Haram income refers to earnings derived from sources that are prohibited under Islamic law. In the context of Islamic finance and investing, this includes interest (riba) from conventional banking, revenue from alcohol production or distribution, gambling proceeds, and income from other prohibited activities.
For investors, haram income is a key concern because even Shariah-compliant companies may generate a small percentage of revenue from non-permissible sources. For example, a compliant technology company might earn interest on its corporate cash reserves, or a permissible retail company might sell a small amount of alcohol. The purification process addresses this by requiring investors to donate the proportional amount of their dividends.
Identifying haram income requires examining a company's financial statements and revenue breakdown. Screening services and tools automate this process by analyzing income statements and flagging interest income, non-permissible revenue streams, and other prohibited sources of earnings.
Related Terms
Purification Ratio
The percentage of investment income (dividends) that should be donated to charity to "purify" earnings from a Shariah-compliant stock.
Halal Investing
Investment practices that comply with Islamic principles — avoiding interest (riba), excessive uncertainty (gharar), and prohibited industries.
Riba(ربا)
Interest or usury — any guaranteed, predetermined return on a loan or investment. Strictly prohibited in Islamic finance.
Dividend Purification
The process of donating the non-permissible portion of investment dividends to charity to cleanse one's earnings.
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