working days | All gains from reclassification date |
| Position shows loss | May hold up to 3 months | If recovers to cost, sell immediately |
| Extended hold needed | Requires Shariah board approval | Document rationale |
