Apr 26 - May 09, 2004





AZAM AZIZ SAKRANI is Chief Executive Officer of First Al-Noor Modaraba, which he joined two and a half years ago. Prior to that he has worked as Vice President and Corporate Head for Karachi operation of Al-Baraka Islamic Bank for about eight years. Azam is member of Executive Committee of Modaraba Association of Pakistan. He is member of Banking and Insurance Committee of Karachi Chamber of Commerce & Industry. Azam has attended various seminars on Islamic Banking and also a seminar on International Trade and Finance organized by Bank Trust Company in London. He is also member of Pak Saudi Business Council. He is an MBA with major in Finance and has over 12 years experience of Commercial and Islamic Banking.

PAGE: How do you review the performance of Modaraba sector over the years?

AZAM SAKRANI: Most of the Modarabas floated in Pakistan are multipurpose and perpetual type and undertake a variety of activities that include leasing, Ijara, and commodities and equities trading. Some specific purpose Modarabas have been floated. However, after the entry of commercial banks in the leasing business and competition getting fiercer, smaller Modarabas are forced to change their strategy, focus shifting from big-ticket corporate clients to small and medium enterprises (SMEs). The new strategy is yielding encouraging results because commercial banks prefer to enter into collateral based lending and SMEs are often not able to comply with the lending criteria.

PAGE: Why can't the Modarabas compete with other financial institutions in general and commercial banks in particular in leasing business?

AZAM SAKRANI: The Modarabas cannot compete with commercial banks simply on the basis of cost of funds. The average cost of fund of commercial banks is very low and on top of this they enjoy the advantage of large branch network. Another key reason is that the Modarabas cannot borrow funds from other financial institutions involved in Riba-based business. One of the Modarabas has recently floated Sharia compliant term finance certificates and it is expected that others will also exercise this option. The prevailing situation can be expressed as uneven playing field and only the regulators can resolve the issue. I appreciate the efforts of regulators, who are fully cognizant of the situation and are also working for the improvement of the sector.

PAGE: What are the core activities of First Al-Noor Modaraba?

AZAM SAKRANI: First Al-Noor Modaraba (FAM) commenced operations in November 1992 as a specific purpose (trading) Modaraba. In 1995 FAM was converted into a multipurpose and perpetual Modaraba. It is currently engaged in Musharika, Morabaha, equity investment, leasing and local and international trading. The items it deals include cement, chemicals, fabrics, fertilizer, pesticides, rice, sugar, wheat etc. I do not claim that FAM is a larger player but would certainly say that we have been paying reasonable good return to our certificate holders. We have been distributing dividend regularly. We had paid Rs 15.75 million (7.35%) for the year 1999 and Rs 31.5 million (15%) for the year 2000. For the last three years we have been able to distribute Rs 21 million each (10%) dividend.



PAGE: What are the factors contributing to such attractive payouts?

AZAM SAKRANI: FAM offers personalized services. In the trading business, financing arrangements and timely shipment of quality goods play very important role. Over the years we have succeeded in developing a reputation. Our focus is towards product and customers where the yields are attractive. We have executed few transactions where we contributed funds up to 80% towards the products and remaining is clients' contribution. We take the responsibility of logistics and clearance and also help the client in sales. All this is done through the Musharika arrangement spread over three to six months period. This is the true Islamic instruments where we gain better return compared to fixed returns.

PAGE: Why the SMEs have not been able to acquire funds from financial institutions?

AZAM SAKRANI: In my opinion there are two reasons for the prevailing situation. Since the demand for funds from the corporate sector was enormous in the past most of the financial institutions did not have time for the small borrowers. On top of this, the business of most of the SMEs was not documented according to the requirements of financial institutions. Moreover, most of the financial institutions were following collateral based financing and SMEs were often not able to meet this requirement also. With the growing competition and shrinking demand of first tier clients, all the financial institutions are forced to look at the SMEs. The central bank has also come up with separate set of Prudential Regulations to facilitate lending to SMEs.

PAGE: What role the SMEs can play in the development of the country?

AZAM SAKRANI: Globally the SMEs are considered the driving engine of the economy of any country. If the GoP wish to accelerate GDP growth rate and eliminate poverty and unemployment, it has to improve the working environment for SMEs. International agencies are also extending the helping hand. Now it is to be seen how effectively and efficiently the financial institutions are able to meet the requirement of funds for the SMEs.

PAGE: What is the key to survival for smaller Modarabas?

AZAM SAKRANI: They have to redefine their entire business strategy to survive in the fast changing working environment. They have to offer new products and explore new areas for entering into financing arrangements. Being small is not a problem as long business entities are efficient and fully aware of the market realities.