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SECP to promote modarabas as Islamic financial institutions

SECP to promote modarabas as Islamic financial institutions

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) aims to promote modarabas as pure Islamic financial institutions, SECP chairman Zafar-ul-Haq Hijazi said on Wednesday.

In this regard, the entire regulatory framework for modarabas was reviewed and the Commission approved the concept paper for structural reforms to implement the concept of modaraba in its true spirit as enshrined in the Sharia, SECP said in a statement.

The proposed amendments, inter alia, include introduction of the concept of unlisted modarabas to facilitate new entrants and to help the Islamic financial services industry grow.

A new concept of fundraising through issuance of term equity certificates has been introduced to resolve the issue of resource mobilisation being faced by modarabas.




The characteristics of term equity certificates are akin to the modaraba certificates and structured in line with the overall concept of modarabas.

Furthermore, new limits regarding holding of modaraba company and its related parties in modaraba have been proposed to encourage and maximise equity participation by the public.

The SECP has already suggested other amendments such as empowering the certificate holders of modaraba to hold annual general meeting, appointment of Sharia advisors to ensure Sharia compliance in day-to-day affairs, performance-based remuneration of the ‘modarib’ to incentivise the modaraba company to perform better.

Various risk management measures such as capital adequacy ratio and new exposure limit have also been proposed for modarabas engaged in financial services in the larger interest of stakeholders.

On the basis of the newly proposed reforms, necessary amendments are being made to the modaraba regulatory framework. It is expected that the suggested amendments would help promote modarabas as pure Islamic financial institutions and providing impetus for the growth of the sector.

A strong and robust modaraba sector will not only provide greater avenues for investment in Sharia-compliant products, but would also facilitate the development of Islamic debt and equity market, the SECP statement added.

Published in Dawn, October 20th, 2016

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