Islamic Banking

1. Islamic Banking MODARABA COMPANIES AND MODARABAS

2. Group Membres • Ammar Yasir • Mohsin Jamal • Qamar Zaman

3. MODARABA The maininstrument of Islamic finance • "Mudaraba" is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called "rabb-ul-mal", while the management and work is an exclusive responsibility of the other, who is called "mudarib".

4. The salient features of modaraba companies • Registration • Types • Public or Private sector • Separate Business • Paid up capital • Religious Board • Regulatory control

5. The salient features cont.. • Promoters should be knowledgeable • Resources mobilization • Operations • Share in profits

6. Modaraba Business Activities Financing operations i) Modaraba financing ii) Musharika financing iii) lease financing iv) Project financing are under taken.

7. Resource mobilization i) Funds management ii) Money market operations iii) Capital market operations

8. FEATURES OF MUDARABAH It is an important feature of this kind of business that the money should be handed over by the Rab-ul-Mall to the Modarib and he should not control the money. Modaraba must be incorporated and register under Modaraba ordinance, 1980. Its activities are controlled by the Modaraba companies and Modaraba rules, 1981.

9. FEATURES OF MUDARABAH cont.. 4. The certificates issued by Modaraba are transferable. 5. The Modaraba has right to receive at least 10% share in Modaraba business. 6. The profit of Modaraba business is distributed among the partners according to the agreement, and one partner cannot enjoy entire profit of the business.

10. FEATURES OF MUDARABAH cont.. 7. The money of Modaraba cannot be contributed to another person without the prior consent of Rab-ul-Mall. 8. It may be formed for specific period and it will be dissolved by the expiry of that time. 9. It may be formed for single purpose or for multiple purposes. 10. The Modaraba will be dissolved by the death of any partner.

11. CONSTITUTION OF MODARABA COMPANIES AND MODARABA: • The concept of Modaraba was given fourteen hundred years back by our Holy Prophet Hazrat Muhammad (Peace be upon him). • In Pakistan the process of Islamization of the economy was initiated in 1980 when the Government introduced the concept of Modaraba for Islamization of the economy.

12. Regulations applicable to Modaraba and the Modaraba Companies The Modaraba Companies & Modaraba (Floatation & Control) Ordinance, 1980- registration of Modaraba Companies and floatation, management and regulation of Modarabas. The Modaraba Companies & Modaraba Rules, 1981

13. Regulations applicable to Modaraba and the Modaraba Companies The Companies Ordinance , 1984 The Religious Board Prudential Regulations for Modaraba

14. REGISTARTION OF MODARABA COMPANIES • Requirements: Every Modaraba company is required to be registered before operations. • Eligibility criteria: Company must be : - Registered under CO1984 or - Body corporate formed under any law in force and owned or controlled by FG or PG, directly or indirectly through a company or corporation.

15. REGISTARTION OF MODARABA COMPANIES • Paid up capital shall be: • Rs. 2.5 m at least for a company solely engaged in floatation of Modaraba. • Rs. 7.5 millions for others of which Rs. 2.5 m is set aside for Modaraba. (It does not apply to a body corporate formed under law and owned or controlled by FG directly or indirectly)

16. REGISTARTION OF MODARABA COMPANIES cont.. None of its directors, officers or employees has been: - convicted of fraud or - breach of trust or - of an offence involving moral turpitude or - adjudicated insolvent or - has suspended payment or - compounded with his creditors

17. REGISTARTION OF MODARABA COMPANIES Process: • Company shall apply on prescribed form in prescribed manner. • Application shall be accompanied by: • 5 copies of Memorandum & Articles • 5 copies of incorporation certificate • Receipt for fee paid

18. REGISTARTION OF MODARABA COMPANIES • 5 copies of latest audited accounts, if company has already been in business • Precise description of business being done, • Registrar shall grant registration if he is satisfied that: • Application is in prescribed form • Applicant is eligible for registration • It is in public interest to do so

19. REGISTARTION OF MODARABA COMPANIES cont.. Restrictions: Registration may be subject to restriction regarding: • Investments to be made • Information and returns to be furnished to Registrar • Business to be undertaken • Transfer of shares by promoters, sponsors or persons holding Controlling interest

20. The role of modarabas in Islamic economy and finance • The first sincere step towards Islamization of Economy and Finance was made in 1980 through promulgation of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance 1980.

21. The role of modarabas in Islamic economy and finance In a recent review in the Press, over 50% of the listed modarabas at Karachi Stock Exchange have demonstrated positive results during first half of the current fiscal year. At the end of June, 1997, out of 51 listed modarabas, 24 had declared no dividend to shareholders as compared to 27 modarabas in the corresponding period in June, 1996.

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