COVER STORY

 

1- LEASING AND MODARABA
2- MODARABAS OFFER ATTRACTIVE RETURN
3- LEASING SECTOR REVISITED
4- LEASING COMPANIES TO FACE COMPETITION FROM NEW ENTRANTS
5- ROLE OF LEASING IN ECONOMIC DEVELOPMENT
6- ASKARI LEASING LTD

 

MODARABAS OFFER ATTRACTIVE RETURN

 

Further consolidation and mergers to create a stronger base and improve profitability

 

By SHABBIR H. KAZMI
Nov 25 - Dec 01, 2002

 

 

Currently there are 44 Modarabas listed at stock exchanges having an aggregate paid-up capital of over Rs 9 billion, compared to Rs 4.9 billion of Leasing Companies, Rs 4.6 billion of Investment Banks and Rs 4.7 billion of Mutual Funds. Modarabas has a total asset base of Rs 16 billion. Out of the total listed Modarabas 31 have posted an aggregate of about Rs 671 million profit before tax, despite some posting loss.

Before going forward, it may be of some interest to look at the performance of the sector. There are 34 members of Modaraba Association of Pakistan. According to the latest information 31 have announced results for the year ending June 30, 2002. Out of these 34 members, 31 have announced results so far. While 24 have posted profit before tax, seven have incurred loss and three have not released their results as yet. First Grindlays Modaraba has posted the highest profit amounting to over Rs 172 million. Whereas First Allied Modaraba has posted the highest loss of about Rs 35 million.

In the recent past some Modarabas were facing problems. The most disturbing fact is that there is no clue of three Modarabas namely, Schon Modaraba, Tawakkal Modaraba and Dadabhoy Modaraba. The Securities and Exchange Commission of Pakistan (SECP) has put five Modarabas under the management of other good players. These are Unicap, Financial Link, Industrial Capital, Hajveri and Interfund Modarabas.

According to Iffat Zehra, an analyst at IP Securities, the sector has declared amazing payouts providing an excellent investment opportunity based on dividend yield. While the payouts are outstanding, the incredibly attractive dividend yield is the result of very low prices quoted at the stock exchange. The certificates of 35 Modarabas, out of total 39, are being quoted below par value.

One of the reasons of this diffident attitude by the investors is the varying concern about growth prospects of the sector. The restriction on Modarabas to borrow from banks was a serious constraint hampering resource mobilization by the sector. Furthermore, the tough competition from leasing companies and commercial banks does not offer level playing field for Modarabas.

In order to support the Islamic mode of financing in the country, the SECP has recently approved flotation of Musharika-based term finance certificates (TFCs) by the Modarabas. The concept is being reviewed by the religious scholars. If approved by the clergy, these TFCs are expected to significantly solve the problem of resource mobilization.

Presently the operation of Modarabas is restricted to the main cities like Karachi, Lahore and Islamabad. Very few cities and towns having a large concentration of small and medium enterprises (SMEs) have a direct presence of the offices and marketing outlets of the Modarabas. It has been proposed to set up a Modaraba with the joint participation of as many members of Modaraba Association as may be interested. This proposed Modaraba will undertake leasing, Musharika and Morabaha finance for SMEs. Its offices will be set up initially at Hyderabad, Sukkur, Sialkot, Wazirabad, Gujrat and Nowshera.

It will not be out of context to reiterate that the spirit behind establishment of Modarabas was to facilitate SMEs and micro establishments. It may be another thing that most of the Modarabas are catering to the corporate sector. The recent decision to cater to the needs of SMEs is an effort to implement the original mandate.

The outlook and future growth of Modarabas is dependent on a number of factors. These are: economic and political situation of the country, diversification of products and services, expansion of this sector to other Muslim countries, a supportive and encouraging regulatory environment and constant training of the management and creating of awareness among the investors for adoption of Islamic principles of financing.

DETAILS OF PROFIT

NAME OF MODARABA PROFIT BEFORE TAX

Al-Zamin Leasing Modaraba

2,856,681

B.F. Modaraba

4,702,262

B.R.R. International Modaraba

76,851,322

Fayzan Manufacturing Modaraba

38,498,055

First Allied Bank Modaraba

(34,806,896)

First Al-Noor Modaraba

28,900,715

First Constellation Modaraba

5,166,514

First Elite Capital Modaraba

3,172,063

First Equity Modaraba

46,414,026

First Fidelity Leasing Modaraba

23,505,656

First General Leasing Modaraba

(11,473,495)

First Grindlays Modaraba

172,439,141

First Habib Bank Modaraba

81,193,417

First Habib Modaraba

65,057,010

First Hajveri Modaraba

(7,309,940)

First IBL Modaraba

13,757,626

First Imrooz Modaraba

36,459,234

First Islamic Modaraba

3,316,908

First Mehran Modaraba

7,200,285

First Pak Modaraba

9,086,551

First Paramount Modaraba

5,841,904

First Professionals Modaraba

2,600,130

First Prudential Modaraba

31,234,847

First Punjab Modaraba

40,931,917

First UDL Modaraba

9,730,807

Guardian Modaraba

10,797,433

LTV Capital Modaraba

(13,747,106)

Modaraba Al-Mali

27,759,419

Modaraba Al-Tijarah

(9,002,093)

Trust Modaraba

3,813,270

Unity Modaraba

(887,414)