OLP Modaraba ('the Modaraba') was incorporated in 1987 under Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 as an Islamic Financial Institution and is listed on the Pakistan Stock Exchange.

The Modaraba was initially titled First Grindlays Modaraba and was controlled by ANZ Grindlays Bank. In 2000, Standard Chartered Bank acquired it and renamed it Standard Chartered Modaraba. The Modaraba underwent several changes, and in 2016, ORIX Leasing Pakistan, a part of ORIX Group (the Group), through OLP Financial Services Pakistan Ltd. acquired it and renamed it ORIX Modaraba. In 2021, as part of the rebranding, the Modaraba was titled OLP Modaraba.

The Modaraba primarily finances plant and machinery, motor vehicles (both commercial and private), computer equipment, and housing through Ijarah (Islamic leasing) and Diminishing Musharika. Its registered office is in Karachi, while two branch offices are loacted in Lahore and Islamabad.    

OLP Financial Services holds a ~20% stake in the Modaraba, of which ~10% is directly held, while the remaining ~10% is held through its subsidiary, i.e., OLP Services Pakistan (Pvt.) Ltd. (the Modaraba Management Company). Insurance companies hold ~12.3% stake, followed by financial institutions (~8.1%), and joint stock companies (~4.6%). The general public holds the remaining ~54.9% stake in the Modaraba.        

The Modaraba's ownership structure is marked by diversity, encompassing a broad spectrum of individuals and corporate entities as integral components of its shareholding composition.

ORIX Corporation (ORIX) was set up in Japan in 1964 as a leasing company. The scope of ORIXs business today has widened considerably from the starting point of leasing to include lending, investment, life insurance, banking, asset management, automobile, real estate, and environment and energy-related business.        

ORIX is listed on the Tokyo and New York Stock Exchanges and with six decades of operational experience, it has a total asset base of ¥ 16,917bln with an equity of ¥ 4,086bln as of Dec-24.           

The Modaraba has a seven-member Board comprising one Executive, three Non-Executive Directors, and three Independent Directors, including one female director. 

Mr. Naveed Kamran Baloch was appointed the Board's Chairman on 6-Aug-24. He brings over four decades of experience as a civil servant and has worked as a Federal Secretary, Cabinet Secretary, and Finance Secretary. Previously, Mr. Shaheen Amin chaired the Board for eight years. Mr. Ramon Alfrey, a Non-Executive Director, has more than three decades of experience in the leasing business through OLP Financial Service Pakistan Limited (OSPL). He has been associated with the Modaraba for five years. Other Board members have diverse experience to facilitate the decision and policy making process.    

The Board meets quarterly and is assisted by three committees: (i) Audit Committee, (ii) HR & Remuneration Committee, and (iii) Risk Committee to ensure rigorous monitoring of management’s policies and the entity’s operations. These committees are headed by Non-Executive Directors. The Audit Committee meets quarterly, while the HR and Risk Committees meet annually. Attendance at all Board and sub-committee meetings remains adequate, and detailed minutes have been diligently documented.

The External Auditors of the Modaraba, M/S. A.F. Fergusons & Co. issued an unqualified audit opinion on annual financial statements for FY24. However, during FY25, the Modaraba appointed M/S KPMG Taseer Hadi & Co. as external auditors. Both firms are QCR rated and in category 'A' of SBPs panel.

The Modarba has a well-established organizational structure. The Modaraba operates through Human Resources, Information Technology, Operations, Client Relationships, Credit Risk Control, and Internal Audit. All heads of departments, except Internal Audit, report to the CEO, who then reports to the BoD. However, the head of Internal Audit reports to the BoD through the Audit Committee. 

The CEO, Mr. Raheel Qamar Ahmad, possesses over three decades of corporate and investment banking experience. He has served as Chairman of the NBFI and Modaraba Association of Pakistan and the Vice President of the Asian Financial Services Association. Mr. Muhammad Siddiqui holds the position of CFO and has two decades of overall experience in various financial institutions and audit firms. He is assisted by a team of experienced professionals.

There are five committees at the management level: i) Management Committee (MANCOM), ii) Asset and Liability Committee (ALCO), iii) Country's Operational Risk Committee (CORC), iv) IT Steering Committee (ITSC) and Principal's Committee. The CEO chairs all the management committees and includes senior staff members. The Management Committee comprises seven (7) senior members and the managing director, who meet and discuss major business plans, issues, and progress updates of their respective functions. The major matters are then submitted to the Board for consideration and approval.

The Modaraba has implemented several policies and procedures, such as IT Security Policy and Business Continuity & and Disaster Recovery Plan, to mitigate the risks associated with the increasing use of information technology.

The Modaraba manages and monitors risk exposure very prudently. Extensive Credit & Due Diligence (decision-making related) reviews are carried out, both when booking a new client and at every annual review of all relationships.

NBFCs have emerged as an alternative to the conventional banking system, catering Infrastructure & SMEs, etc., sectors operating in the economy. Despite improving the country's financial inclusion, NBFCs have limited outreach. NBFCs have witnessed ~34.5% YoY growth in total assets from ~ PKR 2,563bln in 6MFY23 to ~ PKR 3,447bln in 6MFY24. NBFCs raise funds mostly from mobilizing deposits. Given the rate sensitivity and asset-liability mismatch, it becomes difficult to price and tenor term loans. Moreover, the requirement for Modarabas to distribute ~90% of annual net profits to claim tax exemption, restricts equity build-up. Overall, the sector holds ample room to grow, and thus, the outlook remains stable.

In terms of equity base, the Modaraba holds a prominent position in the industry (3MFY25: ~PKR 1.19bln, 3MFY24: ~PKR 1.13bln).

The Modaraba's topline primarily comprises Diminishing Musharika (~55%) and Ijarah Rentals (~40%). The topline grew by ~11.3%, reported at PKR 2,111mln during FY24 (FY23: ~PKR 1,897mln). From Diminshing Musharika, the topline witnessed a substantial increase of ~37.6%, reported at ~PKR1.1bln (FY23: ~PKR 831mln), while profit from banks improved by ~62%, reported at ~PKR 99mln (FY23: ~PKR 61mln). However, income from Ijarah rentals declined by ~14%, reported at ~PKR 837mln during FY24 (FY23: ~PKR 976mln). The improvement in the topline was preliminarily attributed to the increase in the benchmark rate, as the whole portfolio of the Modaraba is on a floating rate basis. However, during 3MFY25, the top line of the Modaraba declined to ~PKR 526mln (3MFY24: ~PKR 527mln) due to a decrease in benchmark rates. Going forward, to sustain its topline, the Modaraba will need to actively manage its portfolio due to an incremental decrease in benchmark rates. 

During FY24, a significant spike in benchmark rates resulted in higher finance costs of ~PKR 1.1blnln (FY23: ~PKR 826mln). However, non-markup expenses decreased to ~PKR 815mln during FY24 (FY23: ~PKR 934mln). The Modaraba achieved a PAT of ~PKR 158mln (FY23: ~PKR 129mln). During 3MFY25, the PAT of the Modaraba declined to ~33mln (3MFY24: ~PKR 40mln) due to increased markup expenses. The Modaraba will need to manage its funding to reduce its finance costs and, consequently, increase profitability going forward.          

The Modaraba intends to continue its cautious approach while targeting quality customers. The management is exploring various business strategies to enhance the standalone profitability of the Modaraba prospectively. 

The debt-to-equity ratio increased to ~4.4x as of FY24 (FY23: ~3.9x) due to an increase in total funding by ~17.4%, indicating that the Modaraba's liabilities continue to surpass its equity. Additionally, the ratio of advances to funding increased to ~110.5% in FY24 (FY23:~116.9%). The Modaraba debt-to-equity ratio stood at ~5.2x during 3MFY25 (3MFY24: ~3.9x), whereas the ratio of advances to funding declined to ~102.7% (3MFY24: ~116.4%), implying that borrowings continue to surpass advances.       

The Modaraba focuses primarily on the core financing business and has adopted appropriate policies to minimize its exposure to market risk. Moreover, ALCO and the Group treasury use different parameters to monitor the market risk performance of the Modaraba’s funding base.

Total funding of the Modaraba stood at ~PKR 5.9bln as of FY24 (FY23: ~PKR 5bln). As of 3MFY25, total funding stood at ~PKR 6.6bln (3MFY24: ~PKR 4.9bln). The Modaraba's bank borrowings are well diversified through different banking channels. The liquidity position of the Modaraba witnessed a dip; the Liquid Assets/Total Funding ratio stood at ~5.6% in FY24 (FY23: ~7.9%) due to a decrease in liquid assets reported at ~PKR 330mln (FY23: 400mln)  As of 3MFY25, the Liquid Assets / Funding ratio stood at ~13.7% (3MFY24: ~7%) due to uptick in liquid assets, reported at ~PKR 899mln (3MFY25: ~PKR 345mln).

As of FY24, the reported equity of the Modaraba stood at ~PKR 1.24bln (FY23: ~PKR 1.17bln), an uptick due to an increase in profit accumulation. CAR of the Modaraba stood at 16.1% (FY23: 17.2%), a decline due to growth in total assets by ~13.4%, reported at ~PKR 7.7bln (FY23: ~PKR 6.8bln). As of 3MFY25, the equity stood at ~PKR 1.19bln (3MFY24: ~PKR 1.13bln), resulting from increased profit accumulation. CAR of the Modatraba has decreased to ~14.2% (3MFY24: ~16.7%) due to an increase in total assets by ~24%, reported at ~PKR 8.3bln (3MFY24: ~PKR 6.7bln), portraying the Modaraba’s moderate position, should adverse circumstances arise.