Kissan Commodity Mutual Fund

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)

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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.

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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

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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

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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

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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.

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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

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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.

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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

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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.

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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

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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”

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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

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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

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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
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 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 .
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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.

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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

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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

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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.

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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

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

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

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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

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

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

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

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

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

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

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

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

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

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

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

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

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

March 29, 2009

Organizational Chart
The organization chart of the KISSAN Asset Management Company as following

33

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

March 29, 2009

Operational Model
The Legal Structure of KISSAN Commodity Mutual Fund is shown in following diagram

35

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

March 29, 2009

Monthly Whole Sale Prices of Wheatxviii

37

March 29, 2009

Monthly Whole Sale Prices of Rice Basmatixix

38

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).
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
Repayment in installments (Principal with markup).
Repayment mode monthly, quarterly and half yearly

39

March 29, 2009

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
Repayment in installments (Principal with markup).
Repayment mode monthly, quarterly and half yearly
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

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

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

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

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