Interview with Mr. Barkatullah Lone – Chairman, GB International Economic Forum
Mr. Barkatullah Lone is Chairman of GB International Economic Forum and a renowned young Economist of Pakistan. He was ranked in the top ten Economists of Pakistan in the year 2017. He is a Chartered Accountant from England & Wales, Chartered Management Accountant from UK, Chartered Certified Accountant from UK, Chartered Global Management Accountant from the USA, Gold Medalist Management Accountant and Public Finance Accountant from Pakistan plus he holds master’s degree in Economics and Law from Karachi University.
He has been associated with the corporate sector in finance and audit profession at various positions (CFO/GM Finance/Chief Internal Auditor) for the last many years. He has rendered his professional Finance/Audit/Accounting services in Pakistan as well as abroad. Simultaneous with his job career, he has been appearing at various local and international TV channels as Economic & Financial Analyst for the last eight years. His articles on economy and finance are also published in various reputed magazines.
Association with Organization: Presently, Barkatullah Lone is associated with a reputed large Conglomerate Corporate Group in the Eastern Province of KSA (Dammam) as Group Chief Financial Officer. He has joined this Group with a vision to professionalize the business functions and to streamline the processes by embedding the business activities into integrated information systems. He has ample experience of converting the traditional owner-based culture into a corporate culture in his ex-organizations which he is envisioning to inculcate a corporate culture in the existing Group as well.
PAKISTAN & GULF ECONOMIST sought the perspective of Mr. Barkatullah Lone on Modaraba and leasing in Pakistan. His views are as following:
The concept of Modaraba was introduced in 1980 when the echo of Shariah implementation was in peak under the close supervision of the then president Ziaul Haq. Mr. Ziaul Haq brought in various Ordinances to implement Shariah in the country so he focused at banking and finance too to convert into Shariah-based principles. Modaraba is, actually, an Arabic word which means that one party arranges the funds for the investment in business and the other party operates the business and ultimately profit is shared as per agreed ratios.
Keeping in view the aforementioned concept of Modaraba, that was introduced in 1980; the banks dealing in Modaraba based financing can’t fix a profit as fixing the profit is exactly the same as interest which is Haram in Islam as Allah Almighty has said in the Holy Quran وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا (Allah has allowed the trade but made the interest haram). In nutshell, I would like to say that the banks dealing in Modaraba and the companies arranging its working capital and capex needs through Modaraba just try to give for themselves inner satisfaction that they are not dealing in interest but it is factually interest-based financing. Allah Almighty has declared in the Holy Quran in Suratul Baqara that dealing in interest tantamount to the war with Allah Almighty. In view of these injunctions of Islam, I would like to advise the business community to exert pressure on the government to bring a system of financing which should be in accordance with the teaching of the Holy Quran and the Sunnah of our beloved profit. Changing or giving Islamic name to any mode of financing will never resolve the issue. Our financing system whether at micro corporate level or at macro state level has failed only due to the Jewish system. This financing system has worsened the economic activities and has made the rich more rich and the poor more poor.
In a Mudarabah Muqayyadah, the capital provider places certain restrictions to the manager of the business in running the business activity; for example, the business activity shall be in the field of agriculture; or gold mining; or restaurants; or other business specified and agreed by the capital provider.
The Mudarabah Muqayyadah transaction may be offered by an Islamic bank to bring together the investors who are willing to invest their funds, with the manager of the funds, who needs funds for financing his business activity. The bank will act as the fund manager, investment manager or agent. As an investment manager/agent, the bank will charge a service fee, as agreed by the parties.
There are two types of Mudarabah Muqayyadah: 1) Mudarabah Muqayyadah where the Islamic bank acts as a channeling agent and 2) Mudarabah Muqayyadah where the Islamic bank act as an executing agent.
A Mudarabah Muqayyadah where the bank acts as a channeling agent will not be booked on the balance sheet of the bank and the bank shall not be entitled to share in the profits. On the other hand, in a Mudarabah Muqayyadah where the bank act as an executing agent, the bank will be entitled to a share of the profits and a service fee (if agreed in the contract); and it will be booked on the balance sheet of the bank.
Prudential Regulations for Modaraba have been a good step in operating Modaraba financing in a disciplined way. The way commercial banks traditional financing is well-governed through the state bank prudential regulation; exactly the same way Prudential Regulations of Modaraba have helped Modaraba financing to be governed under a disciplined way.
The Securities and Exchange Commission of Pakistan (SECP) has kept on amending these regulations off and on as per the change in financing environment and the control requirement. I feel that Prudential Regulation for Modaraba need to be revamped as most of the clauses of these regulations are similar to the prudential regulations of state bank. Since Modaraba is Islamic based financing, although I never accept it so, yet the Prudential Regulations should also be as such.
For starting a leasing business in Pakistan, the company has to first incorporate itself as NBFC and then apply for leasing license from SECP. Evolution of leasing business in Pakistan dates back to 1980 but it was formally brought into market through legislation in 1985. Leasing business opened new path for the corporate entities as this became an effective source for the capex financing in our industry since the commercial banks mainly financed government budget deficits and the working capital needs of corporate therefore companies always felt reluctant to expand the business due to short supply of bank financing for capex but the new doors opened after leasing business came into Pakistan market.
Leasing business has contributed to the GDP of Pakistan tremendously but it has suffered from issues such as economic slowdown, which is one of our key dilemma plus massive fluctuation in interest rate too frequently plus non-availability of level playing field as leasing companies face adverse competition from investment banks and DFIs. Although, leasing sector has experienced good growth in the past but its near future prospects do not seem to be too bright unless its various areas of concern including the prevailing economic scenario, dried-up foreign funding lines, lack of resource mobilization, non-availability of level playing field, lack of innovative financial products, tax and other issues, etc.