What is Modaraba?
What are the benefits attached to Modaraba?
What is Modaraba Company?
What is the business model and structure of Modaraba?
What are the major business activities of a Modaraba?
How to invest in Modaraba or in the investment schemes issued by Modarabas?
What is the Religious Board?
What is the function of the Religious Board?
What is the Paid Capital requirement for registration of Modaraba Company?
What are the standard clauses of Memorandum & Articles of Association of a Company for registration as a Modaraba Company?
What is the fee for registration of a Modaraba Company?
What is the Paid Capital requirement for floatation of a Modaraba?
What is the Fit & Proper Criteria (F&P) for directors?
Whether any existing Modaraba are available for acquisition?
What is the status of a particular Modaraba with regard to its performance?
Is there any Guidelines for Investors or general public published by the SECP?
FAQs (Private Equity)
What is the minimum paid- up capital to form a Private Equity Fund?
What is the minimum Fund size?
What is the maximum number of units a FMC along with connected party can hold?
What is the minimum number of unit holders of a Fund?
Can a foreign entity invest only foreign money?
Can a Fund operate without registration?
Can a Fund invest anywhere?
Could a Foreign Entity invite local eligible investor?
Is Registration of Fund mandatory?
The tax treatment like?
Can a Fund be transferred from one FMC to another?
Who keeps the money?
What is the minimum subscription to the units of a Fund ?
Can we go for listing  on any exchange?
What is the exit mechanism from the Fund?
What is the maximum life of the Fund?
Can Fund or FMC invite subscription from general public?
How does Fund receive subscriptions?
How can one get the placement memorandum and subscription agreement ?
What is the management fee of the FMC?

Frequently Asked Questions

What is Modaraba?
‘Modaraba’ is a kind of partnership, wherein one party provides finance to other party for the purpose of carrying on business. The party who provides the finance is called the “Rabb-ul-Mal” (the provider of capital), whereas the other party who puts in his expertise and management skills is called the “Modarib” (manager).
What are the benefits attached to Modaraba?
(i) Halal Business: Modaraba is the business model in the financial sector which is based on true Islamic practices duly scrutinized and approved by the members of the Religious Board appointed by the Federal Government. It provides profitable investment opportunities to the stakeholders who are looking for Halal profits on their investments according to Islamic Shariah. (ii) Tax Benefit: The income earned by the Modarabas is fully exempted from income tax provided they distribute 90% of their profits amongst the certificate holders. (iii) Maximum Distribution of Profits: As an Investor of a Modaraba one may expect getting maximum dividends as 90% of the income/profits of the Modaraba are distributed to the certificate holders in order to avail the benefit of tax exemption.
What is Modaraba Company?
The Companies incorporated under the Companies Ordinance, 1984 and registered with the Registrar (Modarabas), SECP are eligible to undertake floatation and management of Modarabas.
What is the business model and structure of Modaraba?
The Companies incorporated under the Companies Ordinance, 1984 and registered with the Registrar (Modarabas), SECP are eligible to undertake floatation and management of Modarabas. The Modaraba or Modaraba Fund (pool of funds) is created through public subscription (IPO) and listed on stock exchange(s). Generally, a Modaraba can undertake virtually any business activity that is not repugnant to Islam. The Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980, Modaraba Companies and Modaraba Rules, 1981 and Prudential Regulations for Modarabas can be visited at the following web links: http://www.secp.gov.pk/corporatelaws/pdf/jun_26_1980.pdf  http://www.secp.gov.pk/corporatelaws/pdf/jan_26_1981.pdf http://www.secp.gov.pk/corporatelaws/pdf/Jan_28_2004_PrudentialRegulationsForModarabas.pdf
What are the major business activities of a Modaraba?
Generally, a Modaraba can undertake virtually any business activity which is not repugnant to Islam and it is approved by the Religious Board. A Modaraba can invest through Islamic Finance Instruments like Murabaha, Musharakah, Ijarah or Modaraba and similar profit and loss sharing schemes. It can also trade in listed and other non-interest bearing securities, project financing, venture capital, export financing, trading, import, export, services, or manufacturing enterprises of any nature and act as an agent or distributors etc.
How to invest in Modaraba or in the investment schemes issued by Modarabas?
1- Investment in Certificates of Modaraba: (a) Initial Public Offering: The general public, after carrying out due diligence of management and prospectus may subscribe to certificates of Modaraba when these are first time offered by the Modaraba Company in primary market. (b) Direct Buying from the Stock Market: One may also invest in the Modaraba Certificates through buying them from registered stock broker (secondary market). The Modaraba Certificates are quoted and traded on the stock exchange(s) like shares of other listed companies. 2- Investment in non-interest bearing finance instruments/schemes issued by Modarabas: Modarabas offer various non-interest bearing certificates i.e. Certificates of Musharakah, certificates of Modaraba, Term Finance Certificates on Musharakah basis, Sukuk etc. approved by the Religious Board and the Registrar Modarabas. These investment schemes are launched by Modarabas on profit and loss sharing basis and rate of return varies based on the periodic profitability of the project/business of the Modaraba. With the approval of the Registrar (Modarabas), advertisements for such investment schemes are published in which all the information about the scheme, the mechanism of distribution of profit & loss and credit rating of the issuing Modaraba etc. are disclosed. No Modaraba can offer such schemes unless it has obtained a minimum investment grade rating, i.e. ‘BBB’ from a registered credit rating agency.
What is the Religious Board?
The Federal Government has constituted a Religious Board comprising two Shariah scholars and a Judge of High Court which certifies that the business to be undertaken by a Modaraba is not against the tenets of Islamic Shariah.
What is the function of the Religious Board?
The Registrar scrutinizes the application for floatation of a Modaraba and after he is satisfied, submits it to the Religious Board for issue of a certificate that the business to be undertaken by the Modaraba is in conformity with the injunctions of Islam.
What is the Paid Capital requirement for registration of Modaraba Company?
If a Company is to be engaged solely in the floatation and management of modaraba, it has to have a paid-up capital not less than Rs.2.5 million but if it is engaged in other business as well then its paid up capital should be minimum Rs.7.5 million.
What are the standard clauses of Memorandum & Articles of Association of a Company for registration as a Modaraba Company?
Model Memorandum & Articles of Association of a Company for registration as a Modaraba Company is placed on the official web site of the SECP. http://www.secp.gov.pk
What is the fee for registration of a Modaraba Company?
A fee of Rs. 25,000/- is payable to the SECP on account of registration as a Modaraba Company.
What is the Paid Capital requirement for floatation of a Modaraba?
Minimum Capital for floatation of a Modaraba is Rs. 250 million
What is the Fit & Proper Criteria (F&P) for directors?
F&P has been prescribed by the SECP which ensures fitness and propriety of the CEO and Directors of Modaraba Companies.
Whether any existing Modaraba are available for acquisition?
The NBFI & Modaraba Association of Pakistan supposed to maintain such information. The address and telephone numbers of the Association are as under:
What is the status of a particular Modaraba with regard to its performance?
A written request showing the certificate holding in the Modaraba may be submitted to the Registrar Modaraba.
Is there any Guidelines for Investors or general public published by the SECP?
The Guidelines for Investors and Guidelines for Modarabas are placed at the official web site of the SECP. "http://www.secp.gov.pk

Frequently Asked Questions (Private Equity)

1.      What is the minimum paid- up capital to form a Private Equity Fund?
         Rs. 30 million
2.      What is the minimum Fund size?
         Rs. 250 million
3.      What is the maximum number of units a FMC along with connected party can hold?
         30%
4.      What is the minimum number of unit holders of a Fund
         5 Holders
5.      Can a foreign entity invest only foreign money?
         Yes; by establishing an office in Pakistan and complying with the requirements stipulated by the Securities Exchange Commission of Pakistan (the Commission)
6.      Can a Fund operate without registration?
         No; a Fund has to be registered with the Commission otherwise FMC cannot launch a fund
7.      Can a Fund invest anywhere?
         No ; a Fund can only invest in unlisted companies
8.      Could a Foreign Entity invite local eligible investor?
         Yes; the foreign entity may invite local eligible investor subject to formation of FMC and registration of Fund
9.      Is Registration of Fund mandatory?
         Yes; no fund established by an FMC shall operate or be established unless it is Registered with the Commission
10.   The tax treatment like?
         Upon distribution of 90% profit of the Fund, amongst its unit holders, the applicable tax becomes nil (As per Tax Law)
11.  Can a Fund be transferred from one FMC to another?
         Yes; after approval of unit holders through a special resolution
12.  Who keeps the money?
         This function is dedicated to Trustee as defined in NBFC Rules, 2003
13.  What is the minimum subscription to the units of a Fund ?
         Rs. 10 million
14.  Can we go for listing  on any exchange?
         No
15.  What is the exit mechanism from the Fund?
         If majority of unit holders agree, the FMC may apply for winding down of the Fund in accordance with provisions of law;        
         The unit holders may proceed through a special resolution and request the Commission to cancel the registration of the Fund;
16.  What is the maximum life of the Fund?
         15 Years
17.  Can Fund or FMC invite subscription from general public?
         No
18.  How does Fund receive subscriptions?
         Subscription to the units shall be received only through Private Placement of units
19.  How can one get the placement memorandum and subscription agreement ?
         The FMC shall provide placement memorandum and subscription agreement to all eligible investors
20.  What is the management fee of the FMC?
         The FMC shall be entitled to an annual management fee as specified in the Constitutive Document and disclosed in the placement memorandum
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