The purification ratio represents the percentage of dividends or investment income that a Muslim investor should donate to charity in order to cleanse their earnings from any non-permissible income generated by the company. Even stocks that pass Shariah compliance screening may derive a small portion of their revenue from impermissible sources.
The purification ratio is typically calculated by taking the sum of non-permissible income and interest income, dividing by total revenue or total income, and expressing the result as a percentage. If a company's purification ratio is 2.5%, then for every $100 in dividends received, $2.50 should be donated to charity.
Purification is an important part of maintaining a halal investment portfolio. It acknowledges the practical reality that very few public companies are 100% free from any non-permissible income, while still allowing investment in companies whose core activities are permissible. The purified amount is typically given as charity (Sadaqah) rather than counting toward Zakat.
Related Terms
Halal Investing
Investment practices that comply with Islamic principles — avoiding interest (riba), excessive uncertainty (gharar), and prohibited industries.
Haram Income(حرام)
Income derived from sources that are prohibited under Islamic law, such as interest (riba), gambling, or alcohol sales.
Dividend Purification
The process of donating the non-permissible portion of investment dividends to charity to cleanse one's earnings.
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