SECP Directs Modarabas to Extend Housing Finance Limit to Rs. 50 Million

SECP Directs Modarabas to Extend Housing Finance Limit to Rs. 50 Million in 2022

The Securities and Exchange Commission of Pakistan (SECP) has directed Modaraba companies to provide housing finance to their customers by raising the maximum per party limit for housing finance from Rs. 20 million to Rs. 50 million.

S.R.O. 529 (I)/2022 was issued by the SECP to propose amendments to the Modaraba Regulations, 2021.

According to the new SECP regulations, “Modarabas may extend housing finance facilities to their customers with the prior approval of the Registrar, and the maximum per party limit in respect of housing finance by a modaraba shall be Rs. 50 million.”

SECP added that the Modaraba’s total housing finance portfolio should not increase by more than 10% of the Modaraba’s full portfolio.

The SECP has also permitted modaraba companies to deal or trade in real estate for the purposes of development or construction.

According to the revised regulations, a modaraba company may hold, deal, or trade-in real estate for development or construction purposes if such a purpose or objective is stated in the modaraba’s approved prospectus.

Every modaraba may establish a reserve fund to which an amount of its after-tax profits, or any portion thereof, may be credited.

If a modaraba fails to meet the minimum equity requirements outlined in these regulations, it must establish a reserve fund to which it must credit an amount equal to one hundred percent of its annual after-tax profit until the minimum equity requirements are met.

“Provided, further, that a modaraba that has already raised funds through COM as of the date of notification of these regulations shall ensure that such investments are made by June 30, 2022,” SECP added.

The term “Certificates of Musharakah (COM) raising Modaraba” refers to a financial services modaraba that has been granted valid permission to raise funds through the issuance of COM or any other modes or instruments approved by the Religious Board, or that has outstanding COM on its books.

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