SECP amends Modaraba Regulations 2021

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has allowed the modaraba companies to create and build ‘Reserve Fund’ where modarabas are not compliant with minimum equity requirements. The SECP has issued S.R.O. 529 (I)/2022 to amend Modaraba Regulations, 2021 on Saturday.

According to the SECP’s proposed amendments, the SECP has allowed the creation and building up of reserves for the modaraba companies.

Every modaraba may create reserve fund to which shall be credited an amount of its after-tax profits or any part thereof.

A modaraba, which is not compliant with minimum equity requirements provided in these regulations, shall create reserve fund to which shall be credit an amount equivalent to one hundred percent of its annual after tax profit till such time the minimum equity requirements are complied with.

Explanation: Issuance of bonus shares may be made from the said-mentioned reserves since such bonus shares will increase the paid up capital, revised regulations added.

Under the new regulations, a modaraba may hold, deal or trade in real estate for development or construction purposes, where such a purpose or objective is provided in the approved prospectus of a modaraba, SECP maintained.

Provided that a modaraba that has already raised funds through COM on the date of notification of these regulations, shall gradually enhance its minimum equity to an amount as provided within a period of three years from the date of notification of these regulations.

The modaraba companies will submit to the Commission, a time-bound action plan with quarterly targets, with approval of its board of directors and ensure that the said quarterly targets are met in a timely manner and ensure maintenance of minimum credit rating within a period of three years from the date of notification of these regulations.

Provided further that in cases of non-compliance with the conditions as stipulated under the first proviso, the permission granted to the modaraba to raise funds through COM shall be liable for cancellation, SECP added.

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