Dec 02 - 15, 2002

MUHAMMAD SAMIULLAH is the Corporate Secretary of Modaraba Association of Pakistan since July, 2001. Prior to this assignment he was Vice President & Company Secretary, First Habib Bank Modaraba, a subsidiary of Habib Bank Limited. Samiullah has a vast experience of banking. He has worked as Head of Shares Floatation Department and has also managed Equity Investment Portfolio of First Habib Bank Modaraba and Habib Bank Financial Services (Pvt.) Limited. Samiullah holds a Masters Degree in Economics, LL.B and Diplomaed Associate of the Institute of Bankers in Pakistan (DAIBP). He has also attended various courses, seminars/workshops including 18 days course on Credit Administration organized by Lahore University of Management Sciences (LUMS), Lahore.

PAGE: What is the role of Modaraba Association of Pakistan?

MUHAMMAD SAMIULLAH: The main objectives of Modaraba Association of Pakistan (MAP) are to coordinate the activities of the members and to help them in resolving the problems as well as to adopt a unified approach and develop a healthy corporate culture based on Islamic Sharia. At present there are 44 Modarabas listed at Karachi Stock Exchange. Out of these 34 Modarabas are members of the MAP. The Association is also working hard to create awareness among the general public about the Modaraba and Sharia compliant mode of financing to earn Riba free return on their investment.

PAGE: Why Modaraba Certificates are being traded below par value?

SAMIULLAH: A typical Modaraba Management Company normally holds 10% to 20% of the total issued certificates of the Modaraba. Whereas remaining certificates are held by the general public and financial institutions. It may look a little strange that despite paying very attractive dividend the Modaraba Certificates are being traded below par. The prices of those blue-chip scrips are normally high where foreign fund managers have some interest. Since Modarabas are operating on Islamic Sharia most of the foreign fund managers prefer not to invest in Modaraba certificates.

PAGE: What is the difference between the boom of equities market of 1990s and the euphoria going on at present?

SAMIULLAH: The boom of equities market of 1990s in Pakistan was mainly driven by the interest of foreign fund managers in emerging market. However, this was confined to limited number of sectors mostly telecommunication, energy, banks and some other sectors. Around the time, some big IPOs like HUBCO and PTCL were also offered. A large number of companies were also listed where NIT, ICP, investment banks and others acquired significant exposure. The spill over also pushed the prices of other scrips. However, a large number of listed companies were not able to pay attractive dividends. This did not allow the investors to keep their investment in the listed companies and prices of shares came down across the board. As opposed to this, the present euphoria is very well supported by corporate earnings. Though, foreign fund managers have not entered the market as yet in any significant manner, the active participation of local retail investor has kept the market robust. At present the investment horizon comprises of over two dozen companies having large capital base as well as large free float. Profitability of these companies has remained high even in the post 9/11 era. These scrips also offer incredibility attractive dividend yield.

PAGE: Is the current movement sustainable?

SAMIULLAH: Since beginning of this calendar year, the KSE-100 index has shown consistent and sustained upwards movement. The index also crossed 2,300 level. Though, the index has witnessed some erosion, market punters are now talking about 2,600 level and beyond. The index movement is supported by strong economic indicators. Revival of economy, supported by corporate earnings, has kept the interest of investors alive. Growing foreign exchange reserves and current account surplus has helped Pakistan in improving its sovereign rating. So far only the local investors have been responsible for the upward movement of the KSE-100 index. The large-scale entry of foreign fund managers into Pakistan can provide further vigour. The retail investors have started investing in equities mainly because of the dividend yields. No other investment offers comparable return.

PAGE: What is the plan of Modarabas to overcome resource mobilization constraint?

SAMIULLAH: Modaraba Association of Pakistan has recently concluded deliberations with Securities and Exchange Commission of Pakistan (SECP) for the flotation of Musharaka Certificates, equivalent to Term Finance Certificates (TFCs) floated by other business entities. It is expected that once the Sharia experts give the final approval, Modarabas will be able to overcome their resource mobilization constraint and further strengthen their support to economy of Pakistan.