SECP Allows Modaraba Companies to Create Reserve Fund

The Securities and Exchange Commission of Pakistan (SECP) has allowed the modaraba companies to create and build a ‘Reserve Fund’ where modarabas are not compliant with minimum equity requirements. The SECP issued S.R.O. 529 (I)/2022 to amend Modaraba Regulations, 2021 on Saturday. Under the proposed amendments, the SECP has allowed the creation and building of reserves for the modaraba companies. Every modaraba may create a reserve fund to which it shall credit an amount of its after-tax profits or any part thereof. A modaraba, which is not compliant with minimum equity requirements provided in these regulations, shall create a reserve fund to which it shall credit an amount equivalent to one hundred percent of its annual after-tax profit till such time the minimum equity requirements are complied with. The issuance of bonus shares may be made from the above-mentioned reserves since such bonus shares shall increase the paid-up capital, revised regulations added. Provided that a modaraba that has already raised funds through COM on the date of notification of these regulations, shall gradually enhance its minimum equity to an amount as provided within a period of three years from the date of notification of these regulations. The modaraba companies shall submit to the Commission, a time-bound action plan with quarterly targets, with the approval of its board of directors and ensure that the said quarterly targets are met in a timely manner and ensure maintenance of minimum credit rating within a period of three years from the date of notification of these regulations. In cases of non-compliance with the conditions as stipulated under the first proviso, the permission granted to the modaraba to raise funds through COM shall be liable for cancellation, SECP added.