Mr. Razi ur Rahman Khan, Chairman,
SECP, Mr. Bilal Rasul, Registrar Modarabas our members and
our valued guests.
It is indeed a pleasure having you here today at our annual
gathering. You are aware that Pakistan earned the distinction
to incorporate the first organized and regulated Islamic
financial sector in the form of Modarabas in the 80's. Since
then, the sector has gone through many phases of development,
experimentation and consolidation. At the moment, there
are twenty four (24) operative Modarabas having a total
asset base of Rs.26 billion and equity of Rs.11 billion.
Since the vehicle of Modaraba provides many modes of business
activities according to the Sharia principles, our members
are engaged in various business models. The main activity
being undertaken by the Modarabas is the ijarah/leasing
business which is handled by sixteen (16) Modarabas whereas
other multiple activities like trading manufacturing and
distribution are being carried out by the remaining Modarabas.
The financial year ending 30th June, 2007 witnessed a growth
of about 10% in the assets of the Modarabas which earned
a net profit of Rs.813 million.
A special feature of the Modaraba sector is that most of
its members have been paying out cash dividends regularly.
Infact, within the financial sector, the number and the
amounts of the Modarabas paying cash dividends has been
more than the other companies proportionately. The Modaraba
Association of Pakistan (Association) has been encouraging
its members to declare healthy dividends and has also been
recognizing those who have done better
than the others over the last many years. Today as well,
the top three dividend paying Modarabas will be honoured
and Awards will be presented to them by the Chief Guest.
During the last year, nineteen (19) Modarabas declared dividends,
the highest being cash dividend of 65%. The total cash and
stock distributions come to Rs.575 million which constitute
an average of 71% of the profits declared by the Modarabas.
It is encouraging that last year, IPOs of two new Modarabas
have been successfully made through stock exchanges. First
Allied Rental Modaraba was established with a paid up capital
of Rs.300 million and the First Treet Manufacturing Modaraba
with a capital of Rs.143 million.
The Association welcomes the new entrants as the nature
of their business signifies the diversity and capability
of the Modaraba vehicle for multiple trading and financial
activities. In addition to these two Modarabas, permissions
have also been granted to establish four other Modarabas
namely Modaraba AI-Makatib, Modaraba AI-Tameer, Modaraba
Al-Souk and the Total Modaraba. It is very encouraging that
after a rather long and quiet period, six new Modarabas
have entered the sector which marks a clear recognition
of the potential and revival of the Modaraba.
Mr. Chairman, the emergence of Islamic banking in Pakistan
is a very important event for the financial sector. Establishment
of six new Islamic banks and growth of Islamic banking dedicated
branches of the conventional banks has created significant
visibility and demand for the Islamic financial
services. The regulatory encouragement being provided to
Islamic banks would undoubtedly result in further expansion
of Islamic financial market over the next few years. This
favourable environment should also help the Modarabas to
expand their activities and work closely with the Islamic
banks. It will facilitate resource mobilization for the
Modarabas, help create public awareness for the Islamic
products and supplement the activities of the Islamic banks
with the specialized services and products which can be
handled better by the Modarabas. The Association has been
working actively to establish functional synergies between
the Modarabas and Islamic banks. SECP and State Bank of
Pakistan are also encouraging every possible collaboration
between both the sectors and I am confident that significant
results in this direction will become visible very soon.
Mr. Chairman,
An important development which has already taken place in
this respect is for reviewing and re-drafting the model
agreements of the Modaraba Sector for simplification and
standardization. Our model agreements were approved by the
Religious Board in early 90's. In the recent years, State
Bank of Pakistan developed and introduced model agreements
for a number of products offered by Islamic banks. Consequently,
both sectors i.e. Islamic banks and Modarabas are using
different modules of agreements due to which operational
difficulties are being faced, when the Modarabas have to
enter into financial transactions with the Islamic banks.
Even otherwise, a need was being felt to bring the model
agreements in line with the contemporary research and practices.
With the valuable encouragement and guidance of Mr. Bilal
Rasul, the Association took the initiative to revise the
existing agreements. For this purpose, model agreements
approved by State Bank were suitably amended to meet the
specific requirementsof the Modarabas without making any
fundamental changes in the concept. The drafts of the revised
agreements have been examined by the Registrar Modarabas
and referred by him to the Religious Board for approval.
The process when completed will create an effective uniformity
and ease for the Islamic financial sector of the country.
The Association and the Registrar Modarabas are also reviewing
the Modaraba Ordinance and Rules as well as the Prudential
Regulations of the Modarabas for which detailed discussions
are held frequently. The purpose is to update the legal
framework according to the current market conditions and
also ensure strict compliance of the regulatory requirements
by the members of the sector. To this effect, the Association
has been assisting its members and the regulatory authorities
for developing a dynamic and disciplined working environment
and achieving full potential of the Modaraba concept. Also
the problems being faced by the Modaraba Sector for implementing
the International Financial Accounting Standard - 2 for
Ijarah transactions have been brought to the knowledge of
SECP and ICAP. The Association has constituted a taskforce
to deal with various operational, accounting, regulatory
and taxation issues being faced by the lessors and the lessees
and hopes that the standard would be reviewed and also given
a suitable adjustment period for its effective implementation.
Sir, as I said earlier, rapid growth in Islamic banking
in Pakistan and the region has highlighted the true scope
and the usefulness of the Islamic financial system which
has been acknowledged and supported by the regulators, operators
and users. Modarabas need to develop effective liaison and
networking with the Islamic banks, takaful companies and
mutual funds in order to enlarge their operational base
and business prospects. With a growing awareness of the
Islamic financial services by the clients of every size
and nature, Modarabas have to innovate, expand and improve
/ their business modes, products, skills and operational
capabilities. Also, the equity base of the Modarabas needs
to keep pace with the growing volumes of business. For this,
the Association has been encouraging mergers and consolidations
of the existing Modarabas and welcoming new entrants bringing
recognizable financial and professional strength. Modarabas
can export their skills and experiences to other Islamic
countries and also form international collaboration and
linkages.
Ladies & gentlemen,
I will be failing in my duty if I do not acknowledge the
visionary and encouraging regulatory environment being provided
by SECP and particularly by the Registrar Modarabas and
his able team. Their continued support in dealing with the
operational and regulatory issues of the
Modarabas is of immense value for which the Association
and its members are grateful. Mr. Chairman, my colleagues
in the Association are also thankful to you for devoting
your time to preside over this gathering. Your presence
amongst us provides great encouragement and motivation to
all of us. I am grateful to our valued guests from the modarabas,
leasing companies, Islamic banks, SECP and the media whose
presence has made the event extremely useful. My sincere
thanks are due to the members of the Executive Committee
and the Association's Secretariat for working so hard through
out the year and also for making this afternoon a possibility.
Sir, I would now request you to kindly share your valuable
thoughts with us. After that, we would hold the Award distribution
ceremony for the best performing Modarabas.
Thank you.
