Pakistan regulators merging three Islamic investment firms

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  1. Kshatriya87

    Kshatriya87 Senior Member Senior Member

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    Nov 17 (Reuters) - Pakistan regulators are merging three small Islamic investment firms after the central bank took control of Karachi-based KASB Bank Limited, accelerating efforts to strenghten financing by investment partnerships.

    Last week, the government directed the central bank to reorganize or amalgamate KASB Bank in the next six months, after the lender failed to meet minimum capital requirements.

    On Friday, KASB Modaraba said it had taken management control of First Pak Modaraba and First Prudential Modaraba, three of a total 26 modarabas active in the country.

    Modarabas are a form of Islamic investment partnership where assets are managed on behalf of clients, with income and expenses shared under a pre-agreed ratio.

    The sector remains a tiny part of the country's Islamic finance industry, with several firms lacking scale to compete.

    Last week, First Habib Bank Modaraba, a unit of Pakistan's largest lender HBL Bank, liquidated its business.

    As of March, the three modarabas held a combined 1.9 billion rupees ($18.7 million) worth of assets, dwarfed by larger peers such as Standard Chartered Modaraba with 5.3 billion rupees in assets.

    The Securities and Exchange Commission of Pakistan (SECP) has also developed risk management guidelines for modarabas, last year introducing sharia compliance and sharia audit mechanisms to strengthen the sector.

    The equity-like nature of modarabas has left them vulnerable to market price swings, so the SECP issued rules in 2012 to allow smoothing of profits using a profit-equalisation reserve.

    Pakistan's modaraba concept dates back to the 1980's as the first Islamic business model set up with a statutory framework and dedicated regulations, regarded as one of the purest forms of Islamic finance. (1 US dollar = 101.5500 Pakistani rupee) (Editing by Kim Coghill)


    Pakistan regulators merging three Islamic investment firms | Reuters
     
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