Feb 04 - 10, 2008

LAHORE: During the last two decades, the Modaraba sector has contributed significantly to the financial sector by providing an Islamic mode of financing in Pakistan. With the increasing interest in Islamic Banking around the world the Modaraba sector has become an important part of Pakistan's financial sector.

A spokesman of the Modaraba Association of Pakistan (MAP) told Pakistan and Gulf Economist that the Modaraba sector plays an integral role in economic development of Pakistan by facilitating the productive investment in accordance with the Islamic principles. However, a dynamic Modaraba sector is critical for integrating Pakistan into the international Islamic Financial System, he insisted.

According to him, the government is taking effective measures to promote private sector led growth in Pakistan and the Modaraba sector will be an important partner in this effort. At the same time, the Modaraba sector is facing some new challenges to keep pace with the growth of financial sector, he added. He said that the government should support and recognize the Modaraba sector as an important sector in the overall financial sector. The State Bank is keenly focused on the development of Islamic Financial Services, making it one of the fastest growing segments of the financial sector in Pakistan, he pointed out. He further said that the Modaraba sector is an important component of this segment and over the years has been dedicatedly committed to providing Shariah compliant financing options. Like the banking industry, the Modarabas are also in the process of consolidation, he revealed.

Nearing Consolidation: Syed Ishaq Ali Abbasi, Chief Operating Officer, Abbasi & Company (pvt) Limited told this scribe that the measures taken by the Securities and Exchange Commission of Pakistan (SECP) to strengthen the regulatory framework and the reconstitution of the Religious Board for Modarabas are expected to provide the requisite enabling environment to these institutions to introduce more innovative financing products and new Shariah compliant avenues of resources mobilization. However, he was of the view that with the introduction of Islamic Banking, there seems little scope for the Modarabas; hence, the government would be required to encourage the Modaraba sector to strive to diversify and expand its product base in order to improve its market share.

Syed Ishaq Ali Abbasi further said at present there is low level trading in the Modaraba shares and most of the trading is being made in selective Modarabas. 'All the Modarabas are ending and the Punjab Modaraba was the highest profit earner', he added.

To a question, he said the Modaraba sector was facing difficult situation and would have to face more challenges in times to come.

He further said that whatever the role was assigned to Modarabas was earlier assigned to the leasing companies, hence, with the start of the operation by Modarabas leasing companies faced slump in their businesses. Afterward, when the banks assumed the role of Modarabas with the introduction of Islamic Banking, their business suffered, he added.

To another question, he said honesty is basic requirement in any business deal; hence clients are required to be apprised about the real situation and challenges.

Leasing Sector: Syed Ishaq Ali Abbasi further said that the year 2007 was hard hit for the leasing companies. Most of the companies either closed down their operations or shifted to other businesses, he added.

Some of the leasing companies which were major players of car financing had stopped its operation in car financing when the banks started car financing.

On the other hand, market sources said that car financing which stood at Rs 107.6 billion or 4.3 percent of the total advances of the banks of Rs 2748.8 billion at the end of June 2007 has slowed mainly because of difficulties in its recovery.

A senior official of Bank Alfalah Limited told PAGE that they have become a bit cautious, choosy and selective on car financing mainly because of difficulties in recoveries. The expenditures involved on the recovery of car financing loans are on rise, therefore, it has been decided to make the car financing a bit stiff.

According to sources in the banking sector, car financing was available at 10-11 percent mark up a year ago but now it increased to 16-16 percent. The processing of applications for car financing has been shifted from branches to respective head offices of the banks while documentation process has also been made a bit harsh.

They told this scribe that the banking industry in Pakistan witnessed tremendous growth during last four years, while the current fiscal year was a bit difficult mainly because of imposition of proclamation of emergency and high commodity prices.

They said crisis of the Pak economy has direct implications. The year started in Pakistan with dark clouds on the horizon, but no positive aspect visible anywhere.