KARACHI: Salman A. Shaikh, Commissioner, Securities and Exchange Commission of Pakistan, said on Monday, 'the basic modaraba model should be re-evaluated and newer model with enhanced shareholders’ rights, eviction of bad management, a clear separation of ownership and control should be considered.'
Addressing top management of modarabas at the launch of 9th-year book of Modaraba Association of Pakistan at a local hotel, he said changes should be expected for bringing the modaraba sector further in line with Sharia rulings and the international best practices to ensure investor protection and to offer quality investment opportunities.
He said performance of the majority of the modarabas, though quite impressive, is not reflected in the share market values, which are at discount from the break-up values beyond rational levels.
He said SECP believes that the corporate governance is the issue. The questionable image of the sector is due to the alleged malpractices of previous bad managements, which is still pulling the sector down.
Modarabas venture into high-risk areas which expose them to all kinds of risks. This eventually leads to their death. Shaikh said, 'We need to ensure that the promotion of high-risk activities should meet the same standards of being fair, transparent and not misleading, similar to what we require in the promotion of conventional services.'
He suggested that MAP should work on corporate governance standards and work with the commission to draw up a list of business activities which are restricted and declared as high risk areas.
He said the next few years are very critical for modaraba sector to take advantage of the global developments in Islamic finance. Pakistan is widely seen as having one of the world’s largest Islamic financial markets in term of the customer base.
He said challenges that lie ahead pertain to structural, standardisation and regulatory issues. He said there is no dearth of Sharia scholars in Pakistan, but the input has to be scholarly and instead of conflicting sharia models.
He said SECP is determined to create a regulatory environment that recognizes the features of Sharia based financial system and participants should be willing to put in their earnest and best efforts.
Earlier Basheer A. Chowdry chairman MAP while welcoming Salman A. Shaikh, said during the year ended on 30th June 2006, the modaraba sector has shown considerable growth in its overall performance.
Out of 25 modarabas, 18 have declared cash dividend between the range of five to 52 percent whereas two modarabas have announced bonus shares. The total payout stood at Rs745 million against Rs584 million of the previous year depicting a growth of 28 percent.
The total assets of the sector increased to Rs23,736 million from Rs21,131 million last year showing a growth of 12.32 percent. The income has increased considerably from Rs3,939 million to Rs5,025 million showing an increase of Rs1,086 million that is 27.6 percent.
The chief guest gave shields to three top performing modarabas, namely First Imrooz Modaraba which declared 52 percent cash dividend as compared to 47 percent paid last year. Fayzan Manufacturing declared 29.4 percent cash dividend as compared to 9.5 percent last year. First Habib Modaraba declared 20 percent cash dividend, in spite of increasing its paid up which doubled during last year.
