The SECP has imposed new restrictions listing operating practices for modaraba firms which need charitable donations and external audits by 30th June 2025.
New Policies Come Into Effect
The Securities and Exchange Commission of Pakistan (SECP) has issued a direction that every modaraba company shall ensure that the business of the modaraba managed by the said company is conducted in strict adherence with the business model contained in the prospectus approved by the Religious Board and the applicable principles and rules of Shariah.
New Directives Issued
The SECP on Tuesday published S.R.O.1861 (I)/2024, which modifies the Consolidated Circular for Modarabas, as previously issued via notification S.R.O. 2310 (I)/2022 dated 28th December 2022. The changed directives provide that all such contributions or donations from the charity account shall be made only to such charitable organizations which are permissible under the laws of Pakistan. The permission for such purposes shall be the Income Tax Exemption Certificate issued by the FBR. Any such requests for the contrary must be forwarded for the Shariah advisor’s permission.
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Fiduciary Duty and Shariah Compliance
The board of directors of the modaraba company has a fiduciary duty to ensure that all activities carried out by the modaraba comply with Shariah principles and rules. A suitable Shariah governance framework should be put in place to guarantee constant adherence to Shariah.
Shariah Opinions and Compliance Requirements
The publication of a particular fatwa on the website of the modaraba is not compulsory except in respect of the novel products which have no similar equivalents in the market. A separate upload is not required where audited financials posted on the website have already indicated the presence of a Shariah-compliant opinion.
External Shariah Audit
Every modaraba and modaraba company shall ensure implementation of the sharia regulations compliance and audit as set out in the Sharia Governance Regulations, 2023. These requirements shall be adhered to by the modaraba companies in the course of their activities. The external Shari’ah audit requirement shall apply to the period ending on or after June 30, 2025. All relevant entities must comply with it by that date, including appointing suitable external auditors and filing of the Shariah Governance Regulations and 2023 required documents.
Conclusion
The SECP’s revised guidelines for modaraba companies are aimed at enhancing the observance of Shariah principles in all operations… is required for non- Shariah-compliant activities including donations to charitable organizations. The introduction of an external Sharia audit by 2025 is further commitment towards transparency and Sharia compliance in the financial system.