The Securities and Exchange Commission of Pakistan has approved a revised Shariah screening framework for the PSX-KMI All Share Index, introducing stricter financial thresholds and a new compliance rating mechanism aimed at deepening transparency and accelerating the transition toward a Shariah-aligned capital market ecosystem.
Under the updated criteria, the threshold for non-compliant debt-to-total assets has been reduced from 37 percent to 33 percent. The adjustment reflects the growing availability of Shariah-compliant financing avenues in Pakistan and brings local screening practices closer to international benchmarks. Regulators said the move is intended to strengthen investor confidence in Shariah-compliant securities and reinforce credibility in Islamic capital market instruments.
A key feature of the revised methodology is the launch of a Shariah compliance rating system. Companies qualifying for inclusion in the PSX-KMI All Share Index will now be assigned three-, four-, or five-star ratings, offering investors greater visibility into the extent of compliance. The star-based structure is designed to introduce a comparative transparency layer, enabling institutional and retail investors to differentiate among listed firms based on adherence to Shariah principles.
The list of Shariah-compliant companies will be published with a five-working-day objection window, during which stakeholders may submit evidence-based requests for review. This formalised objection process is expected to improve accountability and ensure that classification decisions remain data-driven and transparent. Additionally, a mechanism has been introduced to allow interim inclusion of newly listed companies, subject to screening and approval by the KMI Index Committee, thereby ensuring timely representation of eligible firms.
The regulatory changes follow a high-level review meeting of the Committee on the Post-2027 Financial Sector Strategy, chaired by the Finance Secretary. Discussions at the meeting focused on expediting initiatives aligned with the Federal Shariat Court’s ruling, which mandates the elimination of riba from the financial system in a phased manner by December 2027. Progress on the broader transformation of Pakistan’s financial architecture toward a Riba-free framework was evaluated, and the SECP was tasked with preparing a comprehensive plan to convert all SECP-regulated sectors into Shariah-compliant models.
The enhancements to Islamic indices form part of the SECP’s Strategic Action Plan 2024-26, which seeks to enable Islamic finance across regulated domains. These reforms are also linked to the 26th Constitutional Amendment relating to Article 38(1)(f), reinforcing the constitutional commitment to eliminate interest-based elements from the financial system within the stipulated timeline.
Beyond the immediate revisions, the SECP has advised the Pakistan Stock Exchange to consider further refinements. These include reducing the non-compliant investments-to-total assets ratio from 33 percent to 30 percent, introducing quarterly index updates to ensure more dynamic adjustments, and automating data collection processes to enhance accuracy and efficiency.
In line with the Shariah Governance Regulations, 2023, all screening methodologies for Shariah-compliant securities require prior regulatory approval. The methodology for the PSX-KMI All Share Index was jointly submitted by the Pakistan Stock Exchange, Al-Meezan Investment Management Limited, and Meezan Bank Limited and received SECP approval in May 2024.
Market observers note that the revised framework could play a pivotal role in expanding Pakistan’s Islamic capital market by encouraging listed companies to adopt Shariah-compliant capital structures. By tightening screening thresholds and introducing a transparent rating system, regulators aim to facilitate informed investment decisions while aligning the capital market with the country’s long-term financial transformation agenda.
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