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  • Mr. Raheel Qamar Ahmad has been elected Chairman for the Year 2021-22 while Mr. Karim Hatim as Senior Vice Chairman and Mian Faysal Riaz as Vice Chairman of NBFI & Modaraba Association of Pakistan
  • The Association Launched Year Book 2020 on 29th June 2021 through zoom video link as well as physically at the Association's Secretariat, Karachi. Mr. Aamir Khan, Chairman, SECP was the Chief Guest. Mr. Farrukh H. Sabzwari, Commissioner, Ms. Khalida Habib, Executive Director, Ms. Bushra Aslam, Registrar Modaraba, Ms. Musarat Jabeen, Executive Director and other senior members of the SECP. Chief Executives of Modarabas, Leasing Companies, Investment Finance Services, Shariah Advisors and senior officials from other financial entities also participated.
  • The Association Launched Country Report 2020 on Non-Banking and Modaraba sector on 25th January 2021 at IBA Auditorium, Karachi. Dr. Ishrat Husain, Advisor to the Prime Minister was the Chief Guest. Dr. Akber Zaidi, Executive Director IBA & Mr. Farrukh H. Sabzwari, Commissioner, SECP also addressed the participants. Mr. Basheer A. Chowdry, Chairman, presented the Report to Dr. Akber Zaidi.

Honorable Guests, Ladies & Gentlemen,

On behalf of NBFI & Modaraba Association of Pakistan, I welcome you all to this annual occasion to launch the Year Book 2020 of Non-Banking and Modaraba Sector and distribution of Best Performance Awards to the top achievers for the year ended 30th June 2020.

It has been a tradition of the Association for the last many years to arrange launching ceremony physically but due to COVID-19 Pandemic and restrictions on gatherings, this event has been arranged through Zoom video conferencing.

I am indeed thankful to Mr. Aamir Khan, Chairman SECP, who has kindly accepted to be the Chief Guest for the occasion. I am also thankful to Mr. Farrukh Sabzwari, Commissioner, Ms. Khalida Habib, Executive Director and Ms. Bushra Aslam, Executive Director and Registrar Modaraba and their team members for their valued presence and continued guidance. I am also grateful to all the Chief Executives of Modarabas, Leasing Companies and Investment Finance Services for their active participation in today’s event.

Sir, today I have the privilege to present to you the 11th Year Book of the Association which covers the activities of the Non-Banking and Modaraba Sectors during the year and has been continuously published since 2010, the year in which the Association was incorporated. The purpose of its publication is to disseminate the performance and achievements of the sectors to investors, policy makers, researchers and public at large.

The Year Book continues to play an important role in creating awareness of developments taking place in NBFI & Modaraba Sectors. This is in line with the core objectives of the Association, which include building due image of the sector and promote awareness of its objectives and activities amongst stake holders and all concerned entities.

Non-Banking and Modaraba sectors are undoubtedly an integral component of our financial system, mostly serving financial needs of small and medium enterprises (SMEs). In spite of lockdown of businesses on account of spread of the COVID-19 Pandemic in the country, the overall performance of the NBFI & Modaraba Sectors remained satisfactory though showing some decline. The asset base of the sector reduced from Rs.95,000 million to Rs.90,000 million while the total equity also declined from Rs.37,000 million to Rs.36,000 million. The profit of the entire sector showed a negative figure. However, the sector distributed an amount of Rs.1,673 million as cash/stock dividend to the certificate holders and shareholders which proves the resilience and potential of the sectors.

In the Modaraba Sector, 17 Modarabas out of 27 Modarabas declared profit and distributed dividend ranging from 1.10% to 75% with the total payout of Rs.886 million. The asset base of the Modaraba sector was Rs.51,585 million as compared to Rs.54,084 showing a decline of Rs.2,499 million whereas the Equity stood at Rs.18,743 million as compared to Rs.20,997 showing a decline of Rs.2,254 million.

In the Leasing/Investment Finance Services Sector the assets base was Rs.38,592 million as compared to Rs.41,157 million last year showing a reduction of Rs.2,565 million whereas the Equity has shown an increase of Rs.1,299 million and stood at Rs.17,571 million. The sector distributed a dividend between the range of 2.50% to 37.50% and pay out was Rs.787 million.

Ladies and gentlemen,

Currently both the Non-Banking and Modaraba Sectors are facing serious regulatory and taxation issues which continue to impact the business of our members. The foremost issue is the withdrawal of Clause 100 of Second Schedule of Income Tax Ordinance, 2001 meant for Exemptions for Modarabas.

This withdrawal is in sheer contravention of the constitutional right provided to Modarabas under Section 37 of Modaraba Ordinance, 1980 which provides complete exemption from tax to the income of a Modaraba if 90% or more of its profits are distributed to the Certificate holders. The exemption was provided to promote Islamization of the country’s economy and has been an important factor in attracting over 80,000 investors who constitute more than one third of stock exchange investors and have been receiving regular dividends distributed by Modarabas. At present, there are 27 Modarabas with an asset base of more than Rs 51,000 million of Shariah Compliant investments. The major beneficiaries of Modarabas financing have been the small and medium sized businesses and industries. The withdrawal of tax exemption shall not add any material improvement to the tax revenue collection but shall certainly endanger the very survival of the Modaraba Sector besides depriving certificate holders of their dividend earnings and also restricting promotion of small and medium enterprise in the country. This is also a discriminatory action against Modarabas as the similar exemptions being enjoyed by Mutual funds, REITS, Investment Trusts, Private Equity and Venture Capital Funds are still continuing and being encouraged.

 NBFI & Modaraba Association has been trying desperately and aggressively for revival of Modaraba tax exemptions and made various representations to Prime Minister, President, Finance Minister, Chairman FBR, Secretary Finance, SECP and all concerned authorities. An active representation was made recently to the Senate Standing Committee on Finance who have unanimously recommended to the National Assembly for revival of Modarabas tax exemptions in the budget session. Sir, the Association kept the SECP fully informed of the serious consequences of the Modaraba tax exemptions for the very survival of the Sector. Unfortunately the SECP, being our primary regulator, did not include Modarabas in their recommendations sent to FBR about seven tax exemptions for Mutual Funds, REIT, Venture Capital, Investment Trusts and others.

If the outcome of the budget session is not favorable, the Association shall explore alternate legal and constitutional options to protect the Modaraba Sector from being destroyed.

The second crucial issue which shall be affecting the business of both Non-Banking and Modaraba Sector is implementation of IFRS-9. We are grateful to SECP for extending the applicability of IFRS-9 for one year but this provides only a temporary relief. We reiterate our previous request to SECP to consider allowing Non-Banking Finance Companies and Modarabas to continue to implement their respective Prudential Regulations for reporting provisions against their financing exposure instead of applying Expected Credit Loss (ECL) methodology of IFRS-9 due to practical difficulties. I may add that our members have already implemented IFRS-9 for their investments in listed securities, which shall be continued. The implementation of IFRS-9 in the context of other serious challenges of liquidity and resource mobilization, inability to participate in State Bank and Government special financing schemes and impact of general operational conditions being faced by majority of our clients shall threaten the viability and profitability of the sector drastically which merits a careful and supportive consideration of SECP.

In addition to the said two major issues, there are still a number of regulatory as well as taxation issues pending for the last so many years such as:

(i) enhancement in the limit of initial depreciation allowance from Rs.2.5 million to Rs.5 million according to the current values of the motor vehicles
(ii) a cap on payment of lease rentals of upto Rs.2.5 million in the hands of lessee introduced in the previous budget has adversely affected the auto finance lease portfolio
(iii) Reduction in first year initial depreciation from 50% to 25%
(iv) Levy of Services Sales Tax on gross lease rentals by Sindh Revenue Board between 13 to 16 percent

Mr. Chairman, the above issues relate directly to the core business of leasing and Ijarah of our Sectors and impacting net profitability of our members seriously. SECP had requested FBR in its budget proposals to remove the anomalies but we could not find any mention of amendments in the draft budget. We would emphasize that the viability of the Non-Banking and Modaraba Sector will only be sustained if level playing field is provided to them and earnestly request you to kindly consider our submissions regarding the issues being faced by NBFIs and Modarabas by providing a timely and effective solutions as our regulator and custodian.

Ladies and gentlemen,

Our second segment of the ceremony is to distribute Best Performance Awards to the top achievers of the Non-Banking and Modaraba sectors on the basis of results on 30th June 2020. These awards are given on a criteria approved by the Executive Committee. The details of the Awards will be given by the Secretary General after the presentation of the Year Book.

I once again, on behalf of NBFI & Modaraba Association of Pakistan thank you and your entire team for your continued support and guidance to the sector. I would also like to express my sincere thanks to all members of NBFI & Modaraba Association for their valuable assistance to the Executive Committee in discharging their responsibilities.

My special thanks are due to all those Institutions, members or not, who have kindly contributed to the publication expenses of our Year Book, by insertion of their advertisements. Without their support, it would not have been possible to produce this historic document. Our Secretary General Mr. Muhammad Samiullah and his team have worked hard to compile and publish the Year Book and deserve our appreciations.

Mr. Chairman, Our Sectors are going through probably the most difficult time of our existence which can be resolved with all possible efforts of all of us and a strong support and guidance of our regulators for which we seek your leadership please.

Thank You 

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