Shariah-Compliant Stocks on PSX: The KMI Index Explained

Short answer: A Shariah-compliant stock is a company that follows Islamic rules in both its business activities and its finances. On PSX, these stocks are part of the KMI-30 index or the broader KMI All Shares Islamic Index. Companies must pass a two-part test — one on what they do, and one on their balance sheet numbers.

What is the KMI-30 Index?

The KMI-30 (KSE Meezan Index 30) is the flagship Shariah-compliant stock index of the Pakistan Stock Exchange. It tracks the 30 largest and most liquid Shariah-compliant companies listed on PSX.

The index was launched in September 2008 as a joint initiative of Al Meezan Investment Management (Pakistan's largest Shariah-compliant asset manager) and the Karachi Stock Exchange (now PSX). Al Meezan acts as the Shariah adviser and reviews the index constituents regularly.

KMI-30 vs KMI All Shares Index

There are two main Islamic indices on PSX:

• KMI-30: Only the 30 largest Shariah-compliant stocks by free-float market capitalization. Used as a benchmark for Islamic funds.
• KMI All Shares Index: A much broader index that includes every Shariah-compliant stock listed on PSX, no matter the size.

If a stock is in either index, it is considered Shariah-compliant. PSX Stock Analyzer shows a green Shariah Compliant badge on any stock that qualifies.

The two-part Shariah screening

To be called Shariah-compliant, a PSX company has to pass two types of checks:

1. Business activity screening — what does the company do?
2. Financial ratio screening — how is the balance sheet structured?

1. Business activity screening

A company is rejected if its main business is in any of these areas:

• Conventional (interest-based) banking and financial services
• Conventional insurance (non-Takaful)
• Alcohol, tobacco, and pork-based products
• Gambling, casinos, and lotteries
• Adult entertainment and pornography
• Weapons and arms manufacturing for offensive use
• Advertising and media that promotes non-Shariah content

In short: if the core business clearly goes against Islamic principles, the company is not eligible.

2. Financial ratio screening

Even if the business is halal, the company's balance sheet must also pass certain financial tests. The commonly used criteria (based on Al Meezan's methodology, which follows AAOIFI Shariah standards) cover:

• Interest-bearing debt should be a small share of total assets
• Non-compliant investments (like in conventional bonds) should be limited
• Income from non-compliant sources (like interest on bank deposits) should be a very small part of total revenue
• Illiquid assets (factories, inventory, property) should make up at least a minimum portion of total assets
• Market price per share should not be below the company's net liquid assets per share

The exact percentage thresholds are updated from time to time by Shariah scholars. Always check the latest criteria on the Al Meezan Investment Management website or the official PSX index methodology document.

What about small non-compliant income?

A company can still be Shariah-compliant even if a very small part of its income comes from non-compliant sources — for example, a manufacturer that earns a tiny amount of interest on its bank deposits. But that small amount must be below the allowed threshold, and investors are advised to give that portion of their dividends to charity. This process is called purification.

How often is the list reviewed?

KMI index constituents are re-checked every six months. A company that no longer passes the screening is removed, and new eligible companies are added. This is why a stock's Shariah status can change over time — always check before you buy.

How to invest Islamically on PSX

• Buy individual Shariah-compliant stocks through a normal broker account
• Invest in Shariah-compliant mutual funds (for example, funds managed by Al Meezan, NAFA Islamic, UBL Islamic, or ABL Islamic)
• Choose Islamic pension plans (VPS — Voluntary Pension Scheme Islamic)
• Use Islamic ETFs where available

If you prefer individual stocks, always verify the current Shariah status before buying. A stock that was compliant last year may not be compliant this year if its debt or business mix has changed.

Check Shariah status in one click

PSX Stock Analyzer automatically shows a green Shariah Compliant badge on any stock that is part of the KMI All Shares Islamic index. Just paste a PSX company URL and you'll see the Shariah status along with the full financial analysis — free, no sign-up.

Sources & further reading

• Pakistan Stock Exchange (psx.com.pk)
• Al Meezan Investment Management (almeezangroup.com)
• AAOIFI — Accounting and Auditing Organization for Islamic Financial Institutions
• Securities and Exchange Commission of Pakistan (secp.gov.pk)