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Mudarabah firms must explore new avenues for future business

Mudarabah firms must explore new avenues for future business

Interview with Mr Hamad Rasool Bhullar, an analyst


Mr Hamad Rasool Bhullar is a freelance consultant/trainer and financial advisor with special reference to ethical and Islamic Financial system, for almost 25 years, both in public and private sectors in addition to being a passionate trainer on management and motivation to change the lives of the youth. He has a strong belief that we can shape our Pakistani community into a very efficient and productive community just through the right mix of training and motivation, while preserving the natural ethics and morality in our society. He did his graduation from Hailey College of Commerce in 1990, after that he completed six post-graduations in Finance, Accounting, Economics, IT and Corporate Law. After graduation he worked for an Accountancy firm for almost 12 years, before joining a public sector organization. He has also over 28 years of experience in training the banking courses (both conventional and Islamic finance) in addition to being on the board of an Investment Bank for almost 4 years (2005-2008).

PAKISTAN & GULF ECONOMIST sought the perspective of Mr Hamad Rasool Bhullar on Modaraba and leasing in Pakistan. His views are as following:

The fact is that Pakistan is in great trouble since 1980, when we started dodging the masses through a fake picture of Islam. Many of the opportunist Scholars of Islam supported this system but when a few learned personalities like Dr Israr sahib and a few others opposed it, the facts were revealed. Then there was a long pause in this process but the Mudarabah Companies having been established could not make any impact on the system rather it maligned true Islamic concept of Islam within Pakistan then a case was filed and proceedings took long process of legal and Shariah related arguments. Cutting it short finally on December 24, 1999 the case was pronounced and this system was declared as non-compliant to the Shariah. The court as advised the State Bank of Pakistan (SBP) to establish the true system of Islamic finance which was being evolved and practiced at Islamic Development Bank (IDB) since early 1970s.

Interestingly this system was promulgated by the joint efforts from top Muslim scholars and economists a few of them were from Pakistan working with OIC’s platform namely Prof. Khurshid, Justice Taqi Usmani and Dr Munawar Iqbal other contributors of this system were Dr Manzar Kahf , Dr Hussain Ahmad Hussain, Dr Mirakhor and others being early value additions to the system.

As we are getting deviated, this early Islamization (so-called) of 1980, led to bring a dirty face for Islamic financing, and it still prevails. However, after SBP established the Islamic Banking system in a Pakistan, these Mudarabah Companies being regulated by SECP also adopted the model and thereby expanded their business.

I believe that Shariah allows the Financier (Rabb-ul-Maal) to put the restrictions on the Mudarib (being user of financing) on the range of business or the geographical area where to establish the business. There seems no harm in it, as it reduces the risk of failure of the business and also reduces the carefree usage of resources provided by the Rabb-ul-Maal simultaneously it may become a plea for the Mudarib that due to the restricted conditions, he could not make the business successful. As a matter of fact, it is workable in certain given conditions and in some active market situation.

The primary objective of prudential regulations is to ensure credibility of the institutions being regulated through potting forth some working conditions and requirements on staffing etc. same is the case for Mudarabah Companies certain conditions are ensured by SECP to be followed by the key executives (promoters, directors, CEOs, any other key positions of management) meeting the fit and proper criteria giving special care to integrity and track record, Competence and capability, financial soundness and to keep out any conflict of interest in business for which certain data of all the persons is filed with the Registrar (Modarabas) from time to time. This process is quite important as it improves the trust of the community and investors on the activities of the Mudarabah Companies and their management.

The leasing is a sector which is least explored by the financial markets in Pakistan, during the 1980s leasing companies started establishing in Pakistan as DFIs but so far these are covering less than 1% of the financial market one of the reason is that the commercial banks are also allowed to finance in this sector, the other being the fact that very little amount of leasable assets available, as the factual lease is operating lease, while finance lease is a type of lease used as an alternative of financing tool of loans and credit creation by banks.

In Pakistan, most of the Mudarabah Companies are working in this sector for survival with their limitations. I have had the opportunity to guide/advise the Mudarabah Companies to explore new avenues of business for expansion. There seems a tendency of working with documents, instead of getting out of the offices and get into the real business world with most of the DFIs which seems a big hurdle in their rise.

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