A Brief Introduction to the KMI-30 Index and Stock Screening Process for Shariah Compliance

Product Development & Shariah Compliance

By Farhan-Ul-Haq Usmani

VP, Product Development

& Shariah Compliance (PDSC)

Meezan Bank Limited

A Brief Introduction to the

KMI-30 Index and Stock Screening Process for Shariah Compliance


Overview of KMI - 30

• Introduction

• Objective of Launch

• KMI – 30 Composition

• KMI – 30 Companies



• Introduction– KSE and Al-Meezan Investment Management

Limited launched its first co-branded Islamic Index (KMI-30) on 1st of Ramadan 1429 HIJRA which tracks thirty most liquid SHAIRAH compliant stocks.

– Al Meezan Investments & Meezan Bank provide its Shariah expertise, guidelines, skills and stocks screening towards the activities with regard to launching and continuation process of the Index. On the contrary, KSE provides maintenance and dissemination support for the index.



• Objective of Launch

– To provide investors suitable benchmark for returns on Shariah Compliant equity investments.

– To help shariah conscious people choose the profitable stocks which are Shariah Compliant.

– To provide a relevant benchmark to Islamic equity funds for comparing their performance.



• KMI – 30 Index Composition

– KMI – 30 Index comprises of 30 Shariah Compliant Companies.

– Shariah compliance is ensured through Stock Screening process conducted by Al-Meezan Investment Management Limited and counter checked by Islamic Financial Advisory division of Meezan Bank Limited (www.islamicfinancialadvisory.com)

– Al Meezan Investments provide its Shariah expertise, guidelines, skills and stocks screening towards the activities with regard to launching and continuation process of the Index. On the contrary, KSE provides maintenance and dissemination support for the index.


KMI-30 Scrips

For Current KMI 30 Index Companies and Complete list of Shariah Compliant Scrip at KSE, visit

www.meezanbank.com

www.almeezangroup.com

www.kse.com.pk

* The KMI 30 index re-composition takes place twice a year

** The Stock Screening Criteria followed by KMI 30 Index is approved by the honorable Shariah Supervisory Board of Meezan Bank Ltd. and can be changed as per the instructions of the Board without any notice.


Stock Screening criteria

• Criteria # 1: Business of the Investee Company

– The business of the investee company should be Halal. Accordingly, investment in shares of conventional banks, insurance companies, leasing companies, companies dealing in alcohol etc are not permissible.



• Criteria # 2: Interest Bearing Debt < 37% of Total Assets

– Interest Bearing Debt includes Bonds, TFCs, Conventional Bank Loans, Finance Lease, Preference Shares etc.

– Total Interest bearing Debt must be less than 37% of the Total assets of the investee company.



• Criteria # 3: Non-Shariah Compliant Investments < 33% of Total Assets

– Non-Shariah Compliant Investments include investments in conventional mutual funds, conventional money market instruments, Bonds, PIBs, FIB, CoIs, CoDs, TFCs, DSCs, T-Bills, all Interest based placements and interest based loans and advances etc.

– Non-Shariah Compliant investments must be less than 33% of Total Assets of the investee company.



• Criteria # 4: Non-Compliant Income < 5% of Total Revenue

– Non Compliant Income includes Bank Interest, Income from gambling, nightclubs, prostitution, casino, tobacco, alcohol, dividend income from above mentioned businesses, dividend income from Shariah non-Compliant Companies etc.

– Capital Gain need not be purified.

– Non-Shariah Compliant income must be less than 5% of Total Revenue of the investee company.

– Total Revenue includes Gross Sales + Other Operating Income.

– Dividend Purification is done by disbursing amount in Charity calculated as per the Charity rate determined.



• Criteria # 5: Illiquid Assets/Total Assets > 0.25 or 25%

– Illiquid Assets include property, plant & equipment, building, furniture & fixture, Intangible Assets, Stock in trade, Stores and spares and all similar assets.

– Illiquid Assets must be at least 25% of the total assets of the Investee company.



• Criteria # 6: Market price/Share > Net Liquid Assets/Share

– Net Liquid Assets Per share = Total Assets – Illiquid Assets – Total Liabilities divided by Number of Shares Outstanding of the Investee Company.

– Market price per share should be greater than Net Liquid assets per Share.

Documents

A Brief Introduction to the KMI-30 Index and Stock Screening Process for Shariah Compliance