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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 Shari'ah 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 Shari'ah. 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 Shari'ah e.g. Companies making or selling liquor, pork, Haram meat, or involved in gambling, operating night clubs, disseminating pornographic content, prostitution etc.

 

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-Shari'ah 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.

 

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 Shari'ah Non-Compliant due to non-compliance to any of the mentioned criteria for Shari'ah 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 Shari'ah, 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 whereas long term investments in interest based institutions are considered to be liquid in terms of Shari'ah.

 

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

 

 

Showing of Discomfort:

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.

 

List of Shari'ah Compliant Securities at the Karachi Stock Exchange (KSE) Guarantee Ltd. for the review period ended December 2013

 

 

Symbol

 

Company Name (A-Z)

Dividend Purification Rate**

 

ABOT

 

Abbott Lab.

 

1.40%

 

AGIL

 

Agriautos Ind.

 

0.75%*

 

AKZO

 

Akzo Nobel Pak Ltd.

 

2.35%

 

AGTL

 

AL-Ghazi Tractors

 

3.53%

 

ARPL

 

Archroma Pak. Ltd.

 

0.00%

 

ADMM

 

Artistic Denim

 

0.10%*

 

ATBA

 

Atlas Battery

 

0.60%*

 

ATLH

 

Atlas Honda

 

0.55%*

 

ACPL

 

Attock Cement Pak.

 

1.04%*

 

APL

 

Attock Petroleum Ltd

 

0.40%*

 

ATRL

 

Attock Refinery

 

0.57%*

 

BRR

 

B.R. R. Guar. Mod.

 

0.00%*

 

BIPL

 

BankIslami Pakistan

 

0.00%

 

BAPL

 

Bawany Air Products

 

0.05%*

 

CHCC

 

Cherat Cement

 

0.10%*

 

CSUML

 

Colony Sugar Mills

 

0.04%

 

CSM

 

Crescent Standard M.

 

2.88%*

 

DGKC

 

D.G.Cement

 

4.88%*

 

DBCI

 

Dadabhoy Cement (Susp)

 

0.00%*

 

DAAG

 

Data Agro Ltd.

 

0.00%*

 

DFSM

 

Dewan Farooque Spinning

 

0.09%*

 

DYNO

 

Dynea Pak

 

0.06%*

 

ECOP

 

Ecopack Ltd. (Pls)

 

0.01%*

 

FECM

 

Elite Cap.Mod

 

1.60%*

 

EFOODS

 

Engro Foods Ltd.

 

0.22%

 

FEM

 

Equity Mod.

 

0.07%*

 

EXIDE

 

Exide Pak. Ltd.

 

0.01%*

 

FNBM

 

F. National Bank Mod

 

0.00%*

 

FFBL

 

Fauji Bin Qasim

 

1.04%

 

FCCL

 

Fauji Cement

 

0.56%*

 

FFC

 

Fauji Fertilizer

 

1.42%

 

FECTC

 

Fecto Cement

 

0.04%*

 

FEROZ

 

Ferozsons Lab.

 

0.05%*

 

FHBM

 

First Habib Bank Mod

 

0.00%*

 

FHAM

 

First Habib Mod.

 

0.00%*

 

FLYNG

 

Flying Cement Co. Ltd

 

0.00%*

 

GHNI

 

Ghandhara Ind. Ltd.

 

0.29%*

 

GHNL

 

Ghandhara Nissan Ltd

 

0.06%*

 

GAIL

 

Ghani Automobile Ind.

 

0.00%*

 

GGL

 

Ghani Gases Ltd.

 

0.10%*

 

GWLC

 

Gharibwal Cement

 

0.01%*

 

GLAXO

 

Glaxo Smith Kline

 

0.69%

 

HCAR

 

H. Atlas Car

 

0.53%*

 

HAL

 

Habib ADM Ltd.

 

1.77%*

 

HADC

 

Haydery Construction

 

0.00%*

 

HINOON

 

Highnoon Lab.

 

0.00%

 

HINO

 

Hinopak Motor

 

0.02%*

 

HUBC

 

Hub Power

 

0.09%*

 

ICI

 

I. C. I. Pakistan

 

0.00%*

 

IBLHL

 

IBL HealthCare Ltd.

 

0.01%*

 

INDU

 

Indus Motor

 

1.13%*

 

ICL

 

Ittehad Chemical Ltd.

 

0.47%*

 

JDMT

 

Janana De Malucho

 

0.02%*

 

JOPP

 

John&Philips

 

0.01%*

 

JUBS

 

Jubilee Spinning

 

0.00%*

 

KSBP

 

K.S.B. Pumps

 

0.14%

 

KEL

 

K-Electric Limited

 

1.30%*

 

KOHC

 

Kohat Cement

 

0.47%*

 

KOHE

 

Kohinoor Energy

 

0.03%*

 

KOIL

 

Kohinoor Ind. 2

 

0.01%

 

KTML

 

Kohinoor Tex.

 

0.27%*

 

KAPCO

 

Kot Addu Power Comp.

 

2.38%*

 

LPCL

 

Lafarge Pak. Cement

 

0.12%

 

LOTCHEM

 

Lotte Chemical Ltd

 

0.21%

 

LUCK

 

Lucky Cement

 

0.01%*

 

MACFL

 

MACPAC Films Ltd.

 

0.00%*

 

MLCF

 

Maple Leaf Cement

 

0.20%*

 

MARI

 

Mari Petroleum Co.

 

0.97%*

 

MEBL

 

Meezan Bank Ltd.

 

0.00%

 

MRNS

 

Mehran Sugar

 

0.64%

 

MTL

 

Millat Tractor

 

0.66%*

 

NRL

 

Nat. Refinery

 

0.19%*

 

NATF

 

National Foods

 

0.59%*

 

NETSOL

 

NetSol Technologies

 

1.12%*

 

NICL

 

NIMIR IND. CHEMICALS

 

0.07%*

 

NMFL

 

Nirala MSR Foods Ltd.

 

0.00%*

 

NML

 

Nishat Mills

 

1.00%*

 

OGDC

 

Oil & Gas Development 3

 

6.01%*

 

PSO

 

P. S. O.

 

1.05%*

 

PNSC

 

P.N.S.C.

 

4.45%*

 

PTC

 

P.T.C.L.A.

 

2.06%

 

PKGS

 

Packages

 

2.97%

 

PCAL

 

Pak Cables

 

0.09%*

 

PICT

 

Pak Int. Cont. Ltd.

 

1.06%

 

POL

 

Pak Oilfields

 

0.88%*

 

PRL

 

Pak Refinery

 

0.04%*

 

PSMC

 

Pak Suzuki

 

0.65%

 

PKGP

 

Pakgen Power Ltd.

 

0.04%

 

PPL

 

Pakistan Petroleum

 

3.87%*

 

PIOC

 

Pioneer Cement

 

0.76%*

 

PRWM

 

Prosperity Weaving

 

0.01%*

 

PMI

 

Prudential Mod. 1st.

 

0.00%*

 

FPJM

 

Punjab Mod.

 

0.00%*

 

REDCO

 

Redco Textile Ltd.

 

0.10%*

 

RUBY

 

Ruby Textile

 

0.01%*

 

SLYT

 

Sally Tex.

 

0.01%*

 

SSML

 

Saritow Spinning

 

0.03%*

 

SAZEW

 

Sazgar Engg.

 

0.00%*

 

SEARL

 

Searle Company Ltd.

 

0.01%*

 

SRVI

 

Service Ind.

 

0.01%

 

SHEL

 

Shell Pak.

 

0.03%

 

SITC

 

Sitara Chemical

 

0.36%*

 

SPL

 

Sitara Peroxide Ltd.

 

0.52%*

 

SCM

 

Standard Chart. Mod.

 

0.00%*

 

SNGP

 

Sui Northern 1

 

3.73%*

 

TGL

 

Tariq Glass

 

0.16%*

 

TELE

 

Telecard

 

0.48%*

 

THALL

 

Thal Limited

 

1.40%*

 

TREET

 

Treet Corp.

 

2.29%*

 

UDPL

 

United Distribution

 

0.00%*

 

WTL

 

Worldcall Telecom Ltd.

 

2.49%

 

WYETH

 

Wyeth Pakistan

 

0.38%

 

YOUW

 

Yousuf Weaving

 

0.00%*


** Dividend purification rate means investors of the respective company should purify dividend income by the following formula:

        Dividend income received x Dividend purification rate

* These are provisional rates for dividend purification which are subject to final adjustment on the basis of respective company's annual accounts for the year 2013-14.

1 These companies are evaluated on accounts of March, 2013.
2 These companies are evaluated on accounts of June, 2013.
3 On Watch List due to being forced to invest in TFCs / PIBs by Government of Pakistan to settle their long standing circular debt resulting in surpassing the 'Non Compliant Income to Total Income' ratio and 'Non Compliant Investments to Total Investments' ratio.

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.

 

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