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Presented at Synergies Business Plan Competition 2009. Contact for detailed report or discussion at jawadiqbalkhan86@yahoo.com

Presented at Synergies Business Plan Competition 2009. Contact for detailed report or discussion at jawadiqbalkhan86@yahoo.com

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Kissan Commodity Mutual Fund Kissan Commodity Mutual Fund Document Transcript

  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 KISSAN March 29 COMMODITY MUTUAL FUND 2009 Industry: Agriculture, Mutual Funds, Islamic Finance Contact: Muhammad Jawad Iqbal (jawadiqbalkhan86@yahoo.com, 03335374350) i
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Executive Summary Overview: Agriculture is contributes up to 24 i percent of the GDP, largest source of foreign exchange and employer of country. The agricultural sector is always cash strapped. Farmers tend to cultivate crops which give them steady and high returns; otherwise they hoard the crop or shift to other crops, result ing in demand supply gap in the economy. The Islamic Finance industry is growing at a rapid pace, increasing its share to 4.3 percent (2008) of banking sector from 0.5 percent (2003) ii . According to survey iii , 70 percent of the agricultural financing requirements are met by informal channels, charging high interest rates.80 percent of the farmers participate in this informal financial channel. 90 percent of the farmers can save up to 25 percent of the cost, if they are able to purchase the inputs on cash payment. 47 percent claim that they take funds from the middle man and only 10 percent take loan from the banks. These generic problems of the agriculture industry create opportunity for the establishment of a commodity mutual fund which is based on the Shariah principles. Solution: KISSAN Commodity Mutual Fund will operate through the Salam Contract (commodities), Ijarah contract (Agriculture Machinery), Takaful contract (Crop and Machinery Insurance) and Mudarabah Contract (between unit holders and mutual fund). The purpose of the mutual fund will be investment in the commodities by purchasing the crops through Salam contract and leasing the equipment on Ijarah basis. The farmers will get price for their crops before they cultivate .The fund will sell the crops as the season and demand arrives. No mutual fund is directly investing in the commodity sector, but different banks provide agricultural financing in accordance with the State Bank Guidelines. The marketing strategy will be differentiation and the growth strategy will be backward integration in the supply chain. Revenue Generation: The revenue will be generated from the sale of commodities and Ijarah rentals. The revenue will be passed on to the investors, after deducting the Mudarib expenses. Critical Success Factors: The critical success factors include the pricing of the commodities, human resource training for establishment of fund and management, crop specialists and support of government towards the agriculture sector and weather and water conditions. Conclusion: KISSAN Commodity Mutual Fund is ready to tap into the agriculture sector of Pakistan and earn a Shariah compliant Halal return for its investors and supporting the economy of a Pakistan through community farming, financing the gap of farmers needs and helping them to generate an above average yield on their lands through focused investment policies and market research. i
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Contents Environment (PESTLE) Analysis............................................................................................................1 Political..........................................................................................................................................1 Economic .......................................................................................................................................1 Social.............................................................................................................................................1 Technological .................................................................................................................................2 Environmental ................................................................................................................................2 Legal..............................................................................................................................................3 The Agriculture Industry .....................................................................................................................3 Market Size ....................................................................................................................................3 Why Islamic fund in Particular: .......................................................................................................4 Competitors .......................................................................................................................................5 Porter’s Five Forces ........................................................................................................................6 Company Overview ............................................................................................................................7 Fund ..............................................................................................................................................7 Mission ..........................................................................................................................................7 Management Company....................................................................................................................8 Trustee...........................................................................................................................................8 Fund Type ......................................................................................................................................8 Board of Directors ..........................................................................................................................8 Shariah Board .................................................................................................................................9 Auditors .........................................................................................................................................9 SWOT Analysis................................................................................................................................9 Business Model ................................................................................................................................11 ii
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Investment Objective .................................................................................................................11 Investment Strategy ...................................................................................................................12 Implementation of Investment Strategy .......................................................................................12 Operational Model ........................................................................................................................13 Mudarabah Contract ..................................................................................................................13 Salam Contract..........................................................................................................................14 Ijarah Contract ..........................................................................................................................14 Takaful Contract .......................................................................................................................14 Marketing Plan .................................................................................................................................14 The Product..................................................................................................................................14 Target Market and Segmentation ...................................................................................................15 The Business and Marketing Strategy .........................................................................................15 Distribution Strategy..................................................................................................................15 Promotional Strategy .................................................................................................................16 Financial Feasibility, Capital Requirement and Timelines ...................................................................16 Fund Size .....................................................................................................................................17 Benchmark ...................................................................................................................................17 Sponsor’s Ownership ....................................................................................................................17 Fund Allocation Strategy ...............................................................................................................17 Projected Return ...........................................................................................................................18 Machinery Allocation....................................................................................................................18 Projected Financial Statements ......................................................................................................19 Projected Income Statement .......................................................................................................19 Projected Balance Sheet.............................................................................................................19 Projected Cash Flow Statement .....................................................................................................20 iii
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Conclusion .......................................................................................................................................21 Appendix .........................................................................................................................................22 Management Team .......................................................................................................................22 Shriah Advisors List......................................................................................................................28 Duties and Responsibilities of Shariah Advisory Board ...................................................................29 Responsibilities of KISSAN Asset Management Company ..............................................................30 Who Can Apply? ..........................................................................................................................32 Organizational Chart .....................................................................................................................33 Operational Model ........................................................................................................................35 Monthly Whole Sale Prices of Wheat.............................................................................................37 Monthly Whole Sale Prices of Rice Basmati...................................................................................38 Competition .................................................................................................................................39 UBL Farm Loans.........................................................................................................................39 Askari KISSAN Agriculture Finance Program ................................................................................41 iv
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Environment (PESTLE) Analysis Political The political environment of Pakistan is in a state of flux after the General elections 2008. All the sectors of economy are neglected, except agriculture which received substantial consideration through higher support prices for crops, subsidies in the form of electricity rates for the farmers and government policy to support small farmers. The government is trying to control the food prices and bring down the core inflation through its fiscal policy aided with monetary policy. The tax rates for imported goods have been increased to a great extent to reduce the trade deficit. Agriculture, which employees 66 iv percent of the workforce, will benefit from the attention of government and high commodity prices. Economic The economic condition of the country worsened in the end of 2008, forcing the government to take loan from International Monetary Fund and assistance from donor agencies and friend countries. These loans forced the government to adopt strict measures to reduce the trade deficit, control the government borrowing from State Bank of Pakistan, focus on reducing the inflation and strengthening the currency value. The result of these steps, despite the political turmoil and security situation in the country, the results of these steps have started to show a sign of improvement as the government borrowing is reduced and trade deficit is on decline as well. The State Bank and Government are promoting group financing for the farmers, which is supportive for agriculture sector development. Social The social issues which the Pakistani agriculture sector is facing are as follows: A deficiency in the education and independence of the rural areas due to feudalism. The inability of government to implement necessary land reform to promote the necessary social aspects like education for all in areas like interior Sindh, Balochistan, FATA and southern Punjab. 1
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 In addition to this, Pakistan is facing a water shortage issues and the per capita water availability is declining in Pakistan over the time due to the collective impact of the rising population, declining water flows and erosion in the storage capacity v . Technological Many Pakistani agriculture scientists are working very hard in order to introduce new technologies and strategies in trying to minimize the effects of various scarce resources. The technologies being introduced in the agriculture sector are as follows: Zero Technologyvi Field crops foliar feeding technology Parachute Technologyvii Sprinkler irrigation systems Laser technology and irrigation Trickle irrigation efficiencyviii GPS guided Tractors Bio Technology Seed production technology Organic Farming Hence one can easily judge that Pakistan is working towards the attainment of new technology which will help Pakistan in achieving favorable results and outputs in the agricult ure sector. Environmental The bio technology which is currently being used in the agriculture sector provides both pros and cons to the environment. These will be discussed as follows: Pros: pesticide poisoning each year according Crops Protected Against Insect Damage to World Health Organization (WHO). Herbicide Tolerance for Innovative In the workplace like agricultural fields, Farming about 400,000 worked-related deaths are Water Quality Protection annually documented in developing Protection Against Plant Diseases countries. Cons: About 25 million agricultural workers in developing countries suffer from 2
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Legal The legal environment of Pakistan is established for Non Banking Finance Companies, regulated through Security and Exchange Commission of Pakistan. Regulations for establishment and registration of the mutual funds are clear and equity requirements for licenses have been increased to make the sector shock resistant. The listing regulations for the mutual funds are also established, so the legal environment will support the establishment of mutual fund. As no Salam contracts market is established, therefore KISSAN mutual fund will have to work in this regard especially. The Agriculture Industry The agriculture has been facing sensitive irrigation water shortages and the water intensive crops sugarcane and maize fell short of the target and showed negative growth of 18.5% and 7.5% in 2008‐09. Nevertheless, other two major crops cotton and rice have recorded positive growth of 7.3 % and 13.5 %, respectively. Wheat with its 12.7% weight in overall agriculture is estimated to post 15.7% per growth over the last year. Fertilizer off‐take (both Urea and DAP) decreased by almost 6% during July‐December 2008 amid weak demand due to higher prices and vague market signals. The disbursement of the agricultural credit is up by 10.2% in July‐December 2008. Recently, Investors, institutions and entrepreneurs gathered at the first Middle East-Pakistan Agriculture and Dairy Investment Forum and pledged over US$3 billion in new investments to Pakistan's agriculture and dairy sectors ix . Saudi Arabia's Al Rabie group has expressed interest in sourcing tomato paste, citrus pulp, and packed beans from Pakistan. Hence the Pakistani agriculture market has a lot of potential and opportunities to expand and come into business with different countries which can take advantage of the countries agricultural sector. Market Size According to Dr Ahmad Kaleemx , Islamic banks are planning to capture 10 per cent of the total financial market in the next three years and this target may not be met without agriculture financing. 3
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Agriculture credit through formal channels caters to a small number of farmers against the potential rural clients estimated at 5.44 million. According to Economic Survey of Pakistan (2005) 65.9 per cent of the total population lives in rural areas and 44.8 per cent of the total labor force is directly employed in agriculture. The survey further shows that, 64.5 per cent families belong to categories where one and two members are full- time engaged in agriculture. Farm income on an average represents 65 per cent of total family income. Only 10.1 per cent families are fully dependent upon agriculture income. Agriculture is highly cash-strapped sector. Cash purchase and sales represent 10.7 per cent and 8.4 per cent of total transactions. Around 80 per cent farmers participate in the credit market. The State Bank report on rural financing (2002) admitted that 70 per cent of the agriculture credit requirements are met by informal credit providers who charge high interest rates. Over the last one decade, agriculture grew at an annual average rate of 4.5 per cent. This low growth rate is attributed to poor weather conditions and pest attack on crops. Agriculture has also been suffering from various problems. Such as traditional methods of farming, low yields, shortage of key inputs (credit, fertilizer, improved seed), adulterated pesticides, improper plant protection measures etc. All these factors in turn stem from lack of funds and technical know how. About 81 per cent farmers being small are not in a position to remove all these constraints because of lack of funds. xi Why Islamic fund in Particular: According to the former governor State Bank of Pakistan Dr Shamshad Akhtar, the growth in Islamic Financial Industry IFI, has been remarkable and within three years IBs accounts for 2.9% of the local market share. Excluding Meezan Bank, most of the IBs have only been licensed in 2006. Based on regional experience it takes lead time to nurture this industry. The capital to risk- weighted ratio has invariably remained significantly above the 8 percent required level, and NPLs ratios have been considerably low. In tandem with the banking sector, non bank financial sector is now emerging with full force. Growth of IsMFs is significant. Since 2003, five Islamic funds have been launched in Pakistan with two funds launched in Ja nuary 2007. The investments of any Islamic fund are screened for Shariah Compliance based on the criteria approved by the Shariah Advisory Council. The net assets of IsMFs were close to Rs6 billion as of 31 December 4
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 2006 albeit the average return for the year 2006 was 1.1%, as compared to the return of 5.06% on Karachi Stock Exchange (KSE). xii Competitors KISSAN Commodity Mutual Fund is a first type commodity mutual fund in Pakistan; therefore it has to compete directly with the conventional financing institutions and individuals in the market. As most of the competitors demand collateral and only give loans, KISSAN Mutual Fund enjoys unique position of participating in the business of the customers (farmers) by providing them with financing and equipment at their door steps without any collateral. Only the commodity is bought in advance under a single side promise of the farmer of selling the commodity towards the KISSAN Mutual Fund. Competitors for KISSAN Commodity Mutual Fund S.No Company Product Rate of Cost of Competition Collateral Return Funding Type Requirements 1 Zarai Tariqiati ZTBL Farm Loans, 9-11 5-6 Direct Yes Bank Limited ZTBL agriculture percent percent financing 2 United Bank UBL Farm Loans 16-18 5-6 Direct Yes Limited percent percent 3 Askari Bank Askari Bank 16-18 8-9 Direct Yes Limited KISSAN Financing percent percent Program 4 Local Money Local Financing 40-60 2-3 Direct No Lenders percent percent (Zamindar) The average WACC for the Pakistani Commercial banks xiii is 5.6 percent for 2007-2008. This is higher than 2003 (4.5%) as the discount rate and KIBOR rates are on high levels due to State Bank strict monetary policy. Thus, by providing pass through return of 11-12 percent to the investors in commodities will be an attractive option for the banks as well as public investors. 5
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Porter’s Five Forces Threat of Substitute (Medium) The threat of substitute is medium. Conventional Financing Institutions provide agriculture financing but they do not participate in the risk of loss with the farme rs. The investors cannot invest in commodities directly in Pakistan; presently as no such option is available. Thus, varied substitutes for farmers are available with requirements of collateral. Threat of New Entrant (High) The threat of new entrant is high as KISSAN Commodity Mutual Fund will open up the way for others to invest in commodities directly or indirectly. The first mover advantage for the fund will be valuable in terms of market understanding and development but it will not act as a barrier to entry for other competitors. The barriers to entry in Islamic Finance and Commodities investment are negligible, thus increasing the chances for follow up competitors to jump in the market. Bargaining Powe r of Suppliers (low) The bargaining power of suppliers is low as Seeds and Fertilizers are available and also produced in large quantity to full fill the need of farmers across the country. The machinery required by the fund is available through dealerships of the manufacturers across the country. Thus, s upplies are easily available, except for water in some areas which are rain dependant. Bargaining powe r of Buyers (low) The bargaining power of the buyers’ i.e. Farmers is low as they are cash strapped and require financing to grow crops. The investors in the fund have excess liquidity due to lack of financial assets in Islamic Industry, as well as commodities serve as a hedge against inflation which is not provided extensively in the country. Rivalry amongst Existing Players (Low) The biggest player in the industry of agriculture financing is Zarai Taraqiati Bank Limited (ZTBL), but the credit requirements of the agriculture sector are so vast that no one player can 6
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 individually finance all the customers. Thus, every player targets its own market and only funds the farmers who can provide collateral, who are generally landlords instead of the small farmers without collateral and cannot gain loans from the financial institutions. Thus, the rivalry among the existing players is extremely low. Company Overview Fund The fund will be established as KISSAN Commodity Mutual Fund through a Trust Deed under the Trusts Act 1882, entered into between KISSAN Commodity Mutual Fund, the KISSAN Asset Management Company and Central Depository Company of Pakistan Limited, the Trustee and is authorized under the Non- Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the Rules). Sponsors of the Fund Trus tees/Cus todians of the Fund Asset Mana gement Company Distributors/Agents Bankers Registrar and Transfer Agent The registered office of the management company will be situated at Techno City Corporate Tower, Hasrat Mohani Road, Karachi. Mission The mission of the company is as follows “To cater and serve the need of the farmer through a Shariah compliant investment” 7
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Management Company The Management Company will be KISSAN Asset Management Company Limited as a Non- Banking Finance Company incorporated under the Companies Ordinance 1984, and licensed by the SECP to undertake asset management and leasing business. Trustee Central Depository Company Pakistan Limited will act as the trustee of the KISSAN Commodity Mutual Fund. Fund Type The fund is an open ended mutual fund and offers units for public subscription on a continuous basis. The units are transferable and can also be redeemed by surrendering to the fund. The units will be listed on the Karachi Stock Exchange. The Management Company may issue the following types of Units:- Restricted Units to Core Investors (seed capital investors) without Sales Load. The restricted Units cannot be redeemed for a period of two (2) years from the date of the closure of the Initial Period of Offer. However, Core Units are transferable with the same condition. Type A Units offered during the private placement and Initial Period of Offer with no load. Type B Units offered after the IPO period at a front end load of 1 percent. Board of Directors 1. Muhammad Jawad Iqbal 6. Shoaib Qureshi (Independent Director) 2. Aliya Usmani 7. Sponsor 1 (Vacant) 3. Zara Malik 8. Sponsor 2 (Vacant) 4. Urfa Niazi 9. Sponsor 3 (Vacant) 5. Sohaib Anwar Raza 8
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Shariah Board The Shariah Board will consist of renowned Shariah Scholars, already serving as Shariah Advisors for the Islamic Banks in Pakistan. The list of Shariah Advisor is in the Appendix. The duties of Shariah Board are listed in the Appendix. Auditors The auditors of the company are selected based on their experience of auditing Islamic Mutual Funds in Pakistan. The fund will have following two companies as its Auditors KPMG Taseer Hadi & Co A.F.Ferguson & Co Presently both companies are serving as Auditors of Meezan Asset Management Company as well. SWOT Analysis Strengths The following strengths have been identified  No requirement of collateral, as the commodity under Salam Contract acts as the guarantee.  The basic strength is that as of yet no mutual fund is directly investing in the commodity sector, which makes KISSAN Mutual Fund the only one of its kind.  This fund is the only commodity fund based on Islamic principles that guarantees a Shariah Compliant return. Thus it is a perfect investment opportunity for those investors who are looking for interest free return as well as investors who are willing to invest in commodities without shariah compliance issue.  The fund offers a variety of financial services such as Modaraba, Takaful, Salaam and Ijarah, thus there are multiple sources of revenue.  The trained workforce employed by the Mutual Fund is also its strength. These include crop specialists and risk analysts.  Though stocks and bonds typically perform poorly during times of inflation, commodities tend to perform well because they are closely linked to rising prices in essential goods. Looking back at inflation and the performance of stocks, bonds, and commodities from 1990–2007, stocks and bonds have generally moved in the opposite direction from inflation while commodities moved in the same direction. As a result, investors use 9
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 commodities as part of an inflation hedging. Since Pakistan has a high inflation rate, investing in commodities is a good option for investors. Weakness  The basic weakness is a lack of resources for establishing the fund in the first p lace. The process of establishing a mutual fund in the market is a complex and lengthy one and has to adhere to many regulations from the SBP.  Since the fund deals in commodities, the nature of the product is such that is highly dependant upon weather and natural conditions. Any adverse conditions can lead to lower returns in that time period.  Since this is the first commodity mutual fund to be established in Pakistan, there are no prior return risk values available that can be used as a benchmark.  Similarly, being the first such fund to be established, it may be difficult for investors to understand and recognize all the risks involved in dealing in commodities.  Since it will be a new fund in the market, it may be difficult to direct customers away from the already established commercial banks which offer similar services. Opportunities  There is a large target market for the fund to operate in. 70 percent of the agricultural financing requirements are met by informal channels which charge abnormal interest rates due to inability of the farmers to get collateralized loans.  The generic problems in the agriculture industry opens up room for the establishment of a commodity mutual fund which is based on the Shariah principles. As mentioned before, about 70% of the financing needs are fulfilled by farmers through informal channels due to lack of collateral, thus a vast opportunity exists to tap this market.  Although the agricultural sector is facing many problems due to lack of resources, still the crop sector is projected to surpass the growth target and the disbursement of the agricultural credit is up by 10.2% in July‐December 2008.  There are signs and different agreements to build linkages between the agricultural sectors of Australia and Pakistan, and further foreign market opportunities may exist. Countries such as the UK and Saudi Arabia have pledged to invest in the agricultural sector in Pakistan in the coming years, thus we can expect the market to grow. Threats 10
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009  The foremost threat would be of new entrants. As of yet there is no other commodity fund in the market but there is always a threat of followers which increases the competition for us.  Another threat would be due to the competition from commercial banks which provide loans to farmers for a variety of purposes and thus operate in the same market as this fund.  Weather conditions cannot be controlled and this is major threat for the operation of the fund. Since only agricultural products are being dealt in, adverse weather and natural conditions may become a cause for underperformance.  Unstable political conditions in the country are also a threat as it lowers investor confidence and affects the market conditions in the country. The chances of the military taking over again are there and there is a constant threat of political break down in the recent days.  Economic conditions are also a potential threat due to the rising inflation and food prices as well as the unstable stock market.  Any changes in the SBP regulations relating to the agricultural sector will directly affect the fund.  Since the agricultural sector is a government supported sector, there are many subsidies and loans provided to farmers by the government. This is also a potential competition and thus a threat.  Other issues facing Pakistan’s agricultural sector include a lack of adequate irrigation and infrastructure. Business Model Investment Objective KISSAN Commodity Mutual Fund is an open ended mutual fund which provides investors with medium term investment opportunity in commodities and agriculture related equipment based on principles of Islamic Finance. The fund will be adhering to the regulations issued by Security and Exchange Commission of Pakistan and its investment policy will follow Corporate Agriculture Farming (CAF) Policy xiv . 11
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Investment Strategy The fund will aim to achieve the investment objective by investing up to 100 percent in commodities in Pakistan and/or up to 100 percent agriculture related machinery and equipment according to the market conditions. Implementation of Investment Strategy The fund seeks to achieve its investment objective by investing primarily in commodities by engaging in Salam and parallel Salam. The commodities selected for first five years are Rice Wheat The fund’s other investment strategies include leasing equipment to the farmers on Ijarah basis, providing insurance to the farmers on the equipment as well as crops on Takaful basis. The equipment selected for leasing for first five years is Tractors (Low Horsepower 100-120 HP) Harvesters (Used in connection with Tractors) Client and Customer The investors who invest in the mutual fund by purchasing units are our clients and farmers who would be selling us the crops in advance are our customers. The money would be made by selling the crops further to the factories. The investors, farmers and the fund management company will enjoy a cyclical relationship. The prospect clients who can invest in our fund are listed in Appendix (Who Can Apply?). The Clients profile is as following Individual Clients Institutional Investor  A Pakistani National  AA rated financial having net worth more institution, operational for than Rs.1 Million. more than 5 years  Annual Income exceeds  Investment horizon of 10 Rs.700, 000. years The Farmers profile is as following A medium sized farmer owning 15-30 Acres of Land. 12
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Experience of using modern technology and per acre yield is above national average for the respective year. The complete detail of how the fund will work is explained further in the operational structure of the mutual fund. Fund Size and Investment The fund size would be 3.5 billion Rupees xv . The minimum investment size should be Rs. 25000 and minimum subsequent investment would be of Rs. 10,000. Fund Management The fund will be managed by KISSAN Asset Management Company which will charge 3 percent Mudarib fees annually. Unit holders Unit holders are our clients which will comprise of the general public. Everyone will be allowed to invest in these funds. The unit holders will be aware of the further investments which the fund manager will make. Investment could be in two types of units; • Type A Units offered during the private placement and Initial Period of Offer with no load. • Type B Units offered after the IPO period at a front end load of 1 percent. Operational Model KISSAN mutual fund will operate through four contracts which will reduce the generic problems of the agricultural industry; 1. Mudarabah Contract 3. Ijarah Contract 2. Salam Contract 4. Takaful Contract (The Yearly Operations Diagram and Legal Structure are given in Appendix under Operational Model). Mudarabah Contract Mudarabah contract will exist between the unit holders and the mutual fund. The fund will use the money to invest in the agriculture business. We fund managers (Mudarib) will charge a management fee as commission. A certain percentage of the profits would be agreed upon which the profit distribution would occur. Reserve account for premature encashment would also be 13
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 established in case of premature withdrawal of funds by any of the unit holders to avoid any possible losses. Salam Contract This fund will mainly operate on Salam contracts for the commodities. The money from the fund will be used to buy the crops which are at the time of seeding which in turn would enable the farmers to have cash on hand. Farmers will have money to grow their crops in a Shariah compliant manner. It will be beneficial for the mutual fund because the price charged in Salam contract is less than the spot sales. The institution can sell the commodities by engaging in the parallel Salam contract with different factories and manufacturers for the same date of delivery or selling the crop in open market. Ijarah Contract Equipment will be leased to the farmers on the basis of Ijarah. The institution will buy equipment and make it available for use to the farmers for a specific period and price. Farmers can also buy the equipment at the end of lease period; the rental payments paid would become part of the purchase price. Takaful Contract Takaful contract will exist to provide insurance services for the machinery for the time being. The crops are not insured as Crop Takaful is not available in Pakistan presently xvi; therefore machinery will be insured through Takaful contract with Takaful Pakistan Limited. Marketing Plan The Product The product is a mutual fund that operates on an Islamic Finance basis. The fund is organized for the commodity market and its purpose is to facilitate farmers with their capital and machinery requirements. The fund obtains capital from shareholders on a Mudarabah basis, and then those funds are utilized to buy crops from the farmers on a Salam basis. The fund also specializes in providing farming equipment such as harvesters and tractors to the farmers on an Ijarah basis (Islamic Leasing). The main aim of this fund is to provide support to the local farmers who are in 14
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 need of financing on Islamic basis. The return to shareholders is the actual profit or loss that is incurred by the fund when it sells the crops in the market, on a parallel Salam basis. The second source of profit is the rental payments that are made by farmers on an Ijarah basis. The fund also maintains a reserve account for premature encashment. Target Market and Segmentation The main target market is obviously the farmers who are in need of funds for their farming needs. The fund provides them an opportunity to obtain cash before and they do not have to wait until their crop is harvested and sold in the market. The secondary market is of those investors who wish to invest in Islamic funds and earn an Islamic source of income. The market is segmented on the basis of product use as following: Farmers who require funding for their crops Farmers who require farm equipment on a leasing basis Investors who wish to invest in Islamic funds Geographically, the market is segmented through the provincial capitals and agricultural hub cities. The Business and Marketing Strategy The marketing strategy will be differentiation and the growth strategy will be backward integration in the supply chain. The loans to the farmers will be extended according to the crop calendar as developed in the operational model and will be released according to the Kharif and Rabi harvest periods in four periodic payments. The crops will be limited in initial pha se to Rice Kharif Season and Wheat in Rabi Season. Distribution Strategy The channel of distribution would be exclusive, only specially selected resellers or authorized dealers. Investors can carry out the transactions directly by coming to the customer services center or through mail, telephone or internet. But since our clients would be farmers they would be more comfortable in monitoring their fund through the customer services center. 15
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Promotional Strategy The main promotions will be done through Television ads, Newspapers and magazines, and the Internet. Adve rtising: A mix of both Above the Line and Below the Line mediums. BTL advertising would be used for one of the target group which is limited and specific i.e. the farmers. This includes door to door selling; the company will organize a team which will inform the farmers about their options and the benefits they can gain since the farmers of our country are generally educated therefore this from of advertising has a better chance of reaching them. Above the line strategy is basically used to appeal to the masses and this strategy is also necessary to attract investors. This would include television and newspaper advertisements and a website in the future if needed. Television Ads: PTV and Geo News Newspapers: The News and Jang, Business Recorde r Financial Feasibility, Capital Requirement and Timelines The requirements for the Kissan Commodity Mutual Fund are as following Minimum Equity Requirements Rs Leasing 700,000,000.00 Asset Management Company 200,000,000.00 Asset Management Company Registration Fee 1,000,000.00 License Subscription Fee 250,000.00 per type of license Renewal Fee 250,000.00 Monitoring Fee 250,000.00 Annual SECP fee 0.00 Annual NAV Auditor's Fee 428,000.00 Shariah Advisor Fee 250,000.00 Remuneration of Trustee (CDC) 1,688,000.00 Floatation Costs 1.00% Pre IPO Investment The regulatory requirements are as per Non Banking Finance Companies Rules and Regulations, 2003 as issued by Security and Exchange Commission of Pakistan. These requirements make it 16
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 tough for the formation of Mutual Fund as the Minimum Equity Requirement for Leasing Operations and Asset Management Company are Rs.700 and Rs.200 Million respectively. The providing parties for such investment are spo nsors of the company. This equity base can be use in the operations of the fund, but it cannot be removed from the fund for a period of 5 years. Fund Size The fund size is estimated at Rs. 3.5 Billion based upon the formula Fund Size= 1 percent of Monetary Value of Wheat Production Estimate (Three Years Average) It is expected to grow at 10 percent per annum. Benchmark The benchmark of the KISSAN Commodity Mutual Fund will be as following Benchmark=50 Percent Islamic Banks 1 Year Term Deposit+ 30 Percent Dow Jones Islamic Index+ 20 % Down Jones AIG Commodity Index Sponsor’s Ownership Therefore, for the investment in this business, the sponsors should contribute Rs.900 Million at minimum. Rest of the investment will be generated through Initial Public Offering and Private Placement of the fund. Thus, the sponsors will have an initial investment of 26 percent of the fund size. The fund will grow at 10 percent per annum (as per our pessimistic estimates), thus diluting the size of equity of sponsors in the future years. Ownership Dilution in 5 years Year 1 Year 2 Year 3 Year 4 Year 5 Total Fund Size 3,500,000,000.00 3850000000 4235000000 4658500000 5124350000 Sponsors 900,000,000 900,000,000 900,000,000 900,000,000 900,000,000 26% 23% 21% 19% 18% Fund Allocation Strategy The fund will invest primarily in two broad categories Commodities (60 percent) 17
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 o Rice o Wheat Agriculture Machinery (30 Percent) The remaining 10 percent will be allocated to cash and bank balances to support working capital requirements, unit redemptions and cash requirements. Based on the weights assigned to each category, the break up of fund for the next five year is forecasted as following Fund Distribution Forecast @ 10 percent growth rate per annum Fund Allocation Return Year 1 Year 2 Year 3 Year 4 Year 5 Allocation Wheat 30% 15% 1,050,000,000 1,155,000,000 1,270,500,000 1,397,550,000 1,537,305,000 Rice 30% 20% 1,050,000,000 1,155,000,000 1,270,500,000 1,397,550,000 1,537,305,000 Machinery 30% 17% 1,050,000,000 1,155,000,000 1,270,500,000 1,397,550,000 1,537,305,000 Cash and 10% 6% Bank 350,000,000 385,000,000 423,500,000 465,850,000 512,435,000 Balances 100 16.05% 3,500,000,000 3,850,000,000 4,235,000,000 4,658,500,000 5,124,350,000 Projected Return The return is net of the Mudarib fees at 3 percent. The projected Return of the fund is as following Year Year 1 Year 2 Year 3 Year 4 Year 5 Return 12.28% 12.44% 12.58% 12.71% 12.83% Machinery Allocation The first year investment in the machinery will be as following Investment Breakup for Machinery for Year 1 Machinery Cost Weight Number Tractors 500000 60% 1260 Harvesters 225000 40% 622 18
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Projected Financial Statements Projected Income Statement Income Statement Year 1 Year 2 Year 3 Year 4 Year 5 Income from Operations 561,750,000 617,925,000 679,717,500 747,689,250 822,458,175 Less: Remuneration to KISSAN Asset 16,852,500 18,537,750 20,391,525 22,430,678 24,673,745 Management Company Remuneration to Trustee-Central 1,688,000 1,856,800 2,042,480 2,246,728 2,471,401 Depository Company of Pakistan Depreciation 52,500,000 52,500,000 52,500,000 52,500,000 52,500,000 Annual Fee to Security and 500,000 500,000 500,000 500,000 500,000 Exchange Commission of Pakistan Remuneration to Shariah Advisor 250,000 275,000 302,500 332,750 366,025 Remuneration to Auditor 428,000 428,000 428,000 428,000 428,000 Subscription Fees Amortization of Preliminary 7,250,000 7,250,000 7,250,000 7,250,000 7,250,000 Expenses and Floatation Costs Legal and Professional Charges Takaful Contribution 52,500,000 57,750,000 63,525,000 69,877,500 76,865,250 Other Expenses Total Expenses 131,968,500 139,097,550 146,939,505 155,565,656 165,054,421 Net Income 429,781,500 478,827,450 532,777,995 592,123,594 657,403,754 Less: Distribution of Income for the year 429,781,500 478,827,450 532,777,995 592,123,594 657,403,754 Projected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5 Balance Sheet Balance with Banks 350,000,000 385,000,000 423,500,000 465,850,000 512,435,000 Investments (Salam Contracts) 2,100,000,000 2,310,000,000 2,541,000,000 2,795,100,000 3,074,610,000 Preliminary Expenses & 29,000,000 21,750,000 14,500,000 7,250,000 0 Floatation Costs (Capitalized) Machinery on Ijarah 1,050,000,000 1,155,000,000 1,270,500,000 1,397,550,000 1,537,305,000 Total Assets 3,529,000,000 3,871,750,000 4,257,986,505 4,683,760,156 5,152,111,171 Liabilities towards unit holders 2,600,000,000 2,950,000,000 3,335,000,000 3,758,500,000 4,224,350,000 Payable to KISSAN Asset 16,852,500 18,537,750 20,391,525 22,430,678 24,673,745 Management Company 19
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Payable to Trustee 1,688,000 1,856,800 2,042,480 2,246,728 2,471,401 Payable to SECP 250,000 250,000 250,000 250,000 250,000 Payable to Shariah Advisor 250,000 275,000 302,500 332,750 366,025 other Payables 9,959,500 830,450 Total Liabilities 2,629,000,000 2,971,750,000 3,357,986,505 3,783,760,156 4,252,111,171 Issued, Subscribed, Paid Up 900,000,000 900,000,000 900,000,000 900,000,000 900,000,000 Capital Unappropraited Income 0 0 0 0 0 Total Equity 900,000,000 900,000,000 900,000,000 900,000,000 900,000,000 Equity and Liabilities 3,529,000,000 3,871,750,000 4,257,986,505 4,683,760,156 5,152,111,171 Projected Cash Flow Statement Cash Flow Statement Year 1 Year 2 Year 3 Year 4 Year 5 Net Income 429,781,500 478,827,450 532,777,995 592,123,594 657,403,754 Adjustment for non Cash Items Add: Non cash Exp 52,500,000 52,500,000 52,500,000 52,500,000 52,500,000 Less: Non cash incomes 0 0 0 0 0 Cash Generated from operation 482,281,500 531,327,450 585,277,995 644,623,594 709,903,754 Cash in/out flow from Investing Activities -3,179,000,000 -307,750,000 -347,736,505 -383,423,651 -421,766,015 Cash In/out flow from Financing Activities 3,070,218,500 -128,827,450 -147,777,995 -168,623,594 -191,553,754 Net Cash inflow 373,500,000 94,750,000 89,763,495 92,576,349 96,583,985 20
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Conclusion KISSAN Commodity Mutual Fund is a feasible business, as no competition exists in the market (low entry costs), provides an above average return than income and bond mutual funds and directly deals in the business of commodities which reduces the risk involved in paper transactions in case of other commodity funds trading only commodity futures. It will help the country by supporting the rural economy and community farming will result in higher gross national yield of crops. Without any collateral requirements from the farmer(i.e commodities will be bought under Salam serving as collateral itself) and focusing on the middle and small farmer group, it will be a successful venture reaping returns for its investors and benefiting its clients. The licensing requirements of SECP, Pakistan and strict monitoring by the regulators makes mutual funds a difficult option for sponsors but also the market data shows that growth in mutual fund industry will continue for years. The investors get return which is higher than bank deposits and also professional portfolio management helps them to reduce the risk. 21
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Appendix Management Team The management team of the KISSAN Commodity Mutual Fund consists of following members 1. Jawad Iqbal 2. Aliya Usmani 3. Zara Malik 4. Urfa Niazi 5. Sohaib Anwar Raza The resumes of each member are as following 22
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Jawad Iqbal Education 2008 – to date NUST Business School (NBS) H- MBA (Finance 12, Islamabad. & Investment) 2004 – 2008 NUST Business School (NBS) H- BBA Hons 12, Islamabad. 2002 – 2004 FSc (Pre-Medical) Cadet Co llege Kohat, Kohat. Work Experience Fall semester Teacher’s Assistant, Finance Cluster, 2008 NBS. June 2008 Internship- MCB Ban k Limited, as general banking and operations internee House no 122, Lane 5, Askari for six weeks. 10 Internship-Standard Chartered Bank as shared distribution channel internee for Rawalpindi June 2007 six weeks. Trai nings and Nov 2008 “Corporate Governance Orientation Ph: 051-5791213 Workshops Program” at IFC/World Bank. 2007 “Holistic Marketing Parad ig m” Mobile: 0333-5374350 Train ing by Professor Philip Kotler, Email: Projects and Sep 2008 BBA Thesis- Structural Analysis of KSE jawadiqbalkhan86@yahoo.com Research 100 Index and inflated returns. Feb 2009 Co mparative risk return analysis of MNCs and DMCs listed at KSE 100 Index. Awards and 2008-09 President Student Council, NBS. Achievements 2008-09 President Cultural and Dramat ics Society. 2004 College Color Holder, Cadet College Kohat. Skills and Technical: Proficient in Peachtree Accounting Personal Managerial: Suite, SPSS, SQL 8.0, M S Office. Strengths Co mmunicat ion: Managing student council co mprising over 60 students. Confident and Fluent in Eng lish and Urdu. Interest and Riding, Swimming and Table Tennis Acti vi ties 23
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Aliya Usmani Education 2008 till date MBA (International Finance & Investment) 2008 BBA (International Finance & Investment) House No. 195, Street. 69, F-10/3, Islamabad. 2005: BA NUST Business School, Mobile: 0321-9803703 2001 – 2003: FSc Islamabad E-mail: 1999-2001: Matric aliyausmani@hotmail.com NUST Business School, Islamabad Punjab University Army Burn Hall College, Abbottabad. Work Experience Meezan Bank Aug 2007 – Sep 2007 Mobilink Sep 2006-Oct 2006 DHL Pakistan (Pvt) Ltd Aug 2004- Sep2004 Training & Seminar on “Productivity and Quality Professional Management” (NPO) in 2006 Qualification “Hospital Waste Management” Organized by World Health Organization. Seminar on Corporate Governance (IFC) in 2008 Awards & Elected Office Secretary for Community Achievements Services Society. Class Representative at BBA Level. Professional Skills Basic skills in C++ and Oracle DBMS and Personal Skilled in Microsoft Office. Strengths Initiative, Confident, Hardworking, Adaptability to new situations. Co-Curricular Organizer NIMS Job Fair 2004 Activities College Level Dramatics 24
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Zara Malik Education 2008 NUST Business School, MBA Finance Rawalpind i 2004-to2008 BBA (Finance & Investment) CGPA: 3.50 2005 Punjab University B.A 2000-2002 OPF Girls College Islamabad A-Levels H # 947 Block D Satellite Town, Rawalpind i Work Experience 1. Worked as an internee in the Sales Department at Ph: 051-4429811 Mobilink Islamabad for 6 weeks. Mobile: 0321-5382988 2. Worked as an internee at Bank Alfal ah Islamabad. Email: zara_ malik666@hotmail.co m Trai ning & 1. Attended seminar “Corporate Governance” at the Professional Qualification IFC. 2. Attended workshop seminar “Productivity and Quality Management” Organized by National Productivity Organizat ion (NPO) at NUST Awards & Achievements 5 times scholarship holder at NUST Member of student council at NUST Professional Skills and Excellent analytical skills in both finance and marketing Personal Strengths areas of management. I am very determined, organized and can handle working in any situation. My majo r strengths are that I am very versatile and can work with all kinds of people, and my ability to always deliver on time. Co-Curricular Event organizing, writing and reading. Acti vi ties 25
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Urfa Niazi Education 2008 – to date NUST Business School (NBS) H- MBA (Finance & 12, Islamabad. Investment) 2004 – 2008 NUST Business School (NBS) H- BBA Hons 12, Islamabad. 2002 – 2004 FSc (Pre-Engineering) Islamabad College For Girls F-6/2, Islamabad. Work Experience August 2007 Internship-JS Investments as sales,HR,operations and finance internee for six weeks. August 2006 Internship-Ferozsons Pharmacuticals Hous e#28, category II, Street # as HR and market ing nad sales 52, G-10/3, Islamabad internee for four weeks. Internship-National Ban k (NBP) Ph: 051-9266917, 051-2105385 Coroprate branch as operations August 2005 internee for four weeks. Mobile: 0333-5317438 Trai nings and Nov 2008 “Corporate Governance Orientation Workshops Program” at IFC/World Bank. Email: urfaniazi@yahoo.com U excel wo rkshop on leadership 2008 Projects and Sep 2008 BBA Thesis- Performance evaluation Research of mutual funds in Pakistan Co mparative risk return analysis of Feb 2009 MNCs and DMCs listed at KSE 100 Index. Awards and 2008-09 Member cultural and dramat ics Achievements 2008-09 society Member cultural and dramatics and sports society Skills and Personal Technical: Proficient in Peachtree Accounting Strengths Suite, SPSS, SQL 8.0, M S Office. Confident and Fluent in English and Co mmunicat ion: Urdu. Interest and Tennis, badminton, Telev ision Acti vi ties 26
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Sohaib Anwar Raza Education 2008-2009 NUS T Business School Candidate for M BA Major: Hu man Resource Management 2004-2008 NUS T Business School Candidate for BBA (Honours) Major: Finance & Investment Work Experience 2007 ABN AM RO Civ il: Worked in 6 weeks internship Collections Depart ment / Van Gogh Preferred Banking Depart ment 2006 8 weeks internship MCB : Worked in Operations Department Trainings and Workshops Conducted training in “Security Exchange Co mmission Pakistan” (SECP) as a lead trainer on the topic “Exp loring Co mplexit ies of Trust” Conducted training in “ZONG” as a member of the training team on the topic “Bio-Logical Teamwork- Fro m the wolf pack to the Board Room” Projects and BBA Thesis- The Impact of financial Research structure on Profitability: Textile Industry Term Paper on the different Retention Strategies that work in Pakistan Awards and Participated in “TiE Khudee Business Plan Achievements Co mpetition” in 2007 and was selected in the top 30 teams of Pakistan Skills and Personal Technical: Proficient in MS Office. Strengths Managerial: Member of the student council which organizes various Functions Co mmunicat ion: Confident and Fluent in Eng lish , Urdu & Pashto Interest and Music, Travelling / Site Seeing, Cricket, Acti vi ties Tennis 27
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Shriah Advisors List Meezan Bank Limited 1. Justice (Retd.) Muhammad Taqi Usmani (Chairman) 2. Dr. Abdul Sattar Abu Ghuddah 3. Sheikh Essam M. Ishaq 4. Dr. Muhammad Imran Usmani Dubai Islamic Bank Limited Dr. Hussain Hamid Hassan (Chairman and Shariah Advisor). Dr. Muhammad Qaseem. Dr. Ajil Jasimal Nashim. United Islamic Income Fund Maulvi Muhammad Hassaan Kaleem Mr. Muhammad Najeeb Khan 28
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Duties and Responsibilities of Shariah Advisory Board 1. Advising the Management Company as to which criteria for selection of Securities are relevant to be used in the context of Pakistan's as well as in overseas capital markets available therein. 2. Certifying that all the provisions of the Scheme and proposed investments to be made on account of UIIF by the Management Company are Shariah compliant with the criteria established above. 3. Evaluating and advising upon all new financial instruments as and when introduced for their Shariah permissibility. 4. Issuing a certificate at the end of each Accounting Year, to be included in UIIF's financial reports, in respect of Shariah compliance of the preceding year's operations of the Scheme. 5. To guide the Management Company and approve principles for determining an appropriate percentage of income and cash flows, included in the income and cash flow of the companies in which UIIF has invested, fro m activities not in accordance with the principles of the Shariah, and recommending to the Management Company the criteria for selecting the Charities to whom such sums shall be donated, subject to the Rules. 6. To approve the movement in the charity account, as recommended by the Management Company. 7. The SAB shall have access to the books, papers, accounts and vouchers of the Trust available with the 8. Management Company and shall be entitled to inquire from the Management Company and its directors, officers and agents such information and explanation as considered necessary for the ensuring Shariah Compliance. 9. To evaluate and advice upon all new financial instruments, as and when introduced and presented to SAB for approval by the Management Company. 29
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Responsibilities of KISSAN Asset Management Company Fund Management The Management Company will have the responsibility to make all investment decisions within the framework of the Rules which will be defined in the offering document. Investor Services The Management Company will have the responsibility to facilitate investments and disinvestments by investors in the Scheme and to make adequate arrangements for receiving and processing applications in this regard. Investor Records o The Management Company will have the responsibility to maintain investor records and for this purpose it may appoint a Registrar, who is responsible for performing Registrar Functions, i.e. maintaining investors’ (Unit Holders) records and providing related services. The Registrar will carry out the responsibility of maintaining investors’ records, issuing statements of accounts, issuing Certificates representing Units, processing redemption requests, processing dividend payments and all other related and incidental activities. o The Management Company will not remove the records or documents pertaining to the Scheme from Pakistan to a place outside Pakistan without the prior written permission of the SECP and the Trustee. Distribution The Management Company, will from time to time appoint, remove or replace one or more suitable persons, entities or parties as Distributors for carrying on Distribution Function(s) at one or more locations on terms and conditions to be incorporated in the Distribution Agreement(s) to be entered into between the Distributor and the Management Company. Provided that the Management Company may also itself act as a Distributor for carrying on Distribution Functions. The Distributors shall receive applications for issue and redemption of investment in the various Unit Trusts and Administrative Plans offered by the Management Company. The Distributors shall act as the interface between the investors, the Management Company, the Registrar and the Trustee and perform all other Distribution Functions. 30
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Investment Facilitators The Management Company may, at its own responsibility, from time to time appoint Investment Facilitators to assist it in promoting sales of Units. Record Keeping The Management Company has the primary responsibility for all record keeping, regular determination and announcements of prices and for producing financial reports from time to time. However, the Trustee has the responsibility to ensure timely delivery to the Management Company of statements of accounts and transaction advices for banking and custodial accounts in the name and under the control of the Trustee. The Management Company shall provide the Trustee unhindered access to all records relating to the Scheme. 31
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Who Can Apply? Any investor or any related group of investors qualified or authorized to purchase the Units may make applications for the Purchase of Units in the Fund. The onus for being so did not qualify lies with the investor and the Management Company, nor does the Trustee, nor does the Registrar nor the Distributors nor the Investment Facilitators accept any responsibility in this regard. Citizens of Pakistan resident in Pakistan: In respect of minors below 18 years of age applications may only be made by their guardians. Companies, corporate bodies, financial institutions, banks, partners of a firm and societies incorporated in Pakistan so long as such investment is permitted under their respective memorandum and articles of association and/or bye-laws. Pakistanis resident abroad, foreign nationals and companies incorporated outside Pakistan can apply for Units subject to the regulations of the State Bank of Pakistan and the Government of Pakistan and any such regulations and laws that may apply to their place of residence, domicile and citizenship. The payment of dividends and redemption proceeds to such investors shall be subject to the relevant taxation and exchange regulations / laws. Any person making an application for the Purchase of Units in the Fund shall warrant that he is duly authorized to purchase such Units. Provident Funds constituted by companies registered under the Companies Ordinance, 1984, subject to conditions and investment limits as laid down in Employees Provident Fund (Investment in Listed Securities) Rules, 1996, as amended from time to time, including by SROs. Provident, Pension and Gratuity Funds constituted by organizations other than companies under Section 20 (h) of the Trusts Act 1882, (11 of 1882). Insurance companies under the Insurance Ordinance, 2000 Non Profit Organization under Section 213 (i) o f the Income Tax Rules, 2002. 32
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Organizational Chart The organization chart of the KISSAN Asset Management Company as following 33
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Boa rd of Di rectors Shariah Audit Advisor Commi ttee Chief Executive Officer Investment Committee Chief Opera ting Offi cer Bra nch Network Fund Management Mobile Farm Crop Monitoring Branch Managers Commodities Machinery Fund Advisors Team Fund Manager Manager Asset Mobilization Liabilities Team Mobilization Team Operations Manager Support Services 34
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Operational Model The Legal Structure of KISSAN Commodity Mutual Fund is shown in following diagram 35
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 The Yearly Operations calendar is given in the following table The yearly calendar for the inflows and outflows from the fund Yearly Calendar of Expenses and Revenue xvii Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Wheat Wheat Rice F - F H H - - - - - S S Wheat - - - R R - - - - - - - - - - - S S F - F H H - Rice R R W W/R R R W/R W Machinery L L L L L L Income R+L R+L R+L R+L R+L R+L Expenses E E E/E E/E E E E E E/E E 36
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Monthly Whole Sale Prices of Wheatxviii 37
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Monthly Whole Sale Prices of Rice Basmatixix 38
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Competition UBL Farm Loans Production Loan Financing is available for Major and Minor crops across Pakistan. Main purpose of financing is to facilitate farmers to purchase Agri Inputs such as Seeds, Fertilizers, Pesticides, Sprayers, hired labor etc. NIACF (Revolving Credit Scheme) Loan Tenure 3 years Documentation once for 3 years. Cleanup once a year Option for the farmer to use limit as per requirement Markup is charged on amount used or withdrawn Minimum Amount PKR 30,000 Maximum Amount as per requirement of the farmer NIADF (Demand Finance Production) Loan Tenure 3 months to 1 year 18 months for Sugar cane only Lump sum disbursement of the limit for a specified period. Repayment of loan in bullet payment on maturity (Principal and markup). Minimum Amount PKR 30,000 Maximum Amount as per requirement of Farmer  Development Loan Land Development, Equipments and Machine ry Financing for Land Improvement, Water course improvement, Tube wells, Lift pumps, Deep turbine pumps, Cotton pickers, Godown, Cold Storage, Harvester, Thresher, etc Loan Tenure 1 to 5 years Lump sum disbursement of the limit for a specified period. Repayment in installments (Principal with markup). Repayment mode monthly, quarterly and half yearly 39
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Minimum Amount PKR 30,000 Maximum Amount as per requirement of Farmer Tractor & Vehicle Finance To purchase Tractors, Delivery Vans, Mini Trucks, Motor Cycle and other vehicles used for marketing Agri Products Loan Tenure 1 to 3 years for Motor Cycle 1 to 7 years for Tractor 1 to 5 years for other 4 wheel vehicles Lump sum disbursement of the limit for a specified period. Repayment in installments (Principal with markup). Repayment mode monthly, quarterly and half yearly Minimum Amount PKR 100,000 Maximum Amount PKR 1,500,000 Collateral Require ment Bank charge on Agri Land through Zarie Passbook Mortgage of Rural / Urban property other than Agriculture Land Hypothecation of Farm equipments with backup collateral Join registration of Tractor / vehicle with backup collateral Growers’ loans against continuing Guarantee of Agriculture processing units Join registration of Tractor / vehicle with backup collateral Liquid Securities (Defense Saving Certificates, National Saving Certificate, etc.) Terms & conditions 1 to 3 years for Motor Cycle Markup payment frequency quarterly / half yearly for working capital loan Installment repayment frequency monthly / quarterly / half yearly / yearly for Term finance loans Minimum landholding 10 acres for Tractor Financing Equity for Tractor 10% Equity for 4 wheelers except Tractor is 25% 40
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Askari KISSAN Agriculture Finance Program The Askari KISSAN Agri Finance Program xx (AKAFP) has been designed to meet ON FARM / OFF FARM credit requirements of farmers on the most convenient, flexible, easy terms and conditions. The program features: Repay and borrow on revolving credit basis at lowest mark-up rates renewal able after three years. Convenient repayment terms based on cash flow abilities. Availability of leased Tractors / Transport without Land / Collateral. Availability of interest free package for inputs and tractors etc. No Pre-adjustment penalties. Earn prompt payment Bonuses and reduce financial costs. Insurance cover of leased assets, animals, crops and life assurance of borrowers 41
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 Exhibit 2 Kharif Crops Production (000 Tons) Weight in 2007/2008 2008/2009 % Agriculture Change Cotton 7.48 11.6 12.1 7.3 Sugarcane 4.55 63.9 52.1 ‐ 18.5 Rice 5.47 5.6 6.5 13.5 Maize 1.63 3.6 3.33 ‐ 7.5 Rabi Crops Production (000 Tons) Weight in 2007/2008 2008/2009 % Agriculture Change Wheat 12.68 21.6 25.0 15.7 Gram 1.19 0.475 0.65 36.2 Potato ‐ 2.5 2.5 ‐ Onion ‐ 1.8 2.1 16.7 42
  • KISSAN COMMODITY MUTUAL FUND March 29, 2009 i Economic Survey of Pakistan, 2006 ii th State Bank of Pakistan, Islamic Banking Bulletin. December 29 , 2008 iii Outlook for Islamic financing of agriculture by Dr.Ahmed Kaleem (quoti ng survey by Lahore School of Economics on Farmer Perception of Islamic Financing), retrieved from <http://www.paKISSAN.com/english/agri.overview/outlook.for.islamic.financing.of.agriculture.shtml> iv Federal Bureau of Statistics, Pakistan. (Website) v Water Shortage in Pakistan retrieved fro m < http://www.scribd.co m/doc/523773/Water-Shortage-in-Pakistan/> vi Zero Technology retrieved fro m <http://www.paKISSAN.co m/english/news/2003/ feb/zero.technology.shtml/ > vii Parachute technology for rice being introduced in Punjab retrieved fro m <http://www.paKISSAN.co m/english/news/2003/ feb/parachute.technology.shtml/ > viii Laser technology and irrigation efficiency By Bilal Hassan retrieved fro m < http://www.paKISSAN.co m/english/advisory/laser.technology.and.rrigation.fficiency.shtml/> ix Over US$3 billion committed to Pakistan agriculture and dairy sector retrieved fro m <http://www.arabianbusiness.com/press_releases/detail/17551/> x Associate professor at Lahore School of Economics xi http://www.paKISSAN.com/english/agri.overview/agriculture.of.pakistan.shtml xii th Governor’s speech on governor’s roundtable London,30 January 2007 xiii Banks include MCB Bank Limited, Allied Bank Limited, National Bank Limited and Faysal Bank Limited. xiv Security and Exchange Commission of Pakistan, Corporate Agriculture Farming Policy, Circular No. 29 - Reference No. CLD/RD-660(1)2003 xv Calculated as 1 percent of the monetary value of the Average Yearly Wheat Production Target for past three years, at the support price announced by Government. xvi Presently 5 Takaful operators are present in Pakistan, none of whom provides Crop Takaful. xvii Key: H=Harvesting, F= Fertilizers, S=Seeds, R=Revenue (Rice Machinery), E=Expenses, L=Lease Income, W=Wheat Machinery xviii Ministry of Food and Agriculture and Live Stock, Statistical Tables 2006 -2007 xix Ministry of Agriculture and Finance, Statistical Tables 2006-2007 xx http://www.askaribank.com.pk/agriculturebanking.php 43