Mar 17 - 23, 2008

Shariah-complaint financial products are mapping out its position on the Pakistan's financial sector landscape in a loud and clear tone that "they are halal (pure)," which unambiguously implies other mode of conventional financing as "haram or impure." Insofar as generating public deposits is concerned, epithetical description of purity penetrates in the pro-religion segment of the society but in the country like Pakistan, where the Shariah compliance mode of financing is still on the introduction stage liquidity reinvestment would have scarcity of avenues. Therefore, deposits can be generated on the name of Islam but are more likely to be inflicted with the impurity factor after being circulated in the conventional financial system such as in the capital market. In spite of vouchsafing, Abdul Aziz Anis, Chief Executive Alfalah GHP argued unlike few years ago when Shariah-compliant instruments were not available in the capital market the introduction of Sukuk bond and other Islamic financial instruments has now guaranteed halal (pure) returns on public investment. While talking to the PAGE in an interview, Abdul Aziz said return on investment in Shariah-based mutual funds is completely halal nonetheless the reinvestment takes place in the capital market. The Islamic instruments are gradually increasing in the market and the public deposits are compliantly reinvested. He said the exposure to public deposits with entirely Islamic trade transactions is getting bright day by day in local arena as well as in foreign plate form and it would take a glimpse of pasture in imitating classical model of Shariah-compliance of mutual funding. Islamic mutual funds have developed diverse asset classes of investment such as equities, money market, Islamic investment, etc. However, both the investors whether be Islamic or non-Islamic can invest in Shariah-compliant mutual funds. To Muslims, the suitability of the rate of returns is supplementary, he opined and adding, "investors look for halal financing." Yet, during first quarter of FY08 the best performer on average was Islamic fund category with a return of 2.45%. He thinks the growth prospective of the mutual funds in the Pakistan's financial market is very promising. "The market is virgin," he stated. While the total unit holders in mutual funds that include conventional and Shariah-compliant are about 250,000, share of Islamic mutual funds in it is disgustingly low, he dismayed. Mutual funds account only for 6 to 7 percent of the total deposits in the banks across the country, for about 5.3% of the GDP, and 16% of the national savings as on June FY07; "while in other financial market like in the US deposits in mutual funds often outnumber deposits in banks." But the mutual funds market of Pakistan is expanding gradually. During last 5 years its total assets have increased from around Rs.25 billion in June FY02 to more than Rs. 250 billion in September FY08. In international financial markets, mutual funds are considered the most profitable and secure mode of investment. In Pakistan, the stark difference is because of the lack of public awareness about the mutual funds and due to the feeble distribution network. In addition to this, the shares trading are just making its roots in the masses of the country.


As soon as the discouraging returns on investment alienate public from conventional means of money deposits trading in shares gets in attention of investors. Financial institutions have played major role in attracting public investment in stock exchanges and money market. In this regard, mutual fund is not a new concept that sums up public money in a consolidated pool of funds to allocate for listed and marketable securities in the bourses. It offers not only significant rate of returns on investment but also minimizes financial risks. Despite the speciality of security against risk mutual funds have not attracted much attention of investors in Pakistan. The result in terms of Islamic mutual funds is twice as unimpressive. With a competitive advantage of Shariah compliant reinvestment that assures pure returns, they have yet to penetrate in major population.


On distribution network, Abdul Aziz said low access of mutual funds to a major population stand in front the biggest bottleneck in the way of market growth. While investors with a desire to invest in securities can find brokers even in the remote areas they barely have the alternative option of mutual funding. Especially in suburban areas people don't have well designed money market and they have to rely on traditional mode of investment in securities. Consequently, they put their money in stock exchanges directly or indirectly but they have little knowledge of or poor access to pooled investment that is what actually mutual funds consist of. The investors go to the share trading because of the low rate of return in saving accounts of banks and in defence saving certificates and they could return back comparatively high after investing in stocks. Online trading has increased the outreach of shares trading but in case of mutual funds the concept has yet to be implemented. Only in Karachi Stock Exchange, there are seven hundred listed companies and around 200 brokerage houses other than their sub offices, while nationwide total numbers of mutual funds institutions do not cross the figure of twenty seven out of which just few offers Shariah-based mutual funds. We have a plan to expand the coverage of our products in the far flung localities through establishing extensive network of offices, he said. The remote areas have substantial potential for the progress of mutual funds. Responding to question, Abdul Aziz said in a short period of two years Alfalah GHP has marketed three open ended funds and in near future will introduce funds for corporations and high profile investors. Presently, it manages value fund, income multiplier fund, and Islamic fund. Value fund invests up to 80% of its net assets value in equity securities or debt or money market. Out of the total investment minimum 50% of assets remain invested in the listed securities. Multiplier fund seeks to generate an attractive return from a portfolio, which is substantially constituted of high quality debt securities and liquid money market instruments and placements while the Islamic fund is the first Shariah compliant fund that invests in Shariah compliant securities listed on the stock exchanges in the country and abroad, and other fixed income Islamic instruments like Musharika certificates and Sukuk bonds.

Abdul Aziz strongly believes that the investors of securities will divert to Islamic means to deposit their money after realizing that they are trapped in the impure financial transactions.