Islamabad, Mar 2, 2025: The Securities and Exchange Commission of Pakistan (SECP) Policy Board has authorized the launch of unlisted Modarabas with the goal of promoting performance-based profit sharing and the mobilization of financial resources in the Islamic finance industry.
The ruling is the result of a new evaluation of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980, which was first amended in July 2020 by the Modaraba Ordinance (Amendments) Bill, 2020, which was presented to the National Assembly.
However, after the National Assembly was dissolved in August 2023, the proposal expired. The amendments have now been approved and amended by SECP, and they will be sent to the Finance Division for additional legislative action.
A modaraba is an Islamic financial arrangement in which one party contributes capital and the other, in accordance with Shariah standards, administers it for profit-sharing. Improved governance rules, increased investor rights, and regulatory compliance with the Companies Act are the main modifications that have been kept in the updated proposal.
By changing disciplinary actions from criminal to civil processes, the reforms expedite monitoring, provide investor access to winding-up proceedings in courts, and provide special resolutions on management changes.
In order to increase legal efficiency, the proposal also disbands the Modaraba Tribunal and transfers its duties to session courts and high courts.It is anticipated that these modifications will modernize the Modaraba industry, facilitate regulatory compliance, and increase transparency.
Given the 26th constitutional amendment and the Federal Shariat Court’s decision to remove Riba (interest) from the economy, the proposed modifications are in line with the government’s aim for economic development. Strengthening Islamic financial institutions and fostering sector growth are the goals of the SECP’s policy changes.
