What Makes a Stock Shariah Compliant? The 6 Screening Ratios Explained
Every stock in KMI-30, the All Shares Islamic Index, and MZNPI must pass all six of these financial screens — sourced directly from PSX and Al Meezan's official index methodology brochures, not a third-party summary.
The six Shariah screening ratios
A stock must pass ALL six criteria to be included in KMI-30, the All Shares Islamic Index, or MZNPI. Fail even one, and it's out — no exceptions.
1. Core business
Must be Shariah-permissible
The company's core business must not violate Shariah principles. Conventional banks, insurance companies, leasing companies on interest, and businesses in liquor, pork, gambling, or other impermissible activities are excluded. Tobacco and explosives are excluded on ethical grounds.
2. Interest-bearing debt to total assets
Must be less than 33%
Debt includes bonds, TFCs, commercial paper, conventional bank loans, finance leases, hire purchase, and preference shares — any interest-bearing obligation. SECP revised this threshold down from 37% effective February 26, 2026, reflecting the greater availability of Shariah-compliant financing.
3. Non-compliant investments to total assets
Must be less than 33%
Covers investments in conventional mutual funds, money market instruments, interest-bearing deposits, bonds, PIBs, T-Bills, derivatives, and holdings in companies already declared non-compliant.
4. Non-compliant income to total revenue
Must be less than 5%
Includes income from gambling, interest-based transactions, derivatives (Gharar), conventional insurance claims, late-payment penalties, casinos, and alcohol.
5. Illiquid assets to total assets
Must be at least 25%
Illiquid assets are those whose trade price can deviate from par value under Shariah rules — inventory, work-in-process, property, plant & equipment, and stores/spares.
6. Market price vs. net liquid assets per share
Market price must be ≥ net liquid assets per share
Net liquid assets per share = (Total Assets − Illiquid Assets − Long Term Liabilities − Current Liabilities) ÷ Shares Outstanding.
Source: KMI-30 Index Methodology and All Shares Islamic Index of Pakistan brochures, published by PSX and Al Meezan Investment Management. Thresholds are set by the index's Governing Policy Committee and may be revised — always confirm current thresholds with your own Shariah advisor.
Why these ratios exist
Shariah screening for public equities works in two layers. The first is qualitative — the company's core business must be Shariah-permissible outright, which is why conventional banks, insurers, and alcohol or gambling businesses are excluded regardless of their financials. The second layer is quantitative: even a permissible business can fail screening if its balance sheet relies too heavily on interest-bearing debt, holds too much in non-compliant investments, or earns too much non-compliant income — because a shareholder in that company would indirectly be participating in those activities.
These thresholds are not fixed forever. SECP revised the interest-bearing debt-to-assets threshold from 37% to 33% in February 2026, reflecting the growing availability of Shariah-compliant financing in Pakistan — which is exactly why this page states a source and encourages independent verification rather than treating any number as permanent.
Because a company can drift in or out of compliance as its financials change, PSX re-screens the index twice a year. A stock that passes today is not guaranteed to pass at the next recomposition — see our Shariah-eligible stock screener for the current list, and always check the review date before acting on any compliance status.
Original source documents
Every claim on this page is drawn from these official PSX and Al Meezan publications. Download and read them directly — we'd rather you verify than just trust us.
KMI-30 Index Methodology
Official free-float methodology, eligibility criteria, and corporate action adjustments.
All Shares Islamic Index of Pakistan
Full screening methodology for PSX's broadest Shariah-compliant index.
Meezan Pakistan Index (MZNPI) Brochure
Methodology for the 12-stock Shariah-compliant benchmark derived from KMI-30.
PSX Notice N-065 — MZNPI Recomposition
A real recomposition notice showing incoming/outgoing constituents and updated weights.
Shariah Disclosures by Listed Companies
PSX notice N-1419 listing company-level Shariah compliance disclosures.
PSX Investors Zone does not issue fatawah or Shariah rulings. These documents are published by Pakistan Stock Exchange and Al Meezan Investment Management Limited. For a personal ruling on your own investments, consult a qualified Shariah advisor.