Modaraba Association of Pakistan

State Bank of Pakistan Syed Salim Raza, Chairman SECP Mr. Salman A. Shaikh and Mr. Bilal Rasul, the Registrar Modaraba.

This year we have included in the book Glossary Islamic Terminology in order to give awareness to the readers about the different terminology of Islamic modes of financing. It also includes informative articles on Sukuk and What makes Sukuk Shariah Compliant. These articles shall give you complete awareness about the Sukuk.

Modaraba Association of Pakistan has completed almost one and half decade and so far this body has proved as a very vibrant platform to coordinate the activities of the members, address their problems through interaction with the Regulators and develop a healthy corporate culture, based on Islamic Shariah.

Globally the Islamic financial services industry has witnessed a phenomenal growth. In Pakistan, the Modaraba Sector has established its place and has been able to create a market niche for itself in the corporate sector. This model is enjoying a unique recognition in Islamic Financial industry world over due to its well designed structure with proper rules and regulations defined from the regulators.

Recently the Islamic Financial industry has proved its resilience and has attracted world attention in this time of global financial turmoil. The principles of Islamic finance are now being discussed and reviewed by the investors world over.

Approval of new financials products within the sector

We are glad that this industry is being continuously encouraging and promoted by the regulators. There is a remarkable growth in Islamic banking as well as in Non-banking Islamic financial activities such as Islamic mutual funds, Takaful and Modarabas within the country.

For development of non-banking Islamic financial services, the SECP has also played a key role in providing an enabling environment and level playing field. In the year 2008, with the support and guidance of SECP through the office of Registrar of Modaraba, the Modaraba sector was allowed several new Shariah compliant products. Besides, three model agreements were replaced with the previous one after a gap of almost 20 years.

The Religious Board has also granted permission for insertion of the words "An Islamic Financial institution after" the represent the functions and business of a Modaraba under the shadow of the Islamic Financial Services.

Here I would like to appreciate the support of the Registrar Modaraba due to which MAP has been able to achieve above tasks after several years.

I must say that this was such a significant landmark in the history of the Modaraba Sector. No doubt, this shows the keenness Islamic Financials services industry within the non-banking sector of the country. This would allow a closer participation amongst the Islamic banks and Modarabas for overall growth of the Islamic financial sector.

Performance of Modaraba Sector

Due to this motivation and support of the regulator, the performance of Modaraba sector during the year ended June, 2008, was remained reasonably well as compared to performance in the corresponding period of previous year. There was an improvement in every area including assets size, equity, paid up capital and profitability.

Out of 24 Modarabas, 18 Modarabas have declared cash dividend between the ranges of 2.5% to 40%. The profit of the sector stood at Rs.962 million as compared to Rs.749 million of previous year showing an increase of 28.0%. Total Assets of the Sector have been increased to Rs.29.0 billion as compared to Rs.26.0 billion of last year showing a growth of 12.0%.

The year under review has witnessed two acquisitions i.e. Al-Zamin Leasing Modaraba has acquired International Multi Leasing Corporation and Trust Modaraba. These acquisitions shall further strengthen the sector.

Development of awareness on Islamic Finances

In order to give awareness to the staff of the modaraba sector about the model financing agreements approved by the Religious Board, MAP has arranged three workshops during the year i) Introduction of model financing agreements, ii) Practical Application of model financing agreements and iii) Risk Management. The Workshops were conducted by the eminent Shariah scholars of the Islamic banks which were well attended.

Mr. Zulfiqar Ali, CEO of Modaraba Al-Mali, and member of Executive committee has supported a lot in arranging the above workshops. The MAP appreciates his efforts.

Priorities of MAP

Modaraba Association of Pakistan is continuously putting their hard efforts forpromotion of the sector. Last year the association was focused on the areas of research and product development, awareness of Islamic financials knowledge within the members, improvement of Shariah governance and promotion of Modaraba model on country level as well as on international level.

Besides these priorities, in the beginning of current year MAP also felt that keeping in view of present economic scenario the area services should be further strengthened and more awareness and education to be enhanced within the members through workshop and interactive session. One workshop has already been arranged and MAP is considering arranging more workshops in current year.

In 2008, the MAP has revised its performance award were given on the basis of only highest dividend payout. However, from the year 2008, the MAP has changed the criteria. For new criteria the MAP had studied the assessment criteria of ICAP , KSE top 25 companies’ and Management Association of Pakistan. The main emphasis is given on Good Governance and Best Business Practices besides, the profit distribution to Certificate Holder by Modarabas.

Corporate Award

It is glad to note that within Modaraba sector, one of the Modaraba was awarded by “ Certificate of Corporate Excellence” by the Management Association of Pakistan. This is the second consecutive award achieve by any modaraba.

As far as the credit rating is concerned, I am proud to say that in this difficult time still there are Modarabas in Modaraba sector who are also maintaining AA entity credit rating on long term basis.

I am pleased to inform you that MAP has obtained Exemption Certificate under Section 153(4) of the Income Tax Ordinance, 2001from deduction of withholding tax.

In order to facilitate the members of the Modaraba Association of Pakistan, MAP has appointed Mufti Abdul Sattar Laghari on its panel as full time Shariah Advisor who will provide guidance, assistance and vetting the agreements for development of the Shariah Compliant Products.

Panel of professional valuers.

MAP has started enlistment of professional valuers on the panel of the Association. In this connection a number of valuers who are already on the panel of Pakistan Banks Association and Leasing Association of Pakistan have been contacted. So far MAP has received a very good response and up till now an amount of Rs.200,000/- have been received being enlistment fee. It is expected that a significant amount will be earned through this head.

Reinstatement of Memberships of three Modarabas

Due to hard efforts of MAP secretariat the three Modarabas, i.e. Unicap Modaraba, Crescent Standard Modaraba, and First Tristar Modaraba have again become the members of the Association. In the past these Modarabas were withdrawn themselves from the MAP membership due to their certain reasons. However, due to strong follow-up of Mr. Muhammad Samiullah the management of these Modarabas were agreed to become again members of MAP.
The total number of members of MAP has been increased from 24 to 27 which would enhance the strength of the members ofMAP.

During the year MAP has redesigned and launched its new website and updation work is in process. MAP intends to make its website well informative with the sector information as well as Islamic Financials industry globally in order to give maximum benefits to the viewers.

Although the entire banking and non-banking financials sector of the country are nowadays facing difficulties due to world financial turmoil and general business slow down but I would say that according to last published result the Modarabas sector so far has been least affected.

With the approval of new financials products it is expected that Modarabas shall diversify their activities and a level playing field will be available for them to fetch the significant market share in the Islamic modes of financing.

Amendments in the Prudential Regulations for Modarabas, Modaraba Companies and Modaraba (Floatation & Control) Ordinance and Modaraba Rules are under the consideration of the Registrar Modaraba. In order to remove the practical difficulties and ensure better corporate governance within the sector, MAP had a number of meetings with the Registrar Modaraba and it is expected that the amendments proposed by MAP would be entertained by the Commission.

I am sure that in future the MAP will further enhance its activities and play a proactive role in the development of the Modaraba sector and Inshaallah, continue to provide better services to the members of the Modaraba Association of Pakistan.

I take this opportunity to express my gratitude to Chairman SECP Mr. Salman A. Shaikh, Mr. Asif Jalal Bhatti, Executive Director, Mr. Bilal Rasul, Registrar Modaraba, Mr. Shahid Mahmood, Deputy Registrar and other officials of SECP for their continued support, guidance and assistance particularly in getting the model financing agreements
approved by the Religious Board.

I wish to place on record my appreciation to the members of the Executive Committee and the staff of Modaraba Association of Pakistan, particularly Mr. Muhammad Samiullah, Secretary General, for their continued support and assistance in discharging my responsibilities as Chairman of the Association.