Diversification of Islamic Financial Instruments
74
Islamic Asset Management Industry
The first Islamic asset management firm was established in Karachi, Pakistan in 1995 as Al
Meezan Investment Management. Apart from investment advisory, it offered open ended
mutual funds and voluntary pension schemes, with the stated objective of making Shariah
compliant products the investment of first choice for individuals and firms in Pakistan. By the
end of February 2017, it was the only wholly Shariah-compliant Asset Management firm, and
the largest private sector asset management and investment Advisory company operating in
Pakistan, with a total of PKR 111.3 billion assets under management (approx. USD 1060
million). Its mutual fund products include equity funds, balanced funds, asset allocation funds,
fixed income and sovereign funds (investing primarily in corporate and sovereign or
government-backed Ijarah Sukuk), money market funds (such as Cash Fund), fund of funds
and lastly, voluntary pension schemes.
At present, though Al Meezan is the only fully Shariah compliant asset management firm in
Pakistan, several other conventional asset management firms have started Islamic windows
which offer Shariah compliant mutual funds and pension schemes.
The Securities and Exchange Commission of Pakistan (SECP), which regulates the non-banking
financial institutions including insurance and asset management firms, has offered significant
tax benefits to Pakistani investors to encourage investment in mutual funds. Recently, these
Tax credits or exemptions have been extended to Shariah compliant funds as well. As per the
Income Tax Ordinance 2001, resident investors in Pakistan may avail tax credit for up to 20%
of their annual incomes by investing in mutual funds or voluntary pension funds. 58 The
incentives offered are slightly higher (up to 30%) for individuals over the age of 40, for saving
in pension funds.59
The sum of Shariah-compliant funds under management was PKR 1053 billion (approx. USD
10.0 billion) in June 2015 60, with Al Meezan Investment Management alone holding a market
share of 57% of Islamic assets under management. The Non-Banking Financial Institutions
(NBFI) and Modaraba Association was formed in 2010, and by 2014, there were twenty-two
Modaraba companies operating in Pakistan.
Shariah Compliant Equity Index
The Pakistan Islamic capital markets segment has two Shariah compliant indices. The first was
the KMI-30 , launched in 2008, comprising of thirty listed firms passing the Shariah screening
criteria for stocks. As can be seen in the different real industry sectors shown in Table (KMI-30
composition), the KMI-30 includes listen companies from the Oil and Gas industry, fertilizers
and cement industries, pharmaceuticals, oil refineries, automobiles, electrical appliances etc.
The second is the All Share Islamic Index developed by the Pakistan Stock Exchange (PSX)
and Meezan Bank, comprising of about 232 listed companies. The PSX– Meezan also gives a list
of compliant equities with their ‘dividend purification rate’ (based on their annual accounting
ratios, the percentage of dividend that has to be disbursed to charity).
58 Section 62 of Pakistan Income Tax Ordinance, 2001. Actually, the amount of investment eligible for tax credit is the lower
of a) PKR 1.5 million, b) 20% of investor’s annual taxable income or c) total cost of investment
59 In the Pakistan market, generally only public corporations offer non-voluntary pension benefits to employees.
60 Pakistan Islamic Finance Country Report 2016