Islamic Finance, though working in the space provided by the Islamic principles, is very open to creativity and innovation. Financial Engineering to develop Shariah-compliant alternatives to conventional financial products is an important task undertaken by the Islamic Financial Advisory function. Research and development of new Islamic financial instruments is also a vital and ongoing activity of function.  Product Development requirements and requests received from our client organizations are also provided with assistance and technical support.

In the area of providing Islamic Financial Advisory Services, Meezan Bank has achieved the following landmarks:

• Offered its Islamic Financial Advisory services to Zayan Real Estate Financing Program – the first ever Shariah-compliant commercial real estate financing solution offered in the United States by the Capitas Group, regarding the financial product development & structuring in the Shariah Compliant Manner

• Provided Shariah consultancy services to United Sales Limited (USL), a sales company of Dawlance Pakistan limited, for converting their sales schemes into Shariah compliant mode by modifying their product structures and related agreements.

Islamic Capital Market Advisory Services

As a leader in structured finance products, Meezan Bank has been involved in Sukuk Structuring, Shariah Advisory and Syndication/Consortium financing, lead-managing a number of new Shariah-compliant Sukuk issues and syndicated transactions with its corporate clients.

Following are some of the landmarks that Meezan Bank has achieved to date

• Launched the First Rupee-denominated Wapda Sukuk in Pakistan.
  
• Acted as a Shariah Structuring Advisor to Quetta Textile Mills limited in the issue of Sukuk worth 1.5 Billion in October 2008.
  
• Acted as a Shariah Structuring Advisor to Eden Builders Limited in the issue of Sukuk worth 2 Billion in September 2008.
  
• Acted as a Co-Arranger and Shariah Structuring Advisor to Arzoo Textile Mills Limited in the issue of Sukuk worth 0.8 Billion in April 2008.
  
• Acted as a Co-Arranger and Shariah Structuring Advisor to Liberty Power Tech Limited in the issue of Sukuk worth 12.35 Billion in March 2008.
  
• Acted as a Co-Arranger and Shariah Structuring Advisor to Maple Leaf Cement Factory Limited in the issue of Sukuk worth 8 Billion in December 2007.
  
• Acted as a Co-Arranger and Shariah Structuring Advisor to Attock Gen Limited in the issue of Sukuk worth 6.5 Billion in September 2007.
  
• Acted as a Joint Lead Manager to Dawood Hercules Chemical Limited in the issue of Sukuk worth 6.5 Billion in September 2007.
  
• Acted as a Joint Lead Manager to Engro Chemicals Pakistan Limited in the issue of Sukuk worth 3 Billion in September 2007.
  
• Acted as a Co-arranger to Wapda in the issue of Sukuk worth 8 Billion in July 2007.
  
• Acted as a Joint Lead Manager to Sui Southern Gas Company Limited in the issue of Sukuk worth 2 Billion in June 2007.
  
• Acted as a Lead Manager to Sitara Chemicals in the issue of Sukuk worth 625 Million in December 2006.
  
• Acted as a Trustee to Sitara Chemicals in the issue of Sukuk worth 1.1 Billion in June 2006.

Mutual Fund industry in Pakistan has witnessed unprecedented growth in last five years. Mutual Funds are an important financial intermediary in developing markets where capital markets are volatile and investors do not have the expertise, savings and time to devote themselves to making a well diversified profitable and Shariah-compliant portfolio.

Islamic investment principles require persistent Shariah Compliance. Islamic Mutual Funds are therefore catering to this important need and we provide them with technical expertise in managing their portfolios in Shariah-compliant manner. We have provided Islamic Financial Advisory Services to the following funds:

• Al Meezan Investment Management Limited (AMIM) Funds
  
  • Meezan Balance Fund – MBF
  • Al Meezan Mutual Fund – AMMF
  • Meezan Islamic Fund – MIF
  • Meezan Islamic Income Fund - MIIF    
  • Meezan Tahaffuz Pension Fund – MTPF-I
  • Meezan Capital Protected Fund – MCPF
  • Meezan Cash Fund - MCF
  • Meezan Sovereign Fund - MSF

 

• National Fullerton Asset Management Company Limited (NAFA) Funds
  
  • Multi Asset Islamic Fund  NMIF
  • Islamic Income Fund – NIIF

   

• KASB Funds
  
  • Islamic Income Fund – KIIF

 

•  PAK OMAN ASSET MANAGEMENT FUNDS
  
  • Islamic Advantage Fund – POAIF
  • Islamic Income Advantage Fund – POAIIF

 

• AKD FUNDS
  • Islamic Income Fund – AKDISIF
  • Islamic Stock Fund - AKDISSF

Establishing and Managing Islamic Stock Market Indices

Meezan Bank has initiated the formation and subsequent management of a domestic Islamic Market Index i.e. KMI-30 index in collaboration with Karachi Stock Exchange (KSE). Shariah Compliance is necessary not only at the time of IPO, but it also encompasses all operations of the enterprise at all stages of the organizational life cycle.  

In the KSE-100 index, companies are selected based on their market capitalization and the ability to influence market; KMI-30 index looks at a host of factors regarding Shariah Compliance when selecting a company. Since there are several factors that make a company Shariah-compliant, the company which is Shariah Compliant at one point in time may not remain Shariah Compliant at another point in time. Hence, providing Shariah Technical and Support Services is a concurrent activity and an important function of Islamic Financial Advisory Department.    

Islamic Financial Advisory Services to Start-up Firms

Islamic investment principles require certain Shariah principles to be followed while starting up any business activity. Islam does not allow the business of prostitution, drugs, gambling, alcohol, interest based lending, interest based financial institutions etc. Furthermore, Islam does not allow interest based investments, interest based financing, interest based operations and Gharar based business dealings.

We provide consultancy services to startup firms in the process of formation of the company ensuring Shariah compliance not only at the startup, but also making it certain that there are no loopholes which may pull the company towards being Shariah non-compliant in future.

Meezan Bank is currently providing such Shariah consultancy services to “Islamic Relief” (IR) a UK based International NGO involved in providing micro finance to needy people. Meezan Bank through this arrangement will assist IR in providing such finances in a Shariah compliant manner.

Shariah-Compliant Corporate Restructuring

 Internal and External Training Sessions

Shariah Audit, Shariah Compliance & Strengthening Internal Shariah Controls

Meezan Bank, being the market leader in Islamic Banking also shares its expertise with Islamic banking institutions, Islamic financial institutions and contemporary conventional financial institution willing to convert their operations based on Islamic principles. The Bank offers its services in the area of Shariah Audit and Shariah Compliance as well strengthening and streamlining the internal operations of its client organizations from Shariah Compliance perspective. 

For any stock to be Shar’iah compliant, it must meet ALL the six key criteria given below:

Screening Criteria # 1: Business of the Investee Company

The core business of the company should not violate any principle of Shar’iah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest like conventional banks, insurance companies, leasing companies or the companies involved in some other business not approved by the Shar’iah e.g. Companies making or selling liquor, pork, haram meat, or involved in gambling, operating night clubs, disseminating pornographic content, prostitution etc.

If the main business of the investee companies is Halal, like automobiles, textiles, manufacturing concerns etc but they deposit their surplus amounts in an interest bearing account or borrow money on interest, the share holder must express his/her disapproval against such dealings, preferably by raising his/her voice against such activities in the annual general meeting of the company and/or by sending a letter to the management in this regard.

Screening Criteria # 2: Interest Bearing Debt to Total Assets

The Interest Bearing Debt to Total Assets ratio should be less than 37%. To understand the rationale behind this condition, it should be kept in mind that such companies are mostly based on interest. Here again, the aforementioned principle applies i.e. if the shareholder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him/her. Debt, in this case, is classified as any interest bearing debt including Bonds, TFCs, Commercial Paper, Conventional Bank Loans, Finance Lease, Hire Purchase, issuing preference shares etc.

Screening Criteria # 3: Non-Compliant Investments to Total Assets

The ratio of Non Compliant Investments to Total Assets should be less than 33%. Non-Shar’iah Compliant Investments include investments in conventional mutual funds, conventional money market instruments, Commercial Paper, interest bearing bank deposits, Bonds, PIBs, FIB, T-Bills, CoIs, CoDs, TFCs, DSCs, NSS, derivatives etc. Non-Compliant investments also include investments in companies which are declared Shar’iah non-Compliant due to non-compliance to any of the mentioned criteria for Shar’iah Compliance.

Screening Criteria # 4: Non-complaint Income to Total revenue

The ratio of Non Compliant Income to Total Revenue should be less than 5%. Total Revenue includes Gross Revenue plus any other income earned by the company. Non Compliant Income includes income from gambling, income from interest based transactions, income from Gharar based transactions i.e. derivatives, insurance claim reimbursement from a conventional insurance company, any penalty charged on late payment in credit sale, income from casinos, addictive drugs, alcohol, dividend income from above mentioned businesses or companies which have been declared Shar’iah Non-Compliant due to non-compliance to any of the mentioned criteria for Shar’iah Compliance etc.

Screening Criteria # 5: Illiquid Assets to Total Assets

The ratio of Illiquid Assets to Total Assets should be at least 20%. In terms of Shariah, illiquid assets are all those assets that are not cash or cash equivalents. Therefore, inventory of raw material, work in process, among all other fixed assets are considered as illiquid in terms of shariah.

Screening Criteria # 6: Net Liquid Assets/Share Vs Market Price/Share

Market Price per share should be at least equal to or greater than net liquid assets per share. Net liquid assets per share is calculated by using the following formula:

List of Shariah Compliant Securities at the Karachi Stock Exchange (KSE) Guarantee Ltd. for the review period ended  June 2011*

* These companies have been screened from the list of securities eligible for entry in KMI-30 as at June 30, 2011. For Detail KMI eligibility and selection criteria, please see section 1.2 & 1.3 of the KMI Index - Brochure of Karachi Stock Exchange.