Shariah Screening Criteria (for equity securities)

Shariah compliance of stocks is done under the guidance of qualified and reputed Shariah experts. For stocks to be “Shariah compliant”, it must meet ALL the six key tests given below.

Business of the Investee Company

Core business of the company must be halal and in line with the dictates of Shariah. Hence, investment in securities of any company dealing in conventional banking, conventional insurance, alcoholic drinks, tobacco, pork production, arms manufacturing, pornography or related activities is not permissible.

Debt to Total Assets

Debt to Asset ratio should be less than 37%. Debt, in this case, is classified as any interest bearing debts. Zero coupon bonds and preference shares are, both, by definition, part of debt.

Non-Compliant Investments to Total Assets

The ratio of non compliant investments to total assets should be less than 33%. Investment in any non-compliant security shall be included for the calculation of this ratio.

Non-Compliant Income to Total revenue – Purification of Non-compliant income

The ratio of non compliant income to total revenue should be less than 5%. Total revenue includes Gross revenue plus any other income earned by the company. This amount is cleansed out as charity as a pro rata ratio of dividends issued by the company.

Illiquid Assets to Total Assets

The ratio of illiquid assets to total assets should be at least 25%. Illiquid asset, here, is defined as any asset that that Shariah permits to be traded at value other than the par.

Net Liquid Assets to Share Price

The market price per share should be greater than the net liquid assets per share calculated as: (Total Assets – Illiquid Assets – Total Liabilities) divided by number of shares.

COMPANIES FOR KMI-30 INDEX RECOMPOSITION BASED ON ACCOUNTS FOR December 2019

Charity rate means the investors of respective companies should purify dividend income using the following formula:

Dividend income received x Charity rate

NC = Non-Compliant

* * These are provisional rates for dividend purification which are subject to final adjustment upon announcement of respective companies’ annual accounts for the year 2019/2020.

** Non Compliant Revenue earned by CPPA (GoP) and non compliant expensed paid to PSO (GoP) has been set off.

*** Status is not ascertained due to non-disclosure of the required information as per last available financial statement i.e breakup of sales revenue including interest element.

**** Non-Compliant due to lower share price as at December 31, 2019 compared to Net Liquid Asset per share.

***** POL has reversed its revenue of 13.5 billion as conservative approach due to pending court judgement as mentioned in financial statements. It justifies that actual revenue of the POL exceeds by this amount. Considering above information ratio on non compliant income to total income is less then 5%.

*****OGDC is facing circular debt issues. Company is bound to retain interest bearing TFC/Bonds having no permission to sell from government. Due to high interest rate during July-Dec 2019, non compliant income is high and exceeds 5%. Company had provided written confirmation that its non compliant income ratio will be less than 5% due to lower interest rates during July-Dec 2020.

^ Charity rate arises due to the income prorated from the Non Compliant Income of June-2019 / Income arising from investments in Non – Compliant scrips as at December 2019.

1. Based on September-2019 accounts
2. Based on November-2019 accounts
3. As per last available annual / half-yearly accounts