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1st Islamic TFC of Rs250m this month

KARACHI, April 11: Al-Zamin Leasing Modaraba is launching the first ever Islamic term finance certificate sometime this month. “We will issue the first tranche of Rs250 million five-year TFC within this month,” said chief executive of Al-Zamin Modaraba Basheer A. Chowdry.

He said his company had completed almost all formalities for launching a musharaka-based TFC which would be listed on Karachi Stock Exchange. “The only thing we need to do now is to get it listed on KSE,” he told Dawn. Securities and Exchange Commission of Pakistan has recently cleared way for Islamic TFCs – and as Al-Zamin modaraba had been instrumental in designing this product its management feels confident that there is a market for musharaka- based TFCs. “The instrument is likely to be very well received not only by financial institutions but by mutual funds; large corporates and individuals who prefer to invest their funds under Islamic mode of financing,” Chowdry said.

He said out of Rs250 million issue Rs200 million would be pre-paid and Rs 50 million would be offered for public subscription with a green shoe option for another Rs50 million. The investors will get six-monthly profits on the proposed five-year Islamic TFC on a provisional or an accrual basis.

Chowdry said that the profit would be paid irrespective of the actual profit or loss made by the modaraba. If the final profit payment determined on the basis of the annual audited accounts was in excess of provisional profit payments then the excess amount would be paid along with next six-monthly profit.

A salient feature of the musharaka-based TFC would be the Takafful Reserve to which Al-Zamin Modaraba would contribute an initial amount and also allocate a percentage of subsequent profits to build a pool. This pool of fund would remain available during the tenure of the TFC to take care of profit distribution on due dates.

Term finance certificates have become an effective vehicle for resource mobilization not only for the financial sector but also for corporates. In fact corporates have so successfully generated funds through TFCs for capital expenditure that the vacuum created after the death of big development finance institutions seems to have been filled in. By the end of last quarter of this fiscal year TFCs issues touched a record level of Rs28 billion many of them were offering a decent yield to the subscribers. As the financial system is currently wallowing in excess liquidity there is scope for new TFCs. And a musharaka-based TFC conforming to the rules of Shariah is expected to generate special interest among the investors.

The concept of musharaka-based TFC was designed late last year by Modaraba Association of Pakistan with technical assistance of AMZ Securities. Profit-sharing under a musharaka-based TFC will be based on an agreed profit sharing ratio and will be decided at the inception of the TFC transaction. This will be applicable on a pool of leased or other assets of the modaraba which issues the TFC.

Dr Muhammad Zubair Usmani of Jmia Daarul Uloom Karachi has certified that the concept of musharaka-based TFC developed by MAP and AMZ securities “is compliant of requirements of Shariah.”

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