SECP Directs Modarabas to Extend Housing Finance Limit to Rs. 50 Million

The Securities and Exchange Commission of Pakistan (SECP) has directed the Modaraba companies to extend housing finance facilities to its customers by increasing the maximum per party limit in respect of housing finance from Rs. 20 million to Rs. 50 million. The SECP has issued S.R.O. 529 (I)/2022 to propose amendments to the Modaraba Regulations, 2021. As per SECP new regulations, “Modarabas with the prior approval of the Registrar may extend housing finance facilities to its customers and the maximum per party limit in respect of housing finance by a modaraba shall be Rs. 50 million”. Provided that the total housing finance portfolio of the Modaraba shall not increase ten percent of the total portfolio of the Modaraba, SECP added. The SECP has also allowed modaraba companies to deal or trade in real estate for development or construction purposes. According to the revised regulations, a modaraba company may hold, deal or trade in real estate for development or construction purposes, where such a purpose or objective is provided in the approved prospectus of a modaraba. 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 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 complied with. “Provided also that a modaraba that has already raised funds through COM on the date of notification of these regulations, shall ensure that such investments are made by June 30, 2022, SECP added. The “Certificates of Musharakah (COM) raising Modaraba” means a financial services modaraba with valid permission to raise funds through the issuance of COM or any other modes or instruments approved by the Religious Board or have outstanding COM on its books.