Modarabas: SECP overhauling regulatory framework

Amendments meant to help Islamic financial industry grow

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) Wednesday said that after reviewing the entire regulatory framework for modarabas, the commission has approved the concept paper for structural reforms to implement the concept of “modaraba” in its true spirit as enshrined in the Shariah.

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, according to a press release issued by the SECP.

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 maximize 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 Shariah advisors to ensure Shariah compliance in day-to-day affairs, performance-based remuneration of the “modarib” to incentivise the modaraba company.

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. As, a strong and robust modaraba sector will not only provide greater avenues for investment in Shariah-compliant products, but would also facilitate the development of Islamic debt and equity market.

Published in The Express Tribune, October 19^th, 2016.

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