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					       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


َ َ ‫يـٰأ ُه ّل َ ء من ّتق ْ ّل َ وذر م‬
‫ََٓي َا ٱَذِين َا َ ُىاْ ٱ َ ُىا ٱّلَه َ َ ُواْ َا بقِى‬
          َ ‫ِ َ ٱّل ِب ٓا ِن ُن ُم مؤۡ ِنِي‬
          ‫من ز َىٰ ْ إ ك ت ُ 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 well-
   being 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                                   Religious Board
The Sector is monitored and regulated by the   Authority which certifies that Prospectus of the
   Registrar (Modaraba Companies and                 Modaraba is Shari’ah Compliant
   Modarabas), Securities and Exchange
         Commission of Pakistan                 Justice/Ex-Justice of a Court plus 2 Scholars




  Modaraba Management Company
               (Modarib)
    Private/Public Limited Company
        with Board of Directors




             Modaraba Fund                                           Prospectus
      (Pool of Money of Rab-ul-Maal)                             (business activities)
           Separate Legal Entity
                  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

     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

     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
   Placement of quarterly accounts on website

   Placement of shares either with the SEC (in case of physical) or placed in an
    account at the Central Depository Company of Pakistan Limited.

   Code of Corporate governance

   AAOIFI

   International Best practices - to highlight areas that are non-permissible for
    investment

   Membership of Islamic Financial Services Board

   Industry Associations- product development

   Shariah Boards on every institution

   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
     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)
     Obtain Membership
     Become part of the IFSB Workshops
     Emulate role models like Malaysia, Bahrain

				
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posted:2/26/2010
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