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

By Farhan-Ul-Haq Usmani AVP, Product Development & Shariah Compliance (PDSC) Meezan Bank Limited
Product Development & Shariah Compliance

Overview of KMI - 30

Introduction Objective of Launch KMI 30 Composition

KMI 30 Companies
Product Development & Shariah Compliance

Overview of KMI - 30

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 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.
Product Development & Shariah Compliance

Overview of KMI - 30

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.
Product Development & Shariah Compliance

Overview of KMI - 30

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 Capital Advisory division of PDSC Department. 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.
Product Development & Shariah Compliance

KMI-30, Effective from June 1,09

S-NO.

SYMBOL

NAME OF COMPANY

S-NO.

SYMBOL

NAME OF COMPANY

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

OGDC PPL FFC POL PSO HUBC PTC LUCK ATRL NML ICI NRL SNGP SPL SSGC

Oil & Gas Dev Co Pak Petroleum Fauji Fertiliz Co. Pak Oilfields P.S.O. Hub Power Co. Ltd P.T.C.L.A Lucky Cement Attock Refinery Ltd. Nishat Mills Limited ICI Pakistan National Refin. Sui North Gas Pipe. Sitara Peroxide Sui South Gas

16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

FCCL BOSI PRL INDU GLAXO MARI MTL PSMC PAEL BOC GHGL PIOC MLCF ABOT BIPL

Fauji Cement Bosicor Pakistan Pak Refinery Limited Indus Motor GlaxoSmithKline Mari Gas Company Millat Tractors Pak Suzuki Pak Elektron BOC (Pak) Ghani Glass Ltd. Pioneer Cement Maple Leaf Cem. Abbott (Lab) Bankislami Pakistan

Product Development & Shariah Compliance

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, Mudarabah companies, companies dealing in alcohol etc are not permissible.

Product Development & Shariah Compliance

Stock Screening criteria

Criteria # 2: Interest Bearing Debt < 40% 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 40% of the Total assets of the investee company.
Product Development & Shariah Compliance

Stock Screening criteria

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.
Product Development & Shariah Compliance

Stock Screening criteria

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 and approved by PDSC.
Product Development & Shariah Compliance

Stock Screening criteria

Criteria # 5: Illiquid Assets/Total Assets > 0.20 or 20%

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 20% of the total assets of the Investee company.

Product Development & Shariah Compliance

Stock Screening criteria

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.
Product Development & Shariah Compliance