By
Shabbir Kazmi
Background
Mudarabah is akin to a partnership, where one party -the Rab
al Maal -provides financing to another -the Mudarib-for the
purpose of carrying on a business. The Mudarib is the working
partner who manages the business.
Mudarabah can be divided into two categories:
1. Mudarabah al Muqayyadah (restricted Mudarabah) is where
the Rab al Maal specifies a particular business or place of
business which he invites in for the Mudarib.
2. Mudarabah al Mutlaqah (non-restricted Mudarabah) is where
the Rab al Maal affords full freedom to the Mudarib to undertake
any business the latter so wishes. However, the Mudarib is
not allowed to provide finance to anyone without the consent
of the Rab al Maal. The Mudarib is authorized to do what is
normal in the course of business, but anything beyond the
normal routine of the business concerned will require permission
from the Rab al Maal. The Mudarib is also forbidden to have
another partnership or Mudarib, or mix his own investments
in the Mudarabah concerned without having first obtaining
the rab al maal's consent.
Mudarabah companies offering Shariah compliant financial products
and services are prominent in Pakistan. Having initiated the
Islamization of the Pakistani economy in 1980 with the recognition
of the Mudarabah concept in the corporate sector, the Mudarabah
Companies and Mudarabah (Flotation and Control) Ordinance
was promulgated in June 1980. The first Mudarabah was a specific
purpose Mudarabah and was floated. The two types of Mudarabah
practiced in Pakistan are:
1. a multipurpose Mudarabah with more than one objective;
and
2. a specific purpose Mudarabah with a particular purpose.
Corporate structure
The Mudarib establishes a Mudarabah Management Company (MMC)
with the approval of the registrar of Mudarabah. The Mudarib
then applies to make a public offer of Mudarabah funds to
the rab al maal via prospectus, following registration of
the MMC
Essentially the MMC is the Mudarib and can establish a series
of Mudarabah for different business venture with the approval
of the registrar of Mudarabah and the religious board, bearing
in mind that each Mudarabah is separate and distinct form
each other and also from the MMC.
Role of Mudarib
A Mudarib in Pakistan manages Mudarabah ventures and charges
a maximum of 10% of the annual profit of the Mudarabah, in
addition to dividends on his minimum investments in the venture.
Profit and Loss sharing
To validate a Mudarib, the parties agree right at the beginning
on the definite proportionof profit that each is entitled
to. This is based on mutual consent, as no specific proportion
is defined under Shariah law. In the case of the absence of
a predetermined distribution ratio, the profit is then shared
equally.
Neither the Mudarib nor the rab al maal is allowed to allocate
a specific dollar amount of profit to any party, nor can profit
be tied at specific rate to the capital. For example, they
cannot agree to the Mudarib getting Rs. 10,000 (US$ 165) of
the profit or the rab al maal receiving a 15% share of the
capital. However, proportionate sharing of the profit is allowed,
such as 40% Mudarib and 60% rabal maal.
Religious Board
The role of the religious board includes:
• examining and reviewing the prospectus of the Mudarabah;
and
• certifying that the business undertaken by the Mudarabah
complies with Shariah principles before the public offer is
made.
Performance
Last year six new Modarabah were given permission to commence
operations in Pakistan. The diversity of business interest
of the new entrants reflects the enormous potential enjoyed
by the sector.
For the year ended on 31st December 2006 there were 25 Mudarabah
companies with assets totaling Rs. 24.2 billion (US$ 400 million)
and paid-up capital of Rs. 6.45 billion (US$ 106 million).
Their results were attractive, with net profit of Rs. 820
million (US$ 13.6 million) on the back of Rs. 4.81 billion
(US$79.5 million) in come.
Out of 25 Mudarabah, 18 distributed dividends ranging from
5-52% Two Mudarabah enhances their paid-up capital by issuing
bonus shares. The total dividends payout for the year 2006
amounted Rs. 745 million (US$ 12.3 million). The top three
dividend paying Mudarabah were First Imrooz Mudarabah, Fayzan
Manufacturing Mudarabah and First Habib Mudarabah.
Conclusion
Mudarabah has played a major role in the development of the
Pakistani economy. We have witnessed Mudarabah playing the
role of a key intermediary in the financial scene of Pakistan
and having created a market niche for itself in the corporate
sector. Certainly there is further room to grow and develop
the sector given the increasing demand for Islamic products.
Shabbir Kazmi is news editor and producer of SunBiz Pakistan.
He was formerly the editor of special projects with the Pakistan
& Gulf Economist. During his 15-Year association with
the media, he was twice (in 1993 and 1996) declared runner
-up for the Pan Asia Journalism Award sponsored by Citibank
in Pakistan.
This article is published in "Islamic Finance
News" Vol. 4. Issue 32, 10th August, 2007.
|
