Research Proposal

FINANCIAL PERFORMANCE ANALYSIS OF TRADE FINANCE PRODUCTS IN ISLAMIC BANKING

A Research Proposal Submitted to Sir AMMAD ALI Federal Urdu University of Arts, Science and Technology

In Partial Fulfillment of the Requirement of the Degree Masters of Business Administration (MBA - Finance) by RIZWAN ULLAH RAHSID KHAN ALLAUDIN KHAN

December 21, 2011

RIZWAN ULLAH ID:1008627- MBA III-Finance

Research Proposal

ABSTRACT
The purpose of this project is to conduct financial performance analysis of Trade Finance Products in Islamic Banking and generation of revenue through its products. Among all the service charges charged by Islamic Banks, Trade Finance Department has a major role in the profitability of a bank. Trade Finance Department has many avenues of charging to customers for the services they provide. The Project finding and result will concluded from personnel of Trade Finance Department and other departments.

RIZWAN ULLAH ID:1008627- MBA III-Finance

Research Proposal

TABLE OF CONTENTS Page#

1.

INTRODUCTION 4 RESEARCH OBJECTIVE LITERATURE REVIEW ISLAMIC BANKING MODERN HISTORY TRADE FINANCE IMPORT EXPORT LETTER OF CREDIT

4 4 4 4 5 5 5 5 5 5 5 6

PURPOSE OF STUDY
2. 3. 4. 5. 6. 7. 8. 9.

10. RESEARCH METHODOLOGY 11. SCOPE OF STUDY 12. REFERENCES

RIZWAN ULLAH ID:1008627- MBA III-Finance

Research Proposal

1. INTRODUCTION
1.

PURPOSE OF STUDY:
The main purpose of this study is to conduct financial performance analysis of Trade Finance Products in Islamic Banking and generation of revenue through its products.

2.

RESEARCH OBJECTIVE:
The research will analyze the financial performance of Trade Finance Department. Research will try to find out the key role player in financial aspects of Trade Finance Products.

To find the impact of volume of Letters of Credit issued by Trade Finance Department for the bank, focusing the profitability.

Also to analyze the impact of huge amount of Letters of Credit issued by Trade Finance Department on behalf of the bank.

Comparing the performance of the Trade Finance Department in terms of revenue generation with other departments.

1.3 LITERATURE REVIEW:

Literature review highlights some information on Pakistan, a brief modern history of Islamic Banking, businesses conducted by Islamic Banks and their products derived through Shariah Compliance. Pakistan is an Import based country depending mostly on imports whereas very low volumes of Export. So, the research will cover more about generating revenues through Imports in Trade Finance Department of Banks.

A.

Islamic Banking

Islamic banking (or participant banking) is banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of specific interest or fees (known as Riba or usury) for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also Haraam (forbidden). While these RIZWAN ULLAH ID:1008627- MBA III-Finance 4

Research Proposal principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles to private or semi-private commercial institutions within the Muslim community.

B.

Modern History:

Modern history of Islamic Banking is not as old as Commercial (Conventional) Banking is (has been), if we explore Islamic Banking i.e. more than 30 years old only whereas compared with Commercial (Conventional) Banking which more than 300 year old.
C.

Trade Finance:

Trade finance relates to International Trade when a seller who is actually an exporter requires a purchaser of the products, which he manufactures, to pay back against the goods which the purchaser who is called an importer has purchased. The process in which these two buyer or seller/ importer and exporter gets involved is called Trade finance.

D.

Import

Imports is the word used for the person or company who brings in the product or services whatsoever is offered from outside/outsource of its boundaries. Buyer of such goods and services is known to be the Importer.

E.

Export

Exports is the word used for the person or company who sell out the products and services whatsoever is offered to another company/country whatsoever but out of the premises. Seller of such goods and services is known to be the Exporter.

F.

Letters Of Credit

A standard, commercial Letters of Credit (LC) is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking. RIZWAN ULLAH ID:1008627- MBA III-Finance 5

Research Proposal

1.4 RESEARCH METHODOLOGY:

Research will collect data through primary and secondary sources. Research will take help from printed material. Research will develop questionnaire and get it fill out by Trade Finance users and working officers. We will try our best to collect the information through internet.

1.5 SCOPE OF THE STUDY:

The purpose of this project and analysis is to prove that Trade Finance Department is one of the core departments of any organization and Letters of Credit is their core product, which helps to generate huge amount of revenue/profits.

Keywords: Trade Finance Department, Islamic Banking, Products, Financial Performance,

Shariah, Pakistan.

REFERENCES (Bibliography)
Hassan, M.K, & Ahmed, M. 2002, Islamic Baking versus conventional banking: A Questionnaire survey of their apparent similarities and differences. The First International Conference on Islamic Banking, Finance and Insurance Reshaping Global Financial Architecture through the Islamic System, 30-31st January 2002, Malaysia. Kahf, M. 1999, Financing international trade: An Islamic alternative, Seminar on International Trade from Islamic Perspective, April 1999. IKIM, Malaysia. Khan, M.F. 1994, Comparative economics of some Islamic financing techniques, Islamic Economic Studies, vol.2. no.1, pp. 35-68. Muhammad Al-Amine, M.A.B. 2001, Istisna in Islamic Banking and Finance: Law & Practice Kuala Lumpur: ASN Publishing. Samad, A. and Hassan, M.K. 1999, The performance of Malaysian Islamic Bank during 19841997: An exploratory study. International Journal of Islamic Financial Services. vol.1, no.3. Syed Ali, S. 2004, Islamic modes of finance and associated liquidity risks. Conference on Monetary Sector in Iran: Structure, Performance and Challenging Issues. Tehran Yusuf Ali, A. 2000, The holy quran (translation). Saba Islamic Media. Sdn. Bhd. RIZWAN ULLAH ID:1008627- MBA III-Finance 6

Research Proposal "Islamic Finance presents firms with new opportunity to make their mark." The Lawyer, July 10, 2006: 17. Ahmad, Ziauddin, Munawar Iqbal, and Fahim Khan. "Money and Banking in Islam." Journal of Research in Islamic Economics, 1985: 9399. Ayub, Muhammad. Understanding Islamic Finance. Chichester: John Wiley and Sons, LTD, 2007. Balfour, Frederik. "Islamic Finance May Be On to Something." Business Week, November 24, 2008: 88. Chapra, Muhamad Umar. "The Nature of Riba in Islam." Chapra, Muhamamd Umar. "The Islamic Welfare State and its Role in the Economy." Chapra, Muhammad Umar. Money and Banking in an Islamic Economy. http://www.muchapra.com/b4.1.html (accessed April 12, 2009). 87 Monetary Policy in and Islamic Economy. http://www.muchapra.com/b4.2.html (accessed April 10, 2009). Islam and the Economic Challenge. Hemdon: The Islamic Foundation, 1992. "Islamic Economics: What it is and How it Developed." Eh.Net Encyclopedia of Economic and Business History. http://eh.net/encyclopedia/article/chapra.islamic (accessed April 25, 2009). Objectives of the Islamic Economic order. Leicester: The Islamic Foundation, 1979. Chapra, Muhammad Umar. "The Case Against Interest: Is it Compelling?" Thunderbird International Business Review, 2007: 161186. ElAshker, Ahmed A.E., and Rodney Wilson. Islamic Economics, A Short History. Leiden: Koninklijke Brill NV,2006

RIZWAN ULLAH ID:1008627- MBA III-Finance