Prudential regulations for Modarabas revised

KARACHI (January 29 2004): The Securities and Exchange Commission of Pakistan (SEC) has revised Prudential Regulations for Modarabas aimed at providing a level playing field to all participants of the non-bank financial sector, including Modaraba.

According to a SEC press release, the Commission has revised prudential regulations for Modarabas in exercise of powers conferred by the Modaraba Ordinance-1980.

These regulations have been finalised after consultation with the Modaraba Association of Pakistan (MAP).

The revised set of prudential regulations would contribute towards improving the effective risk management capabilities and promoting corporate governance in the Modaraba sector.

The revised prudential regulations for Modarabas have been divided into four segments, as Part-I contains a comprehensive set of definitions covering all their activities/functions; Part-II lays down guidelines for risk management in respect of corporate borrowers and individual borrowers; Part-III covers the regulations pertaining to the operation of Modarabas; while Part-IV encompasses the Know Your Customer (KYC) and anti-money laundering issues.

The salient features of the regulations include the following:

(i) A complete set of definitions has been introduced keeping in view the definitions provided in the prudential regulations for NBFCs.

(ii) Margin requirements against facility to be granted by the Modarabas have been reviewed and the same has been reduced.

(iii) A separate set of Regulations for housing finance facilities to individuals has been incorporated to boost the housing finance sector.

(iv) Criteria for provisions for non-performing assets of Modarabas have been reviewed, and conditions for reversal of provisions have been included.

(v) In order to prevent the criminal use of Modaraba for the purpose of money laundering and other unlawful activities, a separate section has also been introduced. Further, a fit and proper test of appointment of directors and chief executive of Modaraba companies along with requisite information has also been incorporated.

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