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ISLAMABAD: In a bid to improve efficiency and compliance in the Modaraba sector, the Securities and Exchange Commission of Pakistan (SECP) has consolidated all statutory and regulatory requirements in one circular. The step is taken as part of SECP’s efforts for creating an enabling environment for the Islamic finance sector in the country.

The consolidated circular SRO 2310 contains all prior circulars, notifications, clarifications, and directives that have been issued by SECP since 1999 for the Modaraba sector while all the duplications, repealed and redundant statutory requirements have been deleted. All the up-to-date statutory and regulatory requirements have been compiled in a systematic order.

A comprehensive exercise has been done to review all previously issued circulars, clarifications, and notifications. The objective is to provide a comprehensive and prudent regulatory environment for the Modaraba sector while ensuring ease and efficiency in compliance.

A list of all repealed circulars and notifications issued since 1999 has also been provided at the end of the consolidated circular. The said circular is available at SECP’s website at: https://www.secp.gov.pk/laws/circulars/.

According to the SECP, a Modaraba may sell or transfer Ijarah (lease) assets in the ordinary course of business without being subject to the disclosure requirements outlined in clause 3(ii) of Part-II of the third schedule to the Rules (18.2). The restriction that the management fee can only be paid out of net profit of the Modaraba after wiping off the accumulated losses as laid out in section 18 of the Ordinance, read with rule 16 of the Rules, is replaced with the following additional condition to the Modarabas in order to bring the management fee in line with the concept of Modaraba as well as the provisions of sections 18 and 37 of the Ordinance: “The Modaraba company may charge the prescribed management fee out of the net annual profit of the Modaraba on the basis of annual audited accounts provided that 90% of the profit available for appropriation may also distributed to the certificate holders of the Modaraba after setting aside out of the profit of the Modaraba such sums as it thinks proper as reserve in accordance with regulatory framework applicable for Modarabas.

The management fee shall be charged only once on the profit of a Modaraba i.e. the portion of profit carried forward should not again be subject to deduction of management fee.”

For any violation of the guidelines in this Circular, apart from any other penal action likely to be taken against the management, may result in cancellation of registration of Modaraba company and its removal from management of the Modaraba floated by it, SECP added.

Copyright Business Recorder, 2023

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