features of an islamic bank
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Features of a Bank
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Banking is the most important sector of themodern day economy.
It provides an opportunity to the household
with surplus capital to select the best mix ofinvestments in terms of return and tenors &security.
It provides an opportunity to businesses andGovernments to finance their activitiesthrough obtaining surplus funds.
Importance of Banking
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Efficient Banking system is necessary tobring economic prosperity.
However, the present conventional bankingsystem is based on
Riba / interest
Gharar
And unfortunately today for many interest ismore than a way of life, it is fact of life.
Importance of Banking
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Features of a Bank
Deposit creation
Corporate & Consumer Financing
Agency services
Issuing LGs / LCs
Advisory services
Other related services
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Features of a Bank
Balance Sheet View
Assets
Corporate
- Short term financing
- Long term financing
Consumer Financing
- Car, Housing,Durable
- Personal loan, cash advance
Inter-bank lending: Call, Repo
Investment
- Govt Bonds, Treasury bills
Liabilities & Equity
Accounts
- Current Accounts
- Saving Accounts
- Term Deposits/COI
Borrowing
- Inter-bank borrowing
- Central bank borrowing
Equity
- Shareholders
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Comparison between
Islamic Bank & Conventional Bank
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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 bedeveloped by using the concept of Qard/loan.
Repayment of funds can be guaranteed by thebank.
However, extra benefits linked to the balancecannot be offered.
Bank may use the funds at its own discretion.
Comparison - Liability side
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Saving / Term Deposit / COII
Conventional Saving & Term Deposit Accounts primarilyoffers two benefits
Guaranteed Investment
Regular Interest Payments
In Islamic Bank, the Investment accounts can be basedon:
Musharakah
Mudrabah Wakalatul Istismar
Many Islamic banks have successfully launched suchschemes based on the above modes.
Comparison - Liability side
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Musharaka Model
Businesses/Corporates
Depositors Bank
Weightage System
Pool of Funds
Financing
Profits
Deposits Equity
Profits
Profits
Comparison - Liability side
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Mudarabah Model
Businesses/Corporates
Depositors
Weightage System
Pool of Funds
Financing
ProfitsDeposits
Profits
Profits
Deposits
Comparison - Liability side
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Corporate & Consumer Finance
Conventional Banks undertake different kinds offinancing business which can be divided into two broadcategories:
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 throughinterest based loans with different of combinationssecurities and tenors.
Comparison - Asset side
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General Islamic Modes of Financing on ASSETSIDE
Comparison - Asset side
Corporate Financing
Musharakah
Mudarabah
Diminishing Musharakah
Ijarah
Murabaha
Salam
Istisna
Istijrar
Wakalah
Consumer Financing
Diminishing Musharakah
Ijarah
Murabaha
Salam
Istisna
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Mode Application
1 Murabaha
PKR Murabaha, Dollar Murabaha, Syndicated Murabaha
Facility, Murabaha against Usance Bills
2 Ijarah Car Ijarah, Fixed Assets Ijarah (medium to long term)
3 Musharakah Musharakah TFCs, Joint ventures Arrangements, IERS
House Financing (Build, Buy, Renovate & Replace)
Plant & Machinery, Commercial Premises
5 Mudarabah Fayzan Manufacturing Mudarabah with ICI
6 Salam Foreign Currency Salam - Alternative for Sight Bill Discounting
7 Istisna Islamic Export Refinance Scheme (IERS)
8 Wakaltul-Istismar Sister concern -Investment Management Co
9 Musawamah Usance bill negotiation
Diminishing
Musharakah4
Application of Modes
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Based on the criteria for selection of modes, theappropriate modes is applied to fulfill the customers need.
Example
Need
Mode
Selection
Mode
Application
Need: Cotton
Tenure: 6 month
Rate: Fixed
Payment: At maturity
Murabaha
Application of Modes
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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.
Other Permissible Services
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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
Uniqueness of Islamic banks
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Islamic banking is a viable alternative
Islamic alternates of Banking Products can be veryeffectively developed for all types of needs
However, there is a need for proper research anddevelopment.
Ulema and professionals need to coordinate morefrequently.
May Allah give us success in these efforts. - Ameen
Conclusion
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