KARACHI: A system has been finalized under the guidance of the SECP Religious Board that will ensure and verify that the business transactions undertaken by modarabas are in accordance with the pattern of Islamic banks in compliance with injunctions of Islam.
This was stated by the Chairman, NBFI & Modaraba Association of Pakistan Basheer A. Chowdry in a statement here Tuesday.
Dilating on further details, he said after an in-depth consultative process undertaken by SECP in which most of the modarabas participated, a formal mechanism namely Shariah Compliance and Shariah Audit Mechanism (SCSAM) is being introduced to further enhance the quality of existing compliance and eliminating the risk or possibility of any inadvertent violation of Shariah principles by the Modarabas.
A detailed Shariah Compliance and Shariah Audit Mechanism (SCASM) has been issued by Registrar Modarabas SECP which provides an elaborate framework for compliance.
Chowdry said that it also prescribes the screening process for the investments in shares/securities to maintain the trust of the stakeholders in the Islamic financial system.
He pointed out that the modaraba already execute all their contracts and business modules according to the patterns approved by the Religious Board.
It also lays down the process for purifications of dividend income. Under this plan, investment by the modaraba in the shares and securities shall only be made in the companies screened by the Shariah advisor of the association in accordance with the screening procedure.
Around the world, modaraba is used as an Islamic financial instrument but Pakistan has the unique privilege of having provided a statutory framework and elaborate regulatory regime for modarabas to operate as corporate entities rather than remaining only a transactional concept.
Modarabas, having being operational for more than a quarter of a century, are the pioneer of Islamic finance in Pakistan and have been constantly endeavoring to improve compliance to Shariah covenants.
The screening test for the purpose of investment in the shares or other securities will be conducted by the Shariah Advisor of the Association who will observe predefined criteria before placement of the scrip in the list of Shariah compliant securities.
To further facilitate the process, every modaraba will appoint a Shariah Advisor having the prescribed qualifications and experience to perform the mandated functions.
The Shariah Advisors will be appointed before March 31, 2012. Every modaraba will be required to further strengthen its existing internal audit department either by appointing a trained internal Shariah auditor having relevant qualification and experience or providing specific training to its existing employees for the purpose of internal Shariah audit, to ensure that internal Shariah audit functions becomes fully operational with effect from first day of April 2012.
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