KASB Modaraba to merge with two other Islamic investment firms

Published: November 17, 2014
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ILLUSTRATION: JAMAL KHURSHID

ILLUSTRATION: JAMAL KHURSHID

The Securities and Exchange Commission of Pakistan is merging three small Islamic investment firms after the central bank took control of Karachi-based KASB Bank Limited, accelerating efforts to strenghten financing by investment partnerships.

Last week, the government directed the central bank to reorganise or amalgamate KASB Bank in the next six months, after the lender failed to meet minimum capital requirements.

On Friday, KASB Modaraba said it had taken management control of First Pak Modaraba and First Prudential Modaraba, three of a total 26 modarabas active in the country.

Modarabas are a form of Islamic investment partnership where assets are managed on behalf of clients, with income and expenses shared under a pre-agreed ratio.

The sector remains a tiny part of the country’s Islamic finance industry, with several firms lacking scale to compete.

Last week, First Habib Bank Modaraba, a unit of Pakistan’s largest lender HBL Bank, liquidated its business.

As of March, the three modarabas held a combined Rs1.9 billion worth of assets, dwarfed by larger peers such as Standard Chartered Modaraba with Rs5.3 billion in assets.

The SECP has also developed risk management guidelines for modarabas, last year introducing sharia compliance and sharia audit mechanisms to strengthen the sector.

The equity-like nature of modarabas has left them vulnerable to market price swings, so the SECP issued rules in 2012 to allow smoothing of profits using a profit-equalisation reserve.

Pakistan’s modaraba concept dates back to the 1980’s as the first Islamic business model set up with a statutory framework and dedicated regulations, regarded as one of the purest forms of Islamic finance.

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Reader Comments (4)

  • Rizwan
    Nov 17, 2014 - 11:55PM

    SBP has mentioned the number of depositor who would not be effected at all i.e 92.3% of banks depositors. They should have also mentioned the amount of deposits made by such bank. Probably 7.7% of the depositors made 92.3% of the total deposits of the bank. This explains the total picture as to who contributes 92.3% required for financing investment. Latest not go to cheap slogan but make a true analysis of the situation requires to foster economic growth on merits and not politics which is commonly talked in the general election. Its may be said without hesitation that KASB moratorium will also effect other banks deposits and withdrawal matters. People would withdraw there deposits from banks and investment institution and keep them under there pillow. The present situation has arising on account of grant of unlawful loans and generous right roofs. Recovery will there for will depends if genuine and bonafide loans and investment have been made.

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  • haroon Rashif
    Nov 18, 2014 - 11:56AM

    Moratorium of KASB sounds like gross negligence from almost non existence regulation/regulatory authority. Liberalised media, TV channels inspired promotion/advdertising Code of Conduct..which creates trends, life-styles changing behavioural impact on human mind for must have th ed advertised brand. Millions of people inspired by advertising invested entire life time saving for laid back people. CallMate another fraud de-frauded same. State Bank farted on CallMate. Only the Competetion Authority now left to regulate such heavy advertisment should not be allowed as expense. But Capex amorted for No. of years. I will approach the WTO Geneva on this matter to avoid Re-,occurance.

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  • Ahtasham
    Nov 18, 2014 - 4:39PM

    It’s really an lert for foreing investor, specially for thos Pakistani who are live abroad!!!

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  • Ahtasham
    Nov 18, 2014 - 4:41PM

    It’s really an Alarm for foreign investor as well those Pakistani who are live abroad and want to invest in Pakistan!

    There must be a professional line before sumbit such type of action against any Bank.

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