Modaraba Registration in Pakistan

Modaraba, or Mudarabah, is a special partnership in which one partner gives another money to invest in a commercial enterprise. The investment comes from the first partner, who is called the "rabb-ul-mal". The management and work is the responsibility of the other partner, who is called the "mudarib", and the profits are shared in a predetermined ratio.


The Modarabas are allowed to offer any financial product or conduct any business based on Islamic concept provided it is Shariah compliant and approved by the Religious Board. This includes investing in stock markets, trading of halal commodities, project financing activities etc.

The Modaraba can raise funds through Certificates of Modaraba and Certificate of Musharaka. Modarabas can also issue Sukuk and Musharaka based TFCs. The Modaraba's prospectus must be approved by the Registrar of Modarabas, Securities and Exchange Commission of Pakistan, after receiving a certificate from the Religious Board certifying that the Modaraba's business is permissible under Islam. Modaraba certificates shall be listed on the stock exchange for trading purposes.


A Modaraba is an agreement between two parties, in which one party provides managerial skills and the other party provides capital funds to carry on the business. Profit is shared according to the agreed ratio.

This business must be governed by the “Modarba Companies Ordinance 1980” and “Modarba Rules 1981”. According to the modarba rules, at least 10% of shares are compulsory for the party who provides managerial skills.

A company which is registered as a modaraba can float a modaraba. In order to float a modarba company, the registrar and controller must give their permission. The business must also obtain a clearance certificate from the Religious Board to ensure that it is not against Islamic Laws. Each modarba company must appoint a chartered accountant as its auditor in order to certify the accounts and objectives of the partnership. If the loss occurs due to the modarab or manager's negligence, they will also share in the loss. A modarab is a legal person and can sue and be sued. The Government of Pakistan issued the Modarba Companies Ordinance in 1980 to encourage business on the basis of profit sharing.

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Specific modarbaModaraba Al Muqayyadah (Restricted Mudarabah)

Mudarabah Al Muqayyadah is a type of modaraba where the Rabb-ul-maal (investor) may specify a particular business or place for the mudarib (manager) to invest the money in.

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Modaraba Al Mutlaqah (Unrestricted Mudarabah)

The Modaraba Al Mutalqah is an unrestricted modaraba, where the Rabb-ul-maal gives the mudarib full freedom to undertake whatever business he deems fit. However, the mudarib is not authorized to invite another Mudarib or a partner, or to mix his own investment in that particular Modarabah without the consent of Rab-ul Maal. The mudarib or mudaribs are authorized to do anything that is part of the normal course of business. However, if they want to do anything outside of the normal routine, they need express permission from the rabb-ul-mal.

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A modaraba company cannot do any business which is against the principles of Islam. The Govt. of Pakistan has set up a religious board to give clearance to each Modaraba company about its business activity. Each modaraba company will appoint an auditor approved by the registrar. He will certify objectives and accounts of the company. The officers, directors or their relatives cannot take loans from the funds of the Modarba company in any shape or form. The modarba company is not allowed to engage in any business that competes with the modarba floated by it.

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In order to achieve the objectives of Islamic business, the Federal Government has established a Religious Board (RB) for Modarabas. The members of the Religious Board are well-known Shari'ah Scholars from the country, and the chairman is qualified to be a Judge of the High Court. The role of the Religious Board is to certify that the business of the Modaraba is not opposed to the injunctions of Islam.


Ameen (Trustee):

The capital of Mudarabah is an Amanah (trust) in the hands of the Mudarib (manager), therefore if any loss occurs to the business without negligence on the part of the Mudarib, the Mudarib will not be liable for that loss. The money given by the Rabb-ul-maal (investor) and the assets required therewith are held by the Mudarib as a trust. Wakeel (Agent):

When Mudarib starts the business, he becomes an Agent of Rabbul-Mal. Therefore, all the business activities will be carried out on behalf of the principal. And if principal (Rab-ul-Mal) gives any instructions, Mudarib is bound to comply with these instructions.

Shareek (Partner): The mudarib is a partner in the business and receives a percentage of profits in accordance with the agreed upon ratio.

Dhamin (Liable): If the mudarib disobeys the instructions of the rab-ul-mal, or if the enterprise suffers a loss due to his negligence or misconduct, he is liable to compensate for the loss.

Ajeer (Employee): If the Mudarabah agreement is terminated for any reason, then the Mudarib is Ajeer. He is entitled to a fee for his services (Ujrat-e-Misl).


Modaraba companies and Modarabas are subject to the regulatory framework set out in the following laws, rules and regulations:

- Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980

- Modaraba Companies and Modaraba Rules, 1981

- Prudential Regulations for Modarabas

- Sharia Compliance and Shariah Audit Mechanism

- Code of Conduct of NBFI & Modaraba Association of Pakistan

- Fit & Proper Criteria for the sponsors, CEO, Directors and Key Executives (2008)

- Shariah Compliance and Shariah Audit Mechanism 2012

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