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Islamic Financial Advisory Services

Assisting the development of Islamic Financial Institutions & Corporations

Meezan Bank has extensive experience and expertise in developing and advising on the creation of Shariah-compliant financial products and services. The main objective of Meezan Bank’s Islamic Financial Advisory function is to assist Financial Institutions develop Islamic banking alternatives by sharing our expertise, research and success stories. This function works under the guidance of Shariah Supervisory Board which comprises of renowned Islamic Scholars from both Pakistan and abroad.

 

For more details on how we can help you conduct shariah compliant business, contact Meezan Bank's Islamic Financial Advisory team at: IFA@meezanbank.com or Submit a Request for Proposal.

 

Islamic Financial Product Development and Product Refinement

 

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

 

Interest is a common nuisance in the economy domestically and internationally. Interest based financial system necessitates the use of riskier instruments which being highly speculative can disrupt an economy in downturns. Islamic financial principles propose Shariah Compliant yet highly robust alternatives for the financial needs of the economy. Meezan Bank has had the unique experience of converting a conventional bank into an Islamic Bank. The Bank also provides Shariah Technical and Support Services to corporate clients to convert all operations of the clients into making them Shariah-compliant.

  • Meezan bank Limited (MBL) has restructured the internal and external processes, documentation and procedures of the installment sales procedure of United Sales (Pvt) Limited, a subsidiary of Dawlance (One of the largest consumer durables in Pakistan).
  • Provided Islamic banking advisory services to Bank of Khyber.
  • Has a unique competency of converting a Conventional Bank into an Islamic bank – Experience of converting Societe Generale into Meezan Bank Limited.

 

 Internal and External Training Sessions

 

 

Islamic Banking and Finance is a nascent but growing industry. Meezan Bank being the Pioneer in Islamic Banking is leading the way towards Islamization of financial sector and subsequently Islamization of economy. Meezan Bank has technical experts’ who    conduct training sessions at the request of the client organizations at their premises. The bank also has distinguished speakers who regularly participate in national and international symposiums, conferences, seminars, workshops and other platforms. Eminent scholars conduct Islamic Banking courses at various academic institutes and provide services for course structuring, curriculum development and testing services.    

Internationally, Meezan Bank in collaboration with Centre of Islamic Economics organized a training course on Islamic Banking in Markfield institute of Islamic Education, Leicester. A Shariah Compliance and Auditing course was also conducted in February, 2008 in England in partnership with Utruj.

The Bank has supported other institutes in Pakistan including State Bank of Pakistan (SBP), National Institute of Banking and Finance (NIBAF), Institute of Bankers Pakistan (IBP) and Center of Islamic Economics (CIE) in conducting Islamic banking training sessions. The Bank has also supported a 17-episode TV program on a national TV channel. 

 
  • MBL has trained senior staff members of Central Bank of Bangladesh in Islamic Banking.
  • Initiated full-fledged Islamic banking courses at various universities in Pakistan such as Institute of Business Administration (IBA), Institute of Business Management (IoBM), Mohammad Ali Jinnah University (MAJU), IQRA University and Pakistan Air Force – Karachi Institute of Economics & Technology (PAF-KIET).
  • Meezan Bank Limited & Riphah International University have collaborated to launch MBA in Islamic Businessand Finance.

 

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 25%*. 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.

 

* This percentage will be applicable from the next KMI 30 Index Re-composition

 

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:

 

Net Liquid Assets per Share = 

(Total Assets - Illiquid Assets - Long Term Liabilities - Current Liabilities)

 

Number of Shares Outstanding

 

 

List of Shariah Compliant Securities at the Karachi Stock Exchange (KSE) Guarantee Ltd. for the review period ended  June 2013*

 

Scrip

Scrip

Abbott Lab.

Karam Ceramics

Agriautos Ind.

Karchi Electric Comp

Akzo Nobel Pak Ltd.

Kohat Cement

Atlas Batt.

Kohinoor Energy

Atlas Honda

Kohinoor Ind.

Attock Cement Pak.

Kohinoor Tex.

Attock Petroleum Ltd

Lafarge Pak. Cement

Attock Ref.

Linde Pakistan Ltd.

B.R. R. Guar. Mod.

Lotte Chemical Ltd

Babri Cotton

Lucky Cement

BankIslami Pakistan

Maple Leaf Cement

Bannu Woollen

Mari Petroleum Co.

Bawany Air Products

Meezan Bank Ltd.

Burshane LPG Ltd.

Millat Trac.

Cherat Cement

Mithchells

Cherat Packaging Ltd

Nat. Refinery

Clariant Pak.

National Foods

Colony Sugar Mills

NetSol Technologies

Crescent Fibres Ltd.

NIMIR IND. CHEM (RAV

D.G.Cement

Nishat Mills

Dewan Farooque Spinn

Oil & Gas Developmen

Din Tex.

P. S. O.

Dynea Pak

P.N.S.C.

Elite Cap.Mod

P.PaperProd

Ellcot Sp.

P.T.C.L.A

Engro Foods Ltd.

Packages

Exide Pak. Ltd.

Pak Cables

Fauji Bin Qasim

Pak Gum

Fauji Cement

Pak Int. Cont. Ltd.

Fauji Fert

Pak Oilfields

Fecto Cement

Pak Refinery

Ferozsons Lab.

Pak Suzuki

First Habib Bank Mod

Pakgen Power Ltd.

First Habib Mod.

Pakistan Petroleum

Flying Cement Co. Lt

Pioneer Cement

Frontier Cera.

Prud Mod. 1st. **

Ghandhara Ind. Ltd.

Punjab Mod. **

Ghandhara Nissan Ltd

Quice Food Industries **

Ghani Automobile Ind

Redco Textile Ltd.

Ghani Gases Ltd.

S. G. Power

Ghani Glass

Sally Tex.

Glaxo Smith Kline

Sazgar Engg.

Grays of Camb.

Searle Company Ltd.

H.Atlas Car

Service Ind.

Habib ADM Ltd.

Shell Pak.

Habib Sugar

Siemens Engg.

Haydery Const.

Sitara Chemi.

Highnoon Lab.

Sitara Peroxide Ltd.

Hinopak Motor

Standard Chart. Mod.

Hub Power

Sui Northern **

I. C. I. Pakistan

Tariq Glass

IBL HealthCare Ltd.

Telecard

Indus Dyeing

Thal Limited

Indus Motor

UniLever Pak

John&Philips

Wah-Noble

K.S.B. Pumps

Worldcall TelecomLtd

 

* These companies are evaluated from the list of securities eligible for entry in KMI-30 on accounts of June 30, 2013. For Detailed KMI eligibility and selection criteria, please contact Islamic Financial Advisory Team of MBL on IFA@meezanbank.com or please see section 1.2 & 1.3 of the KMI - 30 Index Brochure of Karachi Stock Exchange.

** These companies are evaluated from the list of securities eligible for entry in KMI-30 on accounts of December 31, 2012.

 

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