ISLAMABAD, March 20: The Religious Board for Modarabas on Thursday approved Islamic financing agreements for Pakistan’s modaraba sector while following the Shariah-compliant model.

The agreements encompassed 12 types of modarabas. They are: Diminishing Musharika, Ijara, Istisna, Modaraba, Musawamah, Musharika, Murabaha, Salam, Syndicate Modaraba, Syndicated Musharika, Islamic CFS Murabaha and Sukuk (Islamic Bonds).

The agreements are expected to change the existing landscape of modarabas in Pakistan, which has so far followed the pattern of traditional financial institutions and have failed to develop any innovative products for helping the masses to grow and become active participants of the national economy.

In Pakistan, modarabas are, at present, following the pattern of banks and other financial institutions, deploying most of their funds in car financing, loans to textile units and providing leasing.

But, now their managers have realised that it is getting hard for them to compete with banks as the latter have ample liquidity. There were fears that ultimately these companies would be wiped out from this sector.

The agreements will be issued under the Modaraba Ordinance, 1980. They have been designed to bring the modaraba sector at a level-playing field with the financial institutions and to provide new products for the Islamic financial market.

The agreements are believed to be flexible and can be modified or amended to the extent that they do not affect the substance of the agreement and are in no way in conflict with the Shariah.

A spokesperson for the Securities and Exchange Commission of Pakistan (SECP) said the board also approved as Shariah-compliant the issuance of modaraba sukuks, short-term certificates of investment to facilitate resource mobilisation for the modarabas.

The agreements and the modaraba sukuks were approved as Shariah-compliant in the 34th meeting of the board chaired by Justice Mian Mehboob Ahmed.

The meeting was attended by Dr Sher Mohammad Zaman, Member, Religious Board; Bilal Rasul, Registrar (Modarabas), Shahid Mehmood, Deputy Registrar (Modarabas), who represented the SECP and Mohammad Shoaib, chairman of the Modaraba Association of Pakistan.While approving the agreements, Justice Mian Mehboob Ahmed emphasised the role of the modarabas in the development of the Islamic financial sector and encouraged them to expand their business through innovation and diversification.

He also highlighted the need to expand the outreach to the rural and less developed areas in order to serve the hitherto neglected sectors while fulfilling the socio-economic principles of Islam.