quarterly article on emerging islamic capital market …

BUSINESS AND ECONOMIC NEWSFLASH

URDU GLOSSARY

MARKETS IN REVIEW

QUOTES AND JOKES

TERMS OF THE MONTH

QUARTERLY

Jan-Mar 2021

Your Gateway to Careers in Financial Markets

Institute of Financial Markets of Pakistan

Address: Building 9-A, 2nd Floor,

P.E.C.H.S Block No. 6, Shahrah-e-Faisal Karachi.

Tel: +92 (21) 34540843-44

MESSAGE FROM THE CEO

INTRODUCTION TO THE INSTITUTE

IFMP ACTIVITIES

INDUSTRY PROFESSIONALS’ INTERVIEW

FEATURED ARTICLE

ARTICLE BY IFMP MEMBER

TERMS OF THE MONTH

BUSINESS AND ECONOMIC NEWSFLASH

URDU GLOSSARY

FEEDBACKS

MARKETS IN REVIEW

ARTICLE ON

EMERGING ISLAMIC CAPITAL

MARKET IN PAKISTAN

00 CONTENT

Message from the CEO

Introduction to the Institute

IFMP Activities

Article by IFMP Member

Urdu Glossary

Feedbacks

Business and Economic Newsflash (Local & International)

Page: 1

Page: 2

Page: 27

www.ifmp.org.pk 92 (21) 34540843-44 [email protected]

Terms of the Quarter

Markets in Review

Featured Article

Page: 3

Regulatory Updates

Investment Quotes

Industry Professionals’ Interview Page: 5

Page: 7

Page: 19

Page: 22

Page: 23

Page: 31

Page: 35

Page: 36

Page: 38

Page: 37

IFMP Upcoming Activities Page: 4

01

Message from the Chief Executive Officer

◊ FIRST QUARTERLY 2021

he last few years have seen a rapid growth in size, quality and sophistication of finan-

cial markets, because of changes in the policy and regulatory environment, the entre-

preneurial initiatives of individuals and institutions, and the availability of trained man-

power. The continuing growth of financial markets is further adding to the demand for

well-trained professionals.

Institute of Financial Markets of Pakistan is dedicated to the professional development of

financial markets and research on financial markets as well as the well being of financial

markets by educating the professionals about the norms and ethics being practiced in the

markets. IFMP has had a pioneering role in meeting the demand for educated manpower.

It is Pakistan's first specialized institution devoted to the education and updating of

knowledge of manpower for financial markets. It will provide high-quality educational

standards for all types of financial market participants; investors, brokers, mutual funds,

investment banks and policy makers.

The Institute's main activities are (1) Licensing the professionals working in the financial

markets by certifications. The institute’s key responsibility is to educate the professionals

working in different financial markets of Pakistan through examining their knowledge in

their relevant field of work; (2) Studying the latest developments in the financial markets

in order to discover whether there is such a thing as an ideal market economy; and (3)

Contributing to the development of financial markets in Pakistan. By means of these three

activities the Institute seeks to communicate its ideas to the audience both at home and

overseas. The Institute's research is intended, first and foremost, to be neutral, profes-

sional and practical. Rooted in practice, it aims to contribute to the healthy development

of Pakistani financial markets as well as to related policies by conducting neutral and pro-

fessional studies of how these markets and the financial system are regulated and orga-

nized and how they perform.

The economy is changing all the time. The Institute hopes that, by responding to these

changes positively, it can contribute to the dynamic development of the country's finan-

cial markets as well as of the economy itself.

T

02

Introduction to the Institute

◊ FIRST QUARTERLY 2021

The Institute of Financial Markets of Pakistan (IFMP), Pakistan’s first

securities market institute, has been established as a permanent platform to de-velop quality human capital, meet the emerging professional knowledge needs of

financial markets and create standards among market professionals. The Insti-tute has been envisioned to conduct various licensing examinations leading to

certifications for different segments of the financial markets. IFMP develops a pool of trained and certified professionals, skilled not only to deal in convention-

al instruments but also to trade in new and complex financial market products.

◊ FEE STRUCTURE ◊

Candidate Registration Fee Rs.10,000

Examination Registration Fee Rs.7,000

Membership Fee (Annual) Rs.5,000

Study Guide (Hard Copy) Rs.800

◊ EXAMINATION SCHEDULE ◊

Sunday, May 30, 2021

Sunday, July 25, 2021

Sunday, September 26, 2021

PROGRAMMES

LICENSING CERTIFICATIONS INSURANCE CERTIFICATIONS SPECIALIZED CERTIFICATIONS

Fundamentals of Capital Markets Certifi-

cation

Pakistan’s Market Regulations Certifica-

tion

Stock Brokers Certification

Mutual Funds Distributors Certification

Commodity Brokers Certification

Financial Analysts Certification

Mutual Funds Basic Certification

Securities and Futures Advisors’ Certifica-

tion Programme (Basic and Core Modules)

General Takaful Agents Certifi-

cation

Family Takaful Agents

Certification

Life Insurance Agents

Certification

Non-Life Insurance Agents Certi-

fication

Bancassurance Certification

Bancatakaful Certification

Authorized Surveying Officers

Certification

Financial Derivative Traders Certification

Compliance Officers Certification

Clearing and Settlement Operations Certification

Risk Management Certification

Capital Budgeting and Corporate Finance

Certification

Investment Banking and Analysis Certification

Islamic Finance Certification

Fixed Income Certification

AML/CFT Certification

◊ FIRST QUARTERLY 2021 IFMP

IFMP Activities 03

Date Program Trainer Dura-

tion

January, 2021 Virtual Accounting & Bookkeeping Mr. Riaz Ahmed & Mr. Muhammad Has-

san

1 Month

23rd January, 2021 AML/CFT Certification Training (4th batch) Sumera Baloch - Additional Director

FMU, Govt. of Pakistan

6 Hours

February, 2021 Virtual Accounting & Bookkeeping Mr. Muhammad Hassan 1 Month

9th February, 2021 Microsoft Power BI Mr. Imran Bukhari 3 Hours

March, 2021 Virtual Accounting & Bookkeeping Mr. Amin Ahsan & Mr. Muhammad Has-

san

1 Month

February & March,

2021

CHRP Diploma Multiple 2 Months

4th March 2021 Leading Effective Virtual Meetings M. Asim Ali 1 Hour

9th March 2021 Role of Women in Pakistan's Financial Markets Mobashar Sadik, Mashmooma Majeed -

MUFAP, Sarwat Ahson - CFA Society,

Sadaf Shabbir - Awwal Modaraba, Zun-

aira Saqib - Merafuture.pk

1 Hour

10th March 2021 Equity Valuation using Fundamental Analysis Ap-

proach

Jabran Ata - CFA 1 Hour

12th March, 2021 Detecting and metigating the risk of TBML Salim Thobani - Head of Trade Compli-

ance Meezan Bank

3 Hours

20th March, 2021 AML/CFT Certification Training (5th batch) Sumera Baloch - Additional Director

FMU, Govt. of Pakistan

4 Hours

25th March, 2021 SECP AML/CFT Regulations 2020 M USMAN - ACA 3 Hours

27th March 2021 Taxation of Salaried Individuals Mudassar Farooq 1 Hour


IFMP Upcoming Activities 04

Date Program Duration Type of Event

6th May, 2021 Building the savings and pension culture for Mutual Funds 1 Hour CPD

5th June, 2021 Understanding the requirements of fair dealing as an equity sales person (Stock Bro-kers)

1 Hour CPD

7th July, 2021 Understanding the risks associated with insider trading (Stock Brokers) 1 Hour CPD

15th July, 2021 Accounting for non Accounting Professionals 3 Hours Paid Train-ing

29th July, 20201 Mutual Fund Basic Certification Training 2 Hours Paid Train-ing

7th Aug, 2021 Capital Market Regulatory Developments 1 Hour CPD

14th August 2021 IFRS 9 & 16 3 Hours Paid Train-ing

26th August, 2021 Managing Sanctions Risk 3 Hours Paid Train-ing

8th Sep, 2021 The role of Behavioral Finance in wealth management (Mutual Funds) 1 Hour CPD

16th September, 2020

SECP Revised Regulations 2020 2 Hours Paid Train-ing

30th September, 2021

Power BI Analytics & Visualization 10 Hours Paid Train-ing

9th Oct, 2021 Complying with brokers code of conduct; ensuring client’s assets and confidentiality of information (Stock Brokers)

1 Hour CPD

14th October 2021 Detecting and metigating the risk of TBML 3 Hours Paid Train-ing

28th October 2021 Taxation of Salaried Individuals 2 Hours Paid Train-ing

13th Nov, 2021 NBFC Regulatory Developments 1 Hour CPD

18th November 2021

Financial Risk Management 3 Hours Paid Train-ing

25th November, 2021

Microsoft Excel 10 Hours Paid Train-ing

15th Dec, 2021 Leadership & Team management Skills for Financial Services Professionals (All Indus-try Professionals)

1 Hour CPD

16th December, 2021

Budgeting and Control 3 Hours Paid Train-ing

05


Dr. Amjad Waheed holds a Doctorate in Business Administration with a major in Investments

and Finance from Southern Illinois University, USA and is also a Chartered Financial Analyst

(CFA). Since inception of the company (fifteen years ago), Dr. Amjad Waheed is the CEO of NBP

Fund Management Limited (NBP Funds). Dr. Amjad has served on the Board of various compa-

nies including Bank Islami Pakistan, Siemens (Pakistan) Engineering Co.Ltd., Nishat Mills Ltd.,

PICIC, Askari Bank Ltd., Millat Tractors Ltd., Fauji Fertilizer Company Ltd., Pakistan Tobacco

Company Ltd., Parke-Davis & Company Ltd., Treet Corporation Ltd., Atlas Investment Bank Ltd., Gul Ahmed Textile

Mills Ltd., Bata Pakistan Ltd. and Mehran Sugar Mills Ltd. among others. He has also served as Chairman, Mutual

Funds Association of Pakistan (MUFAP).

Tell us about your journey of becoming a CEO.

Initially, I wanted to become a Doctor but then I didn’t have enough marks so I decided to do B.Com from Hailey

College of Commerce Lahore. After completing my B.Com I went to the US to do my MBA and afterwards I decided

to do my Doctorate in Finance and Investments. After completing my PhD, I was an Assistant professor in finance at

Tennessee State University, USA for three years. I came back to Pakistan where I first worked in Lahore with ABN

Amro Equities then moved to NIT in Karachi. I was head of Investments of NIT for about three years. Then I went to

Saudi Arabia Riyadh Bank, where I worked for five years managing the equities mutual fund business which was

about $8 billion. And after that, I came back to Pakistan about 15 years ago and started this company NBP Funds

and today we are Ma’shaa’Allah the largest AMC in Pakistan. We are managing about 80 billion rupees and we have

an AM1 rating which is the highest rating offered to any asset management company. So basically it has been a good

journey where there have been challenges, one of the key challenges was the Macroeconomic environment in Paki-

stan which is pretty volatile and because of that stock market you know goes up and it goes down more than you

know it should, and since we managed stock funds in addition to income funds and Islamic funds and pension

funds. And if the market goes down it impacts on investors’ returns for those who are holding stock funds.

What coaching tips will you give to other CEOs to stay skilful at the top of the heap?

I think the biggest tip of all is ownership. I think a lot of professionals even whether there are CEOs or senior man-

agement they do not take ownership of the company. When you are working for a company you are getting a salary,

you are getting bonuses, you need to start thinking that this is my company and when you start thinking like that

then you obviously start being more responsible. Next thing which is more important is Entrepreneurship, you

need to have a mind of an entrepreneur, how to grow the business, how to reward your people and how to hire

good people, so a lot of entrepreneurship skills are required which are generally missing in high salaried profes-

sionals. And the third thing is to keep yourself updated of recent developments and fourth thing is I think for the

CEO to hire the right people is the very important job, it makes the life easy if you have the right people around you.

What do you think is an effective way to measure the success of a CEO?

Well I think ultimately it has to be output and the reputation of a company. The most important thing for a CEO is to

ensure reputational risk is mitigated with extent possible. Obviously growing business is always the dream of the

CEO and also working in the interest of all the stakeholders is important. In our case we have shareholders obvious-

ly, but we also have investors (about a hundred thousand of them), they are also stakeholders so basically it is a

work in the interest of all the stakeholders and government is one of the stakeholders.

Interview of dr. amjad waheed, CEO - NBP Funds

What was the moment that shaped your career as a CEO?

One moment that shaped my career as CEO is when I was in Saudi Arabia and I was getting a good salary, I had a

good job and I was the head of equity mutual funds, I get a call from NBP Funds which was just starting its opera-

tions and I had to make the decision whether I took up the big salary cut to come back to Pakistan, and I decided to

come back and it proved to be the right decision maybe not in the monetary terms but as overall satisfaction.

What skills/traits do you think to raise the bar as a CEO?

I think professional skills obviously are the requirement no questions about it whether you are a chartered account-

ant, a finance major or sales person and these skills are required from a CEO but I think biggest skill for a CEO is the

entrepreneurship and you need to think like a businessman because it is you running a business and you must own

it, think long term, reward your people based on their performance, make decisions based on market forces, antici-

pate things, you think of future products, statutory developments, grow your business, future expansion and im-

provement of products and services for your clients. In all these skills entrepreneurship is the most important skill

for raising the bar as CEOs.

How would you describe the importance of systems for gathering feedback from lower level employees?

Obviously employees are the key ingredient you know for especially for the service sector business and so it is very

important to know how your employees think, we carry out employee engagement survey every year to find out

what all the employees think about the company. We found the gaps, for example one of the key gaps they identified

was work and family balance, because of the late hours and they did not get much time to spend with the family so

we tried to improve that. We are trying to ensure that people leave the office at a reasonable time and are not stuck

here for late hours. I think it is important to get feedback from employees so you can get to know their problems

and if they are happy they will perform.

How would you describe the importance of staying humble with employees as a CEO?

I think being humble are the basic characteristics of the CEO if you are not humble if you are arrogant you will any

way mess up, some way your business will suffer, so I think all good CEOs should be humble.

How would you describe the importance of sharing your vision with the lower level employees as a CEO?

Very important, we use to have more physical meeting before Covid and especially with the large sales force about

800-900 hundred people. I used to travel to different cities but now things have changed and we are doing most of

the meetings online as obviously it is important to engage with all the employees and share your thoughts with

them and get feedback from them.

How would you describe the importance of Building a Continuous Learning Culture in an organization?

Very important, we ensure at it all levels, our HR department ensures that employees are getting the proper training

and in addition to the professional skills they also need to learn the managerial skills as eventually they will go to

the managerial positions. So we keep on sending people to different seminars and workshops to upgrade their skills.

06


interview

07


Introduction: The Islamic capital market is growing as the Islamic banking industry has become more sophisticated and assets are being trans-

ferred from the banking industry to the capital markets. This came about when in 1980s and 1990s, Islamic banks were successfully

able to mobilize dormant savings into investments through their Shariah compliant financial instruments. The development of shari-

ah compliant tradable securities formed the basis for the Securities markets.

Capital Market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in con-

trast to a money market where short-term debt is bought and sold.

Are the Capital Market and the Money Market are same?

No, there is the difference between capital Market and Money Market. The money markets are used for the raising of short-term fi-

nance, sometimes for loans that are expected to be paid back as early as overnight. In contrast, the "capital markets" are used for the

raising of long-term finance, such as the purchase of shares/equities, or for loans that are not expected to be fully paid back for at

least a year.

Do we classify regular bank lending as a capital market transaction?

Regular bank lending is not usually classed as a capital market transaction, even when loans are extended for a period longer than a

year due to the following reasons,

First, regular bank loans are not securitized (i.e. they do not take the form of a resalable security like a share or bond that can be

traded on the markets).

Second, lending from banks is more heavily regulated than capital market lending.

Third, bank depositors tend to be more risk-averse than capital market investors.

Capital markets recognize and drive capital to the best ideas and enterprises. Coupled with the free flow of capital, innovation is an

integral component to a country for supporting job creation, economic development and prosperity. Markets facilitate the transfer of

funds from those who seek a return on their assets to those who need capital and credit to expand.

Islamic Capital Market Islamic capital market is a market where all financial activities are shariah compliant. The concept can also refer to the investments

that are permissible under Sharia.

The Islamic Capital Market is an integral part of Islamic Financial System where Shariah compliant financial assets are transacted. It

plays a pivotal role in the growth of Islamic Financial Institutions.

The backbone of Islamic Capital Market are the following Shariah principles. Prohibits Paying or charging an interest

Do not Invest in businesses involved in prohibited activities

Prohibits Speculation (maisir)

Prohibits Gambling and Ambiguity (gharar)

Ensure Material finality of the transaction

FEATURED ARTICLE: EMERGING ISLAMIC

CAPITAL MARKET IN PAKISTAN

08


Profit/loss sharing

The Islamic Capital Market functions as a parallel market to the conventional capital market for capital seekers and providers. The

Islamic Capital Market attracts funds from domestic as well as international sources.

Today, various capital market products are available such as Shariah-compliant securities, sukuk, Islamic unit trusts, Islamic Real

Estate Investment Trusts etc.

Reasons for the growth of Islamic capital market There are several reasons for the faster growth of the Islamic capital Markets. Islamic financial and insurance institutions had sur-

plus funds after providing for statutory reserves and financing for clients. The unavailability of efficient Shariah compliant financial

products on a liquid Islamic capital market was making Islamic financial and insurance institutions operations less efficient.

In addition to this, prohibition of interest based loans, absence of money market and greater emphasis on equity investment also

meant that there had to be a greater reliance upon securities markets to mobilize funds. Shariah compliant financial instruments and

products is at various stages in different countries. It offers many different types of products, which include:

Shariah compliant stocks,

Islamic bonds, Islamic funds,

Islamic derivatives,

Structured products and

Islamic risk management products

Thus Shariah compliant products have increased the ownership base in the society and are regarded as a new asset class by the con-

ventional investors. They have also grown to represent an alternative investment philosophy and are progressing parallel to the con-

ventional ethical Stocks and shares. They are open to non-Muslims investors who wish to invest in socially responsible investment.

Indices of Islamic finance market There are also a number of indices that track the performances of Islamic finance markets such as

Dow Jones Islamic Market Indices (DJIMI)

Standard and Poor’s Shariah Compliant Indices

Morgan Stanley Capital Index (MSCI)

FTSE global Islamic Index Series etc.

Prominent rating agencies have also entered the markets creating their own rating methodologies for shariah compliant products.

The DJIMI tracks performance for diverse regions such as Asia, BRIC, GCC, and globally emerging markets. It also has an “index on

Islamic Market sustainability. This index outperformed the conventional market during 2007-2008 by a small margin. On the other

hand, indices such as MSCI have also shown clear superiority of the performance of Islamic funds during the above period.

Regulatory Organization in Islamic capital Market The rise of Shariah compliant stock exchanges necessitates a supportive infrastructure for efficient operation. There are some Super-

visory and self-regulatory organizations established such as

Islamic Financial Services Board

Accounting Auditing Organization for Islamic Institutions



09


International Islamic Financial Market and

Islamic International Rating Agency

The establishment of key supervisory and self-regulatory organizations has facilitated the formulation of legal and regulatory stand-

ards. It has also galvanized the efforts to standardize the global Islamic finance market.

The International Organization of Securities Commissions (IOSCO) has also acknowledged the growing importance of Shariah com-

pliant securities markets in the global financial market. IOSCO established an Islamic Capital Market task force to assess the extent of

development and identify the gaps in the legal and regulatory framework. Similarly, international Islamic institutions such as the Is-

lamic Research and Training Institution have also undertaken significant research projects to track new developments and incorpo-

rate IOSCO standards in formulating policies. Shariah is set of ethical principles and prohibitions which are applied in the context of

Islamic banking, securities markets, financial institutions and financial products.

Global Market Perspective The Shariah compliant securities market is at an important juncture of becoming a vibrant market place after the last financial crisis.

The growth indicates that capital seekers and providers are becoming increasingly comfortable with Shariah compliant instruments

for financing and investment tools. It also provides an excellent opportunity to tap into liquidity rich Islamic countries. The amount

of funds mobilized by the Shariah compliant instruments and the current demand for the Shariah compliant financial products in

Middle East, South East Asia, North Africa and Western world has reached a critical threshold to support a well-functioning capital

market. This is also evident from the estimates of total market capitalization of Dow Jones Islamic Market World index which has

reached to 5,527.28 USD as of March 30, 2021.

A glimpse of global Islamic finance shown in the chart below:

The Islamic capital markets marked a record high in 2019 in terms of volume of annual s uku k issuances. Both sukuk and Islamic

funds entered a renewed and stronger growth phase in 2019 after a more subdued, albeit consistent, growth rate in recent years.

Several new trends are emerging across the sector. The Islamic capital markets continue to be the most rapidly growing segment in

the IFSI, posting double-digit growth across all three sub-segments .



10


*Islamic capital market share comprise s uku k and Islamic funds’ assets as at end 2019.

*Source: ISLAMIC FINANCIAL SERVICES INDUSTRY STABILITY REPORT 2020

S uku k The s uku k market experienced double-digit growth in 2019. The robust issuance in 2019 marks the fourth consecutive year of ex-

pansion of the s uku k market. It also represents an overall growth in s uku k outstanding in the last 15 years (from 2004 to 2019) by a

CAGR of 26%, making it the fastest-growing segment in the Islamic Capital Market.

FEATURED ARTICLE: EMERGING ISLAMIC CAPI-

TAL MARKET IN PAKISTAN

11


Islamic Funds Islamic funds demonstrated positive growth in terms of the total value of assets under management, recovering from the slower

growth observed in recent years. The growth in total value of AuM may have been supported by the strong growth in equity markets,

as well as by an increase in average size of funds, while the total number of Islamic funds increased from 1,489 in 2018 to 1,545 in

2019.

Islamic Equities Islamic equity markets rebounded in 2019, posting the strongest performance since the GFC in 2009. Following weak returns in

2018 due to a steep sell-off in December, equity markets recovered in 2019, with the S&P Global 1200 Shariah Index gaining 32.6%,

while its conventional comparator, the S&P Global 1200 Index, gained 28.2%. Despite transient market volatility during the year due

to fears of a global economic slowdown, a disruptive trade war or a hard Brexit, and the volatility of oil prices, global equity markets

ended 2019 at a record high, helped by rate cuts by central banks which alleviated recession fears along with easing of trade tensions

towards the end of the year.



12


Growth Drivers in the Islamic Capital Market Following are the growth drivers in the Islamic Capital Market

Regulatory capital issuances that will continue to be a significant driver of sukuk issuances.

Utilization of financial technologies for issuance of sukuk, as well as growth in other FinTech-based models to provide Islamic

Capital Market products and services.

Sukuk market growth propelled by sovereign issuers for fiscal deficit financing needs and the issuance of short-term sukuk for

liquidity management.

Downside risks to the positive growth outlook include the unknown magnitude and duration of the COVID-19 outbreak, a global

economic downturn, re-escalation of trade tensions, or materialization of other lingering global risks.

Pakistani Capital Markets The Securities and Exchange Commission of Pakistan (SECP, or the Commission) accomplished great jobs, overdue for many years,

during 2017.

Firstly, keeping in view the changes in the corporate business environment, impact of globalization and technology, and evolution of

Islamic financial markets, it revised the Companies Ordinance, 1984 and promulgated the Companies Act, 2017 (the Act) on May 30,

2017. For the first time ever, the concept of Shariah-compliant companies and securities has been given in the Act. In addition to sha-

riah-compliant companies and securities, the Companies Act 2017 has provisions for Shariah compliance, shariah advisory, and Sha-

riah audit.

Secondly, the Commission notified the Shariah Advisors Regulations, 2017 (SAR, The Regulations) on 15th November, 2017. This

notification is recognition of Shariah Advisory function as a respectable profession, and Shariah Advisors (SA) as formal profession-

als by the leading Regulator of corporate sector and capital markets. SECP has set the Content from this work is copyrighted by Jour-

nal of Islamic Business and Management, which permits restricted commercial use, distribution and reproduction in any medium

under a written permission. Users may print articles for educational and research uses only, provided the original author and source

are credited in the form of a proper scientific referencing. 150 Strengthening the Islamic capital market: - Editorial 2017 stage for the

Shariah Advisors who would now be easily approachable within and outside Pakistan by having their name on the website of the

SECP. The Shariah Professionals of Pakistan have been provided with this unique opportunity to highlight themselves across the

globe through the platform provided by the capital market Regulator.

Financial Instruments in Islamic Capital Markets Islamic capital markets only recognize financial products that are compliant with Islamic rules and regulations.

Shariah regulates financial instruments as part of its overall philosophy of investor protection. It regards financial instruments as

tools to facilitate exchange through its contractual structure leading to natural equilibrium and economic development. Shariah re-

gards the fulfillment of these basic purposes of contract an integral and mandatory part of its ethics.



13


Equity Based Shariah Compliant Structures The strict prohibition of interest dictates that individual and institutional investors are reliant upon equity as opposed to debt financ-

ing. Equity financing products in Islamic finance are based upon partnership and profit and loss sharing (PLS) modes similar to ven-

ture capitalism. The cost of financing through the contractual modes directly links returns to the performance of the investment, pro-

portionate to the risk undertaken.

It is argued that profit and loss sharing and risk undertaking features promote fairness. This is in contrast to a fixed rate of interest

accrued on debt which does not have any link with the return on the real investment and is viewed as oppressive.

By employing equity financing based on the PLS structure and shirkah, Shariah promotes balance of power, mutual dependence

among the financiers and entrepreneurs. In conventional banking terminology, these instruments are referred to as a trustee project

and joint venture project finance.

The main modes of Shariah compliant equity financing are as follows:

Mudhrabah

Musharakah

Mudhrabah (Profit-Sharing Dormant Partnership) Mudhrabah is one of the most important principles of the Shariah investment. There could be two or more parties involved. One of

the parties involved is the capital owner (Rab-al-Mal) and the other one act as an investment manager or entrepreneur (Mudarib).

The capital owner invests the money without becoming involved in the actual day to day running of the project. In the case of any

losses, its liability is limited to the capital invested.

On the other hand, the entrepreneur solely controls the entire project and provides professional, technical, managerial expertise in

making the project a success. His liability is limited to the loss of opportunity, time and effort unless loss is incurred deliberately or

negligently. The role of investment manager is fiduciary and honesty and diligence is expected of him.

The profit from the project is distributed in accordance with the pre-arranged ratio agreed in advance between the investor and the

entrepreneur. The ratio may depend on the risks assumed by the capital and the endeavors and contributions made by the entrepre-

neurs. It may be 50:50 or 70:30 ratio. One of the distinguishing features of the Mudhrabah contract is that the lender is not guaran-

teed any pre-arranged fixed amount on its investment. The profit is distributed once the success of the project is proven ex-post.

Musharakah (Risk/Profit-sharing Partnership) Musharakah is Arabic word which means sharing. In the business context, it represents Islamic financial instruments that are based

on profit and loss sharing and risk sharing partnership techniques with comprehensive effects on production and distribution. It is a

partnership contract (also referred to as shirkah) between two parties: the investor and the entrepreneur. It resembles a western

style joint venture, partnership financing or private equity financing. Both parties contribute equity capital and assets, technical and

managerial expertise to an agreed proportion. They jointly have the right to manage the day to day affairs of the business except

when one party voluntarily waives its rights to manage. This is in contrast to Mudhrabah where one party provides the funds and the

other contributes through their special business skills.

Entitlement to profit depends upon the risk assumed and the commercial worth of the contributions by each party but not in propor-

tion to the capital invested. The entrepreneur or investment manager may be able to negotiate a higher share of profit depending on

greater contributions or efforts as compared to the investor. This may also be possible if the bank decides to waive its rights of man-

agement and entrust supervision solely to the entrepreneur.

On the other hand, if the business accrues losses, both the parties share liability for the losses in proportion to the contribution of

financial capital. This distinguishes the Musharakah from Mudhrabah where the investor is liable for all loses with his entire contri-

bution and entrepreneur may only loose his efforts for the business venture.



14


Debt Based Shariah Compliant Financing Islamic finance acknowledges the importance of debt for investment, corporate and government borrowing. It can facilitate creation

of employment and prosperity leading to economic growth if utilized in a productive way. Islamic finance does not prohibit the debt

financing instruments as long as it complies with Shariah requirements and pre-conditions. Debt instruments follow different types

of Shariah compliant mode, which are as follows.

• Murabaha

• Deferred Payment (Bai Bithaman-Ajil)

• Sukuk

Murabaha The Murabaha structure is analogous to the concept of purchase finance. Islamic Financial Institutions (IFI) uses this model to pur-

chase goods, commodities and assets for their (individual and corporate) clients and sell them at a mark-up price. Individuals may

use Murabaha to finance real estate and automobile purchases whereas corporate clients may use this model to obtain financing for

raw materials or their fixed assets such as machinery and equipment. It is also referred to as mark-up sale, cost plus profit or de-

ferred payment sale.

Deferred Payment (Bai Bithaman-Ajil) Bai Bithamin Ajil has features similar to Murabaha. It is a sale transaction. The Islamic Financial Institution (IFI) purchases the assets

for resale to the buyer at an increased price as agreed in advance by the both the parties involved. The difference with the Murabaha

lies with the fact that the seller is not obligated to disclose the mark up included in the selling price and this mode of financing can be

used for long term financing. The payment by the purchaser is made sometimes after the delivery of the assets or commodity.

Sukuk Saak is singular of Sukuk, which means investment title or certificates. The modern concept of sukuk originated from the need to de-

vise riba free instruments in the Islamic capital market.

A sukuk is a sharia-compliant bond-like instruments used in Islamic finance. Sukuk involves a direct asset ownership interest, while

bonds are indirect interest-bearing debt obligations.

The implication of the principle of prohibition of riba and the prohibition on trading of debt meant that conventional fixed interest

securities such as conventional bills, bonds and notes were not an acceptable form of investment instruments in the Islamic Capital

Market. The innovation of Shariah-compliant debt securities that linked the return with the performance of underlying real assets

revolutionized the Islamic capital market.

Shariah-Compliant Securities Shariah-compliant securities are listed which have been classified as Shariah permissible for investment, based on the company’s

compliance with Shariah principles in terms of its primary business and investment activities.

Islamic Unit Trust Funds Islamic unit trust funds are a collective investment scheme that offers investors the opportunity to invest in a diversified portfolio of

Shariah-compliant securities, fixed income securities and money market instruments.

Islamic Real Estate Investment Trusts Islamic real estate investment trusts or I-REITs are collective investment vehicles (typically in the form of trust funds) that pool mon-

ey from investors and use the pooled capital to buy, manage and sell real estate. I-REITs provide an investment opportunity for those

who wish to invest in real estate through Shariah-compliant capital market instruments.



15


Hedging and Risk Management Instruments in Islamic Capital Market Risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to

reduce/curb the risk.

Traders, producers, investors and conventional financial institutions are generally faced with market and financial risks in their day-

to-day operation. Market risk originates from price increase risk, regulatory risk, operational risk, commodity price risk, human re-

sources risk, legal and product risks. Financial risk refers to credit risk, liquidity risk, currency risk, and settlement risk. Western fi-

nanciers innovates financial instruments to transfer and diversify the risk to various participants of the financial exchange in the field

of science and enterprise

The tools commonly used to hedge against the above mentioned risks are referred to as derivative instruments

Islamic concept of risk management and products should effectively comply with the following three conditions.

The nature of risk to be mitigated should originate from Shariah compliant transactions as opposed to non- Shariah compliant

transactions.

Hedging instruments should also comply with the Shariah compliant risk management principles, modes, structure and con-

tracts. Invariably, it means that noble means be employed to achieve the noble ends.

The products should only minimize or diversify the risk as opposed to commoditize it into a market of its own. This would be

promoting speculation and gambling as a source of earning money.

The Islamic concept of hedging should also promote the overall objective of promoting an equitable system of distributive justice and

the common good. In the context of the allocation of risk, distributive justice refers to the willingness and capability of the various

parties to assume risk in promoting general welfare and avoiding adverse effects on the financial system. It promotes generation of

utility and avoidance of economic waste and financial losses. Avoidance from financial loss is assigned a higher priority than the ex-

pectations of large profit in Shariah.

The achievements of the above objectives are heavily dependent upon the creative design of Islamic derivative instruments and the

mechanics of the market.

Some products may be rejected in different countries because of difference in school of thought

Derivatives Derivatives refer to financial instruments whose value depends upon the underlying asset, equity, currency and commodities. Some

of the common derivatives are futures, swaps, options etc. The popular view is that derivative instruments are not permitted in Sha-

riah. However, financial engineering has made it possible to devise Shariah compliant derivatives such as arboun, wa’ad and forward

contracts based on Salam Risk diversification by derivatives has improved prudential regulation, liquidity management and en-

hanced financial stability. Similarly, in the evolution of Islamic finance, risk has to be managed to ensure stable growth. Thus risk

hedging instruments in derivative market give investor a wider choice between the risks they want to take.

The non-Shariah elements in the contractual structures of most conventional derivative products are set out as follows,

Derivative products defer payment and delivery of goods

Parties lack ownership or possession of underlying items in derivative transactions

Futures, options, swaps facilitate excessive and abusive speculation (maisir)

The Shariah compliant contractual structures and modes used on its own or in combination as the building blocks are as follows:

Bay-Salam

Istisna



16


Bay-Salam (Advanced Purchase) The instrument has been used to avoid riba-based transactions as an alternative form of contracting. Although the general principle

of Shariah prohibited sales of any commodity which was not in physical or constructive possession of the seller, as it amounted to

gharar, the Salam was permitted as an exception.

Salam was practiced in Medina to purchase fruit, wheat, barley etc. with delivery in one, two or three years by making full advance

payments. Upon the Prophet’s arrival in Medina in 622 CE,

He added new features to the sale transaction by making it obligatory to specify the quality and quantity of the commodity (weight

and measure), the date and time of the delivery and definitive terms in order to avoid future dispute.

The rationale to allow this sale structure was to mitigate against the hardship for small farmers who struggled to obtain the liquidity

required to pay for the expense incurred during the growing of the crop season.

Salam transaction can only take place in commodities where it is possible to define the quantity and quality precisely. It is not possi-

ble to particularize the product of specific tree, orchard, farm or field for Salam transaction.

The structure based on Salam transaction can be used as a mode of Shariah compliant debt financing for farmers and traders in agri-

cultural sector. The price is agreed in advance and is generally lower than the spot rate and this may amount to a profit for the mod-

ern IFI. However, IFI may want to insist on a guarantee or security in order to ensure that the seller complies with the Salam contract

and delivers on time.

Having purchased the commodity once, IFI can resell the commodity by entering into another contract completely independent of the

first. This is referred to as parallel Salam. In the first contract, IFI is purchasing and in the second contract, IFI is selling the same

commodity. It is mandatory that both contracts should be independent and must not be reliant upon the specific performance of each

other.

Forward contract Vs. Bay Salam The similarity of Salam with forward contracts from conventional finance is unmistakable. However, in reality there are many differ-

ences in the structure of both transactions.

A conventional forward contract allows the payment of price and delivery of the object at a specified future date. The net profit or

loss by the parties over the life of the contract is also settled on the delivery date. These are non-standardized contracts traded on

OTC market.

In contrast to this, Salam requires full payment of price in advance. Classical Shariah jurists take the view that deferring the payment

of price and delivery of goods bring in an element of gharar and parties may exploit each other. Similarly, partial payment is also not

permissible as it amount to reliance of credit and is prohibited.

Moreover, the resale of the goods without receipt of the goods curbs speculative tendencies. In this context, forward contracts are

very much similar to futures contracts, which are standardized exchange traded contracts.

It is observed from the foregoing discussion that the permissibility of the deferment of both price and delivery of objects may create

an opportunity for finance professionals to synthesize forbidden forward contracts.

The recent development in the form of fatwas also seems a step in that direction. It permits IFIs to engage in parallel Salam with the

similar net results as conventional forward contracts. It allows Salam-long (seller) to open another position as a salaam-short with a

third party after the inception of the first contract. Salam-long can engage in this contract on conditions similar to the first contract

before the delivery of the goods take place.

Contemporary scholars acknowledge the need for flexibility bearing in mind the tough competition Salam contracts face in the west-

ern markets with highly developed derivative products and the organized legal and institutional framework.



17


The Salam contract is an effective tool suitable to seek entry and access these highly competitive markets in providing a credit facility

in compliance with the Shariah principles. The Scholars has shown willingness in their fatwas to allow this as a form of systematic

trade and debt financing if the existing injustice and consideration of wider benefit to public and economic circumstances so dictates.

Istisna The general principles of Shariah prohibits the sale or purchase of the any object which is not in possession of the seller or which has

not come into existence as yet and regard it as form of gharar.

Istisna is regarded as a second exception to this principle. Classical jurists have legalized this exception on the basis of rationale of

Istihsan or falah, which means creating lenience in the wider public interests.

The contract of Istisna involves buyer paying the price in flexible mode of either lump sum or multiple installments in consideration

for the seller to manufacture a commodity with specific requirements to be delivered at some future date.

The essential features of Istisna are the specific requirements of the commodity and the price which have to be settled at the time of

the contract. Istisna deals in products, which are made to order. Historically, these types of contracts were used in leather products,

shoes and carpentry etc.

Although Istisna shares the financing of the non-existent commodity with Salam and structure of transaction appear to be similar,

however, both have several differences.

Firstly, in Istisna, the object of sale transaction is manufactured or constructed however; in Salam contract the object of sale

transaction need not be manufactured.

Secondly, Istisna stipulate a unique manufacturing process whereas Salam contracts do not prescribe to any particular produc-

tion process such as the crops of any particular field.

Thirdly, the price in Istisna may be paid on flexible terms at any agreed time whereas Salam requires the payment to be made in

advance to ensure validity.

Fourthly, the object of Istisna sale is usually non-fungibles whereas the object of sale in Salam is usually fungible.

In addition to this, an Istisna contract can be revoked before the manufacturer starts the work however a Salam contract cannot

be rescinded unilaterally.

Finally, the time of delivery is flexible in Istisna whereas in Salam contracts it is fixed.

Istisna can also be used as mode of financing by IFI in the real estate sector for the construction of residential dwellings, hospitals,

schools and universities etc. Similarly, government departments can also use Istisna for the construction of bridges, dams, highways,

aircrafts, ships and airplanes etc. Istisna is flexible enough to allow the manufacturer to subcontract the project to a third party. This

arrangement is called a parallel Istisna. A typical transaction entails IFIs signing an Istisna contract with the client and another one

with the manufacturer to deliver at certain date. The difference of price amounts to profit for IFI.

Future Prospects Under the National Financial Inclusion Strategy, a quarter of banking assets in the Islamic Republic are expected to comply with Sha-

riah principles by 2023, while 20% of the country’s banking branch network is expected to be those of Islamic banks or branches.

With about US$1 trillion of assets lodged in Islamic financial institutions and capital markets, the swift post-crisis recovery of de-

mand for shariah-compliant structured transactions, such as sukuk, points to a real and inescapable demand for religiously accepta-

ble risk management solutions.

Islamic finance comes into its own, and more companies turn to capital market-based sources of finance, shari’ah-compliant deriva-

tives will become ever more essential to enhance liquidity management, supplement cash markets at lower funding cost, and ensure



18


an efficient transmission of funds from savers to investors.

Islamic Capital Markets have potential of extraordinary growth but in order to achieve that, certain steps need to be taken:

Customer acceptability, both Muslims and Non-Muslims needs to be increased

Public IPO’s trend needs to go up

Cross Border trading within OIC Countries needs to be promoted to diversify and minimize risk and volatility

Building on Information Technology

Improvement in Transparency to attract international investors

Guidelines on Day trading to be established

Adequate infrastructure to enable the system to operate and function efficiently and effectively

Industry to be built on ethical grounds

Improving regulatory infrastructure

References https://corporatefinanceinstitute.com/resources/knowledge/finance/islamic-finance/

https://slideplayer.com/slide/4274306/

https://www.slideshare.net/IntazarAliShah/islamic-capital-markets-53048826

https://www.slideshare.net/mandalina/islamic-capital-market?next_slideshow=1

"Source: ISLAMIC FINANCIAL SERVICES INDUSTRY STABILITY REPORT 2020"

https://aims.education/7-basic-islamic-capital-market-instruments-products/

https://courses.edx.org/asset-v1:IRTIx+IFCM101x+1T2016+type@asset+block/

Islamic_Financial_and_Capital_Markets_Chapter_1-4.pdf

https://www.investsmartsc.my/what-is-islamic-capital-markets/

https://www.elibrary.imf.org/view/IMF001/12664-9781463938406/12664-9781463938406/12664-

9781463938406_A001.xml?rskey=vGtN7I&result=9&highlight=true

IFN PAKISTAN Report 2019

Shariah Principles for Islamic Capital Markets and the Regulation of Market Abuse in UK and the US: Common Grounds, Di-

vergences and Proposal for Reform

https://www.investopedia.com/terms/s/sukuk.asp#:~:text=A%20sukuk%20is%20a%20sharia,indirect%20interest%

2Dbearing%20debt%20obligations.

https://economictimes.indiatimes.com/definition/risk-management

**********



19


Fund management industry comprising of both conventional and Islamic funds is growing rapidly in Pakistan but have

some challenges as well as opportunities which are as follows:-

Challenges:

Increased Competitive:

There is a great competition in the Fund Management industry. Switching cost is easy for investors if a fund is underper-

forming relative to its benchmark or peer.

Investment Constraints:

In order to fully comply, the Fund Manager may not be able to capitalize on the opportunities available in the market due

to the investment constraints which resulting in Active return to be less than that of un-constrained fund e.g. a money

market fund is bound to invest maximum 80% of the total portfolio in Government Treasury bills as per its offering doc-

ument; cannot invest more than the said limit even if it have more profitable opportunities.

Taxes on Part of Investors:

Two types of taxes are applicable at investor level i.e. Dividend and capital Gain Tax (CGT) which are at higher levels and

they also depend on the tax status of the Investor (i.e. Filer/ Non-Filer) and varied based on number of years from the

date of investment till the date of redemption. If the taxes are lower, then it will increase after tax investment return and

may appeal local and foreign investors. However, tax credits under section 62 and 63 of Income Tax Ordinance, 2001 for

investment in shares and insurance (including open end mutual funds) and Contribution to an approved Pension Fund

respectively reduce tax liability of Individuals upon meeting the certain conditions which increases with higher effective

tax rate and higher investment. This results in attraction to individuals to invest in collective investment schemes and

insurance.

Expense Ratio:

In a competitive Fund Management, an investor may analyze and compare the expense ratio with other Fund Managers

offering similar Funds before making investment decision. Higher expense ratio of the Fund reduces the return before

taxes.

Regulatory Oversight:

Investors’ protection is a big concern now a days and is increasing Regulatory attention, strict compliance on Fund Man-

ager may be a hectic exercise but it’s necessary for sustainable development of Capital Markets and also to protect inves-

tors’ fund.

Generating Positive Alpha:

Alpha is the excess return after deducting all expenses of the Fund as compare to its benchmark return (e.g. a Fund Man-

ager achieve the return of 12% in a year compared with 10% return of KSE-100 index (the benchmark); the active return

or alpha in this case shall be 2%. Generating positive alpha return is good for the Fund Manager.

ARTICLE BY IFMP MEMBER: Fund Management -

Challenges and Opportunities

by MUDASSAR FAROOQ (Punjab Pension Fund)

20


Know Your Customer:

Globally, for Fund Management Industry it is important to know your customer (KYC) to ensure that money invested is

not from the illegal sources and shall not be used in illegal activities manner. The regulators all over the world are mak-

ing strict compliance in order to avoid money laundering or terrorism financing.

Slow Economic Growth

Like any other Industries slow economic growth also impacts Fund Management industry. When the growth of any econ-

omy is slow then it effects investments in the sectors like banking and non-banking (e.g. Fund Management).

Performance Measurement:

Fair and standardized performance measurement is a big challenge for the Industry. This makes comparison easy for in-

vestor among different Fund Managers. Globally, Fund Manager may voluntarily adopt the Global Investment Perfor-

mance Standards (GIPS) standards and claim compliance with the standards however they are not mandatory but are

preferred.

Adherence to Ethical & Professional Standards:

Due to the various ethical issues and fraudulent activities in the financial sector globally, the need for ethical and profes-

sional standards both on individual level (firms employing Fund Managers) and Firm level is seeking more attention. The

Fund Manager and employees may adopt them or may have strict standards at their own in order to stay professional

and ethical.

Opportunities:

Parent Branches for Fund Distribution

Although some Fund Managers/ Asset Manager Companies (AMCs) are using branch network of their banks (parent

companies) to distribute or sell their funds reducing a lot of cost and mobilizing the funds. But still there are few AMC

not using the branch network of their banks to boost their business.

Wide Range of Asset Classes:

The avenues to offer other non-traditional asset classes like Real Estate Funds, Hedge Funds, PE Funds, and Commodity

Funds are also popular in the rest of the world but not in Pakistan so there is huge potential in this area to capitalize on

opportunities.

Fin-Tech:

Technology is playing a key role in increasing efficiency and reducing cost. Robo-advisors that provides Fund Manage-

ment services with moderate to minimal human intervention based on mathematical rules or algorithms is also reshap-

ing the Future of investment industry by providing the cost effective and efficient advisory services. However, it may not

provide customize products to clients.

Digital (Account Opening, Account Maintenance, Fund Conversion, Investment and Redemption) is also helping in terms

of ease of investing and managing funds.


21


Sustainable Investing:

Economic, Social and Governance (ESG) consideration is attracting investors and has positive impact on Asset return.

Studies shows that the Fund Manager invest in companies considering ESG factors have more sustainable business.

Sharia Compliant Fund Potential:

Fund Management industry offering Sharia Compliant products has a lot of potential. But currently it has very low asset

base in Pakistan.

Value Added Services:

Value added services (VAS) may be a reason to attract new clients or retain existing clients to differentiate a Fund Man-

ager with regard to varied services it offers, this may include swift redemption, ATM withdrawal facility, free insurance

coverage, smart phone mobile applications and online fund transfer/ electronic statement facility etc.

Public Sector Funds:

The public sector funds in Pakistan are either passively managed or a very small proportion are actively managed

through professional Fund Manager or do not have independent board (good Corporate Governance) to oversight Fund

Management function at Public Sector companies. The private sector Fund Manager may target this huge potential mar-

ket which has a lot of Funds to be managed actively.

Exchange Traded Funds:

Exchange Traded Funds globally is an attractive investment avenue due to its unique features and advantages. Hence,

there is a huge potential for Fund Management industry to be launch in Pakistan.

Conclusion:

Apart from the challenges the Fund Management industry is facing, it also has huge potential for growth including but

not limited to Islamic Funds avenues, Exchange Traded Funds (ETFs), Private Equity Fund, Commodity Funds etc. The

financial technology, Capital Market stringent regulations, uniform investment performance measurement in the indus-

try, reduced taxes to attract local and foreign investors, value added services, well designed investor education plan and

promotion of savings culture among others will be the determining factors in the growth of Fund Management industry

in Pakistan. To achieve such objectives; all the stakeholders need to work in synergy and collaboration.

**********


22

Terms of the quarter


Get Yourself Registered!!

Last Date of Registration for 30th May, 2021

Examination

3rd May, 2021

Commodity Commodity in relation to a futures contract, means—

(a) agricultural, livestock, fishery, forestry, mining or ener-

gy goods and any product that is manufactured or pro-

cessed from any such goods; and

(b) Any other goods or products which as such may be no-

tified by the Commission in the official Gazette;

Financial instrument Financial instrument includes any currency, currency in-

dex, interest rate, interest rate instrument, interest rate

index, commodity index bond index and such other finan-

cial instruments as may be notified by the Commission in

the official Gazette;

Futures broker “Futures broker” means a person who, by way of business,

whether as principal or agent,—

(a) makes or offers to make with any person, or induces or

attempts to induce any person to enter into or to offer to

enter into any agreement for or with a view to purchase or

sale of a futures contract; or

(b) Solicits or accepts any order for, or otherwise dealing

in, or effects transactions in a futures contract for its cus-

tomer or on its own account;

Majority shareholder Majority shareholder means shareholder who holds, owns

or control, directly or indirectly, more than fifty per cent of

the shares having voting rights in a company or who, for

other reasons, has domination or control of the company

and includes group of shareholders who collectively own

more than fifty per cent of shares or otherwise have that

domination or control;

Book-entry security Book-entry security", in relation to a central depository,

means a security which is transferable by book-entry in

the central depository register pursuant to a declaration

made by the central depository under sub-section (6) of

section 4 and which is —

(a) in the case of a security transferable by registration,

registered in the name of the central depository or issued

to the central depository pursuant to section 14 ; or

(b) in the case of a security transferable by delivery or en-

dorsement, deposited with or transferred by endorsement

to the central depository ;

Qualifying creditors Qualifying creditors means one or more creditors holding

unpaid and overdue claims for an

aggregate amount of not less than

two-third of the value of assets of

the debtor as per its latest balance

sheet.

23

Business and Economic Newsflash (local)


Rupee rises as world’s best performer this year KARACHI: Terming rupee’s becoming world’s best performer in the first quarter of this year as tremendous, analysts on Wednesday

however warned against sharp currency movements. The rupee benefited in a big way from robust foreign exchange inflows from

Pakistani diaspora in the form of remittances, Roshan Digital Account, resumption of International Monetary Fund’s (IMF) loan pro-

gram, issuance of Eurobonds, and anticipated inflows from multilateral institutions.

“PKR has been the world’s best currency against USD from January 1st to March 31st,” said Muzammil Aslam, CEO at Tangent Capital

in a Tweet, citing Bloomberg data.

“It’s good to celebrate but it’s equally [a matter of] concern to maintain competitiveness. I’m for gradual changes than abrupt,” Aslam

added.

“The sudden fluctuations in the currency don’t give a good signal to the markets and businesses,” he said.

The rupee has strengthened 4.09 percent against the dollar in January to March (trading at 153.55) this year, outperforming its re-

gional peers and various global currencies. It is also one of the four world currencies that have posted gains versus the greenback

together with the Canadian dollar, British Pound, Saudi Riyal, and the Norwegian Krone.

The local unit appreciated 3 percent in March.

The Canadian dollar rose 1.09 percent against the dollar in the first quarter of 2021, with the sterling, appreciating 0.64 percent, Nor-

wegian currency 0.23 percent and Saudi currency 0.03 percent, respectively.

The rupee gained 0.22 percent to close at 152.76 per dollar in the interbank market on Wednesday. It had ended at 153.09 to the dol-

lar in the previous session.

The local unit breached the 153 mark after the government received around $500 million ($498.7 million) from the IMF as a dis-

bursement under the Extended Fund Facility for budget support.

The launch of a three-tranche Eurobond deal to raise $2.5 billion, comprising tranches of five, 10 and 30 years also helped aid senti-

ment, supporting the local unit. The government received $5.3 billion in combined orders for the bonds.

Traders suspected the SBP’s intervention through dollar buying from the market to prevent the sharp rally in the rupee and to sup-

port exporters, but it didn’t confirm.

In the open market, the rupee closed at 153.20 versus the greenback, compared with 153.70 on Tuesday.

“The rupee has been appreciating versus dollar due to the lack of dollar demand led by reduced smuggling,” Aslam said.

The speculative elements had been removed from the foreign exchange markets owing to the vigilant and the supervisory role of the

central bank, the analyst said.

The limited outflows due to subdued international traveling amid Covid-19 restrictions and remittances coming through official

channels also supported the remittances as well as currency.

“In the market based exchange rate system, the currency is influenced by the demand and supply conditions, so, the rupee is ex-

pected to be stable in the times to come subject to repayments requirements,” Aslam said.

“Pakistan’s foreign exchange reserves are all set to make new all-time high of $23.5 billion,” he said, referring to the launch of $2.5

billion Eurobonds in the international capital market.

The reserves last time saw $23 billion was in 2015-16. When PTI took over the reserves were at $16.4 billion, Aslam added. The

country’s forex reserves increased 1.36 percent to $20.434 billion in the week ended March 19.

Traders expect the rupee to hover around 150 to 152 levels against the dollar in the near term.

24



Exports hit decade high of $2.3 billion in March ISLAMABAD: Pakistan’s exports in March reached a decade-high of $2.3 billion with monthly figures showing growth year-on-year

and over the previous month, commerce adviser said on Thursday.

“Ministry of commerce is glad to share that according to provisional figures, in March 2021 our exports increased to $2.345 billion.

This is an increase of 13.4 percent over February 2021. It is the monthly highest in last 10 years,” Adviser to Prime Minister for Com-

merce and Investment Razak Dawood wrote on Twitter.

“This is also the first time since 2011 that exports have crossed the $2 billion mark for six consecutive months.”

However, commerce adviser termed the annual growth as misleading because the last year’s lockdown kept the industrial wheel ex-

tremely slow.

“The export growth of 29.3 percent over March 2020 should not be considered as it is misleading since there was a lockdown last

year,” Dawood said.

For the 9-month period of July-March of the current fiscal year, exports increased 7 percent to $18.6 billion as compared to $17.4

billion in the corresponding period last year, according to the ministry of commerce’s data.

Exports are expected to get an upset due to shortage of cotton, the main industrial input of textile industry that accounts for more

than 60 percent of total exports.

The government is uncertain about giving a go-ahead to cotton and yarn import from India, the world’s largest cotton producer. Ana-

lysts said textile industry’s growth is tied with cotton import from India to keep up momentum of textile exports from the country.

“It’s extremely important as there is significant shortfall in cotton production this year. Lack of cotton will result in reduced textile

output and hence exports,” Saad Hashemy, an executive of Karachi-based BMA Capital said.

Although some analysts said banning Indian cotton would not deprive Pakistan’s textile industry of the raw material, they still be-

lieve cross-border trade is more cost-effective.

“Eventually we will be importing from China and Europe as we are doing it right now,” said Tahir Abbas, head of Research at Arif

Habib Limited.

However, there are two differences when it comes to cost-effectiveness of Chinese and European cotton, Abbas said. One is transpor-

tation time and cost involved in importing cotton from neighbouring India vis-a -vis international import. Secondly, there is four to

five percent difference in cotton prices.

In July-March period, imports grew 12 percent to $39.2 billion compared to $34.8 billion during the corresponding period last year.

The growth has come from increase in import of raw material as well as import of wheat, sugar and cotton, commerce adviser said.

Forex reserves rise to $20.836bln KARACHI: Pakistan’s foreign exchange reserves increased $402 million, or 1.96 percent, in the week ended March 26, the central

bank said on Thursday.

The total liquid foreign exchange reserves held by the country stood at $20.836 billion, compared with $20.434 billion in the previ-

ous week.

“During the week ended March 26, 2021, the [State Bank of Pakistan] SBP) received $498.7 million from the IMF [International Mon-

etary Fund] under EFF [Extended Fund Facility] program; after accounting for external debt repayments, the SBP reserves increased

by $378 million to $13,673.0 million,” the central bank said in a statement.

The forex reserves held by commercial banks also rose to $7.163 billion from $7.139 billion.

25



SECP may allow direct listing of companies on stock exchange

The Securities and Exchange Commission of Pakistan (SECP) is considering a proposal to allow direct listing of local companies on

the stock exchange – a route that’s easier than meeting rules required for initial public offerings (IPOs).

SECP Chairman Aamir Khan who proposed the idea said that the regulator is discussing the plan.

If the proposal is approved, it will help companies, especially state-owned ones, looking to sell existing shares as they will not even

need approvals from the regulator for the transaction in most instances, he said.

“Direct listing is a concept which is there in developed markets already,” said Khan. “It’s something on our internal drawing board

right now.”

The SECP is now working on making real estate investment trust launches easier. The need for a mandatory building completion cer-

tificate, seen by many investors as a hurdle, has been removed, Khan said.

Pakistan has not seen any REITs after its debut in 2015. An increase in taxes stymied plans of about eight REITs.

Just like in most other global markets, companies in Pakistan are rushing to tap capital markets for funds, riding on strong investor

sentiment. —TLTP

SBP injects Rs.1975b in open market The State Bank of Pakistan (SBP) has injected Rs.1975.05 billion in market for seven days through Open Market Operation.

According to a report issued by the central bank’s Domestic Markets and Monetary Management Department on Friday,25 quotes

were offered for reverse repo purchase at the rate ranging from 7.04 to 7.10 percent. —APP

Baqir announces 3 important measures for Capital Markets

Pakistan Stock Exchange (PSX) hosted Governor State Bank of Pakistan (SBP), Dr Reza Baqir at its Gong Ceremony to mark the begin-

ning of a new chapter of cooperation between SBP and PSX on multiple initiatives.

SBP and PSX have recently been working closely to improve and widen the access of capital market participants to government debt

securities; facilitate investments by non-residents in the stock exchange; remove bottlenecks hindering companies from leveraging

against shares of their group companies and developing information sharing arrangements between banks and capital markets.

Speaking on the occasion, Governor SBP, Dr. Reza Baqir said he was pleased to visit PSX for this Gong Ceremony as it marked the

commitment of SBP and PSX to work together for the deepening of debt and capital markets in Pakistan and improving financial in-

termediation.

He made three important announcements in this regard. First, he said that SBP has revised the Rules governing appointment of pri-

mary dealers for the Government’s debt securities.

This will expand the list of institutions eligible to work as primary dealers, including Security Depositories and Clearing institutions.

This measure is aimed at widening the investor base of government securities, improving liquidity, enhancing transparency and pro-

moting market development.

In addition, SBP has relaxed the selection and performance criteria for development finance institutions (DFIs), investment banks

and brokerage houses to encourage them to become part of the primary dealer system, which is currently dominated by banks.

Hence, among other privileges offered to primary dealers, a larger and more diverse group of institutions will now have direct access

to primary auctions.

He said that while the government debt market in Pakistan is well developed and liquid, participation of capital market clients has

26



historically been limited and SBP wants to encourage wider ownership of Government securities among retail investors.

SECP enables startups to offer Employee Stock Options Plan

Employee Stock Option Plan (ESOP) is a popular method of attracting, motivating, and retaining employees.

Stock Option Plans permit employees to share in the company’s success without requiring a startup business to spend precious cash.

Previously, only public companies were allowed to issue employee stock options. As a step forward to facilitate corporate sector, the

SECP hereby clarifies that private limited companies especially startups can also now offer ownership rights to their employees as a

non-monetary compensation for their intellectual services and promotion of their business.

A private company may offer shares to its existing shareholders in accordance with section 83(1)(a) of the Companies Act, 2017, and

if the whole or any part of the shares offered is declined or is not subscribed, such shares can be offered to its employees under pre-

determined contractual arrangements.

Option for employees to own a company they work for proves to be a highly motivating factor to increase productivity and efficacy

which startups immensely require at their initial stages of business commencement.

PSX introduces compliance calendar for listed companies

Pakistan Stock Exchange (PSX) being the premier Exchange of the country and a frontline regulator ensures and monitors the timely

fiscal disclosures, announcements of material and price-sensitive information for the benefit of shareholders and other stakeholders

of the capital market.

To automate and simplify the process of regulatory and financial disclosures, PSX has in place PUCARS (Pakistan Unified Corporate

Action Reporting System) which facilitates listed companies in submission of required information and ensuring timely disclosure

directly on PSX website.

Going a step further, PSX has now introduced a Compliance Calendar which consolidates applicable requirements of PSX Regulations,

including requirements of financial disclosures, and serves as a guide for listed companies to meet their requirements in accordance

with their deadlines.

The Compliance Calendar also consists of forms to be used from the Correspondence Manual for dissemination/ submission of par-

ticular information.

The Compliance Calendar consists of both periodic as well as situational requirements.

As a matter of good governance, PSX encourages all listed companies to fulfill regulatory requirements prior to their due dates in

order to avoid any delay or adverse consequences.

The State Bank of Pakistan's Monetary Policy Committee (MPC) on March 2021 de-cided to maintain the policy rate at seven per cent. "MPC of SBP maintained policy rate at 7pc," the central bank said in a statement, adding that the current stance of the monetary poli-

cy was appropriate to support economic recovery, maintain financial stability and keep inflation expectations "well-anchored".

"MPC viewed recent inflation uptick as primarily driven by supply side factors and saw little signs of demand-led inflation.

"As the temporary increase in inflation from administered prices subsides, inflation should fall to the 5-7pc target range over the me-

dium-term," the SBP said.

The MPC expects monetary policy settings to remain "broadly unchanged" in the near term, the statement added, emphasising that

any adjustment in the policy rate would be measured and gradual to achieve "mildly positive real interest rates" as recovery became

27



more durable and the economy returned to full capacity.

The MPC noted that the monetary policy should be supportive considering the "fiscal policy is expected to remain contractionary to

reduce public debt" and from a policy mix perspective.

This support period would continue as long as "second-round effects of recent increases in administered prices and other one-off

supply shocks do not materialise and inflation expectations remain well-anchored", the statement said.

Uncertainty on the inflation and growth outlook was also a factor in the MPC's decision on the policy rate. In particular, the threat

posed by the "emergence of a third, more virulent wave of Covid in Pakistan" was noted as a point of concern for growth, despite vac-

cine rollout and recent momentum in the economy.

"In terms of the inflation outlook, this summer’s wage negotiations and any new tax measures in the next year’s budget could add

further supply-side shocks.

"In addition, optimism about a stronger US-led world recovery this year is translating into higher international commodity prices,

including both food and oil, which could continue to feed into domestic inflation," it stated.

The committee also considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook they would

have for monetary conditions and inflation.

"These trends in the outlook for inflation and growth will need to be carefully monitored," the statement added.

Around 3pc growth forecast

The MPC observed overall positive trends since its last meeting in January with continued recovery of growth and employment, and

improvement in business sentiment.

"While still modest, at around 3pc, growth in FY21 is now projected to be higher than previously anticipated," the statement said,

crediting the higher projection to improved manufacturing prospects and the fiscal and monetary stimulus provided during the

Covid-19 pandemic. The bank's previous forecast was for growth slightly above 2pc in the current fiscal year, which runs from July 1,

2020, to June 30, 2021.

The SBP noted, however, that recent inflation turnout had been volatile, "with the lowest reading on headline inflation in more than

two years in January 2021 followed by a sharp rise in February".

According to SBP estimates, the recent increase in electricity tariffs and sugar and wheat prices was responsible for about 1.5 per-

centage points of the 3-percentage point increase in inflation between the January and February out-turns.

"The recent increase in electricity prices will continue to manifest in headline numbers in coming months, keeping average inflation

in FY21 close to the upper end of the previously announced range of 7-9pc."

Large-scale manufacturing (LSM) grew by 10.8pc on a year-on-year basis in December and by 9.1pc year-on-year in January 2021, as

the economic recovery that began last summer continues amid supportive monetary policy and the SBP's temporary refinancing fa-

cilities and targeted fiscal support, the statement said.

Fiscal developments continue to evolve largely in line with the consolidation envisioned in this year’s budget, as the necessary fiscal

stimulus delivered in the final quarter of FY20 is unwound.

The MPC noted that despite the recent slight uptick in market yields, financial conditions remained "appropriately accommodative"

given continued slack in the economy, ongoing fiscal consolidation and well-contained risks to financial stability.

28

Business and Economic Newsflash (international)


Markets addicted to inflationary monetary policy have central banks over a barrel, says ADRIAN LOWERY: So savers face negative real interest rates for years to come By ADRIAN LOWERY

Global markets have got central banks over a barrel. Both bond and stock markets have become so dependent on ultra-loose mone-

tary policy, so hyper-sensitive to any perceived possibility of a change in conditions, that there is little monetary authorities can now

do to avert the dreaded taper tantrum if they threaten the status quo.

Just the slightest hint that inflation might rise a bit and that at some point in the next year or two interest rates might be nudged up

from near-zero, sent bond markets into panic mode in the first quarter of 2021.

Almost-as-highly-strung stock markets gyrated in sympathy – anxious that there will be inflation, while simultaneously agonizing

that there won’t be inflation.

Most of this angst generated a rotation out of growth into value and cyclical stocks, while the consensus seems to be that any real

inflationary signals will prompt a more general correction in equities. Equities whose valuations are a bit toppy, thanks to more than

a decade of unprecedented monetary stimulus.

The US Federal Reserve has studiously avoided anything resembling tightening talk, even assuring markets that some inflation will

be tolerated without a monetary reaction. And it seems that having chucked all that money at ‘asset price stability’, global monetary

authorities just can’t countenance a correction – at least not one that they might have a chance of preventing.

So there is no respite for those who have been hoping since 2009 that there might be some return to ‘normality’ in terms of signifi-

cantly positive real interest rates. It is nearly seven years since MP Pat McFadden made the ‘unreliable boyfriend’ comparison to

Mark Carney in front of a parliamentary committee.

That was in response to the Bank of England changing its tune on ‘forward guidance’, and especially the vexed question of

‘normalization’ – or when rates might be allowed to rise from their crisis-solving levels and QE might be paused or even unwound.

Now, thanks in part to more recent crises, we have had a normalization - but not quite as was imagined then. The new normal is a

world with lots of QE and rock-bottom interest rates. Anything else will cause ructions in stimulus-dependent financial markets. But

can savers really look back to a halcyon era of great real interest rates? The answer as ever is yes, and no.

The 1970s were a pretty dire time for holding cash, with real interest rates – the benchmark interest rate minus inflation – always

and sometimes catastrophically in minus territory thanks to oil price shocks and dysfunctions in the economy.

However, for the best part of three decades from 1980 to the financial crisis, savers enjoyed positive real interest rates, mostly be-

tween 2 and 6 per cent. To those who’d spent their adult lives getting 4 per cent on top of inflation just for having money in the bank,

crisis-era monetary policy has come as something of a shock.

But there was a hope – dented successively by the referendum vote and the pandemic – that we might return, if not to that sort of

savers’ paradise, then a situation where monetary authorities could raise nominal rates above the level of inflation without markets

throwing a massive strop.

Savers will soon be feeling aggrieved all over again. Even with the threat of inflation, interest rates aren’t going anywhere. Even when

inflation does arrive, rates aren’t going anywhere, at least at first. Even when and if rates do go somewhere, their nominal level is

unlikely to compensate for inflation for years. Not because inflation will be particularly high but because rates will be kept as low as

possible, with a bit of above-target inflation seen as preferable to risking any sort of economic cooling - or market reaction.

29



Foreign Buying of Chinese Government Bonds Stalls.

Global investors pare China holdings as yields rise elsewhere

By Frances Yoon

A huge run-up in foreign holdings of Chinese government bonds has stalled, with international investors hitting pause on their pur-

chases as China’s interest-rate advantage over the U.S. has shrunk.

International ownership of Chinese government debt declined slightly in March to the equivalent of $313 billion, according to the

China Central Depository & Clearing Co. Holdings fell about 1% to 2.04 trillion yuan, from 2.06 trillion yuan a month earlier.

That was the first drop in foreign investors’ positions since February 2019. It came in a month when the yuan weakened more than

1% against the dollar, after strengthening more than 9% from June through February.

Meanwhile, prices for U.S. Treasury notes and other global government debt have been falling, pushing yields higher. That has

shrunk the extra yield that China’s sovereign debt offers over international rivals.

This spread has narrowed to about 1.6 percentage points, after topping 2.2 percentage points throughout the second half of last year,

data from FactSet and brokerage Tullett Prebon shows.

Cryptocurrencies rise in popularity in world's conflict zones:

Libya, Palestine and Syria near top in online searches for bitcoin and other digital forms

of money, analysis finds

By Phillip Inman

People in the world’s major conflict zones are turning to cryptocurrencies such as bitcoin as soaring values and the backing of super-

rich investors make them more attractive.

Online searches for bitcoin, ethereum and dogecoin have increased in Libya, Syria and Palestine, pushing aside the usual focus of in-

terest in stock markets and safe-haven investments in gold and property.

Publicity surrounding the new breed of digital currencies has spread across the world since the pandemic struck and meant users

have also looked to them as a way to borrow when banks have become reluctant to lend money.

Tesla’s owner, Elon Musk, is among the most high-profile supporters, adding his tweets of approval to other celebrity backers includ-

ing the actor Gwyneth Paltrow, the rapper Snoop Dogg, and the billionaire former Microsoft chair Bill Gates.

Last week Tesla bought $1.5bn in bitcoin in a move that propelled the currency to a high of almost $43,500. It has since increased

again to almost $48,000 before falling back on Tuesday to $46,250, an increase of more than 300% since February last year.

Digital currencies, unlike the pound, dollar and euro, are not backed by a central bank that can print money to meet growing demand.

There are a fixed number of bitcoins and they are traded and registered on a ledger that is not part of the banking system or visible

to regulators.

Analysis by TradingView, one of the top 100 most-visited websites in the world, found that countries that rank at the bottom of the

Human Freedom Index, or that are politically turbulent for other reasons, appear in the top 10 countries for online digital currency

searches.

Using data from 27m search inquiries from its 100 million users between November 2020 and January 2021, the firm found that

when searches were calculated as a percentage of all inquiries, more than half in Cuba (50.4%) were made about cryptocurrency as-

sets, an increase of 12.2% on last year.

30



Online inquires made up 42.2% of the total in Libya, 41.9% in Ukraine and 38.7% in Palestine, putting them all in the top five for

cryptocurrency searches while Syria at 36.9% was 10th, suggesting that countries with high levels of instability are proportionally

more interested in digital assets than more developed nations.

James Maddison, the UK head of TradingView, said he could only speculate about why digital currencies were becoming popular in

less developed countries, but a switch away from hard currencies was likely to be popular in areas of the world where it was difficult

to access foreign currency, hoarding cash was subject to crime, and restrictions on lending by high-street banks and the closure of

branches were common.

Keep Covid rescue programmes or risk triggering stock market crash, warns IMF:

International Monetary Fund says there are concerns about share price bubble

Governments and central banks must maintain their pandemic rescue programmes or risk triggering a stock market crash, the Inter-

national Monetary Fund has said. Warning that there were legitimate concerns about a share price bubble, the Washington-based

organisation said that without continued low interest rates and government subsidies it was possible a “correction” in stock markets

would occur.

In a report issued to coincide with the World Economic Forum, the IMF said investors had ignored recent data showing major econo-

mies slowing as the pandemic persisted through the winter months. There was also the prospect that vaccination programmes would

take longer to deploy, especially across the developing world, forcing governments to maintain restrictions for a longer period.

Financial markets have rebounded since last March and some have soared to fresh highs. The S&P 500, which accounts for a cross-

section of the largest 500 US companies, slumped by a third last spring from a high before the pandemic of 3,386. Since then it has

climbed to 3,849, up more than 13% from the level in February 2020.

The FTSE 100 in London was at 7,534 in January last year and has struggled to recover from a drop in value of 2,500 points. It grew

to a year’s high of 6,873 earlier this month before sliding to 6,638 this week.

Tobias Adrian, the IMF’s head of financial stability, and his deputy, Fabio Natalucci, said in a blog to accompany the report that inves-

tors were able to bet on a “persistent policy backstop” and that a “sense of complacency appears to be permeating markets”.

They said a herd mentality had gripped markets, which meant the majority of investors were ignoring warning signs of an economic

slowdown and a longer climb back to pre-pandemic levels of activity.

“This raises the risk of a market correction or ‘repricing’,” they said. “A sharp, sudden asset-price correction – for example, as a result

of a persistent increase in interest rates – would cause a tightening of financial conditions. This could interact with existing financial

vulnerabilities, creating knock-on effects on confidence and jeopardising macro-financial stability.”

They said this left central banks with no option but to maintain low interest rates and governments to continue state support pro-

grammes, because to reduce their scope or generosity would cause a panic among investors.

The report said a shortsighted approach to vaccinations that restricted access to developed countries was a particular threat.

“Delayed access to comprehensive healthcare solutions could mean an incomplete global recovery and endanger the global financial

system. With emerging market economies accounting for about 65% of global growth (about 40% excluding China) over 2017–19,

delays in tackling the pandemic in such countries may bode ill for the global economy,” it said.

“Supply chain disruptions could affect corporate profitability even in regions where the pandemic is under control. And because

growth is a crucial ingredient for financial stability, an uneven and partial recovery risks jeopardising the health of the financial sys-

tem.”

31 Regulatory updates


SECP highlights investment opportunities in ETFs ISLAMABAD, January 30: The Securities and Exchange Commission of Pakistan (SECP) Successfully organized a seminar to increase

awareness regarding Exchange Traded Funds (ETFs), a new investment product, launched recently in Pakistan's capital market.

ETFs are index tracking funds, which because of their passive investment nature offer lower cost to the investors along with in-

creased flexibility in entry and exit as ETF units can be bought and sold on the stock exchange. The session, held in collaboration

with Pakistan Stock Exchange and Asset Management Companies is part of a string of webinars planned by the regulator over the

coming months, to

address the awareness gap in the ETF arena, by engaging all stakeholders; inter-alia; brokerage houses, asset managers and institu-

tional investors, amongst others.

The Commissioner SECP Mr. Farrukh Sabzwari, in his keynote address highlighted that the diversified and low cost ETFs promise

exciting space for investors. He revealed that a number of excellent theme-based ETFs are in the pipeline.

Sabzwari pointed out that ETFs are very popular internationally and global market size of ETFs is close to US$ 7 trillion – which

represents more than 20% of Global Equity AUMs. He appreciated the four AMCs - namely NIT Limited, UBL Fund Managers Lim-

ited, Al Meezan Investment Management Limited and NBP Fund Management Limited, who have introduced their respective ETFs

at PSX. The CIOs of each of these four AMCs also spoke on the occasion and highlighted the distinctive characteristics and features of

their respective ETFs. A record number of participants attended the session through online streaming via zoom and social media

platforms.

SECP allows licensed individuals to act as Securities Advisors ISLAMABAD, January 21: To broaden investor base and enhance capital market outreach, the Securities and Exchange Commission

of Pakistan (SECP) has notified key amendments in the Securities and Futures Advisors (Licensing & Operations) Regulations, 2017.

Through these amendments, the SECP has made the advisory regulatory regime more inclusive and broad-based by allowing li-

censed individuals to act as securities and futures advisors. They will also be permitted to work as distributors of mutual funds

units for multiple Asset Management Companies. This will enable expansion of distribution outreach of capital market products,

create employment opportunities for qualified youth and increase financial inclusion. Globally, independent investment advisors

operate both as individuals as well as within a corporate structure and play a major role in assisting and educating investors. Li-

censing qualified individuals as investment advisors will not only help build investors’ confidence but will also provide a platform

to develop much needed quality human capital for the capital markets of Pakistan. Moreover, to create flexibility and reduce regula-

tory burden on companies, the experience requirement of CEO/or head of its advisory services, has been reduced from five to three

years. This will encourage participation of young and qualified professionals in the capital market, meeting fit and proper criteria, to

act as securities and futures advisors.

Mere registration of a company doesn’t confirm the right to collect investments: SECP ISLAMABAD, January 20: The Securities and Exchange Commission of Pakistan (SECP) has clarified that mere registration of a com-pany with SECP does not authorize acceptance of deposits from general public. Deposit taking by companies other than banking companies is illegal in terms of section 84 of the Act. Financial services including car financing, leasing, acceptance of deposits, house financing etc. can only be offered by specialized companies holding valid licence and regulatory approvals. General public is advised in their own interest to be careful, not to deal and invest in illegal schemes offered by such companies. In this regard, the SECP while exercising its regulatory power to curb the menace of illegal business practices in the country has taken stern actions against “Lasani Oil Traders (Private) Limited” and “New Lassani Chicks & Chicken (Private) Limited”. SECP has promptly initiated legal proceedings for the winding up of these companies in terms of section 301 read with section 304 of the Companies Act, 2017 and disqualification of directors thereof in terms of section 172 of the Act. SECP has observed that both the companies are using



their registration with SECP and FBR to win public confidence and are publicizing unauthorized investment schemes through Face-book groups and posts on social media. In an attempt to block companies’ access to general public, SECP approached PTA to block Facebook/twitter pages, cell phone numbers registered in the name of companies and its directors. The SECP has also made refer-ence of the case to the relevant law enforcement agency. The SECP has made public a list of 50 companies, involved in similar un-authorized business activities including illegally collecting deposits from investors by making false promises of exceptionally tanta-lizing returns. The list of such companies is posted on the SECP official website.

SECP records major progress in Information Security Standards ISLAMABAD, Feb 11: The Securities and Exchange Commission of Pakistan (SECP) has achieved ISO/IEC 27001:2013 certification;

the international standards outlining best practices for Information Security Management Systems (ISMS). Awarded by the inde-

pendent certification body M/s. Resource Inspections Canada Incorporated (RICI), the certification showcases SECP’s drive to ensure

that its key IT, Data Centers, Human Resource Security, Physical and Environmental Protection and Social Media Security services

comply with the highest international standards, and that its services are based on globally accepted standards and protocols. ISO

27001:2013 is an internationally recognized set of information security standards published by the International Organization for

Standardization (ISO) and the International Electrotechnical Commission (IEC). This certification endorses that SECP meets required

benchmarks of security and safety of organizational data.

SECP proposes reduction in turnaround time for payment of cash dividends

ISLAMABAD, February 23: Taking another step forward towards facilitating minority shareholders, the Securities and Exchange

Commission of Pakistan (SECP) has proposed reducing turnaround time for payment of cash dividend to shareholders of listed com-

panies from the existing 15 days to 03 working days only. The SECP has issued draft amendments to Companies (Distribution of Divi-

dends) Regulations, 2017 to solicit public comments. SECP believes that the proposed time period of three-working days is sufficient

for transfer of cash dividend from a company’s bank account to the bank accounts of their respective shareholders. Section 242 of the

Companies Act, 2017 requires every listed company to pay cash dividend only through electronic mode directly into the designated

bank accounts of a shareholder. Since, transfer of cash dividend through IBANs is safe, cost effective and efficient, all shareholders

are required to provide their IBANs to their respective companies, for making payment of cash dividends. The draft amendments are

available on the SECP website. Interested individuals/ stakeholders can furnish comments on email id ar-

[email protected]; and [email protected] by March 8, 2021.

SECP makes shareholders’ virtual participation in AGMs a permanent feature ISLAMABAD, February 19: The Securities and Exchange Commission of Pakistan (SECP), with the objective of ensuring protection of

minority shareholder’s interest, as well as safeguarding their wellbeing, has directed all listed companies to facilitate virtual attend-

ance of shareholders through electronic means, as a regular feature in annual general meetings (AGMs), through Circular No. 4 of

2021. Last year, amidst the COVID-19 pandemic, the SECP had allowed companies to arrange electronic facilities to ensure maximum

participation of shareholders at AGMs, to deter large gatherings. This ease of participation in attending shareholders’ meetings, led to

an increased participation of members in the AGMs, which is a very positive development for the corporate sector. Considering its

beneficial impact, the electronic participation has now been made a permanent feature, in addition to the existing requirement of

holding AGMs physically, at specified venues. In physical AGMs, companies are required to comply with the SOPs of the federal and

provincial governments relating to COVID-19 Pandemic, as notified from time to time.

SECP launches portal for expeditious bank account opening of corporates ISLAMABAD, February 16: In pursuit of its agenda to promote ease of doing business and digitalization, the Securities and Exchange

Commission of Pakistan (SECP), has launched a portal for expeditious bank account opening of newly registered companies. The

online portal provides banks real time access to statutory records of companies, thus enabling them to open corporate accounts

without seeking physically certified copies of statutory documents. Through this portal, the banks can access and verify company



information directly from SECP’s records. The online availability of statutory records will reduce the turn-around-time for opening of

corporate bank account or for availing other banking services. On the other hand, it will facilitate banks in carrying out due diligence

of their corporate customers, for account opening and other services. Any bank can access the portal by applying to the SECP for cre-

ating their user accounts. Initially, this facility is being launched for private limited, public limited and companies formed for not-

forprofit objects. In due course, data of foreign companies and limited liability partnerships will also be linked and made available.

The SECP is planning to discontinue issuance of certified true copies in physical form and consequently, banks will only be able to

access SECP’s records through this portal.

SECP Allows Digital Onboarding of Increasing Pension Fund Penetration ISLAMABAD, February 12: The Securities and Exchange Commission of Pakistan (SECP), in continuation of its efforts to expand finan-

cial inclusion and broaden investor base in capital market products, has expanded the scope of Digital Onboarding Mechanism of in-

vestors to cover private pension funds. Under this initiative, pension fund managers can now extend digital account opening services

to individuals desirous of investing in private pension funds under the voluntary pension system (VPS), on the same lines as mecha-

nism already offered to investors in the stock market and mutual funds. Through digitalization, the process of enrolling new inves-

tors has been significantly simplified, by eliminating requirement of physical presence and submission of documents by the custom-

ers. Moreover, the process enables pension fund managers to conduct online Customer Verification through virtual platforms

(WhatsApp. Skype, etc.). The recent measure marks another progressive step from the SECP for the promotion and development of

private pension funds, the non-bank financial sector, and capital markets in Pakistan

Pakistan’s WBL index up 25 points SECP takes lead in promoting female entrepre-neurship ISLAMABAD, March 10: Pakistan has significantly improved its score on entrepreneurship indicator of Woman, Business and the Law

(WBL) index, from 50 to 75 points, as per WBL Report 2021. The rise is mainly attributed to reforms introduced by the SECP, ena-

bling women to register a company effectively and promptly. WBL Report is World Bank’s publication, that evaluates laws and regu-

lations of 190 countries, in order to identify requirements that restrict women’s economic opportunities. The report covers eight

broad areas; mobility, workplace, pay, marriage, parenthood, entrepreneurship, assets, and pension. In 2021 report, Pakistan has

improved its score on two indicators; entrepreneurship and workplace, resulting in upgrading the overall score to 55.6, from 49.4 in

2020. Pakistan has been included in 5 economies that have introduced reforms to improve entrepreneurship opportunities for wom-

en. It is encouraging to note that from March 2020 to March 2021, SECP registered a total 21,168 companies, out of which 5,145 com-

panies have at least one women director, which accounts 24.3 percent of total incorporation during the period. SECP, cognizant of the

vital role played by women in economic growth, has introduced number of steps to improve gender mainstreaming within the organ-

ization. The recent measures include increase in the maternity leave from 90 to 180 days, ensured 48% representation of females in

new hiring and 23% representation in recent promotions. At SECP, there is 29% female representation at senior levels and 23%

women are working at management cadre. At the occasion of women’s day celebrations, SECP’s Commissioner Ms Sadia Khan en-

couraged women to actively volunteer for various activities and said that events on diversity should be a regular feature during the

year, where women can discuss all the progress made in the past and deliberate on the way forward.

SECP aims at facilitating corporate sector by reducing regulatory burden ISLAMABAD, March 29: The Chairman, Securities and Exchange Commission of Pakistan (SECP), Aamir Khan, reiterated SECP’s com-

mitment for outcome-based regulation by reducing regulatory burden, simplification of laws and optimal use of technology. He was

addressing a virtual interactive session with the representatives of Pakistan Business Council (PBC) led by its CEO Mr. Ehsan Malik.

Khan. Aamir Khan briefed the participants about key reforms undertaken by the SECP to promote ease of doing business, enhance

access to finance, development of the capital market and improve transparency in Commission’s regulatory functions as well as its

regulated sectors. To facilitate the corporate sector and ensure desired efficiency in processes, a number of reforms have been un-

dertaken including: digital certificate of incorporation, creation of a special portal for banks to facilitate account opening, digitization



of account opening process for residents and nonresidents for investment in the capital market etc. Khan also highlighted a number

of targeted measures implemented for reducing cost of doing business and supporting companies in the wake of COVID-19. He said

that simplification of Buy Back Regulations, amendments in Further Issue of Shares Regulations, revamping of Private Funds Regula-

tion and the NBFC Regulations would facilitate business growth. While apprising the participants about SECP’s roadmap, he said that

introduction of electronically signed Certified True Copies, replacing eServices with a modern registry, simplification and consolida-

tion legal framework of statutory returns, and growth of capital market were key focus areas for current financial year. The SECP

Chair assured the PBC members of a consultative approach while finalizing any regulatory changes. On behalf of Pakistan Business

Council, the CEO Mr. Ehsan Malik appreciated the SECP’s efforts for primarily ease of doing business (EOBI) and shared his thoughts

as how to further improve the business climate.

Leading banks connect to SECP’s portal for real time access to statutory records ISLAMABAD, March 26: In pursuit of its agenda to promote ease of doing business and digitalization, the Securities and Exchange

Commission of Pakistan (SECP), in coordination with State Bank of Pakistan (SBP), had launched an exclusive digital portal last

month, enabling banks to open corporate accounts without seeking physically certified copies of statutory documents. Since its

launch, 16 banks have registered with the portal, to gain real time access to statutory records of companies. These include Askari

Bank, Bank Alfalah, Bank Al-Habib, Finca Microfinance Bank, Industrial and Commercial Bank of China Limited (ICBC), Khushhali

Microfinance Bank, NRSP Microfinance Bank, Pair Investment Company, Pakistan Mortgage Refinance Company, Sindh Bank, SME

Bank Ltd, Soneri Bank, Standard Chartered Bank Pakistan, Summit Bank, Telenor Microfinance Bank and The Bank of Punjab.

Through this portal, onboarded banks can access and verify company information directly from SECP’s records, considerably reduc-

ing the turn-around-time for opening of a corporate bank account or for availing other banking services. The facility will also help

banks in carrying out due diligence of their corporate customers. Interested banks can apply to SECP to secure a dashboard access in

the portal. In the first phase, statutory documents of private limited, public limited and companies licensed under section 42 of the

Companies Act (not-for-profit objects), have been made available in the portal. The data of foreign companies and limited liability

partnerships will soon be linked with the portal. Subsequently, the SECP will discontinue the issuance of certified true copies in phys-

ical form.

SECP asks listed companies to implement gender diversity policies; issued circular ISLAMABAD, March 8: In order to foster a beneficial and comfortable working environment for Pakistani women, the Securities and

Exchange Commission of Pakistan (SECP), has asked listed companies to formulate and implement gender diversity policies to at-

tract and retain talented women. Pakistan figures fairly low in the Global Gender Gap report index, prepared by the World Economic

Forum and there is a strong need to encourage women participation in the workforce, developing in-demand skills and creating op-

portunities for women to advance into leadership roles within the corporate sector. The SECP has always been a strong advocate for

gender equality, internally and in its regulated sectors and firmly believes that gender diversity in decision making has a proven cor-

relation with enhanced financial performance of the corporate sector and the overall growth of the economy. Promoting gender di-

versity have also been addressed in the Companies Act, 2017, and the Listed Companies (Code of Corporate Governance) Regula-

tions, 2019, which necessitates all listed companies to have at least one female director on their boards. In a Circular, issued here on

Monday, the Board of Directors of listed companies have been advised to oversee the implementation of gender diversity policies in

their companies. Boards have also been asked to conduct gender pay gap analysis within the organization and formulate policies for

development of skills of their women employees. The measures for a conducive work environment include, but are not limited to,

provision of day care facilities, better maternity leaves, robust anti-harassment and speak-up policies. Boards are also required to

form diverse committees overseeing the complaints pertaining to harassment etc. Companies are expected to comply with the above

provisions within six months of the date of this circular and accordingly place it on the company’s website. In case of any practical

difficulties, the necessary reasons may be provided in the statement of compliance under the code of corporate governance.

35

Urdu Glossary


Money laundering کالے دھن کو سفید بنانے کا عمل

Arbitrage حصص کی مختلف مارکیٹوں میں بیک وقت فروخت

Mandatory واجب التعمیل، لازمی

Benchmark معیار

Financial Market مالیاتی بازار

Accumulated Profit جمع شدہ منافع

Debenture مقروضیت کا تصدیق نامہ، سند مقروضیت

Initial Public Offer ابتدائی عوامی پیشکش

Special Provisions خصوصی شرائط

Whistleblower اندر کی خبر دینے والا ، مخبر

Evidence Rebuttal تردیدی شہادت

Commodities Market بازار اجناس

Grace Period رعائیتی مدت

Yield پیداوار، منافع، حصالہ

Ransom تاوان

36 Investment quotes


"An investment in knowledge pays the best interest." — Benjamin Franklin

Knowledge has its own importance and investment on knowledge is secure and profitable investment. When it comes

to investing, nothing will pay off more than educating yourself. Do the necessary research and analysis before making

any investment decisions. And an individual with sound knowledge can make research and analysis and succeed.

"Given a 10% chance of a 100 times payoff, you should take that bet every time." — Jeff Bezos

Most people dismiss many of the best and most profitable investment ideas simply because they probably won't

work. These investors never stop to consider how much they could make if unlikely outcomes actually occur. Jeff Be-

zos took those bets and became the richest person in the world. Jeff Bezos, the founder and CEO of Amazon is the rich-

est person in the world with a net worth of $179.6 billion. With everything that happens once you move out of your

comfort zone, you’re naturally going to achieve more than ever before. Moving out of his comfort zone, he left his lu-

crative job at DE Shaw and Company where he was drawing six figure salary and started his own company.

"In investing, what is comfortable is rarely profitable." — Robert Arnott

At times, you will have to step out of your comfort zone to realize significant gains. Always remember that more you

take risk and more you gain. Know the boundaries of your comfort zone and practice stepping out of it in small doses.

As much as you need to know the market, you need to know yourself too. Can you handle staying in when everyone

else is jumping ship? Or getting out during the biggest rally of the century? There's no room for pride in this kind of

self-analysis. The best investment strategy can turn into the worst if you don't have the stomach to see it through.

"Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off." — Carlos Slim Helu

Don't despair amid the inevitable setbacks that all investors face, especially during a crisis in the market. If the rea-

soning behind the investment was sound, stick with it, and it should eventually turn around.

"The four most dangerous words in investing are, it’s different this time." — Sir John Templeton

Follow market trends and history. Don't speculate that this particular time will be any different. For example, a major

key to investing in a specific stock or bond fund is its performance over five years

10

Quotes and Jokes

◊ December 2018 IFMP Newsletter Page 16 ◊

08

Quotes and Jokes

◊ March 2019 IFMP Newsletter Page 16 ◊

37

Feedbacks


“She is experienced and well knowledge on AML, I have already attended

her workshop on AML topic which is very helpful”

AML-CFT Certification Training

Syed Muhammad Athar Imam

(VP Finance and Accounts, Trust Modharba)

“Trainer is Senior resource with good banking Knowledge”


Fahad Bin Khalid

(Senior Consultant – Anti Financial Crime,

A F Ferguson and CO PWC)

“very extensive knowledge around AML/CFT and many

other control areas, very informative session”


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(Head of Risk and Compliance, Finja Pvt Ltd)

Feedback on IFMP training

38 Markets in Review


◊ Quarterly Review ◊

Crude Oil

(WTI)$

Beginning 48.52

Ending 59.16

Change 21.93%

KIBOR

(6 Months)

Bid % Offer %

Beginning 7.10 7.35

Ending 7.63 7.88

Change 7.4%

Pakistan

Stock

Exchange

100 Index

Beginning 44,434.80

Ending 44,587.85

Change 0.34%

Gold

10 Grams

Beginning Rs. 98272.31

Ending Rs. 83799.57

Change -14.73%

Silver

10 Grams

Beginning Rs. 1365.18

Ending Rs. 1157.51

Change -15.21%

Foreign Exchange Rates

Interbank Market (buying)

GBP (£) EURO (€) USD ($)

Beginning Rs. 216.17 Rs. 195.79 Rs. 159.75

Ending Rs. 209.97 Rs. 178.63 Rs. 152.32

Change -2.87% -8.76% -4.65%

Contact Us

www.ifmp.org.pk 92 (21) 34540843-44 [email protected]

quarterly article on emerging islamic capital market …

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