June 07 - 13, 2004



MUHAMMAD YAMEEN KHAN is the Executive Director of First Pak Modaraba. The Modaraba is managed by Royal Management Services (Pvt) Limited. The present management has taken over the management on September 22, 2002. It is a perpetual and multipurpose Modaraba. He is a senior banker and has over 40 years of diversified experience in commercial banking. Presently he is a member of managing committee looking after the business development, specialized projects and overall monitoring of the affairs of Modaraba. Previously he has held different senior managerial positions. He had been the Zonal Head and controlling sizeable number of branches, and the Head of Legal and Recovery Division of leading nationalized commercial bank. He has also attended a large number of courses and seminars including one organized by the Common Wealth.

PAGE: Why did you choose to make a switch over?

YAMEEN KHAN: I have been working for conventional commercial banks for about four decades. During this period I realized that there is a large number of small, medium and large size traders and business houses that believe in pure Islamic mode of financing. When the opportunity came to serve this particular market segment, it really attracted me to be associated with First Pak Modaraba particularly for catering to the needs of this market segment. The size of this market is not only enormous but more and more people are shifting from interest-based banking to Riba-free banking. It is heartening to note that the government is keen in improving the working environment.

PAGE: How the expertise is helping?

YAMEEN: While working for a large size commercial bank, I have been assigned various management responsibilities, which included Business Development; Legal/Recovery and Credit/Marketing. This diversified experience enabled me to undertake the challenges of my current job responsibilities. In addition, I would also like to say that despite of different operational procedures of Modarabas and leasing companies, the basic function of Credit/Marketing and risk management remains the same. The only difference is that in conventional banking the return to the financial institution is predetermined whereas in Riba-free system is based on profit and loss sharing. In my views in such a system the responsibility of financial becomes very crucial because they have to pick up each transaction very prudently.

PAGE: What is the difference between the mind-set of the clients interested in Interest-based and Riba-free financing?

YAMEEN: First of all I would like to clarify that in Pakistan we do not practice interest-based banking.

The banking system prevailing in our country is based on Profit & Loss sharing system, which has recently witnessed its effectiveness by an unprecedented mark-up scenario showing a historical reduction in the cost of fund. As far as the difference in the mindset of the two segments is concerned I would there is not much difference in their business practices and mindsets. A lot of people are keen in following Riba-free banking but the absence of supporting infrastructure has been a serious issue.



PAGE: What are the key business areas of your Modaraba?

YAMEEN: Presently we are involved in Shariah compliant modes of business activities such as Musharika; Murabaha and Ijara Financing, which include providing working capital and assets leasing facility to our customers. In addition to the above-mentioned areas, First Pak Modaraba is also engaged in making investments in the shares of companies listed at the local stock exchanges. The smooth working and growth of construction industry in Pakistan has remained subdued due to inadequate availability of funds for housing finance as well as higher mark-up rates. I foresee a great business potential for Modarabas in the area of housing finance. However, a lot of work has to be done for tapping this fast growing business.

PAGE: Do you believe that Modarabas can compete with the commercial banks in housing finance?

YAMEEN: In January 2004, the Security and Exchange Commission of Pakistan (SECP) has revised the prudential regulation to provide Modarabas a level playing field in the financial sector. It was a great initiative by the SECP, but due the low capital base and the lack of research and development of new investment products the major challenges for Modarabas are cost of fund and effective resource mobilization. In the prevailing scenario if Modarabas rely on financial institutions they will be at a disadvantage and cannot compete with them. However, 'Developers Financing, is an untapped area where Modarabas can play their role and facilitate the reputed developers by providing them structured financed products which would enable them in undertaking quality housing schemes, which could be further taken up under consumer finance offered by all the prominent banks of Pakistan.