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Regulatory reforms push modaraba assets to Rs41 billion


ISLAMABAD, February 13: The recent reforms and strengthening of regulatory framework by the Securities and Exchange Commission of Pakistan (SECP) have pushed up the modaraba sector asset base to Rs41 billion by end of December 2016. The increase in the assets indicates a growth of 11.41 % from the June 2016, when the total assets of the modaraba sector were recorded at Rs36.8 billion. 


Listed Islamic banks have 25,000 shareholders whereas modaraba sector has around 80,000 investors.The growth in the sector was due to low level of leverage, healthy dividend payouts and other tax incentives available to sector.


As a result of recent reforms by the SECP, the sector has managed to shake off its lackluster image and moved to the forefront of the non-banking financial institution (NBFI) segment, experts said at a workshop on the modaraba sector held at the SECP head office.


The income of a modaraba is exempt from tax if it distributes 90% of its profit and majority of modarabas regularly distribute profits to the certificate holders. However, one of the key challenges the sector faces is that it is concentrated in a few large cities.


Speaking on the occasion, Mr. Usman Hayat, head of the SECP’s Islamic Finance Department, said that the SECP has successfully achieved tax neutrality for sukuk and a 2 percentage point tax incentive for eligible listed companies of manufacturing sector. The SECP is currently working on amending the modaraba law to further strengthen the regulatory framework and safeguard investors’ interests.


Mr. Jawed Hussain, the Modaraba Registrar, said that Pakistan’s modaraba sector is unique form of Islamic finance that was started in 1980. It is participating in a wide range of Sharia-compliant businesses, including leasing, manufacturing, trading, and financial services.

Mr. Shoaib Ibrahim, CEO First Habib Modaraba, said that SME and halal food are two promising segments for the sector. The modaraba scam that affected the sector was caused by unregulated elements that were not subject to the checks and balances applicable to the formal sector, he added. The investors should invest only in the regulated modaraba sector.


The session was organized in collaboration with Center for Excellence in Islamic Finance (CEIF) IMSciences, Peshawar. 



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