ROLE OF THE
SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN
FOR THE DEVELOPMENT OF
THE ISLAMIC FINANCIAL
MARKET
Bilal Rasul
Registrar (Modarabas and Modaraba Companies)
SECP
AL-QURAN
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‫ى‬
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‫ٱَّلل‬
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‫ن‬
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‫ا‬
‫ء‬
‫ين‬
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‫ٱل‬
‫ا‬
‫ه‬
‫ي‬
‫أ‬
‫يَـ‬
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‫ين‬
َ ِ‫ٱلربَ ٰٓواْ ِإن ُكنتُم ُّمؤ ِمن‬
ِ ‫ِم َن‬
Believers, fear Allah and give up what is
still due to you from usury, if you are
believers;
[SURAH AL-BAQARAH AYAH 278]
Why Islamic finance?
 The Quran- Riba; Mentioned 3 times in 2:275, and once
in 2:276, 2:278, 3:130, 4:161 and 30:39
 Stiputlation of the 1973 Constitution of Pakistan.
Article 38, “Promotion of social and economic wellbeing of the people, denounces Riba and calls for its
elimination as early as possible”.
 Judgement of the Supreme Court – Interest free
system from 2001
 Moral obligation as Muslims to propagate (Tabligh)
 Various statutory and legal frameworks for Islamic
finance
What is Shariah Compliance
and what is SECP doing?
 AAOIFI- Accounting Standards
 IFAS-1 (Murabaha)
 IFAS-2 (Ijara)
 IFSB
 Associate Membership obtained
 Workshops/conferences attended
 SBP-SECP coordinantion
 Joint Forum of the SECP/SBP on Islamic Financial
Services
 coordinate/reciprocate/implement
 Transactional issues decided at one forum
CONSTITUTION OF MODARABA COMPANIES AND MODARABA
In Pakistan the process of Islamization of the economy was initiated in
1980 when the Government introduced the concept of Modaraba for
Islamization of the economy in the banking and corporate sector.
The Modaraba Companies & Modaraba (Floatation & Control )
Ordinance, 1980 and Modaraba Companies and Modarabas Rues 1981,
were promulgated in early 80’s by the Government of Pakistan.
The Ordinance and Rules provides matters relating to the registration
of Modaraba companies and the floatation, management and
regulation of Modarabas
STRUCTURE
Regulator
The Sector is monitored and regulated by the
Registrar (Modaraba Companies and
Modarabas), Securities and Exchange
Commission of Pakistan
Religious Board
Authority which certifies that Prospectus of the
Modaraba is Shari’ah Compliant
Justice/Ex-Justice of a Court plus 2 Scholars
Modaraba Management Company
(Modarib)
Private/Public Limited Company
with Board of Directors
Modaraba Fund
(Pool of Money of Rab-ul-Maal)
Separate Legal Entity
Prospectus
(business activities)
THE REGULATORY FRAMEWORK
The Rules & Regulations and the regulatory framework
applicable to Modaraba and the Modaraba Companies are:
- The Modaraba Companies & Modaraba (Floatation &
Control) Ordinance, 1980- registration of Modaraba Companies
and floatation, management and regulation of
Modarabas.
- The Modaraba Companies & Modaraba Rules, 1981
- The Companies Ordinance , 1984
- The Religious Board
- Prudential Regulations for Modaraba
ROLE OF MODARIB IN PAKISTAN
A Modaraba floated by an MMC is the manager (Modarib). He uses
his entrepreneurial skills and manages the business of the
Modaraba. The profit earned is distributed among the partners at a
specified and defined ratio.
In Pakistan the Modarib who is the MMC, manages the Modaraba
Ventures. By law the Modarib can charge maximum profit of 10% of
the net annual profits of the Modaraba. Besides, the Modarib also
gets profit in shape of dividend on his minimum investment in the
venture of Modaraba.
MODARABA AS AN ISLAMIC
FUND
Modaraba can:
 Invest in the stock market
 Indulge in Ijara, Morabaha and Musharaka Financing
activities
 Indulge in trading of Halal Commodities
 Undertake project financing activities
 Act as an SPV
 Act as a venture capital company
amongst other activities.
PERFORMANCE OF MODARABA AS AN
ENTITY IN PAKISTAN
 Modaraba Sector has continuously been
playing an active role in the growth of
Pakistan’s economy. During the last two
decades, the Modaraba Sector has enrolled its
place in the financial intermediaries of
Pakistan and has been able to create a market
niche for themselves in the corporate sector.
Statistics
(as on June 30, 2009)
No. of Companies
51
No. of Modarabas
27
Total Equity
Rs. 11.321 billion
Total Assets
Rs. 26.619 billion
Paid up Capital/Seed Capital
Rs. 8.242 billion
Innovation
Financing Agreements
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Diminishing Musharaka Agreement
Ijara Agreement
Istisna Agreement
Modaraba Agreement
Musawamah Agreement
Musharaka Agreement
Murabaha Agreement
Salam Agreement
Syndicate Modaraba Agreement
Syndicate Musharaka Agreement
Sukkuk Agreement
Commodity Murabaha Agreement
CFS (Continuous Funding System) Agreement
Debt securities
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Certificates of Musharika
Certificates of Modaraba
UPDATING THE LEGAL
FRAMEWORK
 Proposed Amendments in the Ordinance, Rules,
Regulations and Guidelines governing the
Modarabas companies and Modarabas
 Regulatory framework for Shariah Compliant
companies for standardizing and harmonizing
the various legal frameworks
TRENDS AND CHALLENGES
 New trends
 Increasing number of entrants
 Concept of Islamic Funds becoming popular
 Regulatory challenges
 Harmonization
 Awareness
 Minimum equity requirement to be raised
 Stringent eligibility/fit and proper criteria and performance
benchmarks to be introduced, research capabilities to be improved
 Investor base broadened: (public sector) provident and pension
funds
 International best practices to be implemented across the sector
 Industry Association’s role to be strengthened, in the areas of
training, examinations and licensing of intermediaries
Incentives
 Exemption from capital gains tax
 In view of the practical difficulties faced by the industry
Guidelines for issuance of Certificates of Musharaka
(COM) was amended and Modarabas were allowed to
issue COM after obtaining credit rating of minimum
investment grade from a credit rating agency registered
with the Commission. Earlier the precondition was
payment of dividend for two successive years.
 Encourage mergers/acquisitions/revivals for
consolidation and capitalization of the sector
Ensuring transparency and
regulatory control
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Placement of quarterly accounts on website
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Placement of shares either with the SEC (in case of physical) or placed in an
account at the Central Depository Company of Pakistan Limited.
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Code of Corporate governance
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AAOIFI
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International Best practices - to highlight areas that are non-permissible for
investment
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Membership of Islamic Financial Services Board
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Industry Associations- product development
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Shariah Boards on every institution
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Holistic legislation, standardization and harmonization to avoid conflict and
overlap.
Monitoring and
Enforcement
 Monitoring at two levels
Offsite
Onsite
 Enforcement
Administrative actions, e.g. revocation of license
Imposition of fines
References to courts for prosecution and winding up
Exploring the developments
of Islamic Capital Market
JOINT INITIATIVE OF THE IDB AND IFSB- TEN YEAR FRAMEWORK
FOR THE ISLAMIC FINANCIAL INDUSTRY DEVELOPMENT- general
regulatory framework for Islamic financial services industry.
International infrastructure institutions such as the:
 Islamic Financial Services Board (IFSB)- regulator
 International Islamic Financial Market (IIFM)-market
 (General) Council for Islamic Banks and Financial Institutions
(CIBAFI)-promotion of IFIs
 Arbitration and Reconciliation Centre for Islamic Financial Institutions
(ARCIFI)- arbitration
 International Islamic Rating Agency (IIRA) – credit rating
 Liquidity Management Centre (LMC)- investment of surplus funds of
IFIs.
 Auditing and Accounting Organization for Islamic Financial
Institutions (AAOIFI)- accounting
Promotion of Islamic Finance by
All Stakeholders
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Harmonization/standardization- Adherence to the
Resolutions and Recommendations of the Council of
the Islamic Fiqh Academy
IDB and IFSB Ten Year Framework
Stands for economic and financial integration of the
Muslim Ummah
-International Islamic Financial Market
-laws, regulations
-transactions/legal documents
-concepts (overcome Fiqh issues)
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