Modaraba Company is an exclusive and prime means of non-interest Islamic financial system. In this form of financial contract one party, the investor (Rab-ul-mal) entrusts money to another party, the financial manager also known as Mudarib for the purpose of carrying out a business called Modaraba. In Pakistan, there are total 24 Modarba Companies.
Securities and Exchange Commission of Pakistan (SECP) has permitted Modaraba companies to deal or trade in real estate projects
On August 24, the Securities and Exchange Commission of Pakistan (SECP) has permitted Modaraba companies to deal or trade in real estate projects recognized by development authorities like Capital Development Authority Karachi Development Authority (KDA), etc. According to the new change, the Modaraba companies in Pakistan will be able to invest in projects that are approved by the development firms.
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According to SRO 1546 (I)/2022 which is issued by the SECP, a Modaraba Company can hold, deal or trade in real estate projects, subject to the following conditions. In case of a flexible Modaraba, where investment in real estate is up to one-third (1/3rd) of the total possessions of the Modaraba, the Modaraba will have to comply with the following conditions:
- The investments shall be made only in assets which are recognized by development authorities i.e. Karachi Development Authority (KDA), Capital Development Authority (CDA), Rawalpindi Development Authority (RDA), Lahore Development Authority (LDA) and/or any other Development Authority functional in any city of Pakistan and should have the NOC relating to real estate project from the aforementioned authority.
- The main purpose of investment can be to develop properties for rental purposes or development or mix (both rental and development) projects.
In case of Modaraba of a specific purpose, for investment in real-estate or where investment in real estate is one-third (1/3rd) or more than that of the total assets of the Modaraba, the Modaraba, in addition to conditions postulated above, shall also comply with some additional conditions:
- At least five-year experience is required by two directors of the Modaraba Company in dealing with the real estate projects.
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- A valuation report from the independent valuator shall be obtained.
- The catalogue of the Modaraba company shall, contain information relating to the management skill of sponsors of the Modaraba company in the real estate business, the type of real estate project to be commenced, prospective locations of the real-estate, investment objectives, valuation report, feasibility study, the legal status of the property, resources required, sponsors contribution and the compliance with the lock in period requirement for the sponsors, the SECP added.
