SECP issues acceptable quantitative tolerance levels for Shariah screening

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued acceptable quantitative tolerance levels and other conditions for Shariah screening of securities and companies.

In this regard, the SECP has issued an SRO 1348 (I)/2023.

In the case of companies, whether listed or not, following minimum acceptable quantitative tolerance levels for Shariah screening of shares of the companies, whether listed or not, shall be applied, while considered an application, in addition to the qualitative criteria and other conditions provided in the Shariah Governance Regulations, 2023.

The ratio of interest-bearing debt to total assets should be less than 37 percent, i.e., the collective amount raised as a loan or debt on interest by the company, whether long-term or short-term, does not exceed 37 percent of the total assets of the company on the reporting date.

For this purpose, interest-bearing debt includes bonds, term finance certificates, commercial papers, conventional bank loans, finance lease, hire purchase, issuing preference shares, etc.

The ratio of non-Shariah-compliant investments to total assets should be less than 33 per cent, i.e., the total amount of non-Shariah-compliant investments by the company, whether short-, medium-, or long-term, shall not exceed 33 percent of the total assets of the company on the reporting date.

For this purpose, non-Shariah compliant investments include interest-bearing deposits, equity investments in non-Shariah compliant companies, investments in conventional mutual funds, conventional money market instruments, commercial paper, bonds, Pakistan investment bonds, foreign investment bonds, treasury bills, certificate of investments, certificates of deposits, term finance certificates, defence saving certificates, national saving certificates, derivatives, etc.

The ratio of non-Shariah-compliant income to total revenue should be less than five per cent, i.e., the amount of non-Shariah-compliant income should not exceed five percent of the total revenue of the company, irrespective of whether the revenue is generated by undertaking a prohibited activity, by ownership of a prohibited asset, or in some other way.

For this purpose, total revenue includes gross revenue plus any other revenue earned by the company; and non-Shariah 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 non-Shariah compliant due to non-compliance to any of the mentioned criteria for Shariah compliance, etc.

In the case of unlisted securities, any person other than the issuer who claims that any unlisted security is Shariah compliant shall obtain approval of the Commission under Shariah Governance Regulations, 2023.

Copyright Business Recorder, 2023