950805

'IFC financing to

modaraba cos repugnant

to Islam'

KARACHI: Dr. Shahid Hasan Siddiqui, Director General for Asia, Institute of Islamic Banking and Insurance, London has criticized the recently reconstituted Religious Board for approving an agreement seeking to provide long-term finance aggregating to $40 million by International Finance Corporation (IFC) to three Pakistani modaraba companies for leasing operations as its provisions clearly violate the tenets of Shariah.

While talking to newsmen here on Saturday, he said that the agreement guarantees the return of principal amount of IFC in US dollar notwithstanding that the modaraba may suffer losses in business except of course on its liquidation or winding up. He emphasised that sharing the loss strictly in the ratio of capital employed in business is the basic requirement for the Riba-free transaction and any violation of this provision makes the transaction invalid and "Fasid".

He said that as IFC will be sharing the profits but not the losses incurred by modaraba company as a going concern, has the modaraba companies have accepted the obligation to return the principal amount in foreign currency in full, irrespective of the operational results. Various clauses have therefore, been incorporated in the agreement in an unsuccessful bit to bring it closer to Shariah, he added, but remarked that an arrangement could either be in conformity with the Shariah or repugnant to Shariah and there is no such thing as "closer to Shariah".

While referring to section 10 of Modaraba Companies and Modarabas (Floatation and Control), Ordinance, 1980, he said that it lays down that "no modaraba shall do a business which is opposed to injunctions of Islam," and observed that it is rather painful that the Religious Board constituted under Section 9 of the Ordinance has now approved the agreement containing clauses not acceptable to Shariah, but has declared these as Islamic.

In reply to a question, he said that the first UDL Modaraba, First Crescent Modaraba and Second BRR Capital Modaraba have executed agreements on July 25 with IFC but two important modaraba companies, namely, Modaraba Al-Mali and First Grindlays Modaraba which had successfully negotiated investment financing with IFC for $10 million and $30 million respectively have opted out of the scheme at the eleventh hour for reasons could best be explained by them but added that it could be due to high cost of forward cover, non-observance of Shariah principles and a possible reluctance in giving 10 percent equity to IFC in the company etc.

He felt that in case a modaraba company declared a dividend of 15 percent, the cost of funds obtained from IFC would be over 20 percent per annum as the price of forward cover is estimated to be over 11 percent per annum and the return paybable by modaraba company to IFC would be 9 percent per annum, but if higher dividends are declared, the cost of funds, will increase further as also the return to IFC.-PPI