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

A Brief Introduction to the KMI-30 Index and Stock Screening Process for Shariah Compliance. By Farhan-Ul-Haq Usmani VP, Product Development & Shariah Compliance (PDSC) Meezan Bank Limited. Overview of KMI - 30. Introduction Objective of Launch KMI – 30 Composition KMI – 30 Companies.

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

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  1. A Brief Introduction to the KMI-30 Index and Stock Screening Process for Shariah Compliance By Farhan-Ul-Haq Usmani VP, Product Development & Shariah Compliance (PDSC) Meezan Bank Limited Product Development & Shariah Compliance

  2. Overview of KMI - 30 • Introduction • Objective of Launch • KMI – 30 Composition • KMI – 30 Companies Product Development & Shariah Compliance

  3. 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 & 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. Product Development & Shariah Compliance

  4. 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

  5. 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 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. Product Development & Shariah Compliance

  6. KMI-30 Scrips Product Development & Shariah Compliance

  7. 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. Product Development & Shariah Compliance

  8. Stock Screening criteria • 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. Product Development & Shariah Compliance

  9. 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

  10. 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. Product Development & Shariah Compliance

  11. Stock Screening criteria • 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. Product Development & Shariah Compliance

  12. 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

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