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Model Financing Agreements for Modarabas
The SECP in conjunction with the Modaraba
Association of Pakistan have finalized the following 11 Model Islamic
Financing Agreements which have been certified as compliant to Shariah
injunctions by the Religious Board for Modarabas:
 Diminishing Musharaka
Ijarah
Istisna
Mudarabah
Musawamah
Musharaka
Murabahah
Salam
Syndicate Mudarabah
Syndicate Musharakah
Islamic CFS Murabahah
These model Islamic financing agreements are alternative
modes of financing for mobilizing resources and providing the Modaraba
sector with additional products to attract business opportunities
for growth and profit maximization. They replace the previous financing
agreements. It is expected that the Modarabas will now be at a level-playing
field with the banking companies in terms of the available products
and modes of financing.
DOWNLOAD Model Financing Agreements
for Modarbas
Regulatory Framework for Real
Estate Investment Trusts
The SECP has prepared draft Real Estate Investment Trusts (REITs)
Rules. These draft Rules, along with a Consultative Paper, have
been made public for soliciting comments and suggestions from stakeholders
and experts. Once received, the comments shall be considered for
incorporation in the draft before approaching the Ministry of Finance
and Ministry of Law for vetting and notification.
In recognition of international and regional financial
market developments and in order to modernize Pakistan’s financial
sector, the SECP has been working on the potential of introducing
REITs in Pakistan as a new investment and saving vehicle. The formulation
of the draft REITs regulatory framework is a significant milestone
in this regard. The REITs Rules lay down the requirements for establishment
of REITs in Pakistan and are based on the study of international
jurisdictions by a Task Force constituted by the SECP for the purpose.
The Task Force has highlighted certain impediments in the real estate
sector that are expected to hinder the growth of REITs in Pakistan.
The Task Force also gave its recommendations to the Federal and
Provincial Governments on fiscal incentives and removing the various
impediments, to ensure an orderly and transparent introduction of
REITs in Pakistan’s financial market.
Private Equity Funds
The SECP is in the process of establishing guidelines for private
equity business in Pakistan as well as guidelines for valuation
of private equity funds and governance principles for Private Equity
Management Company.
Private equity can be looked as a pre-emptive tool
before further liberalization of Pakistani economy, which will give
local investors a chance to hold local assets. It may help Pakistani
firms to become global, especially in this new wave of globalization.
By pooling their money together, a lot of small Pakistani investors
will be able to contribute to the development of industry and infrastructure
in Pakistan.
Specialized Companies Returns
Submission & Compliance System
The SECP has developed an information system – the Specialized
Companies Returns Submission and Compliance System (SCRCS) –
for making the off-site surveillance mechanism more effective. It
is expected that this system will be operational within the first
quarter of year 2006. The SCRCS will not only rationalize the number
of returns submitted by non-banking finance companies but will also
enhance the efficacy and utility of the submitted information.
Consolidation of Financial Sector
The SECP has been encouraging mergers and consolidation in the financial
sector. The consolidation has resulted in improving the resource
mobilization potential and the operational efficiency of NBFCs including
modarabas due to strengthening of capital base and economies of
scale, respectively.
Development of Mutual Funds
Industry
In order to promote investment through mutual funds, the SECP has
allowed provident funds to invest up to 50 percent of their funds
in unit trust schemes authorized by the SECP and, further, to expose
up to 20 percent of their funds to a single scheme. Moreover, the
SECP has given permission to form index funds, sector funds and
fund of funds as well as conversion of a closed-end fund to an open-end
fund in order to provide product diversification.
It has been made obligatory for asset management companies
to get the unit trust schemes that they manage, rated by a rating
agency registered with the SECP. Management companies are also required
to widely disseminate ratings of their funds so that institutional
as well as individual investors may make informed decisions.
Supervision of Privatized Mutual
Funds
Upon privatization of ICP mutual funds, three lots of funds were
formed: ICP Mutual Funds Lot ‘A’ comprising of 13 funds;
ICP Mutual Funds Lot ‘B’ comprising of 12 funds; and
Lot ‘C’ comprising of SEMF. These funds were privatized
without being converted into a corporate or trust structure. New
fund managers were given a time limit of six months by the Privatization
Commission and ICP (under the Management Rights Transfer Agreement)
to restructure the privatized funds and bring them in a form acceptable
under the prevalent Rules. The SECP took necessary actions, including
amendments in Rules as well as transforming and aligning the structure
of the privatized funds according to the existing legal provisions
for facilitating their privatization. Among other conditions, the
SECP required that assets of these funds should be placed in custody
of separate entities, which were eligible to act as the custodian
and trustee of these funds. Subsequently, the new fund managers
were also allowed to merge certain funds and transform them into
a trust.
Islamic Debt Instruments
With a view to assisting the modaraba sector in resource mobilization,
they were allowed to issue Musharaka based Term Finance Certificates
on the basis of profit and loss sharing principles. It is expected
that this will open a useful avenue of resource mobilization for
the Modaraba sector and will also add to the growth of the corporate
debt market under Islamic financial principles.
Anti-Money Laundering
As part of its drive to combat money laundering practices in the
financial sector, the SECP directed the NBFCs and modarabas to accept
deposits from investors only after ensuring that an account had
been opened in the investor’s name using a standardized account
opening form. Moreover, these entities were directed to use cross
cheques from 1 July 2003 onwards for payments and receipts exceeding
Rs. 50,000. The anti-money laundering requirements have also been
incorporated in the Prudential Regulations issued by the SECP for
NBFCs and modarabas.
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