Features Of An Islamic Bank.

Features of a Bank

Features of a Bank • Deposit creation • Corporate & Consumer Financing • Agency services • Issuing LGs / LCs • Advisory services • Other related services

Features of a Bank Balance Sheet View Assets

Liabilities & Equity

Corporate

Accounts

- Short term financing

- Current Accounts

- Long term financing

- Saving Accounts

Consumer Financing

- Term Deposits/COI

- Car, Housing,Durable

Borrowing

- Personal loan, cash advance

- Inter-bank borrowing

Inter-bank lending: Call, Repo

- Central bank borrowing

Investment

Equity

- Govt Bonds, Treasury bills

- Shareholders

Comparison between Islamic Bank & Conventional Bank

Comparison - Liability side Current Accounts  Conventional Current Accounts primarily offers two benefits  Safety & Withdrawal facility  Extra Services linked to the balance in the account. 

In Islamic Banking Current Accounts can be developed by using the concept of Qard/loan.   

Repayment of funds can be guaranteed by the bank. However, extra benefits linked to the balance cannot be offered. Bank may use the funds at its own discretion.

Comparison - Liability side Saving / Term Deposit / COII  Conventional Saving & Term Deposit Accounts primarily offers two benefits  Guaranteed Investment  Regular Interest Payments  In Islamic Bank, the Investment accounts can be based on: – Musharakah – Mudrabah – Wakalatul Istismar  Many Islamic banks have successfully launched such schemes based on the above modes.

Comparison - Liability side

Musharaka Model Depositors

Bank Profits

Deposits

Equity

Weightage System Profits

Pool of Funds Financing

Profits

Businesses/Corporates

Comparison - Liability side

Mudarabah Model Depositors Profits Deposits

Weightage System

Deposits

Profits

Pool of Funds Financing

Profits

Businesses/Corporates

Comparison - Asset side Corporate & Consumer Finance  Conventional Banks undertake different kinds of financing business which can be divided into two broad categories:  Short Term Financing  Running Finance (Overdraft)  Import/Export Financing  Agricultural Finance  Long Term Financing  Consumer Finance (Car, Housing, CC, Cash etc)  Generally speaking these needs are met through interest based loans with different of combinations securities and tenors.

Comparison - Asset side • General Islamic Modes of Financing on ASSET SIDE Corporate Financing

Consumer Financing

–Musharakah

–Diminishing Musharakah

–Mudarabah

–Ijarah

–Diminishing Musharakah

–Murabaha

–Ijarah

–Salam

–Murabaha

–Istisna

–Salam –Istisna –Istijrar –Wakalah

Application of Modes Mode

Application PKR Murabaha, Dollar Murabaha, Syndicated Murabaha Facility, Murabaha against Usance Bills

1

Murabaha

2

Ijarah

3

Musharakah

Musharakah TFCs, Joint ventures Arrangements, IERS

4 5

Diminishing Musharakah Mudarabah

House Financing (Build, Buy, Renovate & Replace) Plant & Machinery, Commercial Premises Fayzan Manufacturing Mudarabah with ICI

6

Salam

7 8 9

Car Ijarah, Fixed Assets Ijarah (medium to long term)

Foreign Currency Salam - Alternative for Sight Bill Discounting

Istisna Islamic Export Refinance Scheme (IERS) Wakaltul-Istismar Sister concern -Investment Management Co Musawamah

Usance bill negotiation

Application of Modes • Based on the criteria for selection of modes, the appropriate modes is applied to fulfill the customers need.

Need

Mode Selection

Example Need: Cotton Murabaha Tenure: 6 month Rate: Fixed Payment: At maturity

Mode Application

Other Permissible Services • • • • • • • • • • • • •

Zakat deduction. Sale & purchase of foreign currency Sale & purchase of travelers checks (local & foreign currency) ATM services Remittance Electronic online transfer Telegraphic transfer (of cash) Demand draft Pay order Lockers & custodial services Clearing facility Sales & purchase of shares/stock (of companies involved in halal activities) Collection of dividends Electronic banking window Telephone banking.

Uniqueness of Islamic banks • Commingling between Finance & Religion and ethics • Shariah Supervisory Boards (SSB)/Shariah Advisor – Studies Articles of associations and bylaws – Approval of all contracts – Contribute in designing new products – Audit the actual implementations – Issuance of Fatwas – Research - Training

Conclusion  Islamic banking is a viable alternative  Islamic alternates of Banking Products can be very effectively developed for all types of needs  However, there is a need for proper research and development.  Ulema and professionals need to coordinate more frequently.

 May Allah give us success in these efforts. - Ameen