Islamic Finance Instruments: Modarabah

About Modarabah Contracts:

This is a kind of partnership where one partner gives money to another for investing in a commercial enterprise. The investment comes from the first partner who is called “Rab-ul-Maal” while the management and work is an exclusive responsibility of the other, who is called “Mudarib” and the profits generated are shared in a predetermined ratio.

Excerpts taken from Meezan Banks Guide to Islamic Banking by Imran Usmani

Salient features of Modaraba:

    The owners of capital and the management of capital are completely segregated. The manager of capital may not include or invest their capital in the modaraba. The owner may not specify how to operate the business, however; they can keep an eye on the manager (the Mudarib).

In case of loss to modarabah, the owner of capital suffer losses whereas the modarib may not receive any remuneration for conducting business. In case of profit, the owners and the managers of capital enjoy the benefit in pre-agreed proportions.

In most of the cases, the owners of capital enjoys limited liability of the business conducted by the modarib.

Tax Benefits of Modaraba:

In pakistan modaraba is exempt from income tax if 90% of income is distributed to the modaraba certificate holders

Below is the list of Modarabah Management Companies and listed Modarabah Instruments:


List of Modaraba Management Companies in Pakistan

1. A.R. Management Services (Pvt) Ltd.

2. A.R.T. Modaraba Management (Pvt) Ltd.

3. Allied Engineering Management Company (Pvt) Ltd

4. Al-Noor Modaraba Management (Pvt) Ltd.

5. Al-Zamin Modaraba Management (Pvt) Ltd.

6. B.R.R. Guardian Investment (Pvt) Ltd.

7. BankIslamic Investment (Pvt.) Limited

8. Constellation Management Company (Pvt) Ltd.

9. Crescent Modaraba Company Ltd.

10. E.A. Management (Pvt) Ltd.

11. Fidelity Capital Management (Pvt) Ltd.

12. Global Econo Trade (Pvt) Ltd.

13. Habib Bank Financial Services (Pvt) Ltd.

14. Habib Modaraba Management (Pvt) Ltd.

15. I.B.L. Modaraba Management (Pvt) Ltd.

16. National Bank Modaraba Management Company Ltd.

17. Paramount Investments Limited

18. Premier Financial Services (Pvt) Ltd.

19. Prudential Capital Management Ltd.

20. Punjab Modaraba Services (Pvt) Ltd.

21. Royal Management Services (Pvt) Ltd.

22. Standard Chartered Services of Pakistan (Pvt) Ltd.

23. KASB Modaraba Management (Pvt) Limited

24. UDL Modaraba Management (Pvt) Ltd.

25. Islamic Investment Bank Ltd.

Listed Modarbas

1. Imrooz Modaraba

2. Tri-Star Modaraba 

3. Allied Rental Modaraba

4. Al-Noor Modaraba

5. Al-Zamin Leasing Modaraba

6. Unicap Modaraba

7. Trust Modaraba

8. B.R.R. Guardian Modaraba

9. Crescent Standard Modaraba

10. Modaraba Al-Mali

11. Modaraba Al-Tameer

12. Modaraba Al-Makatib

13. Modaraba Al-Istetmar

14. Constellation Modaraba

15. Elite Capital Modaraba

16. B.F. Modaraba

17. Fidelity Leasing Modaraba

18. Treet Manufacturing Modaraba

19. Habib Bank Modaraba

20. Habib Modaraba

21. IBL Modaraba

22. National Bank Modaraba

23. Paramount Modaraba

24. Equity Modaraba

25. Prudential Modaraba

26. Punjab Modaraba

27. Pak Modaraba

28. Standard Chartered Modaraba

29. KASB Modaraba

30. UDL Modaraba

31. Islamic Modaraba

Derivatives in Pakistan: Commodity and Precious Metal Investing in PMEX

Exposure to commodity could be achieved by buying stocks of commodity producing companies however study suggests that this method is poor bet for commodity exposure. Direct exposure to commodity is done either through cash settled futures, or deliverable future.  In Pakistan commodity investing is done electronically through Pakistan Mercantile Exchange PMEX (formerly National Commodity Exchange (NCEL). Metals and Commodities that are traded on the online Pakistan Mercantile Exchange are:

Gold

Silver

Crude Oil
 
Palm Oil
 
Rice
  
Pakistan Mercantile Exchange is the first technology driven, web-based, demutualized commodity exchange in Pakistan. The Exchange acts as a central counterparty to both buyers and sellers through a novation process and provide clearing & settlement on a T+0 basis using on-line bank transfer mechanism.

Here is how you can participate in Pakistan Mercantile Exchange. Open an account with a registered commodity and futures broker with PMEX. Make sure that the broker is also the member of the PMEX as well as registered with SECP. You will need to fill up an account opening form and sign it. Along with the account opening form you need to supply your identity proofs either by submitting copy of CNIC or Passports, and a copy of income tax return, and your bank account information and two witnesses with their CNIC.

For income tax return, you may visit Federal Board of Revenue Website here for further information on income taxes, NTN certificate and E-filing. This could be a major disadvantage to PMEX to make it mandatory to provide income tax return for account opening at PMEX. As investors are reluctant to go through the tax collection system and they prefer indirect taxes.

Some Securities firms that deal with metal and commodities on differed payment basis, albeit with margin requirements are listed below:

IGI Finex Securities
http://www.igisecurities.com.pk/

KASB Securities
http://www.kasb.com/securities/Default.aspx

JS Global Capital Limited
http://www.js.com/default.asp

Elixir Securities Pakistan (Private) Limited
http://www.elixirsec.com

Darson Securities (Pvt.) Limited
http://www.darson.com.pk

Falcon Commodities (Private) Limited
http://www.falcon.net.pk/

Fortune Securities Limited
http://www.fortunesecurities.com/index.html

ADAM Securities Pvt Ltd
http://www.adamsecurities.com.pk/

BMA Capital Management Limited
http://www.bmacapital.com/

Invest Capital Market Limited
http://www.investcapital.com/value.htm

Crosby Markets Private Limited
http://www.crosby.com.pk/index.htm
 
Fox extended resources also visit International commodity and future exchange:
 
Tokyo Commodity Exchange
http://www.tocom.or.jp/
 
Australian Securities Exchange
http://www.asx.com.au/

Shanghai Gold Exchange
http://www.sge.sh/publish/sgeen/index.htm

Osaka Mercantile Exchange
http://www.osamex.com/

London Metal Exchange
http://www.lme.com/

Dubai Multi Commodity Centre
http://www.dmcc.ae/

Chicago mercantile Exchange (CME group)
http://www.cmegroup.com/

Islamic banks in pakistan and their products

Article 38(f) of the Constitution of the Islamic Republic of Pakistan provides: “The

State shall …. Eliminate riba as early as possible.”  And this provision has led to the making of Islamic banking in Pakistan based on the principle of riba free banking. Riba can be defined as ‘an increase’ in a debt contract. In other words, in a debt contract, the exchange must not be a greater amount due to the borrower. The principle in debt contract in Islam is based on the principle of equality or at least on the principle of similarity.

However, the abstractness of capitalist money poses serious threat to the principle of equality. Both on the grounds of the existence of the issuing state of the capitalist money and that the abstract money can only be defined in monetary exchange ex-post and therefore even in the medium term such as five to ten years monetary exchange/ debt cannot be ascertained a priory that it is based on the principle of equality. For further discussion as to the nature of money in Islam versus Capitalism visit: http://capitalistmoney.blogspot.com

Following is the list of Stand Alone Islamic banks in Pakistan:

Meezan Bank Ltd

http://www.meezanbank.com

Al Baraka Bank Ltd

http://www.albaraka.com.pk/

Burj Bank Ltd

http://burjbankltd.com/

Dubai Islamic Bank Ltd

http://www.dib.ae/en/index.htm

BankIslami Pakistan

http://www.bankislami.com.pk/

In addition to the above stand alone Islamic banks, there are other conventional banks that have Islamic bank branches and windows through which Islamic mode of financing occurs. Please visit the list of private banks in Pakistan.

Following are some products offered by Islamic banks

            Musharakah

            Mudarabah

            Diminishing Musharakah

            Murabaha

            Salam

            Istisna

            Istijrar

            Ijarah

            Ijarah wa Iqtina
            Sukuk