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 Deposits
Weightage System
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
1 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

4 Diminishing House Financing (Build, Buy, Renovate & Replace)

Musharakah 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
 Application of Modes

• Based on the criteria for selection of modes, the

appropriate modes is applied to fulfill the customers need.

Mode Mode
Need Selection Application

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