SECP Issues New Directions to Modaraba Companies  

The Securities and Exchange Commission of Pakistan (SECP) has directed that every modaraba company shall ensure that the business of the modaraba managed by it is carried out strictly in accordance with the business model contained in the prospectus approved by the Religious Board and the Shariah principles and rules.  The SECP issued S.R.O.1861(I)/2024 on Tuesday to amend Consolidated Circular for Modarabas, published vide notification S.R.O. 2310 (I)/2022 dated December, 28, 2022.  The SECP further notified that all contributions or donations from the charity account shall only be made to the approved charitable organizations registered under Pakistani law as charitable organizations (trusts, hospitals, etc.). The income tax exemption certificate issued by the FBR to that effect shall be considered an approval for those purposes. Any exception shall be submitted for approval to the Shariah advisor.  It shall be the fiduciary responsibility of the board of directors of the modaraba company to ensure that all activities undertaken by the modaraba are in conformity with Shariah principles and rules and that an adequate Shariah governance framework is implemented in letter and spirit to ensure ongoing Shariah compliance.  The placement of a Shariah opinion (Fatwa) on the website of the Modaraba is obligatory only in cases where the products offered is innovative in nature and are not comparable or deemed similar to those already available in the financial market. If the Shariah opinion is present in the audited financials already uploaded on the website of the Modaraba, a separate upload will not be required.  Under the amended law, every modaraba and modaraba company to the extent of modaraba under management, shall ensure compliance with the Shariah compliance and audit requirements provided in the Shariah Governance Regulations, 2023, as applicable to a Shariah-Compliant Company.  These requirements shall be followed by the modaraba companies and modarabas in the course of their operations. The modaraba and the modaraba companies may include additional requirements and control in their procedures for the sake of more effective Shariah compliance and prudence.  The requirement for an external Shariah audit shall become effective and applicable for the period ending on or after June 30, 2025. All relevant entities must ensure compliance with this requirement by this date, including the engagement of qualified external auditors and submission of necessary reports as stipulated under the Shariah Governance Regulations, 2023, revised law added.