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COMMERCIAL BANKING
Submitted to:
Dr. Waheed Akhtar
Submitted by:
Asim Ali 023
Ali Ahmad Majoka 006
Muhammad Habibullah 084
Hafiz Najm Saqib 042
Khurram Shahzad 177
Submission Date:
24-12-2010
COMSATS Institute of Information Technology
Lahore.
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MEEZAN BANK:
Meezan Bank Limited, a publicly listed company, is the first and largest Islamic Bank in
Pakistan and one of the fastest growing banks in the history of the banking sector of the
Country. Having the largest branch network and product range, Meezan Bank bears the critical
responsibility of leading the way forward in establishing a stable and dynamic Islamic banking
system replete with dynamic and cutting-edge products and services. Meezan Bank aims to fulfil
its prime objective of providing customers accessibility and convenience, within an atmosphere
and culture of dedicated service and recognition of their needs.
Meezan is a publicly listed company first incorporated on January 27, 1997. It started operations
as an investment bank in August of the same year. In January, 2002 in an historic initiative,
Meezan Bank was granted the nation's first full-fledged commercial banking license dedicatedto Islamic Banking, by the State Bank of Pakistan.
VISION:
Establish Islamic banking as banking of first choice to facilitate the implementation of an
equitable economic system, providing a strong foundation for establishing a fair and just society
for mankind.
MISSION:
To be a premier Islamic bank, offering a one-stop shop for innovative value added products and
services to our customers within the bounds of Shariah, while optimizing the stakeholders value
through an organizational culture based on learning, fairness, respect for individual enterprise
and performance.
To develop a committed service culture which ensures the consistent delivery of our products
and services within the highest quality service parameters, promoting Islamic values and
ensuring recognition and a quality banking experience to our customers.
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Shareholders & Shariah Board
The Bank’s main shareholders are leading financial institutions of the Region namely, Noor
Financial Investment Company, Pak-Kuwait Investment Company, and the Islamic
Development Bank of Jeddah. The established position, reputation, strength and stability, of
these institutions add significant value to the Bank through Board representation and applied
synergies.
The Bank has an internationally renowned Shariah Supervisory Board Chaired by Justice
(Retd.) Maulana Muhammad Taqi Usmani, an internationally renowned figure in the field of
Shariah, particularly Islamic Finance. He holds the position of Deputy Chairman at the Islamic
Fiqh Academy, Jeddah and in his long and illustrious career has also served as a Judge in the
Shariat Appellate Bench, Supreme Court of Pakistan. The Board also includes Sheikh Essam
M. Ishaq (Bahrain), Dr. Abdul Sattar Abu Ghuddah (Saudi Arabia) and Dr. Imran Usmani who is
also the resident Shariah Advisor of the Bank.
At Meezan Bank, we strive to find commonalties with the conventional banking system
with absolutely no compromise on Shariah rulings. The bank has developed an
extraordinary research and development capability by combining investment bankers,
commercial bankers, Shariah scholars and legal experts to develop innovative, viable,
and competitive value propositions that not only meet the requirements of today's
complex financial world, but do so with the world-class service excellence that our
customers demand, all within the bounds of Shariah.
Introduction of Products
• Riba Free Meezan Providence
• Riba Free - Certificates of Islamic Investment
• Riba Free - Monthly Musharakah Certificate
• Riba Free - Dollar Saving Account
• Riba Free - Rupee Saving Account
• Riba Free - Current Account
• Car Ijarah - Islamic Car Financing
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• Riba Free Meezan Providence:
Islamic Mode of Financing
• Musharakah
• Mudarabah
• Murabaha
• Salam
• Istisna
• Ijarah
NET PROFIT
Years 2006 2007 2008 2009
profit 20.15 17.80 16.27 8.27
SHARE PRICE:
Years 2006 2007 2008 2009
Share Price 23.25 19.50 38.55 21.48
Riba Free Meezan Providence:
It is a long term investment product especially designed for the need and to fulfill the
requirements of the corporate and business concerns for purpose of investing their
provident, pension and Gratuity Funds as any sensible and wise person who wants to invest
his earning, his main concerns would be total security along with the best returns possible,
especially as these earnings or funds are a trust from his employees and one that bears an
important responsibility.
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Key Features of Meezan Providence
• A 100% hilal investment in strict compliance with Shariah
• Minimum investment amount: PKR 1,000,000
• Available tenures of 3, 5 and 7 years.
• Pre-mature withdrawal options available
Riba –Free-Certificates of Islamic Investment:
This investment product is designed to meet the short term and long term needs. The
minimum investment is PKR 50,000 and it is available in tenures of 3 and 6 months, 1,
2, 3 and 5 years.
Furthermore, these certificates can be en cashed at any time without any charge or penalty,
only the profit rates will be adjusted according to the tenure completed.
The deposits of the customers together with the Bank’s contribution are invested in a pool that
consists of Ijarah and Murabaha financing. The profit/loss on this pool is calculated every month
on the basis of profit sharing ratio determined by assigning weightings. Such weightings are
assigned at the beginning of every month and are displayed on the bank notice board and
website. This facility is available during the course of investment. However, profit shall be paid
only after completion of one month of investment.
Riba Free-Monthly Musharakah Certificate:
The riba free Monthly Musharaka Certificates are a flexible investment product which has been
designed to give the depositor a monthly return which is Halal. The depositors
participate with the bank in the pool of investments which is comprised of Murabaha and
Ijarah transactions. The minimum investment required is required is only PKR 100,000 and
you receive profit for each complete month of investment with the bank.
• Personalized cheque books.
• No restriction on withdrawals.
• Access to priority desk
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Riba Free-Dollar Saving Account
With a minimum of only $100 you can open a Dollar Saving Account with us under a
Mudarabah arrangement that is strictly in conformity with the principles of Islamic Shariah. The
return earned on the Mudarabah pool is calculated every month and the profit ratio for all
investors is declared at the beginning of the month. If you maintain a minimum average monthly
balance of $ 500, you shall be eligible to receive profits that shall be disbursed to you every
month.
Riba Free-Rupee Saving Account
With a minimum of only PKR 10,000 THE Rupee Saving Account can be opened under
musharakah agreement. The profit earned is calculated every month. And if the client maintains
a monthly balance of PKR 10,000 the client is eligible for the profits that will be disbursed every
month. However, the clients of COII may open this account with any minimum balance.
Riba Free - Current AccountIn this type of account the client is allowed to deposit or withdraw money as he likes. He may,
thus, deposit or withdraw several times in a day as he likes. Usually the bank allows this
and charges service charges are deducted by the bank from current deposit account. It gives
advantage for paying debts by the convenient and safe means of sending cheques through the
post thus avoiding the trouble and loss.
Car Ijarah – Islamic Car Financing
Car Ijarah is Pakistan's first "Interest Free" car-financing based on Islamic financing mode
of Ijarah or Islamic leasing. This product is ideal for interest averse individuals, looking
for a car financing that provides the convenience of a well designed product while avoiding an
interest based transaction. Car Ijarah totally halal .
Key Features of Car Ijarah
No application fee
Available in tenures of 3, 4 and 5 years
Minimum security deposit as low as 20%
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Islamic Mode of Financing
These modes of financing have been written by Maulana Taqi Usmani who is the former
Chairman of Shariah board of Meezan Bank. After studying these we will be in a position to
understand the 90% working of the bank. The important modes of financing are:
• Musharakah
• Mudarabah
• Ijarah
Musharakah
Interest' predetermines a fixed rate of return on a loan advanced by the financier irrespective of
the profit earned or loss suffered by the debtor, while Musharakah does not envisage a fixed
rate of return.
Risk of Loss:-
It is argued that the arrangement of musharakah is more likely to pass on losses of the business
to the financier bank or institution. This loss will be passed on to depositors also. The
depositors, being constantly exposed to the risk of loss, will not want to deposit their money in
the banks and financial institutions and thus
Murabaha
"Murabaha" is, in fact, a term of Islamic Fiqh and it refers to a particular kind of sale having
nothing to do with financing in its original sense. If a seller agrees with his purchaser to provide
him a specific commodity on a certain profit added to his cost, it is called a "Murabaha"
transaction.
Uses of Murabaha
Murabaha can be used in following conditions:
Short / Medium / Long Term Finance for
Raw material
Inventory
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Equipment
Asset financing
Ijarah
The rules of Ijarah, in the sense of leasing, are very much analogous to the rules of sale,because in both cases something is transferred to another person for a valuable consideration.
The only difference between Ijarah and sale is that in the latter case the amount of the
property is transferred to the purchaser, while in the case of Ijarah, the corpus of the
property remains in the ownership of the transferor, but only its usufruct i.e. the right to use it,
is transferred to the lessee.
Basic Rules of Leasing
1. Leasing is a contract whereby the owner of something transfers its usufruct to another person for an agreed period, at an agreed consideration.
2. The subject of lease must have a valuable use. Therefore, things having no usufruct at
all cannot be leased.
3. The period of lease must be determined in clear terms.
Auto Finance
With an 8-year-old portfolio, Meezan Bank's Car Ija business now stands at Rs. 3.8 billion and is
made up of 8,000 active vehicle contracts. Going forward the strategy for 2010 is focused on
aggressive sales effort while maintaining stringent financing criteria. Healthy portfolio
management and risk diversification is evidents delinquent assets account for only 1.43% of the
portfolio which is indicative of the effectiveness of the ‘product programme’ currently being
applied by the Bank for this facility.
Housing Finance
The Bank adopted a very cautious approach in booking home mortgages and business targets
were realigned by modifying and fine tuning consumer financing policies. The total housing
finance portfolio currently stands at Rs. 3.0 billion representing 1145 customers across
Pakistan. Furthermore, contrary to the industry wide trend of an increase in non-performing
loans, Meezan Bank managed to maintain its delinquent assets within acceptable limits of
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between 5% to 6%, which is one of the lowest in the industry. With the impending revival of
economy, the Bank plans to aggressively grow this business in 2010.
Summary of Direct Payment in Murabaha Financing for Meezan Bank
As per the directive of SSB to increase direct payments in Murabaha, it is a matter of
appreciation that Bank has increased the overall percentage of direct payments. In the year
2009, a significant growth of 76% was registered in terms of direct payment for Murabaha
financing as the overall percentage of direct payment was increased to 67% in the year 2009
against 38% in the year 2008.
MURABAHA FINANCING - DIRECT PAYMENT2008 2009 Growth
Overall Portfolio 38% 67% 76%
Customer Wise Breakup
Corporate 28% 60% 114%
SME/Commercial 70% 85% 21%
Region Wise Breakup
NORTH 56% 88% 57%
SOUTH 46% 81% 76%
CENTRAL 30% 54% 80%
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Treasury and Financial Institutions
In 2009, Meezan Bank's Treasury continued to play an active role in the local foreign exchange
and money market. On the foreign exchange front, Treasury continues to support the various
business units in generating higher volumes of trade finance business. As trade finance
business of the bank grew to Rs. 110 billion for the year, Treasury witnessed huge growth in
foreign exchange volumes. Despite the removal of forward cover facility for importers,
relationships with good quality corporate clients continued to grow on the basis of Meezan
Bank's competitive pricing in the market. Treasury is also active in handling export business and
the Bank booked forward cover contracts totaling more than Rs. 8 billion during the year.
Meezan Bank continues its strive to develop the market for Government of Pakistan (GOP)
Ijarah Sukuks by not only successfully bidding in the auctions held in 2009
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TRADE FINANCE:
Trade Finance is an important unit of the Bank’s Operations department. Alhamdulillah, during
the year the total volume of business handled by the unit crossed the landmark figure of Rs.100
billion and generated fee income of Rs.195 million. The Islamic Export Refinance Scheme also
continues to remain a successful product for the Bank's customers.
THE BANK OF PUNJAB:
Established in 1989, in pursuance of The Bank of Punjab Act 1989 and was given the status of
scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with
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its network of 273 branches at all major business centers in the country. The Bank provides all
types of banking services such as Deposit in Local Currency, Client Deposit in Foreign
Currency, Remittances, and Advances to Business, Trade, Industry and Agriculture A wholly
owned subsidiary of BOP First Punjab Modaraba (FPM) was established in 1992 and is being
managed by Punjab Modaraba Services (Pvt) Ltd.
VISION:
To be the customer Focused Bank with service Excellence.
MISSION:
To exceed the expectations of our stakeholders by leveraging our relationship with the
Government of Punjab and delivering a complete range of professional solutions with a focus on
programme driven products & services in the Agriculture and Middle Tier Markets through a
motivated team.
Introduction of products:
BOP HOUSE LOAN:
“BOP House Loan is a long term finance facility for
• Purchase of house/flat
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• Purchase of Plot & Construction thereon• Construction of house on self owned plot• Renovation/home improvement
CAR LEASE:
A lease facility for the purchase of vehicles for personal use.
Tenure Mark-up Rate
1 year Avg. 1 Year ask side KIBOR + 400 bps withfloor of 17% p.a.
2 YearsAvg. 2 Years ask side KIBOR + 400 bps withfloor of 17% p.a.
3 & 5Years
Avg. 3 Years ask side KIBOR + 400 bps withfloor of 17% p.a.
BOP Aasaish Loan
"BOP Aasaish Loan is personal loan facility for bank’s target market for the
purchase of Consumer durable goods for their personal use, repayable on easy
instalments"
Tenure Mark-up Rate (Reducing balance method)
6 months 0%
9 Months 8% p.a
12 Months 11%p.a.
18 Months 15%p.a.
24 Months 18%p.a.
BOP Debit Card
Service
The BOP Debit Card holders will be able to transact at any of the 1000 + Merchants across thecountry. The following services can be utilized at the Point of Sale (POS) terminals:
Purchasing
Your BOP Debit Card can be used in place of cash at all outlets where the M-Net logo isdisplayed. This is a service which lets you pay directly from your account without using cash.When a payment is made through the debit card, your account is directly debited.
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Balance Enquiry
The Point of Sale (POS) terminal also lets you view your balance of all the linked accounts toyour card.
BOP Smart Cash Personal Loan“BOP Smart Cash Personal Loan Scheme is personal DF facility for meeting personal needs &
repayable through monthly instalments.”
Tenure Mark-up Rate 1 year Avg. 1 Year ask side KIBOR + 900 BPS with floor of 20% p.a. 2
Years Avg. 2 Year ask side KIBOR + 900 BPS with floor of 20% p.a. 3 & 5 Years Avg. 3 Year
ask side KIBOR + 1000 BPS with floor of 20% p.a.
KISSAN AABYARI:
Provision of financial facility to the farmers for installation of Tube well, turbines.
Mark-up:
18% Per Annum
Margin on Collateral Security:
50% Margin on Agri land assessed by Surveyor. 25% margin Agri land as per value in revenuerecord. The maximum amount of Finance will be allowed upto 75% of the Oast Bai Value of land(Oast Bai is verified by Revenue Officer)
Repayment:
10 equal half yearly installments (within five years).
COMPARISON BETWEEN ISLAMIC ANDCONVENTIONAL BANKING:
• The main difference between Islamic and conventional banking is that Islamic teaching
says that money itself has no intrinsic value. To make money from money is prohibited –
wealth can only be generated through legitimate trade and investment.
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• In Islamic banking we generate all our profit through sharia’s compliant trading and
investment activities. We then share the profits with our customers at a pre-agreed ratio.
In order to share profits you must hold one of our savings or investment accounts.
• Conventional banking practices are concerned with "elimination of risk" where as Islamic
banks "bear the risk" when involve in any transaction. When Conventional banks involve
in transaction with consumer they do not take the liability only get the benefit from
consumer in form of interest whereas Islamic banks bear all the liability when involve in
transaction with consumer. Getting out any benefit without bearing its liability is declared
Haram in Islam.
• While the basics of what the business is are the same, the term refers to operating the
business within Islamic law. The main thing that affects this business under that law is
that Islam prohibits the charging of interest. Certainly a problem in modern banking!
Islamic Banking Issues
HUMAN RESOURCE FOR SHARIA'H COMPLIANCE
Users of Islamic financial services assign primary importance to Sharia'h compliance of the
services they use. It is understandable that Sharia'h noncompliance entails a serious
operational risk and can result in withdrawal of funds from and instability of an Islamic bank,
irrespective of its initial financial soundness. Sharia'h compliance is hence a serious matter for
an Islamic bank, in addition to its compliance with other regulatory requirements.
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UNRESOLVED FIQH ISSUES
Lack of standard financial contracts and products can be a cause of ambiguity and a source of
dispute and cost. In addition, without a common understanding of certain basic foundations,
further development of banking products is hindered.
LEGAL FRAMEWORK
An appropriate legal, institutional and tax framework is a basic requirement for establishing
sound financial institutions and markets