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.
How do you review the performance of Modaraba sector over the
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.
can't the Modarabas compete with other financial institutions in general
and commercial banks in particular in leasing business?
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.
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
are the factors contributing to such attractive payouts?
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.
the SMEs have not been able to acquire funds from financial
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.
What role the SMEs can play in the development of the country?
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.
is the key to survival for smaller Modarabas?
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.