SECP Allows Modaraba Firms to Create Reserve Funds for Equity Requirements

The Securities and Exchange Commission of Pakistan (SECP) has allowed the Modaraba companies to create a ‘reserve fund’ for meeting the minimum equity requirements. The SECP on Tuesday issued S.R.O. 1547 (I)/2022 to amend the Modaraba Regulations 2021. The revised regulations allowed the creation and building of reserves. Every Modaraba may create a reserve fund to which shall be credited 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 shall be credited an amount equivalent to one hundred percent of its annual after-tax profit till such time the minimum equity requirements are fulfilled. Issuance of bonus shares may be made from the above-mentioned reserves since such bonus shares will increase the paid-up capital. 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 within a period of three years from the date of notification of these regulations. The Modaraba company shall submit to the Commission a time-bound action plan with quarterly targets with the approval of its board of directors in order to ensure that the said quarterly targets are met in a timely manner, and ensure maintenance of minimum credit rating. 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. A Modaraba that has already raised funds through COM on the date of notification of these regulations, shall ensure compliance within a period of three months from the date of notification, SECP added.