Securities and Exchange Commission of Pakistan (SECP) has allowed modaraba management companies to charge management fee out of the net annual profit of the modaraba. The decision was made in consultation with non-banking financial institutions (NBFIs) and Modaraba Association of Pakistan. In the previous circular of 1995, the modaraba companies were barred from charging management fee of operating profit of the modaraba unless, accumulated losses of the modaraba, if any, are wiped off. To bring charging of management fee in line with the Islamic concept of modaraba, Registrar Modaraba SECP, has withdrawn the said restriction by issuing a new circular, which clarifies that management fee could be charged only once on the profit of a modaraba.
This can be taken as good because the amendment will allow payment of dividend to certificate holders. Second, no management company can keep on working without getting fee. One of the fears is it will lead to some inefficiencies.
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