KARACHI: The Securities and Exchange Commission of Pakistan (SECP) announced on Thursday that it has approved revisions to the Shariah screening criteria and methodology for companies listed on the Pakistan Stock Exchange (PSX) that comply with Islamic regulations, with the move aimed at boosting investor confidence. 

The PSX-KMI All Share Index comprises all Shariah-compliant companies listed on the PSX. The index has been designed to track the performance of all Shariah-compliant companies listed on the stock market. 

The SECP’s decision to approve the revisions was taken after a meeting Pakistan’s finance secretary chaired on implementing initiatives in line with the Federal Shariat Court’s 2024 ruling on eliminating “riba” or interest from the country before Jan. 1, 2028.

“The revised framework is expected to support the development of the Islamic capital market, facilitate informed investment decisions, and encourage listed companies to adopt Shariah-compliant capital structures,” the SECP said in a statement. 

“Under the new criteria, the non-compliant debt-to-total assets ratio has been reduced from 37 percent to 33 percent.”

A new Shariah compliance rating mechanism has been introduced as per the revisions, the SECP said. The new rating mechanism assigns three, four or five-star ratings to qualifying companies to enhance transparency and help investors assess Shariah compliance levels.

The statement said that a list of Shariah-compliant companies for the PSX-KMI All Share Index will be published with a five-working-day objection window for evidence-based requests for revision.

The SECP said that a mechanism has also been introduced for the interim inclusion of newly listed companies, subject to screening and approval by the KMI Index Committee.

“SECP has further advised PSX to consider additional enhancements, including reducing the non-compliant investments-to-total assets ratio from 33 percent to 30 percent, introducing quarterly index updates, and automating data collection,” the statement said. 

Islamic finance has become a significant part of the global financial system, with countries across the Middle East and Southeast Asia using Shariah-compliant instruments to attract savings and investment.

In Pakistan, officials see the sector as a way to broaden financial inclusion, promote a savings culture, and offer alternatives to conventional interest-based products.

The Central Directorate of National Savings, the country’s main state-run savings institution, last month recorded Rs23.6 billion ($84 million) in Islamic finance inflows between July 1, 2025, and Jan. 23, 2026. 

The inflows brought the institution close to its Rs25 billion ($89 million) Islamic finance target for the ongoing fiscal year ending in June, reflecting a rising demand for interest-free investment options in Pakistan.