ZUBAIR R. PALWALA is
a Chartered Accountant (Intermediate) by profession, with a long
experience of national and multinational financial institutions at
different levels to his credit. He also acquired Masters Degree in
Business Administration. Zubair has been successfully managing two
Modarabas, First IBL Modaraba and First UDL Modaraba. He has been
playing a significant role in the preparation of different rules,
regulations and laws for the Modaraba sector and dealing with the
strategic matters with the regulators and other market players.
Recently, Palwala was elected Chairman of Modaraba Association of
Pakistan. Zubair also dealt with the Income Notes devised by IFC, which
provided funding facilities of US$ 30 million to three Modarabas under
the scheme, for the purpose of developing the Modaraba sector in
Pakistan. The funds were given for ten years with a grace period of
seven years. This was a substantial support towards the resource
mobilization and credibility of the Modaraba sector.
Ishrat Husain has recently talked about potential threat for financial
institutions operating under Shariah. How do you foresee the threat?
the day one the institutions working according to Shariah have been
facing a very tough competition from conventional financial
institutions. I believe the two types of institutions have entirely
different niche markets. The people who do not wish to receive Riba have
been declining the returns from conventional banks. However, they were
forced to bank with these institutions because they did not have any
other alternative. Now, they have an option and the size of Islamic
banking is on the rise. It is on record that assets of Islamic banks
have tripled during the first nine months of current financial years.
Therefore, I do not feel any major threat for financial institutions
working according to Shariah. Saying this, I would like to bring on
record that government must provide some incentives to these
institutions as these are still in their infancy.
do you review the performance of Modaraba sector?
sector has faced many ups and downs in more than two decades. Both the
players and the regulators have emerged stronger with the passage of
time. Total equity of the sector has been registering constant growth
and players have diversified their businesses. However, leasing still
remains their core business. Modaraba Association of Pakistan as well as
Leasing Association of Pakistan has been demanding from the government
to ensure level playing field. We do not wish the government to impose
restriction on entry of other financial institutions into the leasing
business. But we may be justified in demanding creation of separate
entities by the commercial banks for undertaking leasing business.
have not seen listing of new Modarabas lately, Are there any reasons?
two major Modarabas have been floated but the number of listed Modarabas
is on constant decline. However, it does not tantamount to any weakness
of the sector but being done for consolidation. One of the major
impediments is the non-existence of Religious Board for about two years.
In the absence of this Board the process of development of new products
has been constrained. As regards shrinking number of Modarabas, this can
only be attributed to mergers and acquisitions. It has become evident
that having a large number of weak players is neither beneficial for the
certificate holders nor for the trade and industry. In a very
competitive environment, costs have to be reduced and one of the viable
options is merger of weaker institutions with the strong players.
Initially, there was some resistance but the ultimate message has been
heard loud and clear by all.
How the Modarabas intend to beat the competition?
ZUBAIR: As I
have said earlier, we are not afraid of competition but certainly have a
right to demand level playing field. Most of the players have redefined
their business strategies. Most of them are now focusing on small and
medium enterprises as compared to the previous practice of catering to
needs of corporates only. The paradigm shift has proved beneficial for
players as well as the business community in general. It is heartening
to note that the government is also focusing the need for funds of small
and medium enterprises. Reverting back to catering the needs of small
and medium enterprises is also closer to the spirit of the concept of
the Modarabas also invest in equities?
such Modarabas are not barred from investing in equities. However, the
basic parameter for selection of any scrip is that the company should
not be drawing its income from Riba-based operations or involved in a
business does not approved by the Shariah, i.e. banks or companies
involved in the manufacturing of alcohol. Most of the Modarabas have
invested in the shares of each other as well as in the shares of
companies in the manufacturing business. For example one of the members
of MAP, First Equity Modaraba, draws bulk of its income from equities
are the future prospects for the sector?
general perception is that Modarabas are the less aggressive players of
the financial sector. This perception precipitates from two facts 1) the
news pertaining to the sector are printed with long intervals and 2) the
name hardly seen in the list of volume leaders of a day. Whereas the
fact is that the dividend payout by a large number of Modarabas is very
attractive. The reason for not being among the top volume leaders are 1)
most of them have relatively lower capital as compared to the volume
leaders and 2) it is very difficult to maneuver the quoted price. Since
the chances of making abnormal gains are not there, Modarabas cannot be
the pick of speculators.