The Pakistan Stock Exchange (PSX) has announced significant changes to the Shariah screening methodology for KMI indices after receiving approval from the Securities and Exchange Commission of Pakistan (SECP), introducing stricter compliance standards and greater transparency for Shariah-conscious investors.

Under the revised methodology, the threshold for the interest-bearing debt-to-total assets ratio has been reduced from 37% to 33%, tightening the financial screening criteria for companies seeking inclusion in KMI Shariah indices.

To further enhance transparency, PSX has introduced a Shariah Compliance Rating system for companies included in the KMI All Share Index. The rating framework will classify companies based on their level of compliance with debt, investment, and non-Shariah income thresholds, enabling investors to better assess the degree of Shariah compliance beyond a simple compliant or non-compliant status.

The exchange has also established a formal objection mechanism for companies included in the KMI All Share Index. Under the new framework, PSX will publish the provisional list of eligible companies and provide a five-working-day window during which companies may submit requests for reconsideration of their Shariah status, supported by relevant documentation. Any approved revisions will be reflected through an updated PSX notification before the final index composition is announced.

According to the exchange, the revised methodology will become effective from the November 2026 index recomposition, which will be based on companies' June 2026 annual or half-yearly financial statements. PSX will also update the KMI Index brochures and conduct awareness sessions to familiarize market participants with the revised framework.

In addition, PSX has formalized the Shariah screening process for newly listed companies through Initial Public Offerings (IPOs). Companies meeting the approved Shariah screening criteria will now be included in the KMI All Share Index from their listing date, providing investors with earlier access to newly listed Shariah-compliant securities.

The revised framework is expected to strengthen the credibility of Pakistan's Islamic capital market, improve transparency in Shariah screening, and provide investors with more comprehensive information when making investment decisions in KMI-listed securities.