ISLAMABAD: The Policy Board of the Securities and Exchange Commission of Pakistan (SECP) has approved proposed amendments to the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (the “Modaraba Ordinance”). These amendments were initially introduced in the National Assembly in July 2020 through the Modaraba Ordinance (Amendments) Bill, 2020 (the “2020 Bill”). Although the Standing Committee on Finance and Revenue approved the bill, it lapsed following the dissolution of the National Assembly in August 2023.
The SECP has since conducted a comprehensive review of the proposal, engaging stakeholders for consultations. As a result, a revised proposal has been finalized and approved by the Policy Board for submission to the Finance Division for further legislative processing. The key reforms retained from the original bill are aimed at promoting the development of the Modaraba sector, strengthening investor protection, and enhancing regulatory alignment with the Companies Act.
One of the significant amendments is the introduction of unlisted Modarabas to facilitate financial resource mobilization and performance-based profit sharing. The proposal also seeks to enhance investor rights by allowing special resolutions for management changes and improving access to courts for winding-up proceedings, thereby aligning governance provisions with the Companies Act.
Further amendments focus on streamlining regulatory oversight by empowering the SECP to handle disciplinary proceedings more effectively. The proposal includes transforming certain criminal offences into civil matters to improve enforcement and efficiency. Additionally, the plan suggests dissolving the Modaraba Tribunal and transferring its responsibilities to the High Courts and session courts, which is expected to enhance transparency and simplify the regulatory framework.
These proposed changes are now awaiting approval from the federal government. If enacted, they are expected to modernize the legal framework for Islamic financial institutions significantly. This move aligns with the government’s objective to transform the economy under the 26th constitutional amendment and comply with the Federal Shariat Court’s directive to eliminate Riba (interest) from the economic system.