Consolidated Circular for Modarabas-amended upto 14.11.2024

P a g e 1 | 68 PART II Statutory Notification (S. R. O.) GOVERNMENT OF PAKISTAN SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN NOTIFICATION Islamabad, the 28th December 2022 S.R.O. 2310(I)/2022 - In exercise of the powers conferred under section 41B of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (the “Ordinance’’), the Securities and Exchange Commission of Pakistan is hereby please to issue the following notification in order to consolidate and update various circulars, dircetives and notifications already isseud by the Commission from time to time under the said Ordinance, to facilitate and create an enabling environment for the Modaraba sector and to ensure compliance of statutory and regulatory requirements pertaining to the Modaraba sector, namely:- Chapter 1:

1. Prohibition of change of sponsors, promoters, substantial shareholders, directors or the chief executive officers in the Modaraba Companies 1.1. Pursuant to sections 6 and 11 of the Ordinance and conditions imposed while granting approval for registration of modaraba companies and authorising the floatation of modarabas by the Registrar Modaraba, no change shall be made in substantial shareholders, directors or chief executive officer of the modaraba company without prior approval of the Registrar Modaraba.

P a g e 2 | 68 1.2. The sponsor, promoters and substantial shareholders of the modaraba company shall deposit their shares of modaraba company and the modaraba certificates in their accounts at the Central Depository Company of Pakistan Limited (CDC). The charges for opening and maintaining these accounts will be borne by the respective account holders. 1.3. The shares of the modaraba company and modaraba certificates held by the sponsors, promoters, or substantial shareholders, shall remain blocked in CDC and no withdrawal or transfer from the same will be allowed without prior written permission of the Registrar Modaraba. 1.4. Any subsequent allotment or subscription to the existing shares of the modaraba company and modaraba certificates, whether in the form of right or bonus shares/certificates or in any other manner whatso ever, shall also be deposited in the same account(s) maintained by the sponsor, promoters, or substantial shareholders of the modaraba company and modaraba, as the case may be, in a similar manner. 1.5. The sponsors, promoters and substantial shareholders of the modaraba company and modaraba shall not raise any financing against such shares of modaraba company and modaraba certificates and shall also not keep these shares and certificates encumbered. Explanation: For the purposes of this circular,

1. “sponsor” or ‘’promoter” means a person who has submitted an application to the Registrar Modaraba for registration of a modaraba company under rule 4 of the Modaraba Companies and Modaraba Rules, 1981 (the ‘’Rules’’); and

P a g e 3 | 68 2. “substantial shareholder” of a modaraba company and modaraba means a person who, individually or in concert with his family or as part of a group, holds 10% or more share/certificates in the paid-up capital of a modaraba company or modaraba, as the case may be.. 1.6. The modaraba companies shall submit the Performa (Annexure I) enumerating the information with regard to modaraba companies and modarabas within 30 days of the end of each financial year. Chapter 2: 2. Appointment of directors or chief executive officer in the modaraba companies 2.1. In order to ensure compliance of regulation 26 of the Modaraba Regulations, 2021 (the ‘’Regulations’’), in the event that the chief executive officer has tendered his resignation, the modaraba company shall appoint acting chief executive officer and inform the Registrar Modaraba immediately. 2.2. In the event, the chief executive officer has been removed before the end of his term or his term has not been renewed, the modaraba company shall appoint an acting chief executive officer and inform the Registrar Modaraba along with reasons for such removal. 2.3. In the ordinary course of business, the modaraba company shall not relieve the outgoing chief executive officer unless a new chief executive officer is appointed or an acting chief executive officer is appointed to takeover charge from him.

P a g e 4 | 68 Chapter 3: 3. Raising of funds by modarabas 3.1. A modaraba may raise funds either by public offer, or through execution of agreement in writing with one or more scheduled Islamic banks or Islamic windows of conventional banks or Islamic financial institutions by issuing certificates of Musharakah in compliance with the requirements stipulated in Chapter III of the Regulations. 3.2. Modarabas can raise funds from the general public through issuance of Sukuk, participation term certificates or any other instruments of redeemable capital for which they are required to seek prior approval of Registrar Modaraba and comply with other applicable regulatory requirements. 3.3. The modaraba companies shall follow the following procedure for issuance of Sukuk by modarabas1 : (a) Any modaraba intending to issue Sukuk, shall ensure that the transaction conforms to the admissible modes provided to its prospectus approved by the Religious Board. It will also ensure that the basic concepts of Shariah compliance are fully adhered to in the proposed instruments in accordance with the general structure for issuance of Sukuk. (b) The respective modaraba company will submit draft instrument to its Shariah advisor who would examine and certify that the instrument is fully Shariah compliant with the Shariah requirements and also conforms to various aspects of the proposed module.

1 Note: This conceptual framework for issuance of Sukuk by Modarabas has been approved by the Religious Board in its meeting held on March 3, 2008.

P a g e 5 | 68 (c) The instrument will be submitted to the Registrar Modaraba along with the compliance certificate of the Shariah advisor, who after examining and satisfying himself on all of conceptual and operational aspects, would approve the instruments for issuance. 3.4. The Religious Board has also approved issuance of “Modaraba Sukuks” to corporate as well as individual investors by modarabas which will cater to short-term resource mobilization for modarabas. 3.5. Raising of funds by the modarabas by any other way from the general public is not covered under modaraba law and therefore is disallowed. Any disallowed funds raised shall be refunded forthwith. Chapter 4: 4. Issue of right certificates by modarabas 4.1. All modarabasintending to issue right certificates under rule 20-B of the Rules, shall be granted permission to do so on such general and specific conditions as may be laid down by the Registrar Modaraba including any underwriting arrangement that may be deemed appropriate. 4.2. In granting permission, the Registrar Modaraba may ordinarily invoke the provisions stipulated in the Companies Act, 2017, to the extent considered applicable in each case. Chapter 5: 5. Permission for insertion of the words “An Islamic financial institution’’ after the name of a modaraba

P a g e 6 | 68 5.1. The modarabas may append the phrase "An Islamic financial institution" after the name of a modaraba to represent the activities and operations carried out under the Islamic financial services.2 5.2. In this regard, modaraba companies may insert the words “An Islamic financial institution” after the name of modaraba being managed by them in the manner as mentioned above. Chapter 6: 6. Conditions to hold, deal or trade in real estate projects 6.1. Pursuant to clause (xii) of regulation 9 of the Regulations, the following conditions to hold, deal or trade in real estate projects. 6.2. In case of a multipurpose modaraba, where investment in real estate is up to one-third (1/3rd) of the total assets of the modaraba, the modaraba shall comply with the following conditions: (a) Investments shall be made only in assets recognized by development authorities i.e. Karachi Development Authority, Capital Development Authority, Rawalpindi Development Authority, Lahore Development Authority and/or any other Development Authority in any city of Pakistan and should be accompanied by NOC relating to real estate project from the aforesaid authority; and (b) The purpose of investment can be to develop properties for rental or development or mix (both rental and development) projects.

2 Note: The addition of the phrase ‘’An Islamic financial institution’’ following the name of a modaraba in brackets, has been approved by the Religious Board in its meeting held on March 19, 2008.

P a g e 7 | 68 6.3. In case of a specific-purpose modaraba for investment in real-estate or where investment in real estate is one-third (1/3rd) or more, of the total assets of the modaraba, the modaraba, in addition to conditions stipulated at (1) above, shall also comply with the following additional conditions: (a) At least two directors of the modaraba company shall have a minimum of five (5) years of experience of dealing with the real estate projects; (b) A valuation report from the independent valuer shall be obtained; and (c) The prospectus of the modaraba shall, contain information relating to the management experience of sponsors of the modaraba company in the real estate business, the type of real estate project to be undertaken, potential locations of the real-estate, investment objectives, valuation report, feasibility study, the legal status of the property, funds required, sponsors contribution and the compliance with the lock in period requirement for the sponsors. Chapter 7: 7. Mandatory certification for the professionals of modarabas 7.1. To foster human capital and enhance investor confidence in the financial markets, the following shall be adhered in the letter and spirit; (i) Every modaraba company shall ensure that its chief executive officer, chief investment officer, head of operation, head of compliance and head of sales (by whatever name called) and any other employee of modarabas, who is involved in the following activities related to securities, shall obtain Pakistan Markets and Regulations Program (PMRP) and Fundaments of Capital Market (FCM) certifications

P a g e 8 | 68 currently being offered by Institute of Financial Markets of Pakistan (IFMP): - (a) Investment management: - those managing the portfolio of securities including all members of investment committees; (b) Operations and settlement: - those responsible for execution and settlement for trades in securities; (c) Research: - those carrying out fundamental analysis of all existing and potential investment in securities; (d) Compliance: - those responsible for ensuring compliance with applicable securities business regulatory requirements; and (e) Risk: - those responsible to ensure that securities investments are within a desirable level of risk. (ii) Within a year of joining the modarabas, all new employees who will perform the aforementioned activities must be PMR and FCM certified.. 7.2. Professionals seeking certification using the grandfathering provision can contact IFMP for further information. 7.3. Modarabas shall ensure that their employees obtaining certification through exam or grandfathering, shall comply with all the requirements of such certification. Chapter 8: 8. Model financing agreements for modarabas

P a g e 9 | 68 8.1. All the modaraba companies shall adopt the following model financing agreement3 : (a) Diminishing Musharaka (b) Ijarah (c) Istisna (d) Mudarabah (e) Musawamah (f) Musharaka (g) Murabahah (h) Salam (i) Syndicate Mudarabah (j) Syndicate Musharakah (k) Islamic CFS Murabahah 8.2. All the modaraba companies shall adopt the aforesaid model financing agreement. The modaraba companies shall also ensure that while executing the said agreements, none of the agreements contain any ingredient which violates any Islamic injunction, including those pertaining to the admissibility of any kind of Riba. Business transactions conducted on the basis of financing agreements before March 19, 2008 shall be continued till their maturity. 8.3. Softcopies of the agreements are placed on the web-site of the Commission. 8.4. The Religious Board in its 41st meeting held on December 20, 2013 has approved the changes in ‘Model Financing Agreement of Ijarah’ and ‘Short Form Agreement of Ijarah’. 8.5. It has been noted that sometimes when offering Ijarah finance to clients, Ijarah assets are not readily available, and modarabas are forced to pay the supplier

3Note: The Religious Board in its meeting held on March 19, 2008 has approved the model financing agreements.

P a g e 10 | 68 or producer of the stated assets in advance without having a formal contract with the client. Shariah principles prohibits the execution of a "Ijarah agreement" with a consumer when the assets are not actually there. 8.6. A "Letter of Agreement to Ijarah" (the "Letter") from the consumers is included here as Annexure II in order to overcome the aforementioned practical difficulties and bind them morally to accept the assets on Ijarah basis on the delivery date. It is anticipated that the Letter will make it easier for Modarabas to conduct Ijarah transactions with their clients and serve as a risk mitigation tool for those transactions. Chapter 9: 9. Submission of CIB data by modarabas Modaraba companies shall submit factual and correct data with respect to credit information to State Bnak of Pakistan (SBP) under the Credit Bureaue Act, 2015, in the format that SBP may specify from time to time. The data must be given to SBP on a monthly basis, but not later than the 10th of every month. Chapter 10: 10. Panel of auditors for modarabas For the purpose of section 15 of the Ordinance read with rule 19 of the Rules, no chartered accountancy firm other than a firm from panel of auditors for modarabas shall be appointed to act as statutory auditors of a modaraba and updated panel of auditors shall be placed on the website of the Commission. Chapter 11:

P a g e 11 | 68 11. Requirements pertaining to the Anti-Money Laundering Initiative 11.1. Every modaraba company shall: (i) accept deposits from an investor only after ensuring that an account has been opened in the investor’s name using an account opening form that is to be developed by the respective industry associations in consultation with the Commission. (ii) ensure that every payment or receipt exceeding Rs. 50,000/- shall be made through crossed cheque or any other banking instrument or channel. (iii) put into place, a comprehensive Customer Due Diligence / Know Your Customer policy (CDD/KYC) duly approved by the board of directors of their respective modaraba companies. CDD/KYC policy of the modarabas shall interalia include a description of the types of customers that are likely to pose a higher than average risk to the modaraba and guidelines for conducting enhanced CDD depending upon the customers' background, country of origin, public or high￾profile position, nature of business etc. 11.2. Minimum requirements for account opening & identification documents (I) While establishing an account for a new customer, the modaraba should know the customer by understanding the customer's objectives and financial position through documenting this knowledge. The first step in meeting these objectives besides obtaining ‘Title of Account’, ‘Contact Details’, ‘Specimen Signature(s)’ of authorized signatories and ‘Source of Income’, preferably face-to-face interaction, it is necessary to obtain certain identification documents as discussed below:

P a g e 12 | 68 (i) Personal accounts: The modaraba is responsible for obtaining photocopies (after reviewing the original) of acceptable identification documents from the customer entering into relationship. At least one piece of identification is required and this must bear a photograph. The following information/documents should be obtained from individual or joint account holders: (a) Attested photocopy of CNIC or passport (b) Service card or any other evidence of service (for salaried persons) (c) Copy of NTN/assessment order (if available) (d) Power of attorney (where applicable) In case of an illiterate person, a passport-size photograph of the new account holder, and his right- and left-hand thumb impression on the specimen signature card, should also be obtained in addition to the above documents. (ii) Corporate Accounts: The following documents are required for opening such accounts: (a) Memorandum and articles of association (b) Certificate of incorporation (c) Certificate of commencement of business (in case of public limited company) (d) List of directors (Form 29-latest)

P a g e 13 | 68 (e) Resolution of board of directors for opening the account and specifying the person(s) authorized to operate the account (f) Attested photocopies of CNICs of all the directors of the company (g) Latest financial statements of the company (audited) (iii) Sole Proprietor / Partnership / Joint Venture (JV). The following documents are required for opening such accounts: (a) Attested photocopy(ies) of CNIC of the individual(s) involved in the partnership or JV (b) Certified copy of the partnership deed or the joint venture agreement duly signed by all the parties to the deed / agreement (in case of partnership/joint venture accounts) (c) Attested photocopy of the registration certificate of the firm. If the firm is unregistered, this fact is to be mentioned clearly in the account opening form (AOF) (d) Authority letter in favour of the person authorized to operate the account (e) Latest financial statements of the firm (iv) Clubs, Societies and Associations: The following documents are required for opening such accounts: (a) Certified copies of:

• certificate of registration (if registered)
• bye laws

P a g e 14 | 68 (b) Resolution of the governing body of the customer for opening the account and authorizing persons for operating the account and attested copies of CNIC of the authorized operators of the account (c) An undertaking signed by all the authorized persons on behalf of the institution that in the event of any change in the persons authorized to operate the account, the modaraba will be informed immediately (d) Latest financial statements of the club/society or association (v) Agents’ accounts: The following documents are required for opening all such accounts, in which the agent is operating the account on behalf of the principal: Certified copies of:

• power of attorney
• CNIC of the agent and the principal (vi) Trust accounts: The following documents are required for opening such accounts: (a) Certified copies of:
• certificate of registration
• instrument of trust / trust deed
• CNIC of the trustees (b) Legal opinion of the lawyer (c) Copy of the latest financial statements

P a g e 15 | 68 (vii) Executors and administrators: The following documents are required for opening such accounts: Certified copies of:

• letter of appointment of executor/administrator
• CNIC of the executor/administrator (II) For all customers, the modaraba should determine whether the customer is acting on behalf of another person, and should then take reasonable steps to obtain sufficient identification data (such as a copy of the CNIC, or other relevant documents/information) to verify the identity of the beneficiary. (III) For customers that are legal persons, or for legal arrangements, the modarabas are required to take reasonable measures to (i) understand the ownership and control structure of the customer and, (ii) determine that the natural persons who ultimately own or control the customer. This includes those persons who exercise ultimate effective control over a legal person or arrangement. (IV) Government accounts should not be opened in the personal names of the government official(s). Any such account, which is be operated by an officer of the Federal/Provincial/Local Government in his official capacity, shall be opened only on production of a special resolution / authority from the concerned administrative department. 11.3. Verification: To further document the modaraba’s due diligence on the customer, permanent residence and/or business information for all the customers must be obtained

P a g e 16 | 68 and verified. Preferred means of corroboration of residence and CNIC are the following: (I) Visit to residence (II) Residential address appearing on any document issued by a government agency (III) Copy of entry from a widely published telephone directory evidencing both customer address and phone number. (IV) Copy of utility bill. (V) Sending a registered "letter of thanks" at the given address. It should be noted that if the "letter of thanks" is returned undelivered then place "CAUTION" on the account and inquire for the discrepancy. (VI) Copies of CNIC shall be verified by utilizing the on-line facility of NADRA. In case the modarabas do not have the on-line facility, then CNIC shall be verified from the Regional office of NADRA. 11.4. High Risk Customers: All prospective customers must be screened based upon the blacklisted entities' list provided by the Office of Foreign Assets Control (OFAC), NACTA list, UNSCR list and PEP, British Government agencies, State Bank of Pakistan, Financial Action Task Force (FATF), and others. The relationship should be established and/or maintained with the approval of senior management after conducting enhanced due diligence where: (a) The business relationship or transaction reveals the following: (i) anonymous relationships where beneficial owner is not identifiable; (ii) known beneficiaries of corruption or illegal activities and high net worth customers with no clearly identifiable source of income;

P a g e 17 | 68 (iii) shell/ domiciliary companies and the customers with links to offshore tax heavens; (iv) accounts form list of Non-Cooperative Countries issued by FATF that do not comply with the recommendations of FATF against anti-money laundering; (v) non-resident customers; (vi) non-legal persons or arrangements including non￾government organizations non-profit organizations (NPOs) and trusts/ charities; (vii) customers dealing in high-value Items. (b) There is reason to believe that the customer has been refused by another financial institution. (c) The persons are politically exposed (including foreigners) or customers holding public or high-profile positions. For these persons, enhanced due diligence should include the following: (i) Relationship should be maintained with the approval of senior management when an existing customer becomes holder of any public office or high-profile position; (ii) Appropriate risk management system shall be put in place to determine whether a potential customer, existing customer or the beneficial owner, is a politically exposed person, holder of public office or the holder of high-profile position. The source of wealth/fund of such customers, shall be monitored on a regular basis. 11.5. Low Risk Customers: (1) Where there are low risks and information on the identification of the customer and the beneficial owner is publicly available, or where

P a g e 18 | 68 adequate checks and controls exist, the modarabas may apply simplified or reduced COD/ KYC measures but not less than the minimum required in this circular. The following cases may be considered for application of simplified or reduced CDD/KYC: (a) Financial institutions provided they are subject to requirements to combat money laundering and terrorist financing consistent with the FATF recommendations and are supervised for compliance with those requirements. (b) Public listed companies that are subject to regulatory disclosure requirements, Government administrations/ entities. (2) Periodic customer review process-periodic KYC updation exercise: The purpose of the periodic review is to determine whether significant changes have occurred in the relationship, including any changes in the customer, material changes in customer holdings, or other material expansions of activity or product type, on a periodic basis. If major changes have occurred in the relationship, the change should be recorded/updated in the KYC form with the modaraba. (3) Documents/record retention period: The modaraba shall maintain, all necessary records on transactions and on customer identification (e.g. documents referring the legal status or the activity of our counterparts, banks or corporations), credit files and business correspondence, for at least ten years, as prescribed by the Companies Act, 2017, after the relationship is terminated. 11.6. In case the modarabas are not able to satisfactorily complete required CDD/KYC measures, the account should not be opened, business relationship should not be established and no business transactions should be carried out.

P a g e 19 | 68 Similarly, relationship with existing customers should be terminated and reporting of suspicious transactions be considered if CDD/KYC is found unsatisfactory. 11.7. The above-mentioned instructions are the minimum guidelines and the modarabas are advised to follow the same or any other additional measures if deemed appropriate. Chapter 12: 12. Annual review meeting 12.1. Each modaraba shall hold an annual review meeting of its certificate holders in the town where the registered office of the modaraba is situated, to review performance of the modaraba. In this regard, following requirements shall be complied with: (i) The persons entitled to attend the meeting will be those certificate holders whose names are entered in the register of certificate holders, seven days before the date of the meeting. (ii) The chief executive officer of the modaraba will determine the date, venue and time of the meeting. (iii) The purpose of the meeting will be to review the performance of the modaraba during the immediately concluded financial year. (iv) 21-days’ notice of the annual review meeting indicating the entitlement of persons to attend the meeting (as per 1 above) will be published by the modaraba in one widely circulated English and one Urdu language newspaper respectively, in the province in which registered office of the modaraba is situated. A copy of the notice published in the newspaper should also be submitted to the Registrar

P a g e 20 | 68 Modaraba within 7 days from the date of publication of the said notice. (v) Presents of any type gifts/incentive in lieu of gifts (token/coupens/lunches/takeaway packages) in any form or manner to the participants shall be prohibited. (vi) Every modaraba, shall hold, an annual rewiew meeting within sixteen months from the date of its incorporation and thereafter once in every calendar year within a period of one hundred and twenty days following the close of its financial year. Provided that, the Registrar Modaraba, may for any special reason extend the time within which any annual rewiew meeting, shall be held by a period not exceeding thirty days. Chapter 13: 13. 4 [Shariah Governance for Modarabas] [13.1. 5Compliance with the Shariah Governance Regulations, 2023: (i) The provisions of the Shariah Governance Regulations, 2023, shall apply to modarabas and modaraba companies to the extent of modarabas under management, except in so far as the said provisions are inconsistent with the provisions of the Modaraba Ordinance, Modaraba Rules, Modaraba Regulations, and this circular.

4Substituted for the heading “[Shariah Compliance and Shariah Audit]; and Deleted the footnote “[This mechanism has been introduced to strengthen the Shariah compliance by the modarabas, in letter and spirit, and ensure that the systems, procedures and policies adopted by the modaraba are in line with the Shariah principles, with approval of the Religious Board in its meetings held on December 9, 2010 and June 13, 2011.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 5Subsituted the text “[A formal mechanism known as the Shariah Compliance and Shariah Audit Mechanism (SCSAM) has been prepared and is being used to ensure and verify that the business transactions of modarabas are being carried out in accordance with the injunctions of Islam. This eliminates any risk or possibility of the modarabas violating Shariah principles.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024.

P a g e 21 | 68 (ii) It shall be the fiduciary responsibility of the board of directors of the modaraba company to ensure that all activities undertaken by the modaraba are in conformity with Shariah principles and rules and that an adequate Shariah governance framework is implemented in letter and spirit to ensure ongoing Shariah compliance.] 13.2. The 6 [Shariah governance framework] aimed to achieve the following objectives: (i) to ensure that the inflows and outflows of resources of modarabas are free from the following: (a) Riba (interest, usury or any other form) (b) Qimar (gambling) (c) Gharar (speculation) (d) Support from business prohibited by Shariah (e.g. drugs and alcohol, tobacco, pork related items, etc.) (ii) to introduce a mechanism which will strengthen the Shariah compliance by the modarabas in letter and spirit and ensure that the systems, procedures and policies adopted by the modaraba are in line with the Shariah principles; (iii) to mitigate the reputational and operational risk and enhance the image and operational framework of modaraba as Islamic financial institution and to ensure that the financial products or services being offered by modarabas are in accordance with the Shariah 7 [principles and rules]; (iv) to ensure that the agreements entered into by the modaraba are Shariah compliant, all the financing agreements are executed on the formats as approved by the Religious Board and all the related

6 Substituted the text “[SCSAM]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 7 Inserted the text vide S.R.O. 1861(1)/2024 dated November 14, 2024.

P a g e 22 | 68 conditions are met, 8 [and that the approval of the Shariah advisor of the modaraba has been obtained on the standard agreements]; (v) 9 [to implement the Shariah screening criteria for the investments in shares and other securities]; (vi) to provide for the process for purifications of dividend income; (vii) to introduce the mechanism for the management of charity; (viii) to identify the avenues for the investment of surplus funds; (ix) to prescribe procedure for appointment of Shariah advisor; (x) 10[to introduce policies for ensuring ongoing Shariah compliance]; and (xi) 11[to prescribe any other ancillary matter that may be required for Shariah supervision]; 12[(xii) to disclose Shariah opinion pertaining to products and operations of the Modaraba on the website of the Modaraba for information of public at large, as per regulation 24(2) of the Shariah Governance Regulations, 2023: Provided that the placement of a Shariah opinion (Fatwa) on the website of the Modaraba is obligatory only in cases where the products offered is innovative in nature and are not comparable or deemed similar to those already available in the financial market:

8 For the semi colon a quoma shall be substituted and thereafter added the text vide S.R.O. 1861(1)/2024 dated November 14, 2024. 9 Substituted for the text “[to prescribe the screening process for the investments in shares and other securities]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 10 Substituted for the text “[to introduce internal Shariah audit of the business transactions of modarabas to ensure that the goals and objectives of Islamic law i.e. Maqasad Al-Shari’ah are achieved and the financial products, instruments and transactions employed, are based on Shariah norms and principles]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 11 Substituted for the text “[to prescribe any other ancillary matter that may be required for Shariah compliance and Shariah audit]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 12 For the full stop a semi colon shall be substituted at the end of sub-clause xi and and thereafter added the text vide S.R.O. 1861(1)/2024 dated November 14, 2024.

P a g e 23 | 68 Provided further that if the Shariah opinion is present in the audited financials already uploaded on the website of the Modaraba, a separate upload will not be required]. 13.3. 13[Shariah Compliance by the Modarabas: (i) Every modaraba and modaraba company to the extent of modaraba under management, shall ensure compliance with the Shariah compliance and audit requirements provided in the Shariah Governance Regulations, 2023, as applicable to a Shariah-Compliant Company. (ii) These requirements shall be followed by the modaraba companies and modarabas in the course of their operations. The modaraba and the modaraba companies may include additional requirements and control in their procedures for the sake of more effective Shariah compliance and prudence. (iii) The requirement for an external Shariah audit shall become effective and applicable for the period ending on or after June 30, 2025. All relevant entities must ensure compliance with this requirement by this date, including the engagement of qualified external auditors and submission of necessary reports as stipulated under the Shariah Governance Regulations, 2023]. 13.4. 14[Additional requirements for Shariah Compliance by the Modaraba:

13 Subsituted the text “[Now, therefore, in order to ensure effective Shariah compliance and to maintain the trust of the stakeholders on the Islamic financial system, in terms of the certificate granted for authorization to float a modaraba read with Section 11 of the Ordinance and rule 3 (2) (e) of Rules, the following SCASM is hereby issued as an additional condition to the modaraba authorization certificate]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 14 Subsituted the text “[Shariah Compliance and Shariah Audit Mechanism Shariah Compliance: (I) Responsibilities of the modaraba company: - Every modaraba company shall ensure that: (i) the business of the modaraba managed by it, is carried out strictly in accordance with the prospectus approved by the Religious Board and the model Islamic financing agreements and the investment products approved by the Religious Board from time to time are followed;

P a g e 24 | 68

(ii) major changes in any of the existing product structures, financing agreements, terms and conditions have a prior written approval from the Religious Board; (iii) all material changes in the existing product structures, agreements, terms and conditions are properly communicated to the concerned stakeholders, clients/customers; (iv) monitoring and review system of Shariah compliance is introduced covering all activities and products of the modarabas; (v) proper training is provided in the area of Shariah compliance to the relevant staff, responsible for the monitoring and review; and (vi) irregularities, if any, recorded and reported by internal Shariah auditors are rectified under the guidance of the Shariah advisor. (II)Investment in shares and other securities: - The investment by the modaraba in the shares and securities shall only be made in the companies screened by the Shariah advisor of the association in accordance with screening procedure contained in clause III of this SCSAM and subject to the following conditions: (i)the purchase and sale of the same scrip on the same day shall not be made; and (ii)the shares shall not be sold before settlement i.e. their title and possession has been transferred to the modaraba, in accordance with the settlement schedule of the stock exchange. (III) Screening procedure: – (1) The screening test of the selected investee company (IC) for the purpose of investment in its shares or other securities shall be conducted by the Shariah advisor of the association who shall observe the following criteria before placement of the scrip in the list of Shariah compliant securities: (i) the business of the IC is halal and in line with the Shariah; (ii) debt to asset ratio of the IC is less than 40%. Debt in this case is classified as any interest-bearing debts. Zero coupon bonds and preference shares shall be considered as part of the debt; (iii) the ratio of non-compliant investments to total assets of the IC is less than 33%; (iv) the ratio of non-compliant income of the IC to total income is less than 5%. The income includes gross income plus any other income earned by the IC; (v) the ratio of illiquid assets to total assets is at least 25%; Explanation: Illiquid asset means any asset that Shariah permits to be traded at value other than the par. (vi) The market price per share is greater than the net liquid assets per share calculated as: (Total Assets – Illiquid Assets – Total Liabilities)/No. of outstanding shares. Provided that the investment in the modaraba certificates of a modaraba, shares of Islamic banks and takaful companies and the units of Islamic mutual funds shall not be subject to screening process. (2) The screening for each IC shall be performed on half yearly basis. The list of screened listed companies alongwith charity rate of the respective company shall be placed on the website of the association and a printed copy duly signed by the authorized person of the association with a confirmation of its placement on the website, shall be sent to the Registrar Modaraba on half yearly basis. Explanation: Charity rate means the ratio of non-compliant income of the IC to total income. (3) The screening of unlisted companies shall be carried out by the Shariah advisor of the association on the requests made by modarabas on case-to-case basis. (4) The existing non-compliant investments in terms of clause III shall be divested within the period of one year from the date of this circular. (IV) Dividend purification process: – The dividend income shall be purified by deducting the amount equivalent to charity rate for the respective IC from the total dividend income received by a modaraba. (V) Non-Shariah compliant income not to form part of modaraba’s income: - (1) The income received by a modaraba from non-Shariah compliant sources shall not be accounted for as part of income of a modaraba, inter-alia the following: (i) late payment penalty or surcharge received from any client; (ii) the part of dividend income pertains to non-Shariah compliant business activities of IC as calculated in terms of clause IV; and (iii) any other income received by a modaraba from any transaction which was not carried out in accordance with the principles of Shariah. (2) All non-Shariah compliant income received by a modaraba shall be deemed as a liability of the modaraba and shall be transferred by the modaraba company to a separate account namely charity account. (VI) Management of charity: - The amount credited in the charity account shall be used in the manner and subject to the conditions stated hereunder:

P a g e 25 | 68 (i) Every modaraba company shall ensure that the business of the modaraba managed by it is carried out strictly in accordance with the business model contained in the prospectus approved by the Religious Board and the Shariah principles and rules; (ii) In case of any material change in the business model, prior approval of the Registrar shall be required; (iii) The investment policy of the Modaraba shall be reviewed and approved by the Shariah advisor, before its approval for the board of directors; (iv) The non-compliant investments shall be divested within the period as may be allowed by the Shariah advisor; (v) The dividend income shall be purified by deducting the amount equivalent to the charity rate for the respective investee company from the total dividend income received by a modaraba; (vi) The income received by a modaraba from non-Shariah-compliant sources shall not be accounted for as part of the income of a modaraba, including, inter alia, the following: a. late payment penalty or surcharge received from any client;

(i) all contributions or donation from the charity account shall only be made to the approved charitable organizations registered under Pakistani law as charitable organization (trusts, Hospitals etc). The Income tax exemption certificate issued by the Government of Pakistan to that effect shall be considered as an approval for the purposes. Any exception shall be submitted for approval to the Shariah advisor of the association; (ii) the purpose of the donation shall be identified; and (iii) the amount available in charity account shall ideally be distributed within three months of its transfer. A summary of operations of the charity account shall be published in the annual accounts of the modaraba. (VII) Investment of surplus funds of modaraba: - The surplus funds of the modaraba shall only be placed in the accounts to be opened in the Islamic banks or Islamic branches of conventional banks or Islamic mutual funds or products offered by a modaraba or any other Shariah compliant investment schemes.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024.

P a g e 26 | 68 b. the part of dividend income that pertains to non-Shariah￾compliant business activities of the investee company; and c. c. any other income received by a modaraba from any transaction that was not carried out in accordance with the principles of Shariah. (vii) All non-Shariah-compliant income received by a modaraba shall be deemed a liability of the modaraba and shall be transferred by the modaraba company to a separate account, namely a charity account; (viii) The amount credited in the charity account shall be used in the manner and subject to the conditions stated hereunder: a. All contributions or donations from the charity account shall only be made to the approved charitable organizations registered under Pakistani law as charitable organizations (trusts, hospitals, etc.). The income tax exemption certificate issued by the Government of Pakistan to that effect shall be considered an approval for those purposes. Any exception shall be submitted for approval to the Shariah advisor; b. The purpose of the donation shall be identified; and c. The amount available in the charity account shall ideally be distributed within three months of its transfer. A summary of the operations of the charity account shall be published in the annual accounts of the modaraba. (ix) The surplus funds of the modaraba shall only be placed in the accounts to be opened in the Islamic banks, Islamic branches of conventional banks, Islamic mutual funds, or products offered by the modaraba or any other Shariah-compliant investment schemes].

P a g e 27 | 68 13.5. 15[Shariah supervision (i) A modaraba company may voluntarily form, constitute, appoint or engage a Shariah supervisory board and until such board is formed, constituted, appointed or engaged, it shall mandatorily appoint a Shariah advisor registered under the Shariah Governance Regulations, 2023, for each of the Modaraba. (ii) The powers, functions, responsibilities and obligations of the modaraba company in this regard shall be the same as applicable to a Shariah￾compliant company. (iii) The powers, functions, responsibilities and obligations of the Shariah supervisory board or the Shariah advisor, as the case may, shall be the same as provided in the Shariah Governance Regulations, 2023]. 13.7. 16[Omitted]

15 Substituted the text “[Shariah advisor and Shariah advisor: (1) Every modaraba company shall have a Shariah advisor of the modaraba appointed on the terms and conditions as it may deem fit, having the qualification and experience and to perform the functions as specified hereunder. The term of office of the Shariah advisor shall be three years, which shall be renewable by the modaraba company. The modaraba company shall intimate to the Registrar Modaraba about the appointment of Shariah advisor and submit his qualifications and experience details within 7 days from the date of his appointment. (2) The casual vacancy caused by the resignation or termination of the Shariah advisor shall be filled by the modaraba company within 30 days of the resignation or termination as the case may be and the intimation thereof shall be made to the Registrar Modaraba in the manner prescribed above.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 16 Deleted the text “[Qualification of Shariah advisor. - (1) No person shall be appointed as Shariah advisor unless he is deemed to be a person of acceptable reputation, character and integrity and has: (a) Educational qualification: Shahadat ul Aalmia degree (Dars e Nizami) from any recognized Board of Madaris with minimum 70% marks and bachelor’s degree with a minimum of 2 nd class and sufficient understanding of banking and finance. OR Post graduate degree in Islamic Jurisprudence/Usooluddin, L.L.M. (Shariah), etc. with a minimum GPA of 3.0 or equivalent from any recognized university with exposure to banking and finance. (b) Experience and exposure: Must have at least 4 years experience of giving Shariah rulings including the period of Takhasus fil Ifta; or at least 5 years post qualification experience in teaching or research and development in Islamic banking and finance. (i) good knowledge to understand English and make out the required reports; (ii) exposure in the areas of business or finance especially Islamic finance; (iii) has not been terminated from any organization in any capacity; and

P a g e 28 | 68 13.8. 17[Omitted] 13.9. 18[Omitted]

(iv) does not hold any executive or non-executive position in any modaraba or modaraba company except as Shariah advisor. (2) The Registrar Modaraba may relax the requirement of educational qualification and experience in exceptional cases where the person is otherwise qualified for giving Shariah rulings on banking and financial matters.]” vide S.R.O. 1861 (1)/ 2024. 17 Deleted the text “[Functions and responsibilities of the Shariah advisor: - (1) The Shariah advisor shall generally perform the following duties and functions in the modaraba: (i) to introduce a mechanism which will strengthen the Shariah compliance by the modaraba, in letter and spirit and ensure that the systems, procedures and policies adopted by the modaraba are in line with the Shariah principles; (ii) to advise the modaraba company so as to ensure that the inflows and outflows of resources of modaraba are free from the following: (a) Riba (interest, usury or any other form) (b) Qimar (gambling) (c) Gharar (speculation) (d) Support from business prohibited by Shariah (e.g. drugs and alcohol, tobacco, pork related items, etc.) (iii) to review on regular basis that the business conducted, the transactions carried out and the investments made by the modaraba are in accordance with the prospectus of the modaraba, Islamic financial accounting standards notified by the Commission, the principles of Shariah and goals and objectives of Islamic law i.e. Maqasad Al-Shariah are achieved i.e. the financial products, services, related policies and the instruments are based on Shariah norms and principles; (iv) to vet the new products and services before its submission to the Registrar Modaraba for its final approval from the Religious Board; (v) to make recommendations to the modaraba company for potential improvements and the formulation of polices in line with the Shariah principles and to advise about the process of rectification of irregularities pointed out by him; (vi) to advise on any matter referred to him by the chief executive or the board of directors of the modaraba company; (vii) to conduct and arrange Shariah training programs for the board of directors/officers and the staff of the modaraba; and (viii) to determine the non-Shariah compliant income and ensure its transfer to the charity account. (2) The Shariah advisor shall prepare a report on the modaraba’s affairs, to be called as “the Annual Shariah Advisor’s Report” which shall cover the overall Shariah compliance position of the modaraba for the whole year and be prepared on the format attached as Annexure-III. The same shall be annexed by the modaraba company just after the statutory auditor’s report of the annual audited accounts of the modaraba, to be disseminated to the certificate holders. (3) Notwithstanding the above, the Shariah advisor shall prepared the annual Shariah advisor’s report which shall be annexed with the annual audited accounts of the modaraba.]” vide SRO 1861 (1)/2024 dated November 14, 2024. 18 Deleted the text “Powers of Shariah advisor (1) Every Shariah advisor shall have a right of access at all times to the books, papers, accounts, vouchers, record, information, agreements and reports of the modaraba, whether kept at the registered office of the modaraba company or elsewhere and shall be entitled to require from the directors and other officers of the modaraba company, such information and explanation as he may require for the performance of his duties and the board of directors and all the employees of the modaraba company as well as the modaraba shall be bound to provide the requisite access to the record and information to the Shariah advisor. (2) The Shariah advisor shall have direct and regular communications with all levels of management.

P a g e 29 | 68 13.10. 19[Omitted] 13.11. 20[Omitted] 13.12. 21[Omitted] 13.13. 22[Omitted]

(3) The fatwa and ruling of the Shariah advisor in all business transactions, not being inconsistent with the ruling of the Religious Board, shall be binding on the modaraba companies.]” vide S.R.O. 1861 (1)/2024 dated November 14, 2024. 19 Deeted the text “[Reporting of Shariah advisor: - The Shariah advisor shall report to the board of directors of the modaraba.]” vide S.R.O. 1861 (1)/2024 dated November 14, 2024. 20 Deleted the text “[Dispute resolution: -In case of any dispute or difference of opinion arises between modaraba company and the internal Shariah auditor on the matters relating to Shariah interpretation, the same shall be referred to the Shariah advisor for the decision. In case of difference of opinion between the Shariah advisor of the modaraba and the Registrar Modaraba on any matter came to his knowledge, the mater shall be referred by the Registrar Modaraba to the Religious Board, whose decision shall be final.]” vide S.R.O. 1861 (1)/2024 dated November 14, 2024. 21 Deleted the text “[Performance review of the Shariah advisor: - (1) The performance of Shariah advisor shall be reviewed by the Registrar Modaraba from time-to-time. (2) The Registrar Modaraba, after being satisfied that the Shariah advisor is not performing his duties as required under this mechanism may direct the modaraba company to terminate the services of the Shariah advisor before expiry of three years.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 22 Deleted the text “Internal Shariah audit I. Internal Shariah audit: (1) Every modaraba shall strengthen its existing internal audit department, either by appointing a trained internal Shariah auditor having relevant qualification and experience of the Shariah audit or train at least one of its existing employees in the internal audit department for the purpose of internal Shariah audit. (2) The training of the internal Shariah auditor shall be arranged from a well known Shariah training institute. II. Duties of internal Shariah auditor: - (1) The internal Shariah auditor shall follow the same reporting norms, as are applicable on the internal auditor under Listed Companies (Code of Corporate Governance), Regulations 2019. (2) The minimum required duties of the internal Shariah auditor shall be to verify on day to basis that the: (i) business transactions of the modaraba are Shariah compliant; (ii) agreements entered into by the modaraba are Shariah compliant and financing agreements executed on the formats as approved by the Religious Board, without any major change, and all the related conditions are met; (iii) investments of the modaraba in the shares and other securities are as per list of the companies screened by the Shariah advisor of the association; (iv) process for purifications of dividend income has been carried out by the modaraba company; (v) non-Shariah compliant income has been transferred in charity account and distributed in accordance with the manner prescribed in this circular; (vi) surplus funds have been invested in the avenues prescribed in this circular; and

P a g e 30 | 68 13.14. 23[Omitted] 13.15. 24[Omitted] 13.16. 25[Omitted] Chapter 14: 14. Application of International Financial Reporting Standards on modarabas 14.1. The modarabas are required to follow the Islamic Financial Accounting Standards 1 and 2 (Annexure IV and V) respectively, as notified by the Commission under the Companies Act, 2017, while preparing the financial statements by modarabas in the context of historical cost convention while accounting for Murabaha transactions carried out by a bank and accounting for Ijarah (Lease) transactions, as defined by the aforementioned standards respectively.

(vii) to share his findings with the chief executive and Shariah advisor in respect of all the above items including irregularities, inadequacy in risk management, governance and internal controls which are necessary to avoid non-Shariah compliant business transactions in the modaraba. (3) The internal Shariah auditor shall submit his report on quarterly basis to the board of directors with a copy of the report to the Shariah advisor of the modaraba. (4) The internal Shariah auditor shall maintain a liaison with the Shariah advisor and seek his guidance and help in case of any difficulty in ensuring Shariah compliance of any particular transaction. III. Compliance on the internal Shariah auditor’s report: - The board of directors of the modaraba company, in consultation with the Shariah advisor, shall take necessary steps on the observations/recommendation of the internal Shariah auditor and prepare an action plan with a timetable for compliance. The audit committee of the modaraba shall monitor the compliance/implementation of the action plan.]” Vide S.R.O. 1861 (1)/2024 dated November 14, 2024. 23 Deleted the text “[Since the Shariah review system is imperative in ensuring such compliance and an effective Shariah framework will harmonize the Shariah interpretations, strengthen the regulatory and supervisory oversight of the modaraba sector and nurture a pool of competent Shariah auditors, the implementation of SCSAM will help the management of modaraba companies to achieve the objectives of halal business as enshrined in the Shariah and emerge as a responsible member of the Islamic financial regime.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 24 Deleted the text “[The provisions contained in the SCSAM are the minimum requirements for Shariah compliance to be followed by the modaraba companies and modarabas in the course of their operations. The modaraba and the modaraba companies may include additional requirements and control in their procedures for the sake of more effective Shariah compliance and prudence.]” vide S.R.O. 1861(1)/2024 dated November 14, 2024. 25 Deleted the text “[All the modaraba companies are directed to ensure the implementation of the SCSAM in letter and spirit and initiate necessary action for its compliance with immediate effect.]” vide S.R.O. 1861 (1)/2024 dated November 14, 2024.

P a g e 31 | 68 Provided that the Commission may grant an exemption to any company or any modaraba, if it is in the public interest so to do, from compliance with all or any of the requirements of the aforesaid Standards. 14.2. The modarabas (other than trading modarabas) are advised to follow the requirements of IFRS 7 with regard to their accounts and preparation of their financial statements in pursuance of the provisions of sub section (1) of section 225 of the Companies Act, 2017. 14.3. The modarabas (other than trading modarabas) are required to prepare their financial statements in accordance with the requirements of IFRS 7, insofar as these requirements are not inconsistent with the requirements of the Act, including the Fourth Schedule, and in case of any conflict or inconsistency, the requirements of the Act, including the Fourth Schedule, shall prevail over the requirements contained in IFRS 7. 14.4. All modaraba companies are required to prepare financial statements of the modarabas in conformity with such International Financial Reporting standards and IFAS-I & IFAS-2 and other standards as notified by the Commission under section 225 of the Companies Act, 2017 in true letter and spirit. Chapter 15: 15. Transmission of quarterly accounts by modarabas/additional condition to modaraba authorization certificate 15.1. In exercise of the powers conferred by section 11 of the Ordinance, read with the certificate of authorization for floatation of modaraba issued under rule 3 (2) (e) of the Rules, the following additional condition is imposed on

P a g e 32 | 68 modarabas and shall be deemed to be a part of the conditions of the certificate of authorization for floatation of modaraba: (i) The modaraba companies shall within one month from the close of first and third quarters of the accounting year of the modaraba, prepare and transmit, by registered post, to the stock exchange(s) on which the modaraba certificates are listed and, under postal certificate, to the holders of modaraba certificates a condensed balance sheet as at the end of the quarter and a condensed profit and loss account, cash flow statement and statement of changes in equity for the quarter then ended and cumulative for the accounting year to date along with selected notes to the accounts, whether audited or otherwise. Simultaneously with the transmission of the quarterly profit and loss account and balance sheet to the members and stock exchanges, they shall file three copies thereof to the Registrar Modaraba. (ii) The quarterly accounts shall be prepared in accordance with IAS 34 and comparative figures shall be provided, when such figures are available. (iii) Quarterly accounts are to be transmitted in the manner of annual and half yearly accounts. (iv) Approval of the board of directors shall be mandatory for circulation of quarterly accounts. (v) Provisions of rule 12 of the Rules shall apply to the quarterly accounts/financial statements. (vi) The half-yearly and annual accounts shall continue to be submitted as usual. 15.2. Every modaraba is required by rule 10 to send its first, second, and third quarterly accounts to its certificate holders within a certain amount of time. The Registrar Modaraba has given permission to post the quarterly accounts

P a g e 33 | 68 of the modarabas on their website rather than sending them to the certificate holders by mail after taking into account the practical difficulties that sending periodical accounts to all the certificate holders by mail is an expensive and time-consuming exercise and the goal of the provisions in the said rule 10 would be achieved. The posting of quarterly accounts on the Modarabas website shall be recognised as compliance with the requirements of rule 10 of the rules, subject to fulfillment of the following conditions: (i) The modaraba companies intending to place the quarterly accounts of the modarabas on their website, instead of sending the same by post to the certificate holders, shall be required to seek the consent of its certificate holders and also to consult the respective stock exchanges. (ii) The modaraba companies shall be required to seek prior permission of Registrar Modaraba for transmitting their quarterly accounts through their website. The application made by a modaraba company for this purpose shall indicate its website address and Registrar Modaraba would grant permission after visiting the website and finding it in order. The website address shall not be changed except with the approval of the Registrar Modaraba. (iii) The modaraba company, after obtaining the requisite permission, shall inform its certificate holders through an advertisement in the press that the subsequent quarterly accounts would be transmitted to them through the modaraba website. (iv) The respective stock exchange and the Registrar Modaraba shall be informed in writing, by post. (v) The requirement of filing the prescribed number of copies of periodical accounts with the Registrar Modaraba/Commission and the stock exchange(s) by post, shall be fulfilled, in addition to transmission of the same through the website of the Commission and the stock exchange(s).

P a g e 34 | 68 (vi) The modaraba companies shall supply the of the quarterly accounts to the certificate holders, on demand, at their registered addresses free of cost, within one week of such demand. (vii) The modaraba companies shall also be required to transmit their periodical accounts electronically to the concerned stock exchange(s) so as to place the same on their website. (viii) A group of companies under the same management may maintain a single website instead of having an independent website for each modaraba. Such a website however, would display the link to each company al a prominent place on its website. (ix) The Registrar Modaraba would maintain a list of modarabas, who nave been granted such permission, and this list would be placed on the Commission’s website. Chapter 16: 16. Filing of monthly returns through specialized companies return system All the modaraba companies and modarabas are required to submit their monthly statements through the specialized companies return system (SCRS) by the 10th of every month. Chapter 17: 17. Filing of semi-annual returns by modarabas regarding information on related party exposure 17.1. Formats for standardized periodic reporting of information by the modarabas pertaining to their exposure in related party are attached as Annexure-II. The term related party would carry the same meaning as defined in IAS 24, adopted in Pakistan.

P a g e 35 | 68 17.2. All the modarabas are required to submit the information as per the attached formats on six monthly bases. 17.3. The information shall be submitted in a manner that for the period ended on 30th day of June every year, the information should be submitted by the following 30th day of September while for the period ended on 31st day December every year the information should be submitted to the Commission by the following 31st day of March. Chapter 18: 18. Miscellaneous clarifications 18.1. A modaraba may sell or transfer Ijarah (lease) assets in the ordinary course of business without being subject to the disclosure requirements outlined in clause 3(ii) of Part-II of the third schedule to the Rules. 18.2. The restriction that the management fee can only be paid out of net profit of the modaraba after wiping off the accumulated losses as laid out in section 18 of the Ordinance, read with rule 16 of the Rules, is replaced with the following additional condition to the modarabas in order to bring the management fee in line with the concept of modaraba as well as the provisions of sections 18 and 37 of the Ordinance: ‘’The modaraba company may charge the prescribed management fee out of the net annual profit of the modaraba on the basis of annual audited accounts provided that 90% of the profit available for appropriation may also distributed to the certificate holders of the modaraba after setting aside out of the profit of the modaraba such sums as it thinks proper as reserve in accordance with regulatory framework applicable for modarabas. The management fee shall be

P a g e 36 | 68 charged only once on the profit of a modaraba i.e. the portion of profit carried forward should not again be subject to deduction of management fee.’’ 18.3. For any violation of the guidelines in this Circular, apart from any other penal action likely to be taken against the management, may result in cancellation of registration of modaraba company and its removal from management of the modaraba floated by it. 19. Repeal and saving: (1) The following instruments, herein after referred to as repealed instruments, shall stand repealed￾Sr.No. Circular/ Directive Dated Subject 1 Circular No. 6 of 1999 31-Mar-99 Advisability of arbitration clause in the Modaraba agreements 2 Circular No. 8 of 1999 10-Apr-99 Work relating to Prudential Regulations of Modarabas 3 Circular No. 11 of 1999 06-May-99 Appointment of Directors/Chief Executive in Modaraba Companies 4 Circular No. 5 of 2000 20-Apr-00 Additional conditions No. 1/2000 to Modaraba Authorization Certificate 5 Circular No. 7 of 2000 25-May-00 Appointment of directors/chief executive in Modaraba Companies 6 Circular No. 10 of 2000 10-Aug-00 Additional Condition No. 1/2000 to Modaraba Authorization Certificate - 7 Circular No. 13 of 2000 18-Aug-00 Issue of right certificates by Modarabas 8 Circular No. 19 of 2000 27-Nov-00 Annual Review Meeting under Prudential Regulations of Modarabas 9 Circular No. 20 of 2000 21-Dec-00 Amendments in Circular No. 5 of 2000 dated April 20, 2000

P a g e 37 | 68 10 Circular 14-Jun-01 Increase in maintenance of statutory reserves by Modarabas from 10% to 20% 11 Circular 13-Dec-01 Quarterly Accounts Additional Condition to Modaraba Authorization Certificate 12 Circular No. 11 of 2002 06-Jun-02 Application of International Accounting Standard 30 to Investment Banks, Modarabas and Leasing Companies 13 Circular No. 5 of 2003 21-Feb-03 Requirements for Anti Money Laundering Initiative-Additional condition No.1/2003 to modaraba authorization certificate. 14 Circular No. 7 of 2003 27-Feb-03 Appointment of Director/Chief Executive in the Modaraba Companies 15 Circular No. 16 of 2003 18-Jul-03 Amendments in Modaraba Companies and Modaraba Rules 1981 16 Circular No. 22 of 2003 11-Sep-03 Applicability of international accounting standard 30 to investment banks, leasing companies and modarabas (other than trading modarabas) 17 Circular No. 4 of 2004 28-Jan-04 Prudential Regulations for Modarabas 18 Circular No. 5 of 2004 29-Jan-04 Filing fee deposited with the statements under Prudential Regulations for Modarabas 19 Circular No. 10 of 2004 13-Feb-04 Applicability of International Accounting Standard (IAS) 17 to Modarabas 20 Circular No. 16 of 2004 02-Apr-04 Clarification-Validity old National Identity Cards for the business of Modarabas 21 Circular No. 18 of 2004 06-Apr-04 Submission of CIB data by Modarabas

P a g e 38 | 68 22 Circular No. 21 of 2004 21-Apr-04 Transmission of quarterly accounts by Modarabas 23 Circular No. 25 of 2004 05-Jul-04 Prudential Regulations for Modarabas 24 Circular No. 4 of 2005 23-May-05 Raising of Funds from General Public by Modarabas 25 Circular No. 16 of 2005 22-Sep-05 Prudential Regulations for Modarabas 26 Circular No. 4 of 2006 22-Mar-06 Amendment in the Guidelines for Issuance of Certificates of Musharakah 27 Circular No. 10 of 2006 16-Jun-06 Conditions applicable to Promotors / Major Share Holders of Modaraba Management Companies 28 Circular No. 11 of 2006 18-Jul-06 Enhancement in the upper limit on creation and building up of Reserves by Modarabas in terms of sub-Regulation (a) of Regulation 2 of Part-III of the Prudential Regulations for Modarabas 29 Circular No. 4 of 2008 07-Apr-08 Amendments in the Guidelines approved by the Religious Board for Issuance of Certificates of Musharakah by Modarabas 30 Circular No. 6 of 2008 08-May-08 Model Financing Agreements for Modarabas 31 Circular No. 9 of 2008 16-May-08 Permission for insertion of the words “An Islamic Financial Institution’ after the name of a Modaraba 32 Circular No. 10 of 2008 02-Jun-08 Amendments in the Prudential Regulations for Modarabas 33 Circular No. 10 of 2009 06-Mar-09 Conditions applicable to Promotors / Major Share Holders of Modaraba Management Companies / Modarabas

P a g e 39 | 68 34 Circular No. 9 of 2009 25-Mar-09 Electronic submission of periodic statements under the Prudential Regulations for Modarabas 35 Circular No. 15 of 2009 04-May-09 Additional conditions to Modaraba Authorization Certificate 36 Circular No. 16 of 2009 05-May-09 Reconstitution of the Religious Board 37 Circular No. 18 of 2009 01-Jun-09 Revised 2nd Schedule to the Modaraba Companies and Modaraba Rules, 1981 38 Circular No. 28 of 2009 04-Sep-09 Additional condition to Modaraba Authorization Certificate - Addition in Panel of Auditors for Modarabas 39 Circular No. 29 of 2009 09-Sep-09 Anti-Money Laundering Measures￾Customer Due Diligence (CDD) / Know Your Customers (KYC) 40 Circular No. 2 of 2010 15-Jan-10 Filing of monthly returns through Specialized Companies Return System 41 Circular No. 7 of 2010 31-Mar-10 Applicability of Islamic Financial Accounting Standard I - Murabaha (IFAS￾I) 42 Circular No. 18 of 2010 16-Jul-10 Additional Condition to the Modaraba Authorization Certificate 43 Circular No. 21 of 2010 10-Aug-10 Clarification on clause 3(ii) of Part II of the 3rd Schedule of the Modaraba Companies and Modaraba Rules, 1981 44 Circular No. 22 of 2010 24-Aug-10 Revised 2nd Schedule to the Modaraba Companies and Modaraba Rules, 1981 45 Circular No. 15 of 2011 30-Nov-11 Additional condition to the Modaraba Authorization Certificate 46 Circular No.8 of 2012 03-Feb-12 Shari’ah Compliance and Shari’ah Audit Mechanism (SCSAM) for Modarabas

P a g e 40 | 68 47 Circular No. 16 of 2012 31-May-12 Regarding Ijarah Financing 48 Circular No. 25 of 2012 24-Jul-12 Amendments in Modaraba Ordinance 49 Circular No. 28 of 2012 12-Sep-12 Filing of semi-annual returns by Modarabas regarding information on related party exposure. 50 Circular No. 42 of 2012 31-Dec-12 Filing of Monthly returns through Specialized Companies Return System (SCRS) 51 Circular No. 2 of 2014 22-Jan-14 Model Financing Agreements 52 Circular No. 12 of 2015 17-Apr-15 Mandatory certification for the professional of Modarabas 53 Circular No. 22 of 2015 29-Jun-15 Placement of Jamapunji web link and logo on the websites of Modarabas 54 Circular No. 49 of 2015 31-Dec-15 Mandatory certification for the professional of Modarabas 55 Circular No. 4 of 2016 22-Jan-16 Regulatory requirements for branches of Modarabas 56 Circular No. 17 of 2016 25-Apr-16 Amendments in the Prudential Regulations for Modarabas 57 Direction No. 1 of 2017 17-Apr-17 Reporting by Modaraba Companies and Modarabas 58 Circular No. 9 of 2018 03-Jul-18 Mandatory certification for the professional of Modarabas 59 Circular No. 17 of 2018 24-Sep-18 Amendments in Prudential Regulations for Modarabas 60 Circular No. 19 of 2018 16-Oct-18 Amendments in the Prudential Regulations for Modarabas

P a g e 41 | 68 61 Direction No. 1 of 2019 19-Mar-19 Reporting by Modaraba Companies and Modarabas 62 Circular No. 15 of 2020 24-Apr-20 Facilitation to Modarabas 63 Circular No. 28 of 2020 10-Sep-20 Relaxation to lending modarabas under regulation 5 of the Prudential Regulations for Modarabas 64 Circular No. 30 of 2020 30-Sep-20 Amendments in the Prudential Regulations for Modarabas 65 Circular No. 33 of 2020 14-Dec-20 Amendments in the Prudential Regulations for Modarabas 66 Circular No. 22 of 2021 19-Jul-21 COVID-19 Vaccination at the Workplace 67 SRO 1546(I)/2022 15-Aug-22 Notification to specify conditions to hold, deal or trade in real estate projects Provided that repeal of the repealed instrument shall not- (a) revive anything not in force at the time at which the repeal take effect; or (b) affect the previous operation of the repealed instruments or anything duly done or suffered thereunder; or (c) affect any right, privilege, obligation or liability acquired, accrued or incurred under or in respect of the said repealed instruments; or (d) affect any penalty imposed, forfeiture made or punishment incurred in respect of any offence committed against or in violation of the repealed instrument; or (e) affect any inspection, investigation, prosecution, legal proceeding or remedy in respect of any obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such inspection, investigation, prosecution, legal proceedings or remedy may be made, continued or enforced and any such penalty, forfeiture or punishment may be imposed, as if these regulations has not been notified.

P a g e 42 | 68 2. Save as otherwise specifically provided, nothing in the repealed instruments shall affect or deemed to effect any action taken, orders issued, relaxation granted unless withdrawn, fee paid or accrued, resolution passed, direction given under the repealed instruments shall, if in force at the effective date of this notification and not inconsistent with provision of this notification, shall continue to be in force and have effect as if it were respectively taken, made, directed, passed, given, executed or issued under this notification.

P a g e 43 | 68 Annexure-I ANNUAL SUMMARY INFORMATION REPORT BY MODARABA COMPANY For the period ending on __________

1. MODARABA MANAGEMENT COMPANY [NAME OF THE COMPANY] a. Company details i. Registration date: dd/mm/yyyy ii. Chief executive officer (name, mobile number, email, postal address) iii. Contact person (name, mobile number, email, postal address) b. Board of Directors i. Chairman (name, mobile number, email, postal address, date of appointment) ii. Shareholder directors (name, mobile number, email, postal address, date of appointment) iii. Independent directors (name, mobile number, email, postal address, date of appointment) c. Substantial shareholders (holding more than 10%) i. Name, phone number, email, postal address, no and percentage of shares held d. Other key information i. Name of auditors and date of appointment ii. Any other information deemed relevant by the company
2. MODARABA [NAME OF THE MODARABA] a. Key information i. Date of flotation and listing ii. Category: Financial Sector/Other iii. Paid-up capital and equity iv. Number of free float certificates and its percentage to total certificates b. Substantial certificate holders (holding more than 10%) i. Name, phone number, email, postal address, no and percentage of shares held

P a g e 44 | 68 Note: This report may be submitted through email at islamic.finance@secp.gov.pk or surface mail to Islamic Finance Department, Securities and Exchange Commission of Pakistan, Head Office, NICL Building, Jinnah Avenue, Blue Area, Islamabad.

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P a g e 49 | 68 Annexure IV The Commission has notified Islamic Financial Accounting Standard 1 on Murababa vide S.R.O 865(1)/2005 August 24, 2005 under the Companies Act, 2017. The same SRO is added here for information purposes only.

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P a g e 61 | 68 Annexure V The Commission has notified Islamic Financial Accounting Standard 2 on Ijarah vide S.R.O. 431(I)/2007 dated May 22, 2007 under the Companies Act, 2017. The same SRO is added here for information purposes only.

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[File No. 6(14) /RM /92] (Bilal Rasul) Secretary to the Commission