Islam provides us with a comprehensive and straight path which covers all aspects of life including individual and social, material and moral, economic and political, legal and cultural, national and international issues. In fact, earning, saving and investment can become acts of Ibadah if done according to Shariah.

The Quran states; “And Allah has permitted trade and prohibited Riba” [2:245]
Prophet Muhammad (S.A.W.) used to pray; “O Allah, I ask You for guidance, virtuousness and wealth” [Bukhari]
Narrated by Hazrat Umer (R.A.); “The Prophet used to sell dates of the garden of Bani An-Nadir and store for his family so much food as would cover their needs for a whole year” [Bukhari]

Hazrat Umer (R.A.) used to say; “Trade with orphan’s wealth lest it be exhausted by (regular payment) of Zakat”

Thus, Islam clearly encourages trade, saving and investment. Indeed when Islam imposed Zakat, it required that wealth should first be accumulated (since only if a person saves, will he be able to reach Nisaab) and also invest his savings (otherwise it would be exhausted by Zakat over the period of time if kept idle).

The Islamic Investment Ideology has the following norms, to name a few.

1. Should not indulge in Riba (interest).
2. Should not indulge in Maysir (speculation), which is involvement in speculation and gambling transactions.
3. Should not indulge in Ghara (vague), which is uncertainty about the terms of the contract or the subject matter, e.g. prohibits selling something which one does not own.
4. Investments should not be made in businesses dealing with alcohol, drugs, gambling, armaments, etc. which are also considered unlawful and undesirable.

At present, investment can be made in many different ways, like Bonds, Bank Deposits, Savings Certificates, etc. all these investments are however interest (Riba) based. The Real Estate Market is comparatively a non-liquid market.

Stocks, on the other hand, are highly liquid and provide interest (Riba) free investment through Shariah Complaint Stocks. These scripts are identified with the guidance of qualified and reputed Shariah Experts who select 100 scripts under strict Shariah Screening Criteria.

The companies that meet the standards of the Shariah Screening Criteria are categorized as Shariah Compliant Companies. There are almost 100 companies listed at the Karachi Stock Exchange that are Shariah Compliant.

For stocks / scripts to be Shariah Compliant, it must meet all the six key tests of the Shariah Screening Criteria, as given below;

• Business of the Investee 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 any related un-Islamic activities is not permissible.

• Debt to Total Assets Ratio of the Investee Company should be less than 40%. 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-Complaint Investments to Total Investments Ratio of the Investee Company should be less than 33%. Investment in any non-compliant (non Shariah Compliant) security shall be included for the calculation of this ratio.

• Non-Compliant Income to Total Revenue Ratio of the Investee Company should be less than 5%. Total Revenue includes Gross Revenue plus any other income earned by the company. This amount is to be cleansed out as charity on a pro rata ratio of dividends issued by the company.

• Illiquid Assets to Total Assets Ratio of the Investee Company should be at least 20%. An illiquid asset is defined as any asset that the Shariah permits to be traded at a value other than the par, e.g.

• Share Price to Net Liquid Assets of the Investee Company should be greater. The market price per share should be greater than the net liquid assets per share, which is calculated as;
  Net Liquid Assets per Share = (Total assets - Illiquid Assets - Total Liabilities) / (No of Shares)

The objective of the KSE Meezan 30 Index (KMI-30) is to serve the purpose of a gauge for measuring the performance of Shariah Compliant Equity Investment, and it also provides investors with a suitable benchmark for comparing returns on their Shariah Compliant Investments. The index comprises of 30 companies that qualify the Shariah and Technical Screening Criteria.

For stocks / scripts to be included in the KMI-30 Index, it must meet all the seven key tests of the Technical Screening Criteria, as given below;

• The Company which is on the Defaulters Counter and / or its trading is suspended, declared non-tradable (NT) in preceding 6 months from the date of recomposition shall not be considered for inclusion in the KMI-30 Index.

• The Company will be eligible for KMI-30 Index if its securities are available in the Central Depository System (CDC).

• The Company should have a formal listing history of at least two months on the Karachi Stock Exchange (KSE).

• The Company must have an operational track record of at least one financial year and it should be in default(s) of the Listing Regulations.

• The Company should have minimum free-float shares of 5% of total outstanding shares.

• The Company will be eligible for the KMI-30 Index if its securities are traded for 75% of the total trading days.

• Mutual Funds (both Open-Ended and Closed-Ended) are eligible for inclusion in the KMI-30 Index.

Click Shariah Compliant Scripts + KMI30 Index (2013) to download the file.