ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has tightened regulations for the Modaraba sector, placing new conditions for providing finance to their customers. According to the Modaraba Regulations, 2021 issued by the SECP here on Friday, a Modaraba shall while providing finance (including renewal and enhancement) to a customer which is equal to or exceeds five hundred thousand rupees after netting-off the liquid assets held as security, give due weight to the credit report relating to the customer or its group obtained from a credit information bureau. If the credit report of credit information bureau indicates overdue, the Modaraba may take exposure on such customer keeping in view its risk management policies and credit approval criteria and it shall properly record reasons and justifications for granting the finance in credit approval form. A Modaraba shall not provide finance to a customer who has defaulted for more than six months or availed a write-off from that Modaraba during the last three years. While granting finance to a customer other than individuals, the Modaraba shall obtain copy of accounts relating to the business of that customer for analysis and record, SECP stated. About the linkage between equity of the customer and total exposure from financial institutions, the SECP stated that a Modaraba while taking an exposure shall not provide finance if the total exposure availed by the customer from financial institutions exceeds 10 times of the equity of the customer as disclosed in the latest financial statements of the customer.
Under the new regulations, the total outstanding exposure (fund based and non-fund based) by a Modaraba to a person shall not at any time exceed 20% of the equity of the Modaraba (as disclosed in the latest financial statements). Provided that the maximum outstanding fund-based exposure does not exceed 15% of the equity of the Modaraba.
The total outstanding exposure (fund based and non-fund based) by a Modaraba to a group shall not exceed 25% of the equity of the modaraba (as disclosed in the latest audited financial statements).
The regulations revealed that a Modaraba’s aggregate exposure in listed equity securities shall not exceed 25% of its equity. The investment of Modaraba fund in listed equity securities of any company shall not exceed 5% of the paid up capital of the investee company or 10% of its own equity, whichever is less and the shares acquired in excess of 10% limit due to the underwriting commitments, shall be sold off within a period of six months from the date of acquisition of such shares, regulations added.
Copyright Business Recorder, 2021
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