Modarabah and leasing stocks, which are listed on the Karachi Stock Exchange (KSE) since 1985, operate on the Islamic concept of financing under a well defined contractual framework supervised by the State Bank of Pakistan (SBP). The Islamic stocks had mushroom growth during the first sub-period of reforms1 and were exempted from various taxes during the initial 3 years of their operation. For investors these shares were a very attractive opportunity to build a quality portfolio and earn high returns. Due to bureaucratic and non-professional approach of banks in Pakistan these firms became popular alternatives lenders to medium and small sized business borrowers. The turn around time and efficient handling of the proposals made them more attractive.