Islamic Banking and Investment: Islamic Banking (Participant Banking) Defined: Islamic banking (or participant banking) is banking

or banking activity that is consistent with the principles of Sharia law and its practical application through the development of Islamic economics. The Ultimate Principle of Islamic Banking: Allah [the Creator] has made business legal, but has strictly prohibited interest (usury/riba) Al Quran, Volume-2, Verse-179 Riba: It is the "surplus value without counterpart", or "to ensure equivalency in real value", and that "numerical value was immaterial." Concept of Investment: Definition: An optimistic commitment of todays cash flows as an exchange of future perpet ual benefits. In finance, investment is putting money into something with the expectation of gain, usually over a longer term The higher the level of returns, the better the investment

Concept of Calculating Investment Returns: Formula:

100

Concept of Banks: Definition: An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers. Background of Banks: Business organization Service rendering financial institution Intermediary between lenders and borrowers According to Institution of Banks of America: Bank is a business organization which provides financial services, acts as an intermediary between lenders and borrowers, is the Heart or Ultimate Destination of Moderate Global Financial Structure. According to the Dictionary of Finance & Banking- Bank is a service rendering financial institution recognized, guided and supervised by Central Banks and mainly performs the following courses of programs-

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Receives current savings and provides withdrawal facilities on demand Collects term deposits and provides interest to the lenders Approves loans to the borrowers at a comparatively higher interest rate Invests in government and other respective financial and investment projects Collects or issues checks, notes, commercial papers, promisory notes, bill of exchange Acts as a trustee in accordance with governmenatl permission

Types of Banks: The following classification is based on the perspective of Bangladesh. All available and active banks are segmented in the following three categories1. Level of Activities 2. Level of Specialization 3. Diversified Dimensions of Commercial Banks

Activity Based Classification Central Bank Commercial Banks Krishi Banks Shilpa Banks Exchange Banks Investment Banks Transportation Banks Savings Banks Banks of Trade and Commerce

Specialization Based Classification Bangladesh Krishi Bank Bangladesh Shilpa Bank Bangladesh Krishi Unnayan Bank Bangladesh Rin Shangstha Bank Grameen Bank Karmashangstaan Bank Bank of Commerce and Small Scale Industries

Dimensions of Commercial Banks Foreign Commercial Banks National Commercial Banks Private Commercial Banks

Some Examples: National Banks of Bangladesh: Agrani Bank Sonali Bank Rupali Bank Jonota Bank

Private Commercial Banks in Bangladesh: A B Bank Jamuna Bank Dhaka Bank

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DBBL Bank Limited Bank Asia etc

Foreign Commercial Banks: City Bank HSBC Bank Standard Chartered Bank Habib Bank Bank of Ceylon State Bank of India etc

These Commercial banks can also be classified based on their activity level or specialization level.

Concept of Bank Management: Definition: It is the sum total of all systematic courses of activities relating to Deposit Mobilization (to raise funds) to ensure effective and efficient Utilization of Funds (investment financing, trade financing & lending) and to provide Foreign Exchange Services

In order to maximize the shareholders wealth through profit maximization value creation and better satisfaction of the customers

According to Peter F. Drucker: The manager of financial institution is to create a Whole higher than the sum of parts; it means to ensure an Integrated Productive System (entity) greater than the sum of the resources put into it. Value of the assembled resources should be greater than separated value of the parts or resources Concept of Synergy Benefits is applied here

Illustration of the Statement: According to Dr. A. R. Khan, there are five steps in the process of Bank Management. They are Planning Organizing Coordinating Motivating and Controlling

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Planning

Controlling

Organizing

Motivating

Coordinating

1. Strategic Planning System of Commercial Banks: It has to satisfy the following needs The answer of several W/H questions (whom to provide the fund, which bank is better, what is to be done to maximize profit etc) Short-term goals maximization of profit Long-term goals maximization of shareholders wealth through value creation and maximization of wealth of the society Specific techniques and tool Example: MBO

Bank Objectives

Bank Resource s Forecasts

Evaluation & Integration

Bank

Strategy

2. Organizing: Definition: According to Earnest Dale: Organizing is the structural process between or among the entities to achieve the stated objectives

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Purposes of Organizing: To maximize profits Job Description & Job Specification Delegation of Authority Labor Segmentation

3. Coordination: Definition: It is the act of organizing, making different people or things work together for a goal or effect to fulfill desired goals in an organization. Coordination is a managerial function in which different activities of the business are properly adjusted and interlinked. Working united rather than separately Harmonious adjustment

Can consider the following points Transparent flow of Information Work & Time Schedule

4. Motivating: Definition: It can be considered a driving force; a psychological drive that compels or reinforces an action toward a desired goal. It can be of two types Intrinsic Motivation- based on taking pleasure in an activity rather than working towards an external reward and Extrinsic Motivation- rewards like money and grades, and threat of punishment

There are several Motivational Programs: Company Suggestion Boxes Points Rewards Programs Sales Achievement Incentives and Programs Productivity/Quality Performance Incentives and Programs Attendance and Safety Awards Outstanding Performance Awards & Programs Customer Service As well as other programs etc

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5. Controlling: Definition: It refers to check the errors and to take the corrective action so that deviation from standards are minimized and stated goals of the organization are achieved in a desired manner.

Controlling Process Diagram:

Positive Aspect

Stabilization

Perspective Performance

Actual Performance

Comparative Analysis

Controlling Actions

Negative Aspect

Corrective Actions or Rectification

In order to control the gaps between the actual & perspective performance, there has been an introduction of some tools and techniques such as the followingsTools & Techniques Feedback Sheet: A written formal representation of suggestions or corrections to reduce the gaps Reports: Assesses financial positions of firms Annually, semi annually or quarterly published reports. Such as Balance Sheet Income Statement Statement of Cash Flow Statement of Retained Earnings Auditing: Shows the relevance, reliability and validity of the financial information, financial transactions Refers to the Internal Professional Bodies Comply with the Regulatory Authority of Auditing Examination: Refers to the External Professional Bodies Purpose: To ensure the reliability, relevance, verifiability of the financial transactions To keep consistency with the International Banking Regulation

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Importance of Increasing the Level of Implications of Bank Management The following diagram explains the importance of increasing the level of implications of bank management-

Changing the Banking Rules & Regulations (legal setting)

Determining the Factors

Emerging the level of competition due to technological advancement (IT)

Increasing the international relations (globalization)

1. Changing the Banking Rules & Regulations (legal setting): Basel: Represents the Basel Committee It is a Professional Body who designs the International Banking Regulations

Basel 01: It is comprised of the following two aspectsI. II. Determining the Capital Adequacy Determining the Level of Liquidity

Basel 02: It is comprised of the following two aspectsI. II. Determining the Credit Risk Management Determining the Level of Reserves

Basel 03: The key focuses of Basel 03 areBanking Accord: Determining the fair services against virtual services Determining the deposit insurance scheme Determining the Capital Adequacy Basel 01 Determining the Level of Liquidity Determining the Credit Risk Management Basel 02 Determining the Level of Reserves

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Determining the appointment of directors Determining the rules on recruitment & selection of employees Determining the rules on approval & non approval of loans Talks about appraisal, review & assessment of the performance of loan projects

So, due to the changes of Banking Rules & Regulations, the Banking Management Process is also expanding. 2. IT Advancement: With the advancement in the IT sector, the procedures of attracting customers are also changing Customers are considered as the Prince Banks are highly specialized environments. They rely heavily on top-end technology as the essential tool in their complex and fast-paced activities.

Technology is integral to all parts of the bank. Working in Technology generally involves the following functions: analyzing current systems and developing proposals for new requirements designing and managing project plans for new technologies enhancing and streamlining established systems and processes creating prototypes of new products for testing liaising between the business and its service providers to arrive at the best solutions troubleshooting problems identified in testing

3. Globalization: To Think Globally and to act Locally To focus on International Trade & Commerce To keep pace with Cross Cultural Diversity To ensure Language Skills Global Political Economy concept Financial markets are global, and the way we manage them has to reflect that Financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking cross-border borrowing from investors The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worth matter

Islamic Banking Definition: It is also called Participant Banking. It represents the banking rules and regulations that might be consistent with the Islamic Shariah as well as Islamic Economics. Participant Banking Islamic Shariah Islamic Economics

Shariah: Represents the domain or specific rules and regulations consistent with Al Quran which is the way to the source of life.

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Key terminologies of Islamic Banking: Terms of Banking in Arabic Mufawadah Mudarabah Mushkarah Ijar Al-mal Nama-Al mal Waqf Al-Wadiah Islamic Banking also includes Cheques, bill of exchange Drafts and so on Meaning of the Terms Partnership Limited partnership Joint venture Leasing Funds of Capital Accumulation of Capital Trusts Safe-keeping

Comparative Study between Islamic Banking v/s Conventional Banking

Key Focuses (issues) Functional & Operational mode Rate of Interest Zakat (Islamic Tax) Borrowing & Lending

Conventional Banking Based on man-made operations Is mandatory, based on compound interest method Theres no application of Zakat here Is the basic principle of it

Islamic Banking Based on Shariah (Al Quran) Reba/Usury is prohibited (Haram) Is mandatory Participation in the business for both parties (participant banking) is mandatory Additional payment or compensation is to be paid and forwarded to charity funds No penalty is applicable here To create expertise or skilled resources for the society is mandatory Public growth or community as a whole Partially applicable: For Mudarabah: its not mandatory For Al-wadiah: Its mandatory Wealth maximization consistent with the Shariah/ Al Quran

Defaulters

Theres strict rules for penalties, penalties are applicable under Compound Interest Method

Expertise Resources

Theres no application for generation of expertise resources Personal growth It is a must and applicable

Growth of Equity Guarantee of Accounts

Profit Maximization

Basic principle without any specific rules whether to follow Shariah or not

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Basic Proposition

Borrowing at a comparatively lower price, lending at a comparatively higher price

Credit Worthiness

It is a must

Clients

Borrowers and Lenders

Wealth maximization through the participation of both parties (lender, borrower) based on PLS (profit loss sharing) Concept It is not mandatory, participation through PLS is mandatory Merchants/ Investors/ Partners/ Buyers/ Sellers

Principles of Islamic Banking 1. 2. 3. 4. 5. The absence of Interest (Riba/Usury) The Exchange/ Transactions based on Speculation (Gharar) The Exchange/ Transactions based on Oppression (Zulm) The introduction of Islamic Tax (Zakat) The Exchange of products controversial to Shariah (Haram)

Illustration of these principles: 1. Absence of interest: There are two dimensions under Islamic Banking: a. The supplier of funds must be compensated b. The compensation must be consistent with the level of PLS Concept 2. Gharar or Speculation is prohibited: Concept of Speculation: Speculators are those people who predict the future Speculation is to predict before actual action In modern financial infrastructure, speculators dont own the products which are being exchanged or traded It causes the concept of Short Sell to emerge It is accepted in the Conventional Banking system

Short Sell: There are two stages in it1. Selling the products at a comparatively better price 2. Buying back (Short Positions) products at a lower price 3. Zulm or Oppression is prohibited: Concept of Zulm: It refers to the forceful action on the minority group or the oppression that persuades individuals to take any decision unwillingly. It is strictly prohibited in the Islamic Banking pattern. Islamic Banking suggests creating a Cosmopolitan society

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Islamic Banking prefers to establish Brotherhood Relationship among Muslims all over the world

4. Introduction of Zakat: It is one of the basic principles of Islamic Banking as well as Islam itself There is no room for the practice of interest (Riba) in Islamic Banking An amount is fixed as Zakat and is then distributed amongst the poor people instead of generating any interest on the investment of the depositors Purpose of Zakat: To secure harmonious balance of wealth in the society among the different classes Concept of Nisab: It refers to the amount which is represents a Fair (minimum) standard of living After deducting the amount of Nisab from the annual income, and then multiplying it with 2.5%, we get the amount that represents Zakat 5. Transaction of Haram Products is prohibited: According to the Islamic Shariah, some products have been declared as Haram or Prohibited to be exchanged or to be used in any kind of business transactions. Such products are Alcohol Pork Meat (Bacon) Alcoholic Beverage Lard: Fat from the swine etc

Examples of Active Islamic Banks in Bangladesh: Some Banks follow the Islamic Banking Rules & Regulations strictly and are considered as Fullfledged Islamic Banks. List of Full-fledged Islamic Banks: Name of Banks Islamic Bank BD Ltd. Foundation Year 1983 Logo

ICB Islamic Bank

1987

Shahjalal Islamic Bank

1991

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Social Islamic Bank

1995

Al-Arafah Islamic Bank

1995

Exim Bank ltd.

1999

First Security Islamic Bank

1999

Banks having Islamic Bank Branches: These banks only partially follow the rules & regulations of Islamic Banking Accord. I. II. III. IV. AB Bank Ltd Dhaka Bank Ltd Southeast Bank Ltd Prime Bank Ltd

Theoretically, the concept of Islamic Banking is possible, but it is not practically applicable. Functions of Islamic Banking Investment System: We know the three basic functions of Islamic Banking Investment System are1. Mobilization of Funds 2. Utilization of Funds and 3. To provide Foreign Exchange Services 1. Mobilization of Funds: It refers to raise funds by accumulating deposits from the clients. The raising of funds are done through the following two accountsa) Al-Wadiah Current Deposit Accounts and b) Mudarabah Deposit Accounts a) Al-Wadiah Current Deposit Accounts: It provides the following features Guarantee of accounts Payable on demands Withdrawal of money at anytime No additional profits or compensation is available

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b) Mudarabah Deposit Accounts: There are three sub segments under this type of account, they areI. Saving Deposit Account: The saving Deposit Account provides the following features PLS Concept based Mudarabah Ratio: Proportion of the distribution of Profit & Loss between Bank and Client. Bank-client Relationship: Based on Shareholders, not based on Debtors and Creditors. II. Term Deposit Account: These accounts provide the following features Specific time line or term against the deposit: from 3 months to 3 years PLS based Mudarabah ratio based III. Special Deposit Account: It is based on Specific Business Sectors: Clients are acknowledged about the business sector before they deposit their money in the bank PLS based Mudarabah ratio based

2. Utilization of Funds: The second function of Bank Management is Utilization of Funds. It consists of three types of activities. They areA. Investment Activities B. Trade Financing and C. Lending Activities A. Investment Activities: There are five types of investment activities under this criterion, they area. b. c. d. e. Musharaka (or Mushkara) Investment Mudarabah Investment Ijarah Bai-Salam Istisna

a) Musharaka (or Mushkara) Investment: Profit Loss sharing principle Joint venture business Wealth maximization through the development of HR (Human Resource)

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Based on HRC (Human Resource Capital)

b) Mudarabah Investment: 1. Mark-up Principle: Bank will finance, not the clients The partners will ensure Labor, Effort, Management, and Integration Contribution of partners are Specified (50-50 most of the time)

2. Profit & Loss Sharing Principle: Bank will invest to the Entrepreneurs, Merchants PLS based Mudarabah Ratio based

3. Ijarah: Lease based Principle Bank will invest in favor of clients which will happen according to the lease based principle Clients will pay on Rental Payment basis, so clients are also called Lessee Concept of Hire-Purchase: Once the payment is fully done by the Lessee, he/she becomes the ultimate owner of the product

4. Bai-Salam: It refers to the Advanced Payment It is also referred as the Forward Purchase Contract Represents making payments in advance for purchasing before the product is actually produced To reduce the Shortage of Liquidity while producing the products, Bai-Salam Concept is applied to run the process with required capital

5. Istisna: It refers to the Future Contract of Acquisition Payment is given on the basis of the progress of the production or project (unlike the BaiSalam) Represents a legal deed for the advanced payment based on the progress of the project The ultimate owner will be Bank

Second Function of Investment Activities: Trade financing B. Trade Financing: It includes the following four conceptsa. b. c. d. Mark-up Principle Letter of Credit: Sell and Buy back Leasing

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a. Mark-up Principle:
Product

Bank

Product

Seller
Purchase Price Purchase Price + Profit

Client

Bank purchases product/project in favor of Client The Bank enjoys the Profit when Client buys the Product (it maybe after 6 months or more) Ultimate owner of the product is Client

b. Letter of Credit: A document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services Letters of credit are used primarily in international trade for large transactions between a supplier in one country and a customer in another

c. Sell and Buy back: It is basically similar to the concept of Short SellShort Sell: There are two stages in it1. Selling the products at a comparatively better price 2. Buying back (Short Positions) products at a lower price Buy-back is also called as Fulfilling Short-Positions. d. Leasing: It is similar to the concept of Hire-purchase. The client will spontaneously pay The ultimate owner of the Product will be the Client

C. Lending Activities: It includes the followings Loans with cost: Refers to interest bearing loans Loans without cost: Refers to loans for poor or distressed people provided by Islamic Banks without charging any interest for the development of the SMEs or other rural business etc. Providing over drafts: Islamic Banks collect checks in favor of potential clients. These work as sources of income for banks Commissions or fees based transactions: Islamic Banks provide commissions based transactions and thus enhance their lending activities.

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3. Foreign Exchange Services: The third and final function of Bank Management is Foreign Exchange Services. It includes the followings Functions of Banks in Global Market : In telecommunication, foreign exchange service (FX) is a network-provided service in which a telephone in a given exchange area is connected, via a private line, to a central office in another foreign exchange, rather than the local exchange area where the device is located. Foreign exchange fixing: Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Exchange of Currencies: The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states especially Euro zone members and pay Euros, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies. In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying some quantity of another currency. The Emergence of (Historical Background) Islamic Banking in Bangladesh:

Year 1974 (August) 1980 1981 1982 1982 (onwards couple of years) 1983 (March)

Events Bangladesh signed the Accord ob IDB (Islamic Development Bank) Forwards a special resolution regarding the Islamic Banking concept The 3rd International Islamic Conference was held in Mecca Delegation of IDB (Islamic Dev visited Bangladesh Two professional bodies like IERB (Islamic Economic Resource Bureau) & BIBA (Bangladesh Islamic Bankers Association) Introduction of Islamic Bank in Bangladesh

The New Products Introduced by Islamic Banking: Concept of Product Development: A systematic process of introducing distinctive quality products that have not been introduced or mustered by the rivalry companies is the main concept of it.

The followings are some of the new products that have been introduced by the Islamic Banking system-

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Products

Description Takaful (Arabic: ) is a co-operative system of reimbursement in case of loss, paid to people and companies concerned about hazards, compensated out of a fund to which they agree to donate small regular contributions managed on behalf by a [Takaful Operator][1] It is defined as an Islamic insurance concept which is grounded in Islamic banking, observing the rules and regulations of Islamic law. It differs from a Debit Card, where the purchase is debited from the users checking or savings account. A credit card user typically repays the debt in installments with a minimum payment determined by the balance on the card. Most credit cards charge relatively high interest rates based on the unsecured nature of the debt. The interest charged on the balance is considered haram or impermissible. A system for the customer to act upon banking procedures on his or her cell phone or other mobile appliance. It is a popular technique of banking that fits in well with a busy, technologically oriented lifestyle. It might also be referred to as M-banking or SMS banking. There is no form filling-up and number taking needed, every transaction is made online Flexible banking system that provides services for almost always. Islamic Banks now take mortgages from other Commercial Banks and enhance their services. Islamic Banks now works in a very reliable role by providing Internship to the fresh graduates Islamic Banks are very reliable for the professional careers also. Islamic Banking undertakes actions to issue and deal with LC (Letter of Credit) and thus enhances its business sectors. Advices the potential investors of business SAC (Shariah Advisory Council) reoresents SSB (Shariah Supervisory Board) SSB (Shariah Supervisory Board) ensures that all of the functions provided by the Islamic Banks of Islamic Banks are consistent with the Islamic Shariah

1) Islamic Insurance

2) Islamic Credit Card

3) Phone or Mobile Banking

4) E-banking or Internet Banking 5) 24/7 Hours Service 6) Mortgages from Commercial Banks 7) Private Placement

8) Legal Setting 9) Financial Advisory (SAC)

Analyzing Banks Performance: Using UBPR UBPR refers to Universal Bank Performance Report. The performance of banks is analyzed using this report as a reference.

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Formula: Bank Asset = Bank Liabilities + Owners Equity (Owns) (Owes) (Interest) Bank Assets: It represents the left side of a banks balance sheet. It includes the followings 1) Cash and Due from Banks and Other Parties : It includes the following items Vault cash The cash that is available with Central Bank Cash in the process of collection from the customers 2) Investment Securities: It follows the specific accord of FASB-115. The following three items should be considereda) Held to maintain securities: Uses the purchase price, historical cost or base cost b) Trading account securities: Uses the (market value + income statement) price which is also called the Open Market Price. Here profit and loss will be specified as a part of Income Statement c) Other Available for Sale Securities: It uses the (Market Value + Owners Equity) Based on Open Market Price Profit and loss will be recorded as a part of Owners Equity 3) Loans: Purpose: To maximize the returns It requires adjusting three items to calculate the Net Income Gross Loans (Beginning) xx Leases (+) Unearned Income (-) Loan Loss Allowance 4) Other Assets: It includes the bank premises and equipments as mentioned in the following Furniture Machineries Real Estate Items Premises Equipments Prepaid Expenses Accounts Receivable Inventories Land or any fixed asset etc The following diagram explains the term Gross Loans well-

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Provision for Loss

Provision for Securities

Reserve for Loan Loss

Loan Loss Allowance

Reserve for Loan Loss refers to the money to recover loan loss The final outcome will be Net Loans

Bank Liabilities: It includes the following items Demand Deposits: These will not compensate any interest rate or profit to the lenders Payable on demand Non-interest bearing deposit NOWs and ATSs: NOW: Negotiable Order Withdrawals ATS: Automatic Transfer Savings Both accounts will represent a specific amount of interest the amount of interest will be solely controlled by the commercial bank itself The regulation of FED or Central Bank in case of these both will not be applicable These accounts are not subject to the Central Bank MMDSs: MMDS: Money Market Deposit Securities The holder of MMDSs will be forwarded the Open Market interest rate These accounts are under direct supervision of the Central bank itself These are the subject to Central Banks regulation Purchased Liabilities: Items that are very interest rate sensible: Funds purchased from Federal Bank or Central Bank Repurchase Agreements Other interest rate sensible items: Securities that have maturity of less than one year Savings Deposits: It can be sub-classified on the basis of time series dimensions Time Series dimensions: Different volumes at different timelines Owners of these deposits are the clients Time Series Deposits can be classified into two categories : 1) Jumbo CDs (Certificate of Deposits): It is regulated in accordance with the FASB-135 The timeline of this deposit is undefined

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The volume of the deposit is lower than $ 100000

2) Core CDs (Certificate of Deposit) or Small CDs: The volume of deposit is less than $ 100000 Timeline of this type of deposit is specified The timeline must be greater than 1 year Net Non-Core Liabilities: There may be some deposits that have A volume of amount which is less than $ 100000 The timeline or maturity is also less than 1 year Deposit held at Foreign Offices: It refers to the deposit account where Money is not available right now at the Parent country Owners are the clients Core Funds versus Large Funds: Core funds are also called small funds They are not highly interest rate sensitive Focus onFees Commissions Bank Services as well as bank location Large Funds are the highly interest rate sensitive deposit

Stock Holders Equity:

It considers the following items Interest of Equity Holders: An equity holder owns one or more shares in a company, entitling that person to shares of the proceeds as well as losses of the firm. Equity holders have an interest in the companys fortunes and are entitled to annual reports and disclosures from administrators. People in charge of a company are tasked with protecting the interests of the people who hold shares, and cannot embark on activities that might threaten profits or destabilize the company. Common Stock & Preferred Stock: Common Stock: Common stock is ownership in a company, just the basic stock that we're used to trading. Companies sell common stock through public offerings, and it's traded among investors on the secondary market. Those who hold the stock hope to earn dividends from their share of company profits. Preferred Stock: Like common stock, preferred stock is sold by companies and is then traded among investors on the secondary market. Preferred stock is less risky than common stock, therefore investors can expect less reward.

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 Surplus Account (in excess of par value or par share): In the wacky world of international economics, a current account surplus is often balanced by a capital account deficit, which is generally considered an undesirable situation. If the capital account does not balance out the current account, then a current account surplus contributes to a balance of payments surplus. Retained Earnings: It refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Conclusion: The above discussion clarifies the items of balance sheet situated both in the left and right side of it. It varies from bank to bank and specially, in Islamic Banks, these items are designed or maintained in a more different way.

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