- Modarabas were trend setters of Islamic financing and built public confidence in Sharia compliance Govt must expand financial inclusion and motivate masses to develop habit of saving
Interview with Muhammad Shoaib Ibrahim, CEO First Habib Modaraba
PAGE: Tell me something about yourself, please:
Shoaib Ibrahim: I am attached with non-bank Islamic financial institutions and Modarabas since long time. The long association with non-banking sector has given me insight into the financial and technical aspects of financial activities covering financial services, equity market and asset management. During my service I have worked on different projects and gained extensive experience of banking and finance particularly in Islamic Finance both in support and core function of the institution.
I did MBA in banking and finance from Institute of Business Administration (IBA) and also completed two years course on Islamic Banking and Finance from Centre of Islamic Economics, Karachi. This PGD course had greatly supported me for awareness building and understanding on Islamic finance.
At present, First Habib Modaraba (FHM) is well positioned in non-banking Islamic financial market with highest equity base, assets size and strong profitability within the entire Modaraba Sector of Pakistan. During my service tenor, I have seen various up and down in Pakistan’s financial market and also witnessed the emergence of Islamic banking within the country. As I stated earlier, I had worked almost in all departments and this experience gave me tremendous support to handle the affairs of First Habib Modaraba in an efficient manner as a CEO of the company. In the past, I presented research papers on the Modaraba and other Islamic financial products at different local and international forums. I also hold following positions in different prestigious institutions.
- Present member of SECP Committee of promotion of Islamic Finance within Non-Banking Islamic Finance Institutions.
- Former Chairman of NBFI and Modaraba Association of Pakistan
- Past President of Memon Professional Forum
- Ex-committee Members of FPCCI on SME
Currently I am Country Correspondent of Islamic Finance News, Malaysia and also Senior Vice President of Vanthali Memon Association.
PAGE: How would you describe Modaraba culture in Pakistan?
Shoaib Ibrahim: In Pakistan, the process of Islamization of the economy was initiated in early 80s and in the light of the recommendations made by the Council of Islamic Ideology, the Government of Pakistan introduced certain changes in the Banking Companies Ordinance. The Modaraba Law was also issued to provide a legal framework for Islamic financial system. In fact, Pakistan has the privilege of being the only jurisdiction which has instituted the concept of Modaraba with effective regulatory regime. Within Islamic Financial sector, Modarabas are playing significant role for promotion of Islamic financial within the country. The concept of Modaraba was introduced in Pakistan in early 80s as the first Islamic Shariah business model with statutory framework and proper regulations. Modaraba’s business model remains extremely versatile and dynamic. These Modarabas were not only trend setters of Islamic modes of financing in a predominant conventional financial system in Pakistan but also built confidence among the general public regarding practice of Islamic modes of financing. Modarabas are established as a well understood Sharia compliance instrument of financing in Pakistan. In early 90s, there was boom in Modaraba sector and around more than 50 Modarabas were operating in Pakistan market as listed entities on Stock Exchanges of Pakistan. However, the pace of growth was not maintained. At present there are around 20 Modarabas functional within non-banking financial sector. There are several reasons of dilution of Modaraba entities such as merger, acquisition, changes in taxation policies etc.
PAGE: What must the incumbent government do to rejuvenate investment culture?
Shoaib Ibrahim: In Pakistan, the investment and saving ratio is quite low with the overall GDP of the country. The reason of low ratios could be attributable to low saving culture, low financial inclusion, high cost of living and weak public awareness. In past few years, the government of Pakistan including both regulator i.e., State Bank of Pakistan (SBP) and Securities and Commission of Pakistan (SECP) have taken several initiatives on enhancement of financial inclusion, public awareness on sound and secure investment and also provided conducive environment to domestic savers and investors through stable platform of financial intermediation such as banks and other non-bank entities and through capital market. However, still there is need to expand formal sector through strong drive of financial inclusion and also motivate masses to develop habit of saving and investment. There is also need to rationalize direct and indirect taxation so that an individual could be able to save some funds for investments.
PAGE: How do you see Modaraba sector faring in the not-too-distant future?
Shoaib Ibrahim: Islamic Financial Sector of Pakistan is undergoing rapid transformation shifting from a niche sector to a significant one within the country’s financial system in order to comply with direction of Federal Shariat Court regarding conversion of entire financial system of Pakistan into Shariah compliant by December, 2027. SBP and SECP have developed a comprehensive conversion plan and also proactively engage in expanding Islamic finance in all its regulated sectors. In non-banking Islamic Finance sector, Modaraba segment is matured and developed. Over the years Modarabas have emerged as effective venture and as viable and dependable source of medium term financing which offer opportunity to investors to earn Riba-free income.
Pakistan is potential market for further expansion of financial sector particularly Islamic Finance keeping in view of very low rate of financial inclusion. So far, Islamic banking has been able to grasps major market share of around 21%. Securities & Exchange Commission of Pakistan (SECP) is also actively engaged for promotion of Islamic Finance through non-banking and capital market segments and Islamic Finance Department (IFD) of SECP has taken various initiatives for promotion of Islamic finance within the non-banking segment during last few years. Recently, IFD has issued draft Modaraba Act which is under process of approval with government of Pakistan. The new proposed Modaraba Act, will replace existing Modaraba Ordinance 1980 and will support for further growth of Modaraba sector of Pakistan.