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Growth prospects of Islamic Finance industry very promising as modarabas playing key role

Growth prospects of Islamic Finance industry very promising as modarabas playing key role

Modaraba business model remains extremely versatile, dynamic and diversified
Interview with Muhammad Shoaib Ibrahim — Managing Director & CEO First Habib Modaraba

PAGE: Tell me something about yourself and your career, please:

Muhammad Shoaib Ibrahim: I have been associated with First Habib Modaraba (FHM) since very long time and currently I am heading this Modaraba as Chief Executive Officer. Long work experience in Non-Banking Islamic Financial Institutions has given me insight into the financial and technical aspects of the non-banking Islamic financial industry covering financial services, equity and debt market. I have done MBA from Institute of Business Administrations (IBA) in banking & finance and also completed Post Graduate Diploma (PGD) in Islamic Banking from Centre of Islamic Economics (Darul Ulum), Karachi Pakistan.

The non-bank sector constitutes a diverse set of financial intermediaries under various business models. In the presence of robust banking sector with deep resources and offering matching products continues to give strong competition to said sector. During my professional career, I have gone through with various challenges and also have seen various up and down in Pakistan’s financial markets. Alhamdulillah, at present, FHM is well positioned in the Islamic financial market with a strong equity base, sound assets size and profitability within the Modaraba sector of Pakistan. FHM holds a strong credit rating scale of AA+ in long term and A1+ in short term. Moreover, FHM has secured several awards/accolades on best performance, best corporate report, best corporate disclosure and corporate excellence from reputable bodies, such as NBFI and Modaraba Association, ICAP and ICMAP, Management Association of Pakistan, and SAFA an apex body of SAARC.

Presently I am a country correspondent of Islamic Finance News, Malaysia and also remained speaker and presented research papers on the Modaraba and other Islamic financial products at different local and international forums. I remained Chairman of NBFI & Modaraba Association of Pakistan and have also served as Executive Member on several times.

PAGE: How would you comment on the performance in Islamic Modaraba in Pakistan over the period of last 10 years?

Muhammad Shoaib Ibrahim: In Pakistan, the process of Islamization of the economy was initiated in early 80s and in the light of the recommendations made by the Council of Islamic Ideology; the Government of Pakistan introduced certain changes in the Banking Companies Ordinance. Besides, the Modaraba Law was also promulgated to provide a legal framework for Islamic financial system. In fact, Pakistan has the privilege of being the only jurisdiction, which has instituted the concept of Modaraba with elaborate legislation and effective regulatory regime.

Within Islamic financial sector Modarabas are playing significant role for promotion of Islamic financial within the country. The concept of Modaraba introduced in Pakistan was the first Islamic Shariah business model with statutory framework and proper regulations. Modaraba’s business model remains extremely versatile and dynamic. These Modarabas were not only trend setters of Islamic modes of financing in a predominant conventional financial system in Pakistan but also built confidence among the general public regarding practice of Islamic modes of financing. Modarabas are established as a well understood Shariah compliance instrument of financing in Pakistan.

During last 10 years, Modaraba sector has performed very well. The assets size reached to around Rs.52.670 billion from of Rs.25.191 billion in 2009. The said progress clearly reflects better performance of the sector and growing interest of investors in Modaraba model and Islamic Finance as whole.

PAGE: In present scenario, other than Pakistan which countries allow to operate Modaraba companies?

Muhammad Shoaib Ibrahim: Modaraba business model remains extremely versatile, dynamic and diversified. Under this concept, any business venture complying with the Islamic Shariah principles can be floated, which could be for a specific purpose or multi purposes. The Modaraba concept is derived from the Islamic traditions of trade and finance. Most probably Pakistan is the first amongst the Muslim countries that converted the concept of Modaraba as a mode of financing into a corporate entity. I have also presented paper in different international conference outside Pakistan on Modaraba model as corporate entity and it was well received by the participants.

PAGE: Tell us briefly about First Habib Modaraba?

Muhammad Shoaib Ibrahim: First Habib Modaraba (FHM) is operating in Pakistan’s financial market as Non-Bank Islamic Financial Institution as one of the pioneers in Modaraba sector. FHM was a first perpetual Modaraba started its business operation in 1985 as a first full fledge Islamic Financial service provider within the non-banking sector. Recently FHM completed 33 years of successful business operation and grow over the year on sound footing with the commitment of adding value to all our stakeholders particularly Certificate Holders and investors. FHM always remain best performing Modaraba within the Modaraba sector. The management of FHM is heir of rich tradition of trading and banking and finance. Business operations of FHM have always been backed by valuable expertise in the field of fund management. FHM is committed to both sustainable business practices and its responsibilities as a corporate citizen.

It is believed that our responsibility is primarily about conducting our business in transparent and ethical way that not only enhances value for all stakeholders but also by giving support to events that enhance the wellbeing of the community. The main components of success of FHM were excellent team work across all levels of the organization. Due to hard and dedicated work of all staff members FHM become the premier Modaraba within the Modaraba sector. Our constant commitment for performance excellence and good governance have not only kept us as leading Modaraba within the sector but also earned us recognition at national and international level. Following are achievements/hallmarks which make FHM prominent within the sector.

  • Sound Equity of over Rs.3.4 billion.
  • Highest assets size within the category of financial services Modarabas.
  • Unbroken history of payment of excellent dividends every year since inceptions.
  • Highest rating scale within the Modaraba sector i.e., AA+ of long term and A1+ of short term.
  • Highest recipient awards and accolades from various prestigious forums at local and international levels. These awards are on best performance, best corporate report, best corporate disclosure and corporate excellence, best non-bank Islamic finance entity from reputable bodies, such as NBFI and Modaraba Association, ICAP and ICMAP, Management Association of Pakistan, and SAFA an apex body of SAARC and FPCCI.


PAGE: What must be done to promote Islamic finance in Pakistan?

Muhammad Shoaib Ibrahim: In Pakistan we divide Islamic finance in two broader categories i.e., banking and non-banking segments. Banking consisting on Islamic commercial banks whereas non-banking segments are having various segments consisting on Modarabas, Takaful companies, Islamic Mutual Funds, Islamic REITs and Islamic finance companies. However, majority of shares of Islamic finance are with Islamic commercial banks.

Pakistan has always remained in leading position in promoting Islamic finance being a key member of international Islamic finance institutions. The notable growth of overall Islamic finance would not have been possible without the committed and dedicated efforts of State Bank Pakistan (SBP) and Securities & Exchange Commission of Pakistan (SECP) along with firm commitment and determination of the Government of Pakistan (GOP) towards the development of sound infrastructure for the growth of Islamic Finance Service Industry (IFSI) within the country.

The achievements made by the IFSI in Pakistan during last decade are commendable. The regulators are striving hard to establish a robust and sustainable financial system more particularly for financially excluded segments. Overall financial inclusion is very low within the country and lack of access to financial services is a direct barrier to many important services, which can greatly support for further development and social inclusion. At present the market share of Islamic Banking is around 15% and as per Strategic Plan of SBP this share is projected to increase up to 20% within next few years. In order to achieve said target a concentrated efforts are much needed particularly to develop the demand side market that can absorb the large size liquidity available with banking sector. GOP being the single large borrower within the country can help through issuance of Sukuk and other Islamic instruments.

Furthermore, due to digital advancement, it is now vital for IFSI to leverage on technology to increase its penetration to unserved areas and region. At present there is high momentum in the transformation of services from traditional to digital. With the support of FinTech, the base of Shariah compliant services can be expanded across the country particularly in financially underserved segment. SME sector play pivotal role for economic growth and through FinTech support the Islamic banks can successfully deploy their funds by using Blockchain based FinTech solution in order to expand the numbers of SMEs within financing portfolio. Fintech can enable Islamic finance to attract more customers, increase efficiency and reduce operational costs.

In light of overall rising demand and the increasing acceptability of Islamic finance among both providers and users, the growth prospects of Islamic Finance industry in Pakistan are very promising. However, industry is still in the evolutionary phase and need more collaborative efforts by all stakeholders particularly the regulator and practitioners to take it to the next level of growth and development.

PAGE: Your views on Shariah compliance:

Muhammad Shoaib Ibrahim: I personally feel that Shariah compliance environment and Shariah governance culture are best within IFIS of Pakistan. Alhamdulillah, we have very renewed Shariah scholars within our country and they are they having excellent command on Islamic finance. Few of them are very much eminent in global Islamic financial markets and present themselves in Shariah Board in various Islamic Financials entities. Masha’Allah, we have a leading Shariah and Islamic Finance scholar Hazrat Shaikh Taqi Usmani. He is a global authority on the issue of Islamic finance. He has served on the boards, and as chairman, of various Islamic banks and financial institutions in Pakistan and world over.

SBP and SECP have done remarkable job for introducing sound and effective Shariah compliance culture within Islamic Finance industry. It encompasses a comprehensive Shariah Governance framework consisting of establishment of Shariah Board, Shariah compliance department and Shariah internal audit. The both supervisors are regularly reviews the regulatory framework to make sure that it is aligned with international standards and best Shariah compliance practices.

PAGE: Has the government done enough for the promotion of Shariah compliance and Islamic Finance?

Muhammad Shoaib Ibrahim: Pakistan is a key market within the South East Asia for development of IFSI. The large Muslim population after Indonesia provides huge opportunities for said industry. The IFSI of Pakistan has made impressive progress within past few years particularly in Islamic Banking segment. Pakistan has remained in leading position in promoting Islamic finance being a key member of international Islamic finance institutions. The notable growth of overall Islamic Finance would not have been possible without the committed and dedicated efforts of SBP and SECP along with firm commitment and determination of the Government of Pakistan towards the development of sound infrastructure for the growth of IFSI within the country.

Islamic finance in Pakistan is expanding at excellent growth rate both in banking and non-banking segment. Both the regulator i.e., SBP and SECP are playing vital role for upbringing this segment on solid footing through effective regulatory regime and also providing a better operating environment in order to broaden the market for Islamic finance products. The present new government has also shown their firm commitment for further progress and development of Islamic finance industry within the country.

Last year, the House of Senate of Pakistan has passed resolution and recommends that government should take necessary steps to abolish interest at the earliest and at least 30 percent of all new government debts should be replaced with Shariah compliant mode. This was a significant development for the Islamic Banking sector and indicates that once it implemented will create a positive perception in public and will also support to enhance financial inclusion within unbanked population.

PAGE: What is your personal leadership philosophy?

Muhammad Shoaib Ibrahim: My leadership philosophy has been shaped through various aspects and approaches. First is the belief and knowledge of myself. I am firm believer that until you know yourself you are not able to meet your fullest potential as a leader. I believe that philosophy is an integrated and comprehensive view of life and a system of principles for guidance. The most critical step to becoming an effective leader is to determine and understand one’s core values. Many of my values are a result of my progress and progress of institution where I work as CEO.

In my career I drive through with hard work, high moral convictions, strong ethical codes and values. I have faced many challenges that made pursuing my goal quite tough but with full determination and strong will and with blessing of God, I successfully managed and accomplished my set target. I define my personal values including strong family commitment, carefulness, honesty and integrity. In my professional career and as head of the institution I carry high respect of my colleague and always supportive for them. I always responsive for them and keep open communication and always encourage healthy discussion for betterment of the institution. This approach has made FHM strong and sound financial institutions and premier Modaraba within the Modaraba sector. The future I see will be very different from the past and I do recognize that constantly changing business environment requires more concentrated efforts with very effective leadership. Survival belongs to those who challenge the status quo and keep adapting required changes of businesses.

My present clarity of thoughts remains major determination of my future as well future of organization. I always wish for prosperity and better future for my institution, my colleague and family members. I also determine and need to stay ahead of the curve in order to remain progressive, vibrant and growing.

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