How Shariah screening works on PSX

“Shariah-compliant” on the Pakistan Stock Exchange is not a vibe — it is a published methodology. PSX and Al Meezan Investment Management maintain two indices of screened companies, and Equivest’s Halal-only filter follows the same list.

The two indices

• KMI-30 (KSE-Meezan Index) — the 30 largest Shariah-compliant companies by free-float market capitalisation, launched in 2008. Think of it as the Halal investor’s KSE-30.
• KMI All-Share (KMIALLSHR) — every listed company that passes the screens, added later to cover the whole compliant universe rather than just the top 30.

Both are reviewed twice a year, so a company can enter or leave the compliant list at each recomposition when its latest financials are re-screened.

The six screens

A company must pass all of the following, screened on its latest available annual or half-yearly accounts — quarterly accounts are substituted when the period’s are not out yet, and they are not always audited:

1. Core business must be permissible. Conventional banking, conventional insurance, interest-based leasing, alcohol, tobacco, pork, gambling, arms manufacturing and adult entertainment are excluded outright. Islamic banks and modarabas are not excluded — Meezan Bank itself screens as compliant.
2. Interest-bearing debt below 33 % of total assets. Some conventional borrowing is tolerated; a debt-heavy balance sheet is not. This limit was cut from 37 % to 33 % by the SECP on 26 February 2026, so older guides — and some pages that have not been updated since — still quote 37 %. Note the denominator: total assets from the accounts, not market capitalisation, which is what the global Dow Jones and S&P Islamic screens use.
3. Non-compliant investments below 33 % of total assets. Money parked in interest-bearing instruments or non-compliant securities counts here. The SECP has advised PSX to consider cutting this to 30 %; that has not been approved, so 33 % is the number in force.
4. Non-compliant income below 5 % of total revenue. Interest income and income from non-permissible activities combined.
5. Illiquid assets at least 25 % of total assets. The company must own real productive assets, not just cash and receivables — otherwise trading its shares is effectively trading money for money.
6. Market price per share above net liquid assets per share. Net liquid assets per share is (total assets − illiquid assets − total liabilities) ÷ number of shares. The market price must be strictly greater — the share must be worth more than the cash behind it, for the same reason as screen 5.

Each screen is a ratio from the accounts, which is why the list only changes at recomposition rather than day to day.

Purification

Even a compliant company can have a small amount of non-permissible income (screen 4 allows up to 5 %). The standard practice is purification: give away the share of dividends that corresponds to that income. Companies in the index publish the proportion; brokers and fund managers typically pass it on. Equivest shows the compliance status but does not calculate purification for you — ask your scholar or fund for the current ratio.

How Equivest uses this

• Halal-only filter — in search, the watchlist and the pie builder, toggle it on and non-compliant symbols disappear from results.
• 🌙 badge — compliant symbols carry a crescent marker wherever they appear.
• Shariah-Compliant PSX pie — a curated basket built only from KMI-screened names, on the Baskets page.
• Index family — KMI-30 and KMI All-Share sit in the Shariah group of the index family so you can compare them with KSE-100 on the same screen.

The filter follows the published KMI list. It does not re-run the screens on the fly, and it does not cover instruments the index does not (sukuk, funds, unlisted companies).

What Equivest does not do

• We do not issue rulings. Whether the KMI methodology matches your school of thought is a question for a qualified scholar.
• We do not track purification ratios or pay anything on your behalf.
• We do not treat “compliant” as “recommended”. A stock can pass every screen and still be a poor investment.

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Compliance disclaimer: Equivest’s Shariah screening reflects the published KMI index constituents. It is a convenience filter, not religious or investment advice. For Zakat on the same holdings, see Zakat explained.