The Securities and Exchange Commission of Pakistan (SECP) Thursday assured the parliamentary panel that strict action would be taken against the fraudulent investment schemes offered by so-called Modaraba companies that promise hefty profits and unrealistic incentives.
The SECP has been constantly clarifying that mere registration of a Modaraba company does not authorize it to solicit deposits from the general public or offer investment schemes.
The first meeting of the subcommittee of the Standing Committee on Finance and Revenue on the Modaraba Companies and Modarabas (Floatation and Control) (Amendments) Bill, 2020, was held on at SECP Head Office, Islamabad, under the chairmanship of Muhammad Barjees Tahir.
The SECP team made a presentation on the salient features of the proposed bill, primarily aiming to align the Modaraba Law with the Companies Act, 2017, empowering certificate holders of Modarabas and enhancing the ease of doing business.
In light of the observations of committee members with respect to fraudulent schemes in the name of Modarabas, the SECP team has highlighted some areas where, subject to the concurrence of the subcommittee, further amendments to the bill can be proposed to further improve it.
The committee also decided to reconvene the meeting, and in the meantime, the ministries and SECP will prepare an updated matrix of proposed amendments for consideration by the subcommittee.
The SECP officials informed the committee that the federal government has introduced, “The Modaraba Companies and Modaraba (Floatation and Control) (Amendment) Bill 2020” to provide incentives to entrepreneurs and prospective investors to invest and carry out their businesses under the umbrella of the regulated structure of Modaraba to earn halal profits on their investments.
The bill focuses on the growth of the modaraba sector through the introduction of various reforms such as the concept of establishment of unlisted modaraba, empowerment of the certificate holders through the introduction of the concept of an annual general meeting to ensure maximum participation of certificate holders in the decision-making process of a modaraba, and providing enabling environment for ease of doing business.
It will facilitate the growth of the economy in general and the Islamic financial sector in particular by providing simplified procedures for ease of starting and doing business, greater protection of investors, and augmenting corporatization in the country. The proposed bill seeks to mitigate the reputation and operational risks and enhance the image and operational framework of modaraba as a purely Islamic financial institution of the country. The bill aims to enhance SECP oversight and bring operational flexibility to the modaraba sector.
The purpose of the bill is to amend more than 40 years old ordinance and regulate the business of modaraba and modaraba companies to provide protection to the investors, modaraba certificate holders, and the public.
The existing Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 was promulgated by the federal government in 1980. Since its inception, no substantial changes have so far been introduced except the inclusion of some administrative powers for the commission and the registrar modaraba in the year 2012, SECP officials added.
