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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