Presentation

TOPIC : ORDINANCE OF MUARABAH IN PAK LAW

 Group members name
• Inshaal Shahid 939-2018
• Hafiz Ihtesham 564-2018
• Muhammad sheraz 405-2018
• Usama 407-2018
• Zahid jatoei
 Mudarabah
• The term refers to a form of business contract in which one party brings capital and the other
personal effort. The proportionate share in profit is determined by mutual agreement.
• But the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets
nothing for his labour.
• The financier is known as ‘rabal-maal’ and the entrepreneur as ‘mudarib’.
• As a financing technique adopted by Islamic banks, it is a contract in which all the capital is provided
by the Islamic bank while the business is managed by the other party.
• The profit is shared in pre-agreed ratios, and loss, if any, unless caused by negligence or violation of
terms of the contract by the ‘mudarib’ is borne by the Islamic bank. The bank passes on this loss to
the depositors.
 STRUCTURE OF MODARABA

• The Modarabas are allowed to offer any financial product or conduct any business based on Islamic
concept provided it is Shariah compliant and approved by the Religious Board.
• Modarabas can invest in stock markets, trading of halal commodities, project financing activities etc.
• The Modaraba can raise funds in the form of Certificates of Modaraba and Certificate of Musharaka.
Modarabas can also issue Sukuk and Musharaka based TFCs.
• Prospectus of the Modaraba should be approved by the Registrar Modaraba, Securities and Exchange
Commission of Pakistan, after obtaining a certificate from the Religious Board to the business of the
Modaraba.
• Modaraba certificates shall be listed on the stock exchange for trading purpose.
 Features

• It is an agreement, in which one party provides managerial skill and other party provides capital funds to carry on the business.
• Profit is shared according to the agreed ratio.
• It may be for “Multiple Purpose” or for special purpose.
• This business must be governed by the “Modarba Companies Ordinance 1980” and “Modarba Rules 1981”.
• According to the modarba rules at least 10% shares are compulsory for the party who provides managerial skill.
• A company which is registered as a modaraba can float a modarba.
• For the floating of modarba company must obtain the permission from the registrar and controller.
• A clearance certificate is also obtained from the Religious Board that business is not against the Islamic Laws.
• Each modarba company has to appoint the charted accountant, as auditor who will certify the accounts and objectives of
PARTNERSHIP.
 Kinds of Modaraba :-

• Multipurpose modarba
• Specific modarbaModaraba Al Muqayyadah (Restricted Mudarabah)
• Mudarabah Al Muqayyadah means a restricted modaraba where the Rabb-ul-maal may specify a particular business or a particular place for the mudarib, in which
case he shallKinds of Modaraba :-
• Multipurpose modarba
• Specific modarbaModaraba Al Muqayyadah (Restricted Mudarabah)
• Mudarabah Al Muqayyadah means a restricted modaraba where the Rabb-ul-maal may specify a particular business or a particular place for the mudarib, in which
case he shall invest the money in that particular business or place.
• Modaraba Al Mutlaqah (Unrestricted Mudarabah)
• Modaraba Al Mutalqah means unrestricted modaraba where the Rabb-ul-maal gives full freedom to the mudarib to undertake whatever business he deems fit.
• However, he is not authorized to:
• invite another Mudarib or a partner
• mix his own investment in that particular Modarabah without the consent of Rab-ul Maal
 CONDITIONS OF BUSINESS

• A modaraba company cannot do any business which is against the principles of Islam. The Govt. of Pakistan
has set up a religious board which will give clearance to each Modarba company about its business activity.
• Each modaraba company will appoint the auditor approved by the registrar. He will certify objectives and
accounts of the company.
• The officers, directors or their relatives cannot take the loan from the funds of the Modarba company in any
shape.
• The modarba company cannot engage itself in any business in competition which has the same nature with
the modarba floated by it.
• The registrar can cancel the registration of Modarba if it fails to comply the rules of the Modarba Ordinance.
 RELIGIOUS BOARD FOR MODARABA

• To achieve the objectives of Islamic business, the Federal Government has established a Religious
Board (RB) for Modarabas.
• The members of Religious Board are well known Shari’ah Scholars of the country and the
chairman is qualified to be a Judge of the High Court.
• Religious Board certifies that the business of the Modaraba is not opposed to the injunctions of
Islam.
 RELIGIOUS BOARD FOR MODARABA

• The following is the composition of the Religious Board constituted by the Federal Government
vide notification dated August 30, 2012:
•
● Former Justice Syed Zahid Husain Bokhari (Chairman) ;

● Mufti Muhammad Saeed Khan (Shariah Scholar); and

● Dr. Muhammad Tahir Mansoori (Shariah Scholar).

DIFFERENT CAPACITIES OF MUDARABAH

• DIFFERENT CAPACITIES OF MUDARIB

• Ameen (Trustee): The capital of Mudarabah is an Amanah in the hand of Mudarib, therefore if any
loss incurs to business without negligence of Mudarib, Mudarib will not be liable for that
loss. The money given by Rabb-ul-maal (investor) and the assets required therewith are held by
Mudarib as a trust.
• Wakeel (Agent): When Mudarib starts the business, he becomes an Agent of Rabbul-
Mal. Therefore, all the business activities will be carried out on behalf of the principal. And if
principal (Rab-ul-Mal) gives any instructions, Mudarib is bound to comply with these instructions.
 DIFFERENT CAPACITIES OF
MUDARABAH
• Shareek (Partner): In case of profit, Mudarib is partner in that business
to the extent of his profit share in agreed ratio.
• Dhamin (Liable): If Mudarib disobeys the instructions of Rab-ul-Mal or
if the enterprise suffers a loss due to his negligence or misconduct, he is
liable to compensate the loss.
• Ajeer (Employee): If Mudarabah becomes void due to any reason,
then Mudarib is Ajeer. He is entitled to get a fee for his services (Ujrat-e-
Misl).
 REGULATORY FRAMEWORK FOR
MODARABA

• The Modaraba Companies and Modarabas are working under the regulatory framework provided
in following laws, rules and regulations.
• Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980
• Modaraba Companies and Modaraba Rules, 1981
• Prudential Regulations for Modarabas
 REGULATORY FRAMEWORK FOR
MODARABA
ShariahCompliance and Shariah Audit Mechanism
Code of Conduct of NBFI & Modaraba Association of Pakistan
Fit & Proper Criteria  for the sponsors, CEO, Directors and Key Executives
(2008)
• Shariah Compliance and Shariah Audit Mechanism 2012
 THE MODARABA COMPANIES & MODARABA
(FLOATATION & CONTROL) ORDINANCE, 1980:

• The Modaraba Companies & Modaraba (Floatation & Control) Ordinance, 1980 provides for
matters to registration of modarba companies and floatation and management and regulations of
Modarba.
 THE MODARABA COMPANIES & MODARABA RULES, 1981:

• In 1981 Modaraba Companies and Modaraba Rules were framed to provide Rules to do the
business.
 PRUDENTIAL REGULATIONS FOR
MODARABA 2004:
• PRUDENTIAL REGULATIONS FOR MODARABA 2004:
• In 2004 Prudential Regulations for Modaraba were issued. The regulations provide a wide range of
risk management tools for conducting the day to day affairs and business of the Modaraba.
 COMPANIES ORDINANCE, 1984:

• The affairs of Modaraba are managed through the Modaraba Management Company, which is
required to be registered under the Companies Ordinance, 1984.
• As such, the modaraba company must comply with all the provisions of the Companies Ordinance
without any exception.
 COMPANIES ORDINANCE, 1984
• Modaraba Ordinance and Rules defines the main functions of the Registrar Modaraba and the Modaraba,
which are:
• Registration and authorization of Modaraba Companies and Modarabas in Pakistan
• Monitoring of Modarabas’ Operations
• Appointment of Auditors
• Accounts and other documents filing requirements
• Issuance of Business Rules and Regulations
• Compliance and Enforcement of Corporate Laws
• Protection of Investors
 HOW TO INVEST IN MODARABA –
FLOATATION OF A MODARABA
• Key Eligibility Requirements for Registration as Modaraba Company (MC):
• A Company incorporated under the Companies Ordinance, 1984; or a body corporate owned or controlled by the Federal Government or a Provincial
Government can apply for the floatation of a Modaraba.
​
• The Sponsors, Directors and Officers of the MMC and the Modaraba must fulfill the requirement of fit and proper criteria as circulated by the Registrar
Modaraba vide circular No. 10/2008 which prescribes that the Promoters/Directors:
• Should be persons of means and integrity
• Should have knowledge and experience of relevant business
• Should not be convicted of fraud or breach of trust or of an offence involving moral turpitude.
 Permission to Float Modaraba:
• Permission to Float Modaraba:
• A duly registered Modaraba Management Company can apply to the Registrar for grant of
permission to float a Modaraba, along with prospectus, feasibility report and other requisite
documents as prescribed in the Rules.
• The Registrar scrutinizes the application and after he is satisfied, submits it to the Religious Board
for issue of a certificate on the prescribed Form.
• The Religious Board after having considered that the proposed business of the Modaraba is in
accordance with the conjunctions of Islam, approves the application for floatation of a Modaraba.
• After approval of the Board, the Registrar can grant authorization certificate to float a Modaraba.
Investment in Shares/Certificates of Modaraba:

• Investment in Shares/Certificates of Modaraba:

• Initial Public Offering: The general public after carrying out due diligence of future prospects
may subscribe to certificates of Modarabas when these are first time offered for public
subscription.
• Direct Buying from the Market: After the Initial Public Offering, an investor can buy Modaraba
Certificates through a broker as these are quoted on the stock exchange(s) just like shares of other
listed companies.