Pakistan came into being in 1947. Soon after the
existence of the country the central bank, State Bank of Pakistan was
established in the year 1948. At the historic occasion, Quaid-e-Azam
Mohammad Ali Jinnah in his speech laid down the directions for the
system of economy of the newborn country created on Islamic ideology.
It quote "The adoption of Western economic theory and practice
will not help in achieving our goal of creating a happy and contended
people. We must work our destiny in our own way and present to the
world an economic system based on true Islamic concept of equality of
manhood and social justice. We will thereby fulfilling our mission as
Muslim and giving to humanity the message of peace which alone can
save it and secure the welfare, happiness and prosperity of
The concept of Islamic banking is not an idea now.
The earliest Islamic banks faced serious challenges on many fronts,
however, the problems did not last long and having passed through this
difficult time have proven steady growth over the time and are now
operating around 70 countries in the world. They have developed,
introduced and delivered viable solutions to different stakeholders.
Islamic financial institutions are diverse and becoming increasingly
innovative. Value of their collective assets has reportedly exceeded $
200 billion with steady growth of 10-15% p.a. Some conventional
financial institutions of international standing have also established
Islamic banking subsidiaries and windows. In USA, UK and other
European countries number of Islamic funds exists since last many
Islamic banking and finance movement is in advance
stage in countries like Malaysia, Saudi Arabia, Sudan, Indonesia,
Brunei, Bahrain, Pakistan and Iran. In this article, I would confined
my discussions to the process of Islamization of economy of our
beloved country, and more precisely to the role of Modarabas in this
In Pakistan, when we go back to the history to find
the routes when the transformation process to Islamize the economy was
started, we found that efforts were made in this respect in 1977-78.
We are proud at that Pakistan is among very few countries that have
initiated the efforts to implement interest-free banking at national
level. We have a very long history to operate our financial system
under the conventional interest-based system, therefore, interest
being deeply embedded in the present day economics and finance.
Connotation of Riba was finally decided through verdict given by
Council of Islamic ideology in its landmark report in 1979.
We witness that due to variety of nature of problem
this transformation process of economy was a colossal task, therefore,
it is implemented in different phases and we can divide it into two
major groups. First individual financial i.e. Modarabas start their
operations in early eighties under immense competition with
conventional financial institutions/banks and run parallel with them.
Secondly, country wide Islamic banking on comprehensive basis. In the
second phase, initially, separate interest-free counters starts
operation in nationalized commercial banks and subsequently other
private banks have followed them. Later on, licenses were also granted
by State Bank of Pakistan to establish full fledge Islamic commercial
banks in the country.
Modarabas in Pakistan has played a key role to give
ignition and momentum to the movement of Islamization of financial
system of the country. The history can never be completed without
taking the notice of their contribution in transformation process of
the economy. They have created the atmosphere to develop the
understanding about the Islamic mode of finance and prove that these
are practicable to resolve the financial requirements of all sectors
of the economy. Modarabas are capable to undertake all sorts of
business that is in conformity with the Sharia. Most of the Modarabas
are providing working capital as well as term finances to their
clients. Despite of serious constraints to mobilize the funds for
their expansion, their performance is remarkable in term of the
current assets size and return they are making and profit distributing
among their certificate holders. Modarabas are contributing towards
the economic development of the country, and providing appropriate
infrastructure based on their experience.
Besides all these achievements, it is worthwhile to
note that due to decades of their operation they have trained plenty
of executives and prepared a sizeable workforce of personnel who are
carrying substantial experience on their credit and are most
proficient to prudently undertake the financing through Islamic mode
of finance. They are the assets for successful operation of any
Islamic financial institution. Modarabas have practically perform the
role like an institute and providing on the job training facilities to
prepare such workforce and nourishes the system at their cost and
expense. With the growth of Islamic-based financial institutions in
the country, these executives are also rendering valuable services in
the newly established Islamic financial institutions to strengthen the
system of Islamic mode of financing.
Historically, there was no opportunity for the
peoples seeking Riba Free investment avenues for their surplus funds
to earn modest return with the confidence that their funds are in safe
hands. With the advent of Modarabas such investors have found an
opportunity to invest their surplus in Modaraba certificates. Over the
period of time this has been proved that it was a good venue to get
reward on their investments in term of dividend offered by the
Modaraba in succeeding years derived from their operation of providing
finances through Islamic mode of financing.
In the present scenario of commencing second phase
of process of Islamization of the financial system, commercial banks
were entered into the market of Islamic finance, moreover other banks
and financial institutions were allowed to undertake the leasing and
micro finance business as well, therefore, likewise leasing companies,
Modarabas are also subject to un-precedent competition with the
commercial banks having surplus liquidity. Therefore, this is the time
to diversify their operation and provide innovative solution to their
clients to maintain their clientele. At this point I would like to
emphasize that Modarabas should focus their attention to tap different
opportunities in the changing scenario, and target other market
segment other than the conventional.
To conclude this brief article, I would like to
extend my personal view on the potentials yet to be explored by the
Modarabas. The Islamic financial institutions particularly Modarabas
should make an effort to integrate and consolidate their resources and
pool their expertise enable them to capture more business venues to
enhance their operation. As a matter of food for thought, I may
suggest exploring of the possibilities to take the advantage of
unattended sectors of the economy e.g. livestock farming, alternative
energy sources, organic farming & fruit exports, trade of
biodegradable environmentally friendly fertilizer business and others.
Modarabas may also go to Gwadar to derive businesses from the new port
land area e.g. warehousing facilities, packaging of exportable goods,
lifting of cargo, transportation etc etc.
I am confident that with the dynamic approach to
address the issues in the competitive environment there is no doubt
that Modarabas would definitely find their way to the glorious future,
and to set new milestones for the new entrants.
Writer is a member of key management team of First