The International Finance Corporation (IFC) has signed agreements worth $40 million with three local Islamic financing companies to support lending to small and medium-sized enterprises. The local firms, called modarabas, are similar to closed-end funds with a pool of capital raised from private investors which provide finance using leasing and other methods consistent with sharia (Islamic law).

The companies receiving support are First UDL Modaraba, Second BRR Modaraba and First Crescent Modaraba, and all are involved in asset leasing. The IFC has subscribed to $20 million worth of income notes, a form of equity participation denominated in dollars and partly convertible into ordinary capital in the modarabas. The remaining $20 million will be placed by the IFC with other Islamic investment institutions.

'This is IFC's first major initiative to tap the vast pools of Islamic funds in the Middle East and elsewhere and channel these resources through the modarabas into long-term investments in productive assets in Pakistan,' Andre Hovaguimian, IFC's director for Central Asia, Middle East and North Africa, said in a statement.