Tatheer: How to Purify Stock Dividends in Islam

Tatheer (purification) is the practice of donating the non-compliant portion of stock dividends to charity. If a halal stock earns some revenue from impermissible sources (like interest), the corresponding percentage of your dividends should be given away. If a stock is entirely haram, 100% of dividends should be donated.

The Purification Formula

For Shariah-compliant stocks that pass AAOIFI screening but have some non-compliant revenue, the purification amount is calculated as:

The non-compliant ratio comes from the company's income statement. It represents the percentage of total revenue derived from impermissible sources — primarily interest income and interest expense as a proportion of total revenue.

Example: Purifying Halal Stock Dividends

Suppose you hold shares in Stock XYZ, which is AAOIFI-compliant but has a 3% non-compliant revenue ratio:

• Annual dividends received: $500
• Non-compliant ratio: 3%
• Purification amount: $500 × 3% = $15

You would donate $15 to charity and keep the remaining $485 as permissible income. Rafiq calculates this automatically using live financial data from the company's most recent income statement.

How the Non-Compliant Ratio Is Calculated

Rafiq fetches each company's income statement from Financial Modeling Prep (FMP) and calculates the ratio using:

• Interest income — earnings from cash deposits, bonds, or loans
• Interest expense — costs of servicing interest-bearing debt
• Total revenue — the company's total reported revenue

The non-compliant ratio = (interest income + interest expense) ÷ total revenue. This gives the percentage of the company's financial activity tied to impermissible sources, which is then applied to your dividend income.

Haram Stocks: 100% Donation Required

The following categories of companies are considered haram and are not eligible for ratio-based purification. The entire dividend and any capital gains should be donated:

What to Do If You Hold a Haram Stock

If you discover that a stock in your portfolio is haram, scholars generally advise the following steps:

1. Plan to sell the stock as soon as reasonably possible. You do not need to sell at a loss if the market is unfavorable, but you should intend to divest.
2. Donate 100% of all dividends received from the stock to charity. These dividends are considered impermissible income.
3. Donate any capital gains above your original cost basis. If the stock is currently worth more than what you paid, the profit is also considered tainted. You may keep your original invested principal (cost basis).
4. Consult a scholar for guidance on your specific situation, especially if the stock represents a large portion of your portfolio or if selling would cause significant financial hardship.

Haram Stock Example: Cost Basis Calculation

Suppose you purchased 100 shares of a conventional bank at $50/share, and the current price is $65/share:

• Cost basis: 100 shares × $50 = $5,000
• Current value: 100 shares × $65 = $6,500
• Unrealized capital gain: $6,500 − $5,000 = $1,500
• Dividends received: $200
• Total recommended donation: $1,500 (gains) + $200 (dividends) = $1,700
• Amount you keep: $5,000 (your original principal)

Halal vs Haram Purification: Quick Comparison

Where to Donate Purification Amounts

Purification donations can go to any legitimate charitable cause: poverty relief, education, healthcare, community development, or humanitarian aid. The key distinction is that tatheer donations are an obligation to cleanse impermissible earnings, not voluntary charity (sadaqah) for spiritual reward. You should not expect personal spiritual reward from purification donations — they serve to remove the haram element from your wealth.

Rafiq is an educational calculation tool, not a religious authority or financial advisor. Purification calculations are based on publicly available financial data and may not reflect the most recent filings. Consult a qualified Islamic scholar for rulings on your specific investment portfolio.