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EXPERENCE AT BANK ALFALAH...........................................................................................................

INDUSTRY OVERVIEW..............................................................................................................................7

SIZE.............................................................................................................................................................7
ISLAMIC BANKING..................................................................................................................................8

PRODUCT OVERVIEW...............................................................................................................................8

RETAIL BANKING:.............................................................................................................................................8
INDUSTRIAL BANKING:......................................................................................................................................8

HISTORY OF BANK ALFALAH LIMITED..............................................................................................9

MISSION ........................................................................................................................................................9

VISION ...........................................................................................................................................................9

THE PHILOSOPHY....................................................................................................................................10

CORE SLOGANS AT BANK ALFALAH LIMITED...............................................................................10

CREDIT RATING........................................................................................................................................10

CORPORATE INFORMATION.................................................................................................................10

INTERNSHIP EXPERIENCE ...................................................................................................................13

HUMAN RESOURCE POLICIES OF BANK ALFALAH......................................................................14

ISLAMIC BANKING DIVISION...............................................................................................................20

ESTABLISHMENT OF ALFALAH ISLAMIC BANKING.....................................................................20


DIFFERENCE BETWEEN CONVENTIONAL AND ISLAMIC BANKING ............................................................................21

ISLAMIC MODES OF FINANCING.........................................................................................................22

MURABAHA.............................................................................................................................................22
SALAM......................................................................................................................................................23
ISTISNA.....................................................................................................................................................24
MUDARABAH..........................................................................................................................................24
IJARAH......................................................................................................................................................25
CAR IJARAH DEPARTMENT.................................................................................................................26
PROCEDURE ..................................................................................................................................................27
IJARA AS A MODE OF FINANCING......................................................................................................31
IJARAH WA IQTINA.........................................................................................................................................33
MUSHARAKAH.......................................................................................................................................33
ALFALAH HOME MUSHARAKAH.......................................................................................................34

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DIFFERENCES ISLAMIC BANK AND CONVENTIONAL BANK (MUSHRAKAH) ..............................................................35
PRODUCTS.....................................................................................................................................................35
50 % OF THE ALLOWABLE LIMIT FOR PURCHASE OF PLOT AND REMAINING 50 % FOR CONSTRUCTION, BUT TOTAL
EXPOSURE DOES NOT EXCEEDS 70 % OF THE MARKET VALUE OF PROPOSED PROPERTY............................................36
THE BANK WILL ASSESS VALUE OF THE PROPERTY THROUGH THEIR OWN APPROVED VALUATORS OF THE BANK.................38
THE FACILITY WILL BE PROVIDED ONLY FOR URBAN PROPERTIES (APPROVED AREAS OF THE BANK)...............................38
LOANS FOR CONSTRUCTION WILL BE CONSIDERED ONLY AFTER PLANS HAS BEEN APPROVED BY THE COMPETENT AUTHORITY
....................................................................................................................................................................38
THE-PROCESSING FEE IS NON-REFUNDABLE. IF HOWEVER THE CASE IS DECLINED DUE TO ANY ISSUE RELATED TO TITLE OF
DOCUMENTS AT THE LAWYERS LEVEL OR DUE TO ISSUE IN PROPERTY VALUATION THE FEE WILL NOT BE REFUNDABLE........38

ACCOUNTS DEPARTMENT.....................................................................................................................39

ACTIVITIES..............................................................................................................................................39
BUDGETING.............................................................................................................................................39
REPORTING..............................................................................................................................................39
MAINTAINING OF FIXED ASSETS & THEIR DEPRECIATION........................................................40
MISCELLANEOUS FUNCTIONS...........................................................................................................40
STATEMENTS...........................................................................................................................................41

THE ACCOUNT OPENING DEPARTMENT..........................................................................................43

DETAILS OF THE ACCOUNT OPENING FORM........................................................................................................43


DISTINCTIVE FEATURES OF THE VARIOUS TYPES OF ACCOUNTS.............................................................................44
TERM DEPOSIT ACCOUNTS MURABAHA –MUDARABAH BASED ............................................................................45
CALL DEPOSIT RECEIPT.......................................................................................................................45
PROCEDURE OF OPENING AN ACCOUNT..............................................................................................................46
PROCEDURE FOLLOWED IN ORDER TO CLOSE AN ACCOUNT.................................................................................46
SOME IMPORTANT DOCUMENTS USED IN THE ACCOUNT OPENING DEPARTMENT......................................................47

THE LOCAL REMITANCES DEPARTMENT........................................................................................49

NEGOTIABLE INSTRUMENTS..............................................................................................................................49
PAY ORDER (PO)..........................................................................................................................................49
DEMAND DRAFT (DD)...................................................................................................................................49
CALL DEPOSIT RECEIPT (CDR).......................................................................................................................50
PAY SLIP (PS)...............................................................................................................................................50
CANCELLATION OF PO, DD & CDR...............................................................................................................51
ADVANCE TAX AGAINST REMITTANCES..............................................................................................................51

CREDITS DEPARTMENT..........................................................................................................................52

CREDIT POLICY OF THE BANK..........................................................................................................................52


TYPES OF BORROWERS....................................................................................................................................53

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KINDS OF CREDIT OFFERED BY BANK ALFALAH LIMITED....................................................................................54
SHORT TERM CREDIT (MURABAHA).................................................................................................54
MEDIUM TERM CREDIT (IJARAH) .........................................................................................................54
LONG TERM CREDIT (MUSHARAKA).......................................................................................................55
OVER DRAFT (OD)........................................................................................................................................55
CASH FINANCE (CF)......................................................................................................................................55
LETTER OF CREDIT (L/C)................................................................................................................................56
LETTER OF GUARANTEE (L/G).........................................................................................................................56
FINANCE AGAINST IMPORTED MERCHANDISE (F I M) ........................................................................................56
CREDIT PROPOSAL................................................................................................................................57
LENDING PRINCIPLES...........................................................................................................................57
MODES OF SECURING ADVANCES.....................................................................................................58
PROCESSING OF LOAN APPLICATION..................................................................................................................61
PREPARATION OF THE CREDIT PROPOSAL............................................................................................................65

TRADE FINANCE DEPARTMENT..........................................................................................................68

EXPORT.....................................................................................................................................................68
IMPORT.....................................................................................................................................................70
LETTER OF CREDIT.........................................................................................................................................70
BANKS INVOLVED IN LETTER OF CREDIT:..........................................................................................................71
DOCUMENTS REQUIRED FOR IMPORT:.................................................................................................................72
MODE OF PAYMENT........................................................................................................................................73
L/C FLOW CHART.................................................................................................75

OPERATING RESULTS..............................................................................................................................76

H R POLICIES OF BANK ALFALAH......................................................................................................77

I ASKED THE CREDIT DEPARTMENT MANGER MR. UMAR ABOUT BANK'S HR POLICIES
AND HE AGREED TO GIVE ME ONLY SOME INFORMATION BUT REFUSED TO PROVIDE
ME THE DETAIL OF HR POLICIES AS THESE ARE CONFIDENTIAL OF ANY
ORGANIZATION........................................................................................................................................77

ADMEN. EXPENSE AS % OF DEPOSITS=ADMEN. EXPENSE/DEPOSITS*100............................85

2006 SPREAD...............................................................................................................................................85

2005 SPREAD...............................................................................................................................................85

HORIZONTAL ANALYSIS...................................................................................................88

NET ASSETS................................................................................................................................................88

SHARE CAPITAL........................................................................................................................................88

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RESERVES...................................................................................................................................................88

...................................................................................................................................................91

................................................................................................................................................92

SWOT ANALYSIS................................................................................................................92

STRENGTHS....................................................................................................................................................92
WEAKNESSES.................................................................................................................................................92
OPPORTUNITIES...............................................................................................................................................93
THREATS.......................................................................................................................................................93

RECOMMENDATIONS..............................................................................................................................94

ONE OF THE MOST PRESSING NEEDS OF THE TIME IS TO ADVERTISE BANK ALFALAH
LIMITED IN THE ELECTRONIC MEDIA. BANK ALFALAH LIMITED HAS NOT, TILL DATE,
EMPLOYED ADVERTISEMENT IN ELECTRONIC MEDIA AS A FULL FLEDGE MARKETING
TOOL. I THINK IT IS HIGH TIME THAT BAL DOES THIS..............................................................95

CORPORATE INFORMATION.................................................................................................................96

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EXPERENCE AT BANK ALFALAH
Internship was a new experience of work, which was practical and provided learning
curve along with knowledge and skills. The most fascinating part of my internship was
working in Islamic banking division of bank Alfalah, I learnt about the differences
between conventional & Islamic banking which is a slightly new concept in Pakistan &
still emerging. During my eight weeks of internship my rotation was in various
departments of Bank Alfalah Islamic banking division. In my first week of internship I
was placed in the account Opening department.In this department I was supposed to
check all the files , note down the missing documents, filling the application kit of the
department, which included application form, account opening form. Checking if the
customer signed the application form and nothing relevant is missing. In my second week
of internship I was placed in the musharakah department where I was supposed to check
the daily activity, I also prepared vouchers for different day-to-day activities in branch. In
my total internship program I worked in the car Ijarah where I started working on the
lease outstanding data report which was suppose to be submitted to head office that report
included entering the details of all the customers of this department on excel sheet which
included Rental date of lease, date of maturity, name of lessee, nature of the asset leased
either car or machinery, unit price, lease amount, security deposit, net finance amount,
total rentals, this report was categorized in both consumer & cooperate clients. I also
worked on the exception CIB report. Where I was suppose to update and rectify all the
things, which were not put right. This report included the personal, employment & loan
details of the customer. My workings in this department also include filling the legal
documents, checking the files if any documents missing or not signed by the customer. I
also updated the CIB report that included the details of customers like customer personal
information including his name, father name. Date of birth, NIC no (both old & new) his
marital status, his education, his dependents, his residential address, his contact no type
of accommodation, then his occupation detail if salaried then name of employer, address,
contact number, current designation, if a business person the name & nature of business,
constitution of the firm (proprietorship partnership, other) I also typed reminder letter of
overdue rentals to the customer & dispatch them. During this period not only the
technical work was learned but the communication skills were also polished. It makes me

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feel and makes me realize how to” work Smarter than work Harder”. My working in
remittance department includes my work includes demand drafts, pay orders how to
make their entry in the register, how to file them, to what authorities do have to present it
for signatures.
During my work tenure at BAL-IBD I carried out various analysis to determine the
financial soundness and future potential of the bank. This SWOT analysis. My major
discoveries were that bank has made the best use of their assets. Bank is financially
strong and has a huge deposit reserve According to the SWOT analysis the bank still has
a lot of growing up to do; this includes number of Branches and introducing ATMs
(Network) in Islamic branches, increasing the promotional activities

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INDUSTRY OVERVIEW
Banking is one of the most sensitive businesses all over the world. Banks play a very
positive and important role in the economy of a country and Pakistan is no exception.
Banks are custodian to the assets of the general masses. The banking sector plays a
significant role in a modern world of money and economy. It influences and facilitates
many different but integrated economic activities like resources mobilization, poverty
elimination, production and distribution of public finance.
Pakistan has a well-developed banking system, which consists of a wide variety of
institutions ranging from a central bank to commercial banks and to specialized agencies
to cater for special requirements of specific sectors. The country started without any
worthwhile banking network in 1947 but witnessed phenomenal growth in the first two
decades. By 1970, it had acquired a flourishing banking sector.

SIZE
In 1990 the banking system was dominated by five commercial banks, which were all
state owned. The 1990 amendments to the Banking Companies Ordinance launched the
process of financial sector reforms by allowing privatization of the state-owned banks.
During the first round of reform two of the state-owned banks, Muslim Commercial Bank
and Allied Bank, were privatized between 1991 and 1993. The reforms process was
subsequently delayed for several years and resumed significantly only in the early 2000s.
With the privatization of the third large bank, United Bank, in 2002 the domination of the
state-owned banks was ended.
As of September 2003, the asset share of local private banks and public sector
commercial banks was 47 percent and 41 percent respectively. another large state-owned
bank, Habib Bank, completed its privatization process in February 2004. As a result of
this privatization, the share of banking system assets held by public sector commercial
banks decreased to less than 25 percent. The largest bank in the country, National Bank of
Pakistan, with a market share of approximately 20 percent, remains state-owned and its
privatization prospects are uncertain at this stage, although the government divested
approximately 25 percent of its capital in 2001-03.

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ISLAMIC BANKING
Efforts have been made in recent years to promote Islamic banking services. In particular,
the State Bank of Pakistan (SBP) exempted Islamic commercial banks from the oratorium
on the establishment of new banks, and the first full-fledged Islamic bank, Meezan Bank,
was licensed in 2002. Several conventional banks have also opened branches that provide
only Islamic financial services. The size of these Islamic banking institutions remains
very small. Although legal ambiguities remain regarding the process of Islamization of
the financial system of Pakistan, the establishment of new Islamic banking institutions is
likely to continue in the coming years.

PRODUCT OVERVIEW
Banking products can be divided into two main categories:

Retail Banking:
Retail banking includes consumer and commercial banking, Major consumer products
that banks offer today include:
1. Auto Loans
2. Credit Cards
3. Debit Cards
4. House Finance
5. Running Finance

Industrial Banking:
Industrial banking involves catering to industrial and corporate needs through a variety of
products, commonly including:
1. Corporate Finance
2. Finance/Credit Extension
3. Trade
4. Investment/Cash Management

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HISTORY OF BANK ALFALAH LIMITED
Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limited company
under the Companies Ordinance 1984. Its banking operations commenced
from November 1st, 1997. The bank is engaged in commercial banking and related
services as defined in the Banking companies ordinance, 1962. The Bank is currently
operating through 215 branches in 36 cities, with the registered office at B.A.Building,
I.I.Chundrigar,Karachi.
Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the
management of the bank has implemented strategies and policies to carve a distinct
position for the bank in the market place.
Charged with the strength of the Abu Dhabi based consortium, and under the leadership
of Highness Sheikh Nahayan Mabarak Al-Nahayan, Minister of Education, Government
of Abu Dhabi, and a prominent member of Royal Family – the bank is energized with the
vision, envisaging the development of consumer sector in Pakistan.
This facilitates the bank’s commitment to a culture of innovation and seeks out synergies
with clients and service providers to ensure uninterrupted services to its customers. Bank
Alfalah Limited perceives the requirements of the customers
and matches them with quality products and service solutions. During the past five years,
the bank has emerged as one of the foremost financial institution in the region
endeavoring to meet the needs of tomorrow today.

MISSION
To develop and deliver most innovative products, manage customer experience, deliver
quality service that contributes to brand strength, establishes a competitive advantage and
enhance profitability, thus providing value to stakeholders of the bank

VISION
To be the premier organization operating locally and internationally that provide the
complete range of financial services to all segments under one roof.

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THE PHILOSOPHY
• Excellence in service.
• Quality performance.
• Product innovations.

CORE SLOGANS AT BANK ALFALAH LIMITED.


• Every door leads to our customers.
• The legacy of leadership stands as our guiding light.
• The strength of the chain relies on the strength of each link.
• A keen ear is key to understanding.
• Achievement is nothing without a target.
• A stitch in time saves nine.
• Time is our most valuable asset.
• Performance is nothing without the ability to measure it.
• Every drop counts.
• Whatever we are is harvest of hard work.
• Let’s look ahead towards a brighter future. Together.

CREDIT RATING
The Bank Alfalah Limited’s long term rating increased to AA in the long term and A1+
in the short term. These ratings have been assigned by PACRA, Pakistan's leading rating
agency. These ratings denote better risk absorption capacity stemming from enhanced
equity as well as well maintained credit portfolio

CORPORATE INFORMATION

Board of Directors

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H.E. Sheikh Hamdan Bin Mubarak Al Nahayan Chairman
Mr. Abdulla Khalil Al Mutawa Director
Mr. Abdulla Nasser Hawaileel Al-Mansoori Director
Mr. Khalid Mana Saeed Al Otaiba Director
Mr. Ikram Ul-Majeed Sehgal Director
Mr. Nadeem Iqbal Sheikh Director
Mr. Mohammad Saleem Akhtar Chief Executive Officer

Board Advisory Committee


Mr. Abdulla Khalil Al Mutawa Director
Mr. Khalid Mana Saeed Al Otaiba Director
Mr. Bashir A. Tahir Member
Mr. Ganpat Singhvi Member
Mr. M. Iftikhar Shabbir Secretary

Board Audit Committee


Mr. Abdulla Khalil Al Mutawa Director
Mr. Khalid Mana Saeed Al Otaiba Director
Mr. Bashir A. Tahir Member
Mr. Ganpat Singhvi Member
Mr. M. Iqbal Saifi Secretary

Central Management Committee


Mr. Mohammad Saleem Akhtar Chairman
Mr. Parvez A. Shahid Deputy Chairman
Mr. Sirajuddin Aziz Member
Mr. Mohammad Yousuf Member
Mr. Shakil Sadiq Member
Mr. Shahid M. Murtaza Member
Mr. Nadeemul Haq Member
Mr. Bakhtiar Khawaja Member
Mr. Adil Rashid Member

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Mr. Ijaz Farooq Member
Mr. Arfa Waheed Malik Member
Mr. Adnan Anwar Khan Member

Company Secretary
Mr. Hamid Ashraf

Chief Financial Officer


Mr. Zahid Ali H. Jamall

Auditors
KPMG Taseer Hadi & Co.,
Chartered Accountants

Registered / Head Office


B. A. Building
I. I. Chundrigar Road
Karachi.

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INTERNSHIP EXPERIENCE
My internship at Bank Alfalah Ltd. was of 6 weeks during which I was rotated in almost
all the departments of the bank’s branch

The departments in which I worked are as follows

• Home Musharaka
• Accounts Department
• Account Opening Department
• Remittances
• Trade Finance
• Credit Department
• Car Ijarah

The working of different departments was explained to me in an excellent manner. The


type of work which I had to do was of general nature and did not have much ambiguity
into it. A detailed overview of every department listed above is given below

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Human Resource Policies Of BANK ALFALAH

Initiation Of Staff Hiring:


All branches/units of Bank Alfalah should systematically forecasts
their future staffing requirements for time of induction of high quality staff. These
requirements are intimated to HRD through Area Managers.

Staff hiring may be done in Batches , in small groups or individually.

Hiring of Batches:
Batches are hired of fresh officers, given training, and then placed at
branches.
These batches are 1: Management Trainee Officers
2: Operational Officers
3: Cash Officers
4: Business Development Officers

Hiring In Small Groups:


It may be done according to planned expansions of existing branches.

Individual hiring :
Individual hiring is done from time to time when a branch or unit has
need to induct additional staff.

Minimum entry requirements:


Graduation from recognized university home or abroad

Recruitment of close relatives:

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It can be done but the candidate must meet the eligibility
criteria.

Selection Authority:
It can't be disclosed

Selection Test:
People getting more than 50% marks in tests go fo the next step.

Psychometric Test

Selection Interview :
It id done by branch manger ,area manager ,head product dept. as
required.

Panel Interview: candidates of higher range are interviewed by panels of


senior officials.

Medical Examination Of New Joiners:


If the bank deems fit , the candidate will undergo a
medical examination before joining the bank.

Issue Of Offer /Appointment Letter:


Offer letter will be issued by HRD of Bank Alfalah to
be signed by signatory.

Probationary Period:
For entrants this period is determined but it cant be disclosed.

Renewal of contract:
It cant be disclosed.

Placement Of Candidates:
As far as possible ,attempt is to be made to select candidates
belonging to the area where they need to be posted . However to the requirements of the
bank services are transferable

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INDUCTION TRAINING AND DEVELOPMENT

In Service Training :
Training need: objective is to keep the e employees abreast of latest
professional knowledge and skills.
Annual training plan:
Minimum training for all: Two days of calendar year.

Induction Training:
Full day induction session for new joiners.

Batch Training:
As per requirements, a comprehensive training for new batches, they
may be asked to undergo on the job training by way of rotation.

External Training:
Whenever deemed necessary external training consultants may be
invited to conduct training programmed.

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SALARY,ALLOWANCES AND BENEFITS FOR PAKISTAN
BASED STAFF

Staff monthly salary is disbursed before the end of each month. Salary and allowances of
each employee is a confidential matter.

Advance Against Salary;


Employee in need of funds for an emergency may be allowed
advance against salary for the current month to be adjusted in full on disbursement of
salary it is only in case of emergency.

Accommodation:
As the discretion of bank's management, furnished or unfurnished
accommodation up to reasonable value may be provided to senior officers. other staff
members when transferred out of city given additional allowances.

Furniture Facility:
It is given to confirmed range of officers which can't be disclosed, but
they should have minimum two years of experience.

Fuel Allowance:
At the discretion of the management, officers posted in business units like
BDO, car finance , home finance etc. are given fuel up to certain liters.

Mobile Phone Facility:


Officers having their functional requirements are given mobile phone
facility up to certain limit subject to their own mobile phone.

Title Allowance:

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Branch managers, product heads, asset executive in charge , area
managers are given title allowances till such time they hold these positions.

Bank Car Facility:


This facility is given to some executives which can't be disclosed.

Profit Bonus/Special Cash Prize:


profit bonus will be paid to employees based on respective bonus circular and special
cash may be paid on outstanding performance.

Provident Fund:
all permanent e employees are eligible for membership of this fund. contribution is
8.33% of monthly salary.

Cash Awards On Passing Institute Of Bankers Diploma Exams;


There 3 stages of IBP diploma
exams and for each stage there rewards based on completing in 21st attempt, 2nd
attempt and 3rd attempt.

Staff Insurance:
The bank has arranged insurance for its full time staff. these are subject
to amendment from time to time.

Hospitalization Insurance C Overage For Employees And Their


Dependent Parents, Spouse And Children.:
In case working wife not covered by her employer then she will be eligible for applying
in this scheme.

Group Mortgage Insurance Coverage:


Lives of bank employees are covered up to the out
standing balance of house finance liability in the name of the concerned employee with
the bank would be taken over by the insurance company and no liability will be borne
by the family of the deceased.

Group Mortgage Insurance Coverage For Conveyance Finance

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Lives of clerical and non clerical
staff covered up to the conveyance finance liability and would be taken over by the
insurance company and no liability will be borne by the family of the deceased.

Life Insurance Coverage:


All employees of the bank who are on bank's pay roll whether in
regular or contractual up to the age of 65 years will be covered under group life
insurance. the category and amount can't be disclosed.

Follow Up Treatments:
Regular employees , their spouse , children suffering from serious
illness will be entitled to imbursements of cost of medicine but if
1: Treatment prolongs for six months or more.
2: If treatment expense is up to 10% of basic monthly salary.

End Sevice Benefits:


1 :Provident fund
2: Gratuity Payment
3: Encashment Of Unavailed Privileged Leave

Income Tax Liability:


The employees are personally responsible for their preparation and
submission of personal income tax any other personal taxation returns and reports.

Other Regulatory Requirements: The HRD will ensure deduction of


employees Old Age Benefit contributions. Social Security Contributions, education Cess
as per the rules and provisions of relevant statutes

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ISLAMIC BANKING DIVISION

ESTABLISHMENT OF ALFALAH ISLAMIC BANKING

Alfalah Islamic banking is a compliment to the farsightedness of the banks sponsors &
managements. In year 2002 there were only two Islamic banks operating in Pakistan.
Alfalah Islamic banking was conceptualized by management in the year 2002 and the
Islamic banking division was formally launched in June 2003. After spending six months
on the drawing board operations were launched with the opening of five Islamic banking
branches in December 2003.alfalah’s initiative in Islamic banking was the largest ever
taken by any conventional bank in Pakistan.

One can vividly perceive the transition in the global banking sector, from core/retail
banking, to the complex and detailed role of financing, which clearly depicts
sophistication and organization of international banking community. With the passage of
time, the banks have undoubtedly become multifunctional bodies, performing various
roles and providing their clients with numerous desired products.

Speaking of the international banking community, Islamic banking is undoubtedly a part


of it. To keep up with this modernized community and to compete with their fellow-
competitors, Islamic banking has introduced and refined some alternative Islamic
financing products, to the ones available in the Conventional markets, in order to cater for
the Muslim community around the globe. Having said that, it is open to anyone, whether
a Muslim or a non-Muslim, to take advantage of these products, as long as they comply
with the requirements and precepts of Islamic Shariah.

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At this instance, it helps to add that the prohibition of interest in Islam does not imply that
the capital is not to be rewarded, nor that risk is not be priced. The Islamic system has
both fixed and variable return modes to price the capital and add ‘risk premia’ in relation
to the degree of risk involved. Islamic banks provide financing using two methods. The
first is based on profit-sharing and the second one deals with modes, which rely on fixed
return (mark up) and often conclude in creating indebtedness of the party seeking finance.

Difference between Conventional and Islamic Banking

Conventional Banking Islamic Banking


Conventional bank prices money. Islamic banking prices goods and services
(assets)
Depositors get a fix rate regardless of the Profit is shred with the depositor, higher
banks profitability, thus insulating them the banks profit, higher the depositors
from the banks true performance. income.
Deals in money or paper. Deals in assets
Borrows fund form the depositors paying Partnership (Mudarabah) or profit and loss
interest on the liability side of its balance sharing arrangement between the bank and
sheet the depositors.
Lends the funds to the borrows, charging,
higher interest on the asset or investment
side.
Between the depositors and the bank there Profit and loss sharing (Musharaka) or
is an iron wall. trade based financing arrangement
between the bank and its investment
client.
The interest or the return is predetermined Islamic bank entitles the depositors to be
or fixed in advance. informed what the bank does with the
money
Transactions are financial asset based. Transactions are real asset based.

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ISLAMIC MODES OF FINANCING

Debt creating modes:

• Murabaha
• Salam
• Istesna
• Ijara

Partnership based modes

• Musharaka
• Mudarabah

MURABAHA
In this particular kind of sale, the seller clearly mentions the cost of the sold commodity,
and then sells it to the buyer by keeping a profit margin. Thus, Murabaha should not be
seen as a loan given on interest, it is rather a sale of a commodity for cash/deferred price.
As regards Bai Murabaha, the bank purchases a commodity, on a client’s behalf, and then
resells it to the latter, on the basis of plus-profit. Under this kind of agreement, the bank
discloses its cost and profit margins to the client. Thus, unlike Conventional banks (which
advance money to a borrower), the bank will buy the goods from a third party and sell it
onwards to a customer for a pre-agreed price, thus abstaining from interest. The growing
use and vitality of Murabaha agreement is proven by the fact that in Islamic banks world
over, 66% of all investment transactions are through Murabaha.
It is argued by critics of Islamic banking that Murabaha agreements are in reality interest-
based contracts, under the garb of a notional sale and buy back transaction, profit being
synonymous to interest in this case. Islamic scholars have reverted to this argument by
stressing that a ‘true’ Murabaha financing structure is quite different from an overdraft
provided by Conventional banks and the former offers various benefits to the bank and its
customers, namely that depositors have a share in the bank’s profits. Furthermore, the
basic difference is the Aqd (contract), which specifies the Islamic conditions, as against
the interest element in Conventional banking transactions.i
Basic Rules for a Murabaha transaction:

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1. The subject of sale must be in existence at the time of the sale.

2. The seller must have the ownership of the commodity in question.

3. The subject of sale must be in physical or ‘constructive possession’ of the seller


while he is selling it.

4. The sale must be instant and absolute; no provisions for contingencies should be
made part of the contract.

5. The goods/commodity to be sold must reflect a value and must be specified to the
buyer, leaving no room for ambiguities or confusion as between the parties.

6. The sale must be unconditional and the price of the commodity should be certain.

SALAM
This mode of financing can be used by modern banks and financial institutions,
especially in order to finance the agricultural sector. In Salam, the seller undertakes to
supply specific goods to the buyer at a future date, in exchange of an advanced price fully
paid at the spot. The payment is made in cash, and the supply of purchased goods is
deferred.

Purpose of Salam Contracts:


The purpose is to meet the need of farmers, who operate on a small scale, and thus need
the finance for farming purposes, so that they can carry out their day-to-day activities.
Moreover, it is designed to assist the traders, in their export/import transactions. Salam
proves beneficial to the seller, as he receives the price in advance, and at the same time,
advantageous to the buyer, as the price under the Salam arrangement is normally lower
than the price in spot sales.

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ISTISNA
Istisna’ is a sale transaction whereby a commodity is transacted before it comes into
existence. It is an order for a manufacturer to manufacture a certain kind of commodity,
to be used by the purchaser. The manufacturer uses his own material to manufacture the
required goods. The price must be fixed with consent of all the parties involved. All other
vital specifications of the commodity must also be fully settled. Subject to the
acknowledgment or receipt of prior notice, either party can cancel the contract before the
manufacturing party has begun the work. The time of delivery need not be fixed, however
a time limit may be imposed as between the parties

MUDARABAH
This is also a kind of partnership, whereby one partner provides finance to the other for
investing in a commercial enterprise. The investment is provided by the first partner
called the ‘Rab-ul-Maal’, while the entire responsibility for the management and work
falls upon the other partner, who is called the ‘Mudarib’. The profits generated, are
shared in a predetermined ratio.

There are two kinds of Mudarabah


• Restricted
• Unrestricted.

Restricted Mudarabah
Rab-ul-Maal may specify a particular business for the Mudarib, in which case he shall
invest the money in that specified business only. This is known as ‘Al-Mudarabah-al-
Muqayyadah’

Unrestricted Mudarabah
But if he leaves it open for the Mudarib to undertake whatever business he wishes, the
Mudarib should be authorised to invest the money in any business he wishes. This type of
Mudarabah is called ‘Al-Mudarabah-al-Mutlaqh’

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Roles of Mudarib:

• He is an Ameen (trustee), who is responsible to look after the investment, with an


exception of natural calamities.
• He is a Wakeel (agent), as he makes the purchases from the funds provided.

• He is also a Shareek (partner), thus sharing the profits with Rab-ul-Maal.

• He can also possibly be a Zamin (liable), and thus will have to compensate for any loss
suffered during the course of Mudarabah, due to any erroneous act on his part.ii

IJARAH
In an Islamic leasing (Ijaraha), the owner of the asset, while retaining the corpus of the
asset, transfers its usufruct to another person for an agreed period, at an agreed
consideration. All the liabilities arising from the ownership must be endured by the lessor.
The period of lease must be determined in clear terms and the asset must be clearly
identified as between the parties

Subject leased should be:


• Valuable
• Identified
• Quantified

Ijarah Products
Alfalah car Ijara, analogous to the English term 'leasing’, is based on the ‘Ijara wa Iqtina’
concept which means the sale of the asset to the lessee after the Ijara has matured. Under
this scheme, Alfalah car Ijara will be the owner of the asset, and the customer (lessee)
will be given the asset to use for a certain period of time in return for monthly rental
payments. Alfalah car Ijara will give a separate unilateral undertaking that it will offer to
sell the asset to the customer (lessee) at the maturity of the Ijara agreement at a price that
may be equal to the security deposit amount, hence the term ‘Wa Iqtina’.

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Parties in Ijara

• Lessee - Bank’s Customer


• Lesser - Bank

Types of IJARAH

• Car Ijara
• Equipment Ijara

CAR IJARAH DEPARTMENT

Alfalah car Ijara concept


Under the Alfalah Ijara scheme, you can get a car of your choice against monthly rentals
payable to Alfalah Islamic Banking.
At the end of the Ijara Agreement, customer will be given a choice whether to return the
car to bank and receive back the security deposit paid by customer at the beginning or to
purchase it at a price as low as the security deposit.

Difference between Ijarah and Conventional Lease


The rental rate decided at the time of the agreement cannot fluctuate
Expenses under Ijarah are as follows
1. Lessor- expenses relating to the corpus of the asset i.e. insurance, accidental
repairs etc. will be borne by the lessor
a. Lessee- actual operating/overhead expenses
2. Ijarah rental can only be charged after possession of asset to the lessee.

3. All risk and rewards are borne by the lessor


4. The lessee is liable to compensate the lessor for every harm to the leasee asset
caused by any misuse or negligence.

5. The leased asset shall remain in the risk of the lessor throughout the lease period.

26
6. The rental must be determined at the time of contract for the whole period of
lease.
7. The lease period shall commence from the date on which the leased asset has been
delivered to the lessee

Eligibility:

• Applicant is a Pakistani national.


• The income of the customer should be three times of the rental.
• He is not less than 22 years & shall not be 60 (for salaried persons) & 65 (for
businessmen), before maturity of the Ijarah facility.
• He is a Businessman / self-employed with a minimum experience of 2 years in the
same business / profession.

Procedure
The very first thing the client has to fill an application requesting the bank for financing
of a car. Along with the application the client is suppose to attach some documents which
are

∗ Copy of N.I.C
∗ Copy of Utility Bill(s)
∗ Bank Statement for last six months (from the date of application)
∗ Signature Verification Form
∗ Proof of Proprietorship/Partnership

The application form along with the personal data also contains the home address, the
address of the place of business (if the client is a business man), and two references.
Moreover in the application form the client has to mention how much down payment he
is going to make. Considering the fact that after he pays his down payment the amount to
be financed by the bank does not go belowRs.200, 000

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Step Two: Verification Process by the Verification Officers
This step embodies immense significance as the results of this very step reveal whether
the client is genuine and trustworthy and whether all the details provided by him are true
or not. Verifications officers first visit the house of the client and certify that the client has
provided the bank with the correct residential address. Then they inquire about the
conduct, character, behavior, occupation, and other activities of the client from at least
two of his/her neighbors. After being satisfied the verification officers visit the place of
business (if the client is a business man). There they first make sure that the said business
actually exists and the factory/organization/company actually is situated at the said place.
Then the verification officers either visit or call any one or both of the references given
by the client in the application form. When all aspects of the verification process are
complete then what the verification officers do is that they prepare four reports namely

∗ Business office verification report


∗ Residence verification report
∗ Reference verification report
∗ Telephone verification report

These reports are than filed in the proposal file and these constitute an integral part of the
proposal.

Step Three: Preparation of the Proposal File


Once the customer’s credibility is verified then the file is prepared for
acceptance/approval by the branch Credit Committee and subsequently by the Head
Office id required. This preparation calls for attachment of certain documents apart from
those that were provided by the client along with the application. These documents are

∗ Borrower’s Basic Fact Sheet


∗ The Proposal Sheet
∗ A Check List
∗ Credit Information Bureau Report

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∗ Verification Reports

Step Four: Execution of Legal Documents


After the approval stage the client is called to the branch and the process of legal
documentation is under taken. For this purpose the operations personnel gets the
signatures of the client on all the legal documents including the offer letter which is of
prime importance. The list of legal documents the client has to sign is as follows;

∗ The account opening form as a result of which the client (if he wants a
current or PLS account with Bank Alfalah) could give the post-dated cheques
for payment of installments
∗ The letter in which the client acknowledges the Finance Limit that has been
provided to him by the bank
∗ The agreement for financing the motor vehicle on Ijarah Basis
∗ The schedule to Ijarah agreement
∗ Letter of hypothecation of motor vehicle
∗ Irrecoverable power of attorney
∗ Letter of authorization to take possession of motor vehicle
∗ Bill of exchange without recourse to the drawer
∗ Delivery acceptance form
∗ Transfer letter
∗ Promissory note
∗ Letter of hypothecation of movables

Step Five: Receipt of Down Payment and Post Dated Cheques


When all the legal documents are properly signed then the customer is asked that his
share of financing (the down payment) is required. The customer deposits this amount
and also gives the bank post dated cheques, duly signed. These cheques are of the amount
of installment due to the customer on monthly basis.

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Step Six: Getting the Car Insured
Now comes the step to insure the car for which the financing is done. The bank has to get
the car insured, as it is a part of the car financing agreement that the car has to be fully
insured

Step Seven: Establishment of Delivery Order and Demand Draft (In The
Name Of The Manufacturer)
When bank has got physical possession of the insurance policy the car dealer is suppose
to send the bank a quotation of the car being sold, on his official letter head. On the basis
of that quotation bank makes the delivery order, which contains the instructions for the
dealer that now he, should hand over that car to the customer.
The bank will not pay to the dealer the bank would make a Demand Draft in the name of
the manufacturer and hand it over to the dealer and the dealer would give it to the
manufacturer.

Step Eight: Getting the Vehicle Registered


When the manufacturer gets the payment against the demand draft then he sends the
Invoice to the bank. This invoice contains all the details of the vehicle namely; price,
customer name, bank name, color of the vehicle, mode of payment etc. If the car is
completely ready for the delivery this invoice will also contain the engine number and the
chassis number, but if the car is not ready for delivery i.e. it is in the booking process than
the invoice will not contain these two items. The bank gets the vehicle registered with the
help of its private agents on the basis of this invoice.

Step Nine: Receipt of Monthly Installment


Now when the car is with the customer bank presents the pre-signed post dated cheques
on monthly basis, and if a Cheque bounces the recovery staff has to get the money from
the customer. If three cheques of a particular client bounce on a trot and the client also
does not bother to make payment through cash or via issuance of Cheque of another
account then Bank Alfalah, as per the signed legal documents has the right to repossess
the car, which it does.

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Other Documentation

• Unilateral undertaking by the Bank to offer to sell the asset at maturity.


• Unilateral undertaking by the lessee to purchase the asset at the Pre-Agreed Purchase
Price on termination of Ijara before Maturity.

Determination of Rental
The rental must be determined at the time of contract for the whole period of lease.
The determination of rental on the basis of the aggregate cost incurred in the purchase of
the asset by the lessor, as normally done in financial leases, is not against the rules of
Shariah.

The lessor cannot increase the rent unilaterally, and any agreement to this effect is void.

The lease period shall commence from the date on which the leased asset has been
delivered to the lessee.
Rental will be charged when the Leased asset is handed over to the lessee.

IJARA AS A MODE OF FINANCING

1. The commencement of lease


Unlike the contract of sale, the agreement of Ijarah can be effected for a future date.
2. Rent should be charged after the delivery
of the leased asset to the lessee and not from the day the price has been paid. If the
supplier has delayed the delivery after receiving the full price, the lessee should not be
liable for the rent of the period of delay.

3. Different relations of the parties


There are two separate relations between the institution and the client: one of an agent
and the other of a lessee.

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4.
Expenses consequent to ownership to the lessor
As the lessor is the owner of the asset, he is liable to pay all the expenses incurred in the
process of its purchase and its import to the country of the lessor for example expenses of
freight and customs duty etc.

5. Lessee as Ameen
The lessee is responsible for any loss caused to the asset by his misuse or negligence. He
can also be made liable to any normally occurring wear and tear.

6.

Variable Rentals in Long Term Leases


In this case the lessor has two options:
A lease contract can have a condition that the rent shall be increased according to a
specified proportion (e.g. 5%) after a specified period (like one year).
He can contract lease for a shorter period after which the parties can renew the lease at
new terms and by mutual consent

7.

Penalty for late payment of Rent


The lessor cannot charge an additional amount in case the lessee delays payment of the
rent. Penalty of late payment is given to charity by lessee

8. Termination of Lease
If the lessee contravenes any term of the agreement, the lessor has a right to terminate the
lease contract unilaterally. If not then it can be terminated through mutual consent only.
However, in such a case he cannot charge rentals of remaining period. Further more, the
destruction of the asset also terminates the lease. In the event of lessee’s death the lease
will also be terminated

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9.

Insurance of the assets


If the leased property is insured under the Islamic mode of Takaful, it should be at the
expense of the lessor and not at the expense of the lessee

10. The residual value of the leased asset


Through a mutual agreement of Lease, after the expiry of the lease period, the corpus of
the leased asset cannot be transferred to the lessee, otherwise it becomes hire purchase.

Ijarah Wa Iqtina
It is permissible in Islamic Shariah that instead of there being a sale, that the lessor signs
a separate agreement, making a promise to gift the leased asset to the lessee at the end of
the lease period, on condition that the lessee makes all the payments due for his/her rent.
The latter arrangement is known as Ijarah Wa Iqtina. It has been affirmed by a large
number of contemporary Islamic scholars and is widely practiced by the Islamic banks
and financial institutions. Although, the validity of this arrangement is subject to two
conditions. They are:

∗ The agreement of Ijaraha itself should not be subjected to signing of sale or


gift. The promise should be made in a separate document.

∗ The promise must be unilateral and binding on the promisor only.

MUSHARAKAH
The literal meaning of the Arabic word Musharakah is sharing, or Shirkah, which means
being a partner. There are several kinds of partnership, and they all come under the
heading of Shirkah. Musharakah is perceived as an ideal alternative for the interest based
financing with far reaching effects on both production and distribution.
Musharakah is a mutual contract between the parties, and thus all the mandatory
ingredients of a valid contract must be present. Furthermore, the capital in Musharakah
agreement should be quantified, specified, but not necessarily merged or in liquid form. If
all the partners agree to work for the joint venture, each one of them shall be treated as

33
the agent of the other, in all matters concerning the business. Any act carried out by a
single partner, in the normal course of business, shall be deemed as authorised by all
other partners.
All scholars are unanimous on the principle of loss sharing in Shariah, which is based on
the saying of Syedna Ali ibn Talib, which is as follows:
“Loss is distributed exactly according to the ratio of investment and the profit is divided
according to the agreement of the partners.

ALFALAH HOME MUSHARAKAH


In Alfalah Musharaka homes applicant enter into a joint ownership agreement with the
bank for purchase/construction, renovation and /or replacement of your outstanding
housing loans to own a Musharaka property, where the bank provides a certain amount of
financing up to 80% of value of property and sign Musharaka agreement. Applicant also
signs monthly payment agreement, to pay rentals for the use. The purchase of the
Musharaka unit by applicant shall result in transfer of title of Musharaka property and
one becomes the sole owner of the property.

Diminishing Musharaka Concept


Another form of Musharakah, which has developed in the recent years, is known as
Diminishing Musharakah. It involves the participation of a financier and his client, either
in the joint ownership of a property/equipment, or in a joint commercial enterprise. The
financier’s share is further divided into several units, and it is intended that the client will
purchase the financier’s units of the share, one at a time, periodically, increasing his own
share, until all the units of the financier are purchased by him, so as to make him the sole
owner of the property or the commercial enterprise, whichever be the case.
Bank purchases property through Joint Ownership Agreement and then transferring the
Title of ownership to the customer through Purchase of Musharaka Units. This Unique
treatment makes it differ from Conventional Bank’s home loan.

34
Differences Islamic Bank and Conventional Bank (Mushrakah)

Conventional Bank Islamic Bank


1. As regards interest-based financing, Mushrakah agreement does not
a fixed rate of return on a loan, envisage a fixed rate of return, it is
advanced by the financier is in fact based on the actual profit
predetermined, irrespective of the earned by the ‘joint venture’.
profit earned or loss suffered by the
debtor.

The financier cannot suffer loss in an The financier under a Musharaka


interest-based financing agreement can, possibly suffer a loss, if the
joint venture fails.
Charges interest on money (Loan) Rental for use of bank’s share (Portion)
Financing / Markup Agreement Sharia Compliant Agreements
Conventional home loan Diminishing Musharaka
No Ownership Joint ownership in property

Eligibility

∗ Applicant is a Pakistani national.


∗ Applicants Age is between 25-65 years.
∗ If applicant is in continuous employment for 2 years or more.
∗ Criteria to apply Rs. 240,000/- Gross Annual Income (Installment not to
exceed 35 % of the Net Take Home Income)

Products
∗ Alfalah Buyer (Purchase of House)
∗ Alfalah Builder (Construction of House)
∗ Alfalah Renovation (Extension / Renovation of existing property)

35
∗ Alfalah Replacement

ALFALAH HOME BUYING


Banks finances Up to Rs. 80 % of Property Value or 40 Times of Gross Monthly Income
(Which Ever is Lower). Tenure from 3 to20 years.

ALFALAH HOME CONSTRUCTION


Bank finances Up to 70 % of Property Value or 40 Times of Gross Annual Income
(Which ever is lower)
. Tenure = 3 to20 years.

Land is Already Owned


Bank finances Up to construction Cost or 40 times of Gross Monthly Income (Whichever
is lower)

Land is Not Owned

50 % of the Allowable Limit for Purchase of Plot and remaining 50 % for


Construction, but total exposure does not exceeds 70 % of the Market Value of
Proposed Property.

ALFALAH HOME RENOVATION


Bank finances Up to Rs. 2.50 Million or 30 % of the Market value of Property
(Whichever is lower). Tenure 3 to 7 years.

ALFALAH HOME REPLACEMENT


Bank finances Up to Amount Outstanding or 40 Times of Gross Annual Income (Which
ever is Lower). Tenure 3 to 20 years.

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Rate of Rent
Profit margin is to be linked with 01 Year KIBOR rate, which will be reviewed from time
to time. Present Applicable Rate is K + 3 %.

Documents Required

∗ 2 Latest Passport Size Photographs


∗ 2 Copies of the National Identity Card
∗ Copies of last 3 Bills paid of Electricity, Gas and Telephone
∗ Copies of Credit Card Bill for last 03 Months
∗ Last Six Months Bank Statement
∗ Last Two Month Salary Slips
∗ Letter of verification of Employment on Company letter head (Current
Designation/ Length of Service / Gross Salary and Certificate from HR for
Regular monthly perks)
∗ Income Tax Returns / Statement last three years.

37
Other Conditions

• The bank will assess value of the property through their own approved valuators
of the bank.

• The facility will be provided only for urban properties (Approved areas of the
bank)

• Loans for construction will be considered only after plans has been approved by
the competent authority

• The-processing fee is non-refundable. If however the case is declined due to any


issue related to title of documents at the lawyers level or due to issue in property
valuation the fee will not be refundable.

Security in Musharakah:
As regards a Musharakah agreement between the bank and the client, the bank should in
its own right and discretion, obtain adequate security to ensure that the capital
invested/financed and the profit that may be earned are safe. As part of the usual practice,
the securities obtained by the bank, are kept comprehensively insured at the party’s cost
and expenses, till the Islamic mode of insurance (Takaful) becomes operational. It is
understood that the purpose of the latter security is a precautionary measure to cover for
damage(s) or loss of the principal amount due to the client’s negligence.

38
ACCOUNTS DEPARTMENT

ACTIVITIES
The accounts department deals with various routine activities for the bank. The main
activities performed by it are

∗ Budgeting
∗ Reporting
∗ Maintenance & depreciation of fixed assets
∗ Miscellaneous functions

BUDGETING
Accounts department of a bank, for a year makes budget of every branch. Fiscal year of
bank starts from January 01 and ends on December 31. The accounts department starts
preparing budget from October for the next year.

REPORTING
The accounts department, in the form of reports, clubs the details of various departments
together. Each and every minute detail is provided in weekly, monthly and annual reports.
The reports are submitted to head office, SBP and to the government.

The accounts department prepares many reports, of which the most common are
∗ Statement Of Affairs
∗ Income & Expenditure
∗ Foreign Currency Report
∗ Royal Profit Report
∗ Outstand Receipt Report

39
∗ Subsidiary Statement
∗ Currency Wise Deposits Report

MAINTAINING OF FIXED ASSETS & THEIR DEPRECIATION


Accounts department maintains the record of all the assets and charges depreciation on
them. The bank normally uses the straight-line method to compute the depreciation.

The accounts department prepares asset purchase report and asset sale report after every 6
months that helps in changing the depreciation. It is calculated on monthly basis and
charged yearly. Bank not only depreciates the existing assets but also the assets but also
the assets transferred in and transferred out.

MISCELLANEOUS FUNCTIONS
The accounts department also performs some other miscellaneous functions like
∗ Reconciliation Statements
∗ Test Keys
∗ Closing Entries
∗ Foreign Exchange Forward Transaction

RECONCILIATION STATEMENT
The bank prepares reconciliation statement with head office and SBP.

Head Office
Reconciliation with head office is done in reconciliation department. The branches
send their reports to the head office. They check the posting of all the entries if
outstanding, which has not been posted by branch or head office. The reconciliation
is carried out in the head office and accounts department handles quarries.

40
State Bank of Pakistan
The SBP keeps the record of every scheduled bank. The bank statements and
statements of SBP are reconciled on daily basis. Reconciliation is basically setting
of outstanding entries. The reconciliation statement contains two sides. One
contains entries originated from bank but not responded by SBP and on the other
side entries originated by SBP but not responded by bank.

TEST KEYS
Test keys are used to authenticate and secure the transaction. These keys are used for both
inward and outward transactions. In local transfer double coding is used while in foreign
transaction single coding is used. Each bank to arrive at the code uses separate test keys.
The basic purpose of test is to secure the transaction. Four things must be carefully
checked because code is based these four items
∗ Branch name
∗ Date
∗ Currency
∗ Amount

CLOSING ENTRIES
Accounts department also passes the closing entries on monthly, 6 monthly and yearly
bases to calculate the profit and analyze the overall performance for a certain period.

FOREIGN EXCHANGE AND FORWARD TRANSACTIONS


In the past, the banks had to keep their foreign exchange with SBP on the agreement that
SBP will purchase the foreign exchange on book rate and charge a fee for covering the
risk. This whole transaction was known as foreign transaction. Now this facility is not
available.
Now banks can avail it by renewing their limit on old accounts with SBP.

STATEMENTS
The predominant functions performed by the accounts department can be categorized into
two broad categories.

41
∗ Daily Activity Checking
∗ Report Generation

Daily Activity Checking


All the operations performed in various departments of Bank Alfalah Limited (name of
the branch) are computerized. The functions are performed through the customized
software of the bank called Bank Smart. In order to facilitate double-checking of all the
transactions done, every concerned official also passes vouchers manually. At the day end
all the vouchers passed by various officers working in different departments are given to
the authorized person in the Accounts Department. Furthermore the I.T. department also
gives a very bulky report, which constitutes of the computer print outs of all the
transactions / entries which have been fed into the computer system of the branch that
day. Now after receiving all the reports the job of the person in the accounts department
is tallying the daily activity report with all the corresponding vouchers, in order to track
down any discrepancy.

Report Generation
The exact number of reports generated by the accounts department on a daily, weekly,
monthly, bi-yearly and yearly basis is somewhere in the bracket of 500. It is neither
necessary nor possible to get acquainted by all of these reports in a short period of time.
Some of the common reports are

Daily Advance And Deposit Position


∗ Daily Exchange Position
∗ Daily Fund Management

Closing Reports
∗ Monthly Assets & Liabilities
∗ Monthly Budget Review Report
∗ Monthly Monitory Statement
∗ Monthly Performance Review Report

42
∗ Schedule Of Maturity Distribution

From these statements, five reports carry extreme importance. The five reports are

∗ Daily position of advances and deposits


∗ Statement of affairs
∗ Daily exchange position report
∗ Fixed assets statement
∗ Month review of performance.

The Account Opening Department


The department that is responsible for opening and closing an account assumes immense
significance and holds a central place in the basic banking operations.
The main document in this department is, of course, the Account Opening Form.

Details of the Account Opening Form


In the account opening form the client is required to provide the following information.
The first part establishes the currency in which the account is to be maintained / operated.
The currencies include
∗ Pakistani rupee.
∗ U.S. dollar
∗ Pound sterling
∗ Euro

The second part then establishes the preference regarding the type of account to be
maintained. The various choices offered are
∗ Profit and loss sharing/Savings account
∗ Current account

43
Distinctive Features of the Various Types of Accounts
Individuals who wish to earn profit/interest on their investment normally maintain the
profit and loss sharing account but in order to earn interest the client is required to keep
his/her deposits with the bank for some time. In theory there are some restrictions on
withdrawal of money from a Profit and Loss sharing account but in general banking
practice there is no restriction on any with drawl from a Profit and Loss sharing account.
The interest/profit is paid half yearly.
The current account is the most common account and the most preferred amongst
business concerns. The theoretical explanation for this would be that they can function
more efficiently but since in reality there are no restrictions on any with drawl the only
reason we could think of is that current account facilitates online banking which saves
time (which in this ultra competitive business world the most precious resource) to a
considerable extent. In case of a current account the client does not earn any interest.
Current account enables the client to do cash transactions in a more efficient manner.

There are two things that always accompany an account opening form;

∗ Signature Specimen Card.


∗ Cheque Book Requisition.

Signature specimen card basically contains information that is basically a repertoire of


information given in the account opening form, but in this card the client vividly puts his
signatures as a specimen, which are scanned and stored in an intelligent terminal for
future use and reference.
Cheque Book requisition basically serves as an application to issue a Cheque book. The
client also fills it up and submits it along with the account opening form as a result of
which he is issued a Cheque book once his account is approved. As regards the Cheque
book one of the most important entries in a Cheque book requisition is the series number
of Cheques that correspond with the numbers of the cheques contained in the Cheque
book issued to the client.

44
Term Deposit Accounts Murabaha –Mudarabah Based
Term deposit account is essentially a fixed deposit account. It is opened if a customer is
willing to deposit his funds with the bank for a period within which he cannot withdraw
his money. In case a customer withdraws his amount then he is given no interest at all on
the principal. Normally people tend to fix their deposits with the bank for a relatively
longer period of time (3 years, 5 years etc.) although the facility of opening a term
deposit account is also offered for short tenors like 7 days, 30 days etc. reason being that
as there is a positive relationship between the tenor and the rate of interest i.e. longer the
tenor higher would be the rate of interest. Customers benefit by opening a fixed/term
deposit account as they earn a higher rate of interest which cannot be earned if you are
operating, say for example a savings account. At this point one thing must be taken into
immediate consideration that only those people will fix their money that do not face any
problem regarding liquidity, people having one would feel contend with a lower rate of
interest but would certainly go for some other account like royal profit or savings
account. Banks benefit by opening a term deposit account as funds are placed with them
for a longer period of time and the bank can earn a lot by advancing these funds more
than once, specifically if the advancing is short or medium term.

CALL DEPOSIT RECEIPT


Issuance of call deposit receipts is basically a free of cost facility offered by Bank Alfalah
Limited not only to its own customer’s but also to walk in clients. When government
organizations, or for that matter non government organizations float tenders for execution
of a particular task, they require that the organizations who are participating in that
tender.This requirement is basically put forth in order to safeguard the government
organization from facing a situation in which the participants show inability or
inadequacy to perform the required task after acceptance is granted in their favor. Such a
situation generally is not desirable as the government organizations have to under go the
procedural steps of floating and accepting the offers and in the process they have to incur
additional costs. For this purpose the call deposit receipts is issued which is a monetary
guarantee that if the organization does not work as per the tender requirements the
government organization can en-cash the call deposit receipt and recover its losses.

45
Procedure of Opening an Account
∗ Step 1-The Account Opening Form:
∗ Step II-Completion of The Form:
∗ Step III-Introduction:
∗ Step IV: Specimen Signature Card (S. S. Card):
∗ Step V-Account Number:
∗ Step VI- Issuance Of A Cheque book:
∗ Step-VII Entry Of A cheque book:
∗ Step-VIII Filling Of Account Opening Forms:
∗ Step-IX Maintaining the Computer Record:

Procedure Followed In Order To Close an Account


The procedure followed for the purpose of closure of an account is

∗ The client who wishes to close an account first has to give an application,
duly signed on the pre-printed application of the bank. The client has to
attach this application with the liability form (explained below). The client
can also give an application on a plain paper, but correct signatures are very
necessary.
∗ Then it has to be made sure that if the account to be closed is a Saving, Royal
Profit, or Foreign Currency Account then the account balance before closing
should be zero. In case of these three types of accounts the bank does not take
any closing charges. Along with the application to close the account client’s
Cheque book is also received from him and then it is destroyed in order to
prevent any misuse in the future.
∗ A liability form is filled and sent to the Trade Finance Department and Credit
Department in order to check that the customer does not owe the bank a
single penny in any regard. A debit voucher and a credit voucher are also
attached to the liability form.

46
∗ When both of these departments approve that the customer does not owe any
money to the bank and the form is returned to the account opening
department then the original account opening form pasted in the ledger when
the account was opened is marked ‘account closed’ along with the date on
which it is so marked. One thing has to be taken into immediate consideration
that the account number allotted to the client (who has closed his account),
after closure of the account becomes useless and is not allotted to any one in
the future.
∗ After approval of the liability form, it is sent to either the Foreign Currency
Accounts Departments or the Cash Department, as the case may be so that
the officer who scanned it in the first place could return the specimen
signature card to the account-opening department.
∗ Once the S. S. Card is received back from the concerned official then the
liability form, the client’s application along with the specimen signature card
is pasted in the ledger right along side the original account opening form. The
form has to be pasted with the original account opening form even if the
account was opened a decade ago. In the computer as well all the entries and
records related to that particular account are permanently deleted by using the
‘close account’ option.

Some Important Documents Used In the Account Opening


Department

∗ Liability Form
∗ Account Statement Request Form
∗ Vernacular Form
∗ Issuance Requisition
∗ Debit And Credit Vouchers
∗ Application To Close The Account
∗ Application To Change The Address

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∗ Mandate Form Used By An Individual To Enable A Third Party To Operate
The Account

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THE LOCAL REMITANCES DEPARTMENT

Negotiable Instruments
Besides cheques (the primary notes of exchange in a bank), banks also handle Promissory
Note, Bills of Exchange, Bank Drafts, Pay Orders, Traveler Cheques, Pay Slips, Call
Deposit Receipts; as negotiable instruments.

Pay Order (PO)


“Pay Order is a negotiable instrument made by the bank, on account of a customer, to pay
on order the specified amount to the directed person (payee)”.

Pay Orders are used to make payment or to transfer money, with in the same city. Pay
Order is always drawn on the bank that has issued it.

MAKING OFA PO
When a person requires a Pay Order, he is asked to complete the prescribed application
form in which the amount of pay order is to be stated. Certain amount of commission and
advance tax is charged on issuance of pay order. After having the total amount deposited
in the bank (in cash or through cheque, in case of account holder), pay order is issued in
favor of the payee.

Like cheques, when pay orders issued by Bank Alfalah Limited, are presented in other
banks to get them deposited in the payee’s accounts, they constitute the outward clearing
for those banks and inward clearing for Bank Alfalah Limited

Demand Draft (DD)


“A Demand Draft is a negotiable instrument issued by the bank, on account of a person,
and drawn on its own branch in a specific city or on the branch of another bank in that
city (in case bank doesn’t have any branch there), requesting it to pay the specified
amount to the person named on it”.

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Demand Drafts are used to make outstation payments or to transfer money, out of the
city. Therefore, a DD is always made for a particular city.

MAKING OFA DD
Suppose a customer requests to provide him a DD made on his account for a particular
city like Islamabad. Then, after having the total amount (including commission and
advance tax) to be deposited with application form, demand draft is issued in favor of the
specified person in Islamabad (supposed) and is drawn on Bank Alfalah Limited,
Islamabad Branch. So, when this demand draft is presented by payee in any bank, it
constitutes the inward clearing of Bank Alfalah Limited, Islamabad Branch.

Call Deposit Receipt (CDR)


Bank Alfalah Limited also issues Call Deposit Receipts (CDR). “It is an instrument like
cheque issued by the bank on account of a customer & in favor of a person, to pay the
specified amount”.

CDR’s are issued to make payments, especially when a company goes for some tenders
or for purchase of government securities. The bank enjoys the benefit of keeping funds
deposited until the payment is not made. During this time, the bank uses the deposit and
earns income on that.

Pay Slip (PS)

“It is a negotiable instrument like cheque issued by the bank on its own account to pay a
specified amount to the directed person”.
Pay Slips are used to make payment by the bank itself against certain expenses incurred;
like furniture purchased by bank, charges of Mucaddams etc.

For Example: If bank has purchased furniture (fixed asset) costing Rs.40,000 from a
company. Then a pay slip in the name of that company is made and, instead of writing the
issuing date on pay slip, date of encashment (realization) is written when it is presented in
bank.

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Cancellation of PO, DD & CDR
After issuance of Pay Order, Demand Draft or Call Deposit Receipt by BAL-IBD, if any
one of these has to be cancelled by the customer, it is returned in the bank. Then, after
deducting the cancellation charges of Rs.100, the remaining (net) amount is paid to the
customer through Cash Payment Voucher.

Advance Tax against Remittances


Advance Tax is deducted on issuance of PO & DD (when customers don’t have tax
exemption form) and credited in Tax on PO & DD account. Tax deducted has to be paid
to State Bank of Pakistan (SBP) with in one week of issuance of these instruments.

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CREDITS DEPARTMENT

Credit Policy of the Bank


The credit policy of any banking institution is the combination of certain globally and
locally accepted time standards and other dynamic factors dictated by realities in ever-
challenging market and industry.

“The extension of a credit facility should add value to the bank’s assets” should be borne
by the bankers. For this purpose the bank takes special care for judging the

∗ Ability to repay
∗ Willingness to pay

Ability to pay
The ability of a client to repay can be judged by the financial statements of the
customer’s company. To avoid the danger of fake statements the SBP has put on some
regulations on all the banks, which are called as prudential regulations. Every financial
institution is bound to follow these rules in advancing loans,

Willingness to repay
The willingness to repay can be determined by verbal discussion with him or CIB (Credit
Information Bureau) report.

Credits department at developed branches of BAL is usually segregated into

∗ Credit marketing
∗ Credit administration

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Credit Marketing
The principal responsibility of credit marketing is to attract good customers to avail credit
facility from Bank Alfalah limited. The people who constitute the credit-marketing
segment of the credits department are termed as the credit officers.

Credit Administration
The major responsibility of the people working in the credit administration is to issue
Guarantees, monitor the periodic disbursement of Pledged Commodities, and perform the
job of providing finance against Imported Merchandise and finance against Trust Receipt.

Types of Borrowers
Before a bank starts lending, it has to classify its target customers in to groups of similar
ones in order to simplify the provision of credit to them. Bank Alfalah Limited has
divided its clients into the following heads

Individuals
∗ Existing account holders
∗ Staff members
∗ Close relatives of staff members
∗ Business sponsored by staff members
∗ Employees of other banks
∗ Joint accounts

Business entities
∗ Sole proprietorship
∗ Partnership
∗ Limited liability company
∗ Joint venture
∗ Group accounts

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Others
∗ Clubs and associations
∗ Federal, provincial and local government bodies
∗ Traders
∗ Contractors / construction companies
∗ Transport, storage and warehousing
∗ Property dealers
∗ Manufactures

Kinds of Credit Offered By Bank Alfalah Limited

SHORT TERM CREDIT (MURABAHA)


Short-term credit is that type of credit that is to be repaid with in a time span of one year.
Short-term credit requirement is usually seasonal in nature. There are four predominant
purposes for which short term credit is availed. These purposes are

∗ Creation of current assets


∗ Meeting of working capital requirement
∗ Purchase of raw material
∗ Repayment of current liabilities

Short-term credit secured by 100% cash margin is considered to be the ideal way to
extend this type of credit.

MEDIUM TERM CREDIT (Ijarah)


In this age of contemporary banking, it really is very difficult to separate medium term
credit from long term credit when we talk with respect from the view point of the
purposes these two kinds of credits fulfill. Medium term credit is a credit facility that is
usually extended for a time span of some where between one to three years. Business

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concerns normally utilize this type of credit for the purposes of purchase of furniture,
fixtures, and small-scale machinery.

LONG TERM CREDIT (Musharaka)


Long term credit, theoretically speaking, is a type of credit that is extended for a
relatively long time (which may extend to ten years), but practically speaking long-term
credit facility is extended for a time span of not more than five years. The purposes for
which long term credit is availed are

∗ Capital Expenditure / Expansion of plant


∗ Balancing, Modernization, and Replacement (BMR)
∗ Purchase of Fixed Assets

Over Draft (OD)


Over Draft is a credit facility which functions with the help of the ‘debit and credit
mechanism’ of the respective customer’s account. A particular customer on the basis of
his individual track record is assigned a particular limit, which is termed as an Over Draft
limit. Now by virtue of sanction of OD limit the customer can with draw a particular
amount from his account even in excess of the credit balance in his account. This excess
with-drawl allowed is the real facility. But the extent of excess with-drawl cannot exceed
the amount of the OD Limit approved. As long as the excess amount remains in the debit
balance (i.e. as long as customer utilizes that amount), interest is charged on the
outstanding amount on daily product basis. When the amount is returned charge of
interest is ceased. If over draft credit is a guaranteed one than interest is charged on the
entire amount approved as OD limit, whether utilized or not.

Cash Finance (CF)


Cash finance is a very popular form of short-term credit. The predominant purpose for
this kind of a credit, as has been discussed above, is fulfillment of the working capital
requirement. Preferably bankers love to extend this kind of credit facility if secured
against hundred percent cash margin. But this fact certainly does not mean that cash

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finance is not extended against pledge of goods or hypothecation of machinery etc. It all
depends on the credibility of the customer. In case of cash finance a certain limit is
approved and the customer is allowed to avail the amount whether all at once or as and
when needed. One basic reason for the popularity of cash finance is that interest is
charged only on he utilized amount not on the entire amount which has been approved for
use.

Letter of Credit (L/C)


Letter of credit is a short-term non-fund based finance facility. LC is a bank’s written
undertaking given to the exporter for payment of a certain sum of money on
behalf of the importer, provided the exporter tenders to the bank, or its overseas
agents, the specified documents within a specified period in accordance with the
terms of the undertaking.

Letter of Guarantee (L/G)


Apart from letter of credit Bank Alfalah Limited also extends another non-fund based
credit facility for its customers i.e. Letter of Guarantee or more commonly known as
Guarantees. The basic difference between a letter of credit and a letter of guarantee is that
in case of L/G the liability has to be retired four or five days before the actual date of
maturity, but in case of L/C the customer can retire his liability after maturity after paying
some amount as interest. The various types of guarantees given are Bid Bonds,
Performance Bonds, and Shipping Guarantee etc.

Finance Against Imported Merchandise (F I M)


In case of finance against imported merchandise, the importer gives the imported goods
into the effective pledge of the bank and avails the credit facility against the pledged
goods. There is a slight technical difference between ‘pledge’ and ‘effective pledge’. In
case of pledge the imported goods come under the banks ownership when they reach the
desired godown that is under the supervision of the Muqadams, appointed by the bank.
But on the other hand in case of ‘effective pledge’ the goods are under the ownership of
the bank even when they are being transported from the port to the godown. So, in case
of effective pledge the bank must make sure that the goods are comprehensively insured.

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FINANCE AGAINST TRUST RECIEPT ( F A T R )
The mechanism with which Finance Against Trust Receipt works is identical to that of
Hypothecation. The logical rationale behind FATR is that all the imported goods cannot,
by nature, be given to the effective pledge of the bank; imported goods could be of
perishable nature or they could be of central importance for the operations of the business
concern. In such a case the goods are hypothecated and finance is extended.

CREDIT PROPOSAL
In order to avail any of the credit facilities a proposal (case) has to be made, and also
approved, by the Branch Credit Committee and then subsequently by the Credit Division
at the Head Office. The credit proposal can be categorized in to two types

Credit Line Proposal (C L P)


A credit line proposal is made for those clients whose credit limit has been approved by
the banks’ credit department.

One Time Transaction (O T T)


An OTT is prepared for a client who has no approved credit limit, but the bank is doing
business with that client on a one-time basis.

LENDING PRINCIPLES

Principles
The principles laid down by the Credit Division at the Head Office are as under

∗ Know your customer


∗ Know the purpose of the facility
∗ Know the profitability of the applicant
∗ Know the source of repayment
∗ Asses the securities
∗ Tenor of facility

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MODES OF SECURING ADVANCES

Pledge
Pledge is a bailment of goods as security for payment of a debt or performance of a
promise. Bailment means delivery of goods by one person to anther for some purpose,
under a contract that the goods shall, when the purpose is accomplished, be returned or
otherwise disposed according to the directions of the person delivering them. The person
delivering the goods is called the pledgor or pawnor and the persons to whom the goods
are delivered is called the pledgee or pawnee.

A pledge may be in respect of goods, stocks, and shares, document of title to goods and
any other moveable property. The essential feature of a pledge is transfer of possession of
the goods, either actual or constructive. When possession of goods is physically
transferred from the borrower to the lender possession is said to be actual. The main
advantage of a pledge is that the banker, as lender is in possession of the goods and so, in
the event of default by the borrower, the bank has the right, after giving reasonable notice
to the pledgor, to sell the goods and liquidate the advance.

Precautions
Whereas pledge of goods/raw materials is considered a better type of security than mere
hypothecation, as the bank has physical possession and control over the goods, yet we
must not lose sight of the fact that the nature of the goods, their quality and quantity
combine to make them of value. Accordingly we should not be misled by any illusion of
security merely because the goods are in our possession. There are certain factors that a
banker must take into consideration before advancing against pledge.

∗ Client
∗ Nature of Commodity
∗ Market Awareness
∗ Suitability of Godown
∗ Proper Valuation

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∗ Insurance
.
Pledge is a popular method of charging securities as cover for advances. This type of
charge is preferred because it confers on the pledge a right of sale in the event of default
by the pledgor, provided notice is given by sale of the goods.

Macadams
People who look after the pledged goods for bank are called Macadams. If cotton (raw
material) is to be pledged by the bank, it doesn’t mean that this cotton will be kept in
bank; such type of goods is kept in the godown of the company. So, to make these goods
secure, the bank appoints its own men called Macadams to take care of stock.

Hypothecation
It means the charging of property to a creditor while the property itself remains in the
possession of the debtor or at least does not pass in to the creditor’s possession. It is a
variety of mortgage. Stocks of goods in the possession of a debtor may be hypothecated
to the banker and in the letter of hypothecation the debtor undertakes.
∗ To pay the proceeds of sales of such goods to his current account with the
banker
∗ To have the stocks adequately insured against fire, riots and civil commotion
with the usual bank clause incorporated in the policy.
Under the terms of the letter of hypothecation, the bank has the right at its discretion, to
take possession of goods and thereafter to treat it as a pledge. The bank may take over
possession of the goods and, after giving reasonable notice to the borrower, may arrange
to sell them in order to recover its advance.

In case of hypothecation
∗ The banker reserves the right to inspect the goods hypothecated to him and
can ask for periodic stock reports, where necessary.

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∗ The banker, for his protection, may ask the borrower to insure. The banker
may himself do so and recover the expenses from the borrower.
∗ The banker may ask the borrower to maintain a balance of goods sufficient to
fulfill the margin requirements.

There are, however, practical difficulties in obtaining possession of hypothecated goods


from a reluctant and uncooperative borrower. Further, by the time the bank decides to
exercise its right to take possession, the bulk of the stock may already been disposed off
to meet the pressing demands of other creditors.

In view of the fact that such facilities can be easily misused by the borrower through
pledge of the same goods to another bank or disposal of the goods without accounting for
the proceeds, such facilities are only to be granted to borrowers of undoubted financial
standing and integrity or otherwise collaterally secured.

Mortgage
A mortgage is the transfer of an interest in specific immoveable property for the purpose
of securing the payment of an existing or future debt or the performance of an obligation
that may give rise to a financial liability. Before advancing mortgage against immovable
property as security, the bankers conduct following preliminary enquiries:

∗ Nature And Value Of Property


The bankers satisfy themselves that whether the property is suitable for security
purposes and that in case of forced sale he would not suffer any loss. For this
purpose, the bankers inspect the property and property visit report (described in
next section) is prepared. Also, the bankers hire the services of different valuators
to assess the right value of property (property valuation report prepared by the
valuators will be discussed in the next section).
∗ Investigation Of Title
The must be satisfied that his borrower has a good title to the property. The
bankers, therefore, conduct a proper investigation into the borrower’s title to the
property, through their own legal advisers.

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∗ Search For Prior Charges
A search is made (with Registrar of Companies), to ensure that there exists no prior
charge on the property. If the title deeds of the property are in the name of more
than one person, the search should be directed against the name of each person
through whom the title is made. For this purpose, the bank also gets fresh NEC i.e.
Non- Encumbrance Certificate, issued by the registrar indicating that no lien or
charge etc. has been created on property being mortgaged, upto a specific date.

After, a banker is satisfied with the property offered for security; mortgage against this
property is created through ‘Mortgage Deed’. For this purpose, the original title
documents (e.g. registered sale deed) are deposited in the bank with the mortgage deed.
Along with having the title documents of property, the bank requires

∗ Memorandum of Deposit of Title Deed


∗ Agreement to Create Mortgage
∗ General Power of Attorney (registered)

An EQUITABLE MORTGAGE or a MORTGAGE BY DEPOSIT OF TITLE


DEEDS takes place when a person delivers the title deeds of his immoveable property to
a creditor in any district headquarter town of Pakistan with the intention to create a
security thereon for an existing or future debt or for the performance of a financial
obligation such as a guarantee.
A LEGAL MORTGAGE or REGISTERED MORTGAGE takes place when the
mortgagor by an instrument signed by him, attested by at least two witnesses and
registered under the registration

Processing Of Loan Application


When a customer requests his banker to facilitate him with different credit facilities. The
banker, first, assess the credibility of customer and the market conditions. The elements
of character, capacity, capital and market conditions help a banker in arriving at a
conclusion regarding the safety of advances.

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∗ Character
It is the most important factor in determining the safety of advances, for there is no
substitute for character. A borrower’s character can indicate his intention to repay
the advance, since his honesty and integrity is of primary importance. If the past
record of the borrower shows that his integrity has been questionable then the
bakers usually try to avoid such a customer.
∗ Capacity
This is the management ability factor, which tells how successful a business has
been in the past, and what are the future possibilities are. Before advancing loan a
banker must be satisfied with the sources of the repayment of the funds.
∗ Capital
The bankers also check the property capital of the borrower. This property can be
kept as a security of loan. In other words if the businessman’s financial condition is
sound then can be given certain amount of credit, otherwise not.
∗ CIB Report
Bank cannot sanction any credit to a customer, unless it gets Credit report from CIB
(Credit Information Bureau, SBP). Before making any decision about the client,
bank needs a CIB report. Therefore, first of all, the banker requests CIB to provide
him the credit report of client. This report indicates all the credit facilities
(outstanding) availed by the client. It is to be obtained compulsarily whenever the
amount of loan exceeds Rs. 500,000.

IDENTIFICATION OF RISKS
The first and foremost procedural step in the loan processing process is identification of
various kinds of risks which are

BUSINESS RISK
This essentially translates into industry risk, market risk and supplier risk.

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Industry Risk

∗ Concentration of sales on any one industry enhances risk.


∗ Product life cycle the shorter it is, the higher is the risk.
∗ Existing and anticipated Government Policies / restrictions may increase or
reduce risks in a given sector.
∗ Current levels of competition can result in reduction of existing profit
margins.
∗ Planning of any big international or national player may change the whole
scene.

Market Risk

∗ Concentration of sales on a single geographical area.


∗ Single buyer focused sales.
∗ Reputation of buyers.

Supplier’s Risk

∗ Calculation of real costs from each supplier includes freight and handling
charges, length of time in transit, working capital and space tied up in
inventory because of large minimum order required to obtain a good
quotation or time to assure delivery on recorders and all other carrying
charges, ought to be considered in comparing suppliers.
∗ Concentration of purchases from single geographic location.
∗ Reputation of key supplier (s).
∗ Ranking of suppliers in competition.
∗ Seasonality of products.
∗ Volume of sales wholesaler / retailer details.

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∗ Borrower’s market share.
∗ Borrower’s marketing strategies of products.
∗ Details of distribution channels.

ORGANIZATIONAL RISK
Management
∗ The quality of management and shareholders
∗ Is the management professionally sound.
∗ Previous experience of the management in the same business, if any.

Relationship with the Bank
∗ Their track record indifferent lines of business.
∗ Any default history? With the bank/other banks?
∗ Length of relationship with the bank?
∗ Major historical changes or problems?
∗ Product acceptability/demand in the market?

FINANCIAL RISK
What will be the initial costs for plant & equipment, materials & supplies, insurance,
fees, tax depots, installation costs, organization expenses etc. investment Vs future
income forecasting, scale of operations are also to be looked upon.
Who will bear the cost/taxes of imported equipment? Component of FCY/LCY in
imported machinery?
How much additional cash or credit will be required to carry the business until cash
receipt equal or exceed cash outlays? This involves both an amount and a time
calculation of working capital flowing thought the following sequences: a) Material,
wages, operating supplies and expenses (b) work in process, (c) finished product (d)
sales (e) collections, which return cash to be placed back into the system.

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The firms should be supported by substantial capital to bear any external shocks.
Insufficient capital to absorb marker shocks may be a negative signal as in case of any
adverse change the firm may collapse.
In relation to industry standards, following ratios need to be analyzed.
∗ Stock turnover
∗ Debtor’s turnover
∗ Current ratio
∗ Liquidity ratio
∗ Profitability ratios
∗ Quality of fixed assets and their ageing status
∗ Contingent liabilities

Early Warning Signals


Second most important phase of credit risk management begins after the disbursement of
finance. For convenience of monitoring at the branch levels, monitoring may be
segmented further into five distinct sections enabling the credit manager to continuously
monitor the health of the asset portfolio. They include
∗ Internally colleted account status signal
∗ Externally received business status signals
∗ Security review
∗ Stock review

Preparation of the Credit Proposal


Credit proposals can be classified into two categories
∗ Credit line proposal (CLP)
∗ One Time Transaction (OTT)

A Credit Line Proposal is made for those customers for whom the bank has approved a
regular credit line, and OTT is made for those customers with whom the bank is doing
business on a one-time basis and they have no regular credit line approved with the bank.

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Credit line proposal (CLP)
In a CLP, all information regarding the client and his business is stipulated as:
∗ Total existing facilities (limit), their outstanding value and the securities that
were provided against these facilities
∗ Total proposed limit of credit and the securities provided against it. The credit
officer does the analysis and verification of these securities
Documents (reports) attached with proposal
For having the complete information regarding the client, his business and the securities
offered for advances, different documents are prepared by the Credit Officers. All these
documents are attached with the proposal to get approval. These documents are as
follows:

GRADE APPROVAL SHEET


Grade Approval Sheet forms an integral part of a Credit Line Proposal (CLP). Its
purposes are to segment bank loans by way of their risk profile, to bring to attention of
credit officers & senior management specific accounts in which adverse features or
deviations from established standards (industry trend) have been noted so as to propose
remedial measures, and to report in aggregate the resulting amount and degree of risk in
bank’s existing portfolio

BASIC FACT SHEET


Basic fact sheet is a document that is aimed towards listing down all the fact regarding
the customer, his business, his corporate status, his taxation number and every thing that
is there to be known about the person and the business.

VALUATION SURVEY REPORT


This report contains the fact about the judgment of the credit officer after the property /
an independent valuator has valued security.

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PROPERTY VISIT REPORT
Every credit officer writes this report after he visits the client’s residence and / or place of
business.

RISK INDEX LEVEL (RIL)


BAL Risk Index is based on a scale of 1 to 10, where 1 represents a lower and 10 a higher
percentage of observed Business Failures. Ownership structure, position in the industry,
experience, liquidity & profitability ratios, account history, etc contribute to the points,
where an account can have a maximum of 100 points and a minimum of 10 points;
accordingly RIL is awarded.

STATEMENT OF ACCOUNTS
This refers to clients past bank account statements.

FINANCIAL STATEMENTS
This refers to audited financial statement of the corporate entity.

When all of these documents are attached to the credit line proposal / OTT the file is
presented to the Branch Credit Committee of Bank Alfalah Limited Islamic banking
division Y block DHA..
This committee consists of the Branch Manager, Manager Operations, Manager Credits
Department, and the Manager of the Accounts Department. When the branch Credit
Committee approves the proposal the proposal is sent to the credit division functioning in
the Head Office. When they approve the proposal the customer is made to sign the offer
letter and disbursement is made.

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TRADE FINANCE DEPARTMENT
The trade finance department is further divided into two sections import and export.
Trade deals with the entry/departure of goods into/from one country to another country.
International Trade is basically a consequence of an agreement between a buyer and
seller separated by geographical boundaries.
To ensure secure transfer of goods to the right buyer and payment to the right seller, the
services of financial institutions are very important, which have contracts and roots in
both countries become indispensable.

EXPORT
This department provides two types of services. One is that it according to SBP, registers
contracts between Pakistani Exporter and foreign importer. Foreign bank issues LC
(Letter of Credit) in the name of importer to the bank of advising bank on the basis of
Performa invoice or quotation submitted by importer. This Department scrutinizes and
advises the LC to its client, “the Exporter”. Exporter files an application for export
purpose, bank issues an E-FORM to exporter in which complete detail of goods
description, quantity, terms of sale, and destination name and address of both parties are
documented. This LC obliges the advising bank to send the documents as per
requirements. LC is basically the undertaking of the bank on behalf of exporter to
reimburse the draft to the beneficiary. In this case, banks liability gets high. Advising
bank send documents to the importers bank which in turn are given to importers bank
who can receive their shipment on getting documents from the bank after paying at sight.
When importer pays to bank, it withholds service charges and then transfer funds through
Reimbursement banks i.e. ABN Amro, Citi Bank to advising bank who further pays to
exporter after charging their service dues.

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Letter of credit requires the following documents:

Bill of Lading:
This is issued by shipping lines, demonstrates the evidence of promised goods have been
shipped with stated number of quantity. Importer is obliged to receive his shipment on the
presentation of this bill of lading to their home shipping lines.

Bill of Exchange:
This bill is passed on the agreement between both parties on due payment dates, shipment
dates or any negotiation case (if any).

Packing List:
In packing list, exporter enlists the product description, total no of carton and total gross
Weight etc.

Commercial Invoice:
This invoice is issued by the co. in which it notifies the applicant of importer about the
rate per unit and total cost of goods exported.

Covering Schedule:
This covering schedule is dispatch on the above of all documents to be sent to foreign
bank. This contains all the accumulated information, negotiated against the letter of
credit.

Insurance certificate:
Importers prefer insurance certificate of commodities to avoid any sort of risk.

E-Form
E stands for exports. E-Form is a basic requirement to be fulfilled by an exporter. E-Form
is a very sensitive document. Bank does not give this form to any person before filling of
basic from which contains the information about his business, nature of business, his
name address, and some documents have to be attached with the form to get E-form.

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After filling the complete information about the goods to be exported, the exporter brings
E-Form to the bank for verification. The bank verifies the contents in accordance with the
documents and not by physical checking.

IMPORT
The Second section of trade finance department is Import. This department is responsible
to assist the importers in foreign trade by providing finances and guarantees.
This import department registers the contract between Pakistani importer and foreign
exporter under law of State Bank of Pakistan circular 56. An importer submits the
Performa invoices with contract. Besides contract the most widely provided service is
issuing letter of credit. Letter of credit is responsibility of the bank on behalf of the
importer to secure all trade process in against the exporter.
Once the importer files an application for trade purpose, the security evaluation of his
application is done by the credit department to analyze whether the shipment worth the
advances or not. On the approval, Importer is assigned a LC code and a PAD number.
The bank sends the approval of an LC in the name of importer to the Advising Bank
(Exporters bank). Exporters bank sends all the documents negotiated in LC to importers
bank. Once the shipment arrives in importing country, documents are kept with the bank
until the importer makes full payment to bank.

Letter of Credit
The letter of credit is today the foremost way of financing international trade. In simple
words, a letter of Credit (L/C) can be defined as:
“A bank’s written undertaking given to the exporter for payment of a certain sum of
money on behalf of the importer provided the exporter tenders to the bank or its overseas
agents, the specified documents within a specified period in accordance with the terms of
the undertaking”.

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Banks Involved In Letter of Credit:
i. Issuing Bank (Opening Bank)
ii. Reimbursing Bank
iii. Advising Bank
iv. Negotiating Bank

v. Intermediary Bank

Issuing Bank (Opening Bank):


Issuing bank is the bank, which opens the L/C on behalf of the importer. This bank’s
undertaking under an irrevocable L/C is absolute. Therefore, once the L/C has been
communicated to the beneficiary through the bank, it has no option, but to pay, provided
the other terms and conditions have been fulfilled.

Reimbursing Bank:
Monetary transactions between both parties are taken place by reimbursement bank.
These banks are Citi Bank and ABN AMRO. Foreign bank transfers advising bank’s
funds through these banks. Three types of accounts are utilized in these transactions:
 NASTRO: our account with others
 VASTRO: others account with ours
 LORO: others account with them

Advising Bank:
The bank that advises the L/C means who physically delivers the L/C to the exporter on
behalf of the issuing bank. It is a correspondent bank of the issuing bank situated in the
beneficiary’s country or it can also be a branch of issuing bank.

Negotiating Bank:
Negotiation is actually an exchange of value of draft. In this case, exporter negotiates
with bank to extend the due date because of unavailability of funds when importer is
obliged to pay the exporter. Bank pays to advising bank on behalf of importer and agrees

71
to charge the markup on funds when importer will pay. Bank pledge some property worth
of advances.

Intermediary Bank:
Intermediary bank is that where the negotiating bank has its Nostro Account and who
obtains reimbursement against L/C from reimbursing bank and gives credit to the
negotiating bank. For dollar payments, intermediary bank would have to be situated in
USA. Similarly, for transactions in GBP, both the Reimbursement and Intermediary banks
would be in UK.

Documents Required for Import:

Performa Invoice:
The Performa invoice is the quotation of goods to be imported. It contains the description
of goods and their price.

Insurance Certificate:
A certificate of insurance of the goods to be imported is also required by the bank in
order to minimize the risk that it undertakes.

“I” Form:
The “I” form is an important document containing the information about the importer,
exporter, the goods to be imported, the mode of shipment and etc. Its copies are sent to
the State Bank of Pakistan so that a record can be kept as

Bill of Lading:
This is issued by exporter’s shipping lines, demonstrates the evidence of promised goods
have been shipped with stated number of quantity. Importer is obliged to receive his
shipment on the presentation of this bill of lading to their home shipping lines.

Bill of Exchange:
This bill is passed on the agreement between both parties on due payment dates, shipment
dates or any negotiation case (if any).

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Packing List:
In packing list, exporter enlists the product description, total no of carton and total gross
Weight etc.

Commercial Invoice:
This invoice is issued by the co. in which it notifies the applicant of importer about the
rate per unit and total cost of goods exported.

Indent:
When the importer and exporter don’t have direct relations and are connected to each
other through an intermediary, called Indenter, then he issues an indent form containing
all terms and conditions.

Mode of Payment

1. Sight L/C:
If the beneficiary of a credit is to obtain payment immediately on presentation of
stipulated documents, it is a Sight L/C.

2. Usance L/C:
When a credit stipulates payment to the beneficiary upon the maturity of a bill of
exchange drawn under the terms of the credit, it is an ‘acceptance credit’, ‘term credit’ or
‘usance credit’.
In this form of credit the beneficiary draws a draft for a particular usance (e.g.30, 60, or
90 days etc,), payable upon either the correspondent bank or the issuing bank.

Lodgment of Documents in PAD (For sight L/C’s only):


After all the documents are scrutinized carefully, documents are lodged in PAD (payment
Against Documents). For this purpose, the documents are stamped with PAD for a
specific PAD number and entered into the register by the total amount. Exchange rate
(selling) approved by the BAL treasury (fro that day) is charged.

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When the documents are lodged in PAD, L/C becomes a fund-based facility. Until the
party does not make the payment, PAD remains outstanding and the bank keeps the
documents in its safe custody. Record of every information regarding PAD is mentioned
in the PAD register.

Retirement of Documents:
The whole transaction of foreign trade in which an L/C is involved, completes with the
retirement of documents.

The documents that are first lodged in PAD are retired when the importer pays the total
amount (payable). This amount includes the PAD plus the mark-up charged on PAD and
other charges (mentioned on cost memo). Upon receipt of payment, when the documents
are retired, they are given to the importer and he gets the consignment cleared from
custom authorities (by submitting the Bill of Entry).

Shipping Guarantee
Sometime, it so happens that the consignment reaches the port in the importer’s country
but the bank has not received the documents.
Since, the importer needs original bill of lading and commercial invoice to get his
consignment cleared, through the bill of entry. Whereas these documents has not reached
the bank and without these, the importer cannot claim possession of the consignment. So
the bank, in such case, issues a shipping guarantee. Bank does so against a certain
margin, which should be 110%.

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L/C Flow Chart
IMPORTER EXPORTER
(Pakistan) INDENTER (Indonesia)

DOCUMENTS

Payment

L/C ISSUING
BANK DOCUMENTS NEGOTIATING
BANK
(Deutsch bank)
Indonesia
L/C

L/C ADVISING
BANK L/C
(Standard Chartered)
Indonesia

PAYMENT PAYMENT
INTIMATION

REIMBURSEMENT INTERMEDIARY
BANK PAYMENT BANK
(ABN AMRO, NY) (American Express
Bank, NY)

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OPERATING RESULTS
During the year the bank’s profit before provisions and tax stood at Rs. 2,942.425 million
compared to Rs. 2,026.107 million the previous year registering an increase of 44%. This
increase in profit is primarily attributable to overall increase in business volumes.
The Bank issued a subordinated debt worth Rs. 1.325 billion (Rs. 900million Pre-IPO and
Rs. 425 million IPO) to support bank’s equity under tier II capital in compliance with
SBP’s Capital Requirements. During the year Bank acquired the banking business,
undertaking and operations of Shamil Bank of Bahrain B.S.C’s Bangladesh operations for
US$ 17.88 million under an agreement dated November 1, 2004.
During the year under review, the Bank increased its strategic stake in Alfalah Securities
(Private) Limited, a subsidiary company from 70% to 76%. We continue to strengthen
our presence in the market place and as of year end 2005, we have a nationwide network
of 147 branches that includes 15 Islamic Banking branches

76
H R Policies Of BANK ALFALAH

I asked the credit department manger Mr. Umar about Bank's HR Policies and he
agreed to give me only some information but refused to provide me the detail of
HR policies as these are confidential of any organization.

Initiation Of Staff Hiring:


All branches/units of Bank Alfalah should systematically forecasts
their future staffing requirements for time of induction of high quality staff. These
requirements are intimated to HRD through Area Managers.

Staff hiring may be done in Batches , in small groups or individually.

Hiring of Batches:
Batches are hired of fresh officers, given training, and then placed at
branches.
These batches are 1 :Management Trainee Officers
2: Operational Officers
3: Cash Officers
4: Business Development Officers

Hiring In Small Groups:


It may be done according to planned expansions of existing branches.

Individual hiring :
Individual hiring is done from time to time when a branch or unit has
need to induct additional staff.

77
Minimum entry requirements:
Graduation from recognized university home or abroad

Recruitment of close relatives:


It can be done but the candidate must meet the eligibility
criteria.

Selection Authority:
It can't be disclosed

Selection Test:
People getting more than 50% marks in tests go fo the next step.

Psychometric Test

Selection Interview :

It id done by branch manger ,area manager ,head product dept. as


required.

Panel Interview: candidates of higher range are interviewed by panels of senior


officials.

Medical Examination Of New Joiners:


If the bank deems fit , the candidate will undergo a
medical examination before joining the bank.

Issue Of Offer /Appointment Letter:


Offer letter will be issued by HRD of Bank Alfalah to
be signed by signatory.

Probationary Period:
For entrants this period is determined but it cant be disclosed.

78
Renewal of contract:
It cant be disclosed.

Placement Of Candidates:
As far as possible ,attempt is to be made to select candidates
belonging to the area where they need to be posted . However to the requirements of the
bank services are transferable

INDUCTION TRAINING AND DEVELOPMENT

79
In Service Training :
Training need: objective is to keep the e employees abreast of latest
professional knowledge and skills.
Annual training plan:
Minimum training for all: Two days of calendar year.

Induction Training:
Full day induction session for new joiners.

Batch Training:
As per requirements, a comprehensive training for new batches, they
may be asked to undergo on the job training by way of rotation.

External Training:
Whenever deemed necessary external training consultants may be
invited to conduct training programmed.

80
SALARY, ALLOWANCES AND BENEFITS FOR
PAKISTAN BASED STAFF

Staff monthly salary is disbursed before the end of each month. Salary and allowances of
each employee is a confidential matter.

Advance Against Salary;


Employee in need of funds for an emergency may be allowed
advance against salary for the current month to be adjusted in full on disbursement of
salary it is only in case of emergency.

Accommodation:
As the discretion of bank's management, furnished or unfurnished
accommodation up to reasonable value may be provided to senior officers. other staff
members when transferred out of city given additional allowances.

Furniture Facility:
It is given to confirmed range of officers which can't be disclosed, but
they should have minimum two years of experience.

Fuel Allowance:
At the discretion of the management, officers posted in business units like
BDO, car finance , home finance etc. are given fuel up to certain liters.

Mobile Phone Facility:


Officers having their functional requirements are given mobile phone
facility up to certain limit subject to their own mobile phone.

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Title Allowance:
Branch managers, product heads, asset executive in charge , area
managers are given title allowances till such time they hold these positions.

Bank Car Facility:


This facility is given to some executives which can't be disclosed.

Profit Bonus/Special Cash Prize:


profit bonus will be paid to employees based on respective bonus circular and special
cash may be paid on outstanding performance.

Provident Fund:
all permanent e employees are eligible for membership of this fund. contribution is
8.33% of monthly salary.

Cash Awards On Passing Institute Of Bankers Diploma Exams;


There 3 stages of IBP diploma
exams and for each stage there rewards based on completing in 21st attempt, 2nd
attempt and 3rd attempt.

Staff Insurance:
The bank has arranged insurance for its full time staff. these are subject
to amendment from time to time.

Hospitalization Insurance Coverage For Employees And Their


Dependent Parents, Spouse And Children.:
In case working wife not covered by her employer then she will be eligible for applying
in this scheme.

Group Mortgage Insurance Coverage:


Lives of bank employees are covered up to the out
standing balance of house finance liability in the name of the concerned employee with

82
the bank would be taken over by the insurance company and no liability will be borne
by the family of the deceased.

Group Mortgage Insurance Coverage For Conveyance Finance


Lives of clerical and non clerical
staff covered up to the conveyance finance liability and would be taken over by the
insurance company and no liability will be borne by the family of the deceased.

Life Insurance Coverage:


All employees of the bank who are on bank's pay roll whether in
regular or contractual up to the age of 65 years will be covered under group life
insurance. the category and amount can't be disclosed.

Follow Up Treatments:
Regular employees , their spouse , children suffering from serious
illness will be entitled to imbursements of cost of medicine but if
1: Treatment prolongs for six months or more.
2: If treatment expense is up to 10% of basic monthly salary.

End Sevice Benefits:


1 :Provident fund
2: Gratuity Payment
3: Encashment Of Unavailed Privileged Leave

Income Tax Liability:


The employees are personally responsible for their preparation and
submission of personal income tax any other personal taxation returns and reports.

Other Regulatory Requirements:


The HRD will ensure deduction of employees Old Age
Benefit contributions. Social Security Contributions, education Cess as per the rules and
provisions of relevant statutes.

83
FINANCIALS ANALYSIS OF BANK ALFALAH
RATIO ANALYSIS

Average rate of lending= Markup earned/Advances+Investments+Lending to financial


institutions*100

2005=12246811/96330758*100
2005=12.71%

2006=21191470/218958188*100
2006=9.67%
Interpretation: in year 2006 bank’s rate of lending has decreased instead of increasing
because in 06 its borrowing rate is increased but this might happen because of tuff
competition.

Average rate of borrowing= Mark up expense/Deposits borrowing from financial


institution subordinated loans*100

2005=7204992/231412811*100
2005=3.11%

2006=15232886/251125627*100
2006=6%
Interpretation: in 06 bank’s borrowing rate has increased because interest rates of other
banks have increased so to remain in competition it had to increase its rates too.

84
Admen. Expense as % of deposits=Admen.
Expense/Deposits*100

2005=4313023/222345067*100
2005=1.94%

2006=5874745/239509391*100
2006=2.45%
Interpretation: it is not a matter of astonishment that admen expenses have increased. It
is because inflation is all-time on rise.

2006 Spread
Spread=Avg. Rate of Lending- {Avg. Rate of borrowing+Admn. Expense% of
Deposits}
Spread=9.67-{6-2.45}
=1.22%

2005 Spread
=12.71-{3.11+1.94}
=11.15%
Banking spread in 05 was more because its lending rate was more and
borrowing rate was less.

Cash Ratios:
=Cash and Balance with treasury banks balances with other
banks/deposits*100

2005 =24798070+9713369/222345067*100
=15.52%

85
2006=40591312/239509391*100
2006=16.95%
Interpretation: cash ratio of total deposits of bank has increased in 06.

Cash Reserve Ratio=Cash balance with treasury banks/deposits


2005=24798070/222345067*100
2005=11.15%

2006=27859360/239509391*100
2006=11.63%

Infection Ratio=Provision for NPL/Advances*100

2005=402298/11864010*100
2005=3.39%

2006=697690/149999325*100
2006=.47%

Interpretation: The decrease in infection ratio in 06 is evidence that bank has been very
precarious in advancing loans.

Advances to Deposits Ratio=Advances/Deposits*100

2005=118864010/222345067*100
2005=53.46%

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2006=149999325/239509325*100
2006=62.63%
Interpretation: this increase in advance to deposits ratio shows that banks marketing
efforts to advance loans has been very successful

Investment and Advances to Deposits Ratio= Investment+ Advances/Deposits*100

2005=176280265/222345067*100
2005=79.28%

2006=206501535/239509391*100
2006=86.22

Interpretation: this ratio has increased because its investment in finance lease has
increased.

Capital Adequacy Ratio=Capital/Total sum of balance sheet*100

2005=3,00,000/248313793*100
2005=1.21%

2006=5,000,000/275685541*100
2006=1.81%

87
Horizontal Analysis
Balance Sheet

Assets 2005 2006

Cash and balance with 12.34%


treasury banks
Investments -1.59%
Balances with other banks 31.07%
Advances 26.20%
Operating fixed Assets 58.65%
Other Assets 46.25%
Lending to financial 53.95%
institution
Total assets 11.02%

Liabilities 2006

Bills payable 17.19%


Borrowings 43.63%
Deposits and other accounts 7.72%
Sub-ordinate loans .03%
Other liabilities 39.96%
64.01%
Net Assets

66.67%
Share capital
48.53%
Reserves

88
Horizontal Analysis

Profit and loss Analysis

Years 2005 2006


Mark up earned 73.04%
Mark up expense 111.42%
Bad debts written off 200.01%
Net mark up interest income 13.37%
Total non mark up income 42.15%

89
Administrative expense 36.21%
Profit before taxation .10%
Profit after taxation 3.56%

90
91
SWOT ANALYSIS
This SWOT analysis of Bank Alfalah Limited takes into consideration the external as
well as the internal environment
internal structure of the bank.

Strengths
The predominant strengths of Bank Alfalah Limited are

∗ Humble Management
∗ Strength And Commitment Of Sponsors
∗ Efficiency
∗ Phenomenal Growth
∗ Vastly Experienced Management
∗ Highly Professional Human Resource Department
∗ Crucial Location Of Branches
∗ Image Building Activities
∗ Bank is financially strong and has a huge deposit reserve
∗ Its cost of funds is less as compared to many of its competitors
∗ Personnel of Alfalah are well trained and highly skilled. Majority of
employees has many years of experience in banking sector and are an asset
for the bank
∗ Bank Alfalah has a wide network of branches at the ideal locations, catering
the financial needs of its clients
∗ Foreign Trade is the focus of bank. It has become an ideal bank for the
importers and exporters

Weaknesses
The chief weaknesses are

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∗ Small Size
∗ Less Efficient Computer And I. T. System
∗ Disproportionate Presence Of Old Staff In The Upper Management Hierarchy
∗ Skill Set Of Employees Is Not Up to The Mark As There Is No Job Rotation
∗ Foreign Banks Still Are A Little More Prestigious
∗ Bank Alfalah Limited Does Not Possess Foreign Network
∗ No Advertising In Electronic Media
∗ It is a step behind in using new technology as compared to other banks
∗ Most of the employees are overloaded with work. There is uneven
distribution of work and promotions are not very timely
∗ It is slow in the introduction of new services

Opportunities
The opportunities on which bank Alfalah can capitalize upon are

∗ Extension of local branch network


∗ Establishing foreign branch network
∗ Capitalizing on information technology
∗ Unexplored market of multinational corporations
∗ Growth in textile sector
∗ Adopt E-banking

Threats
The predominant threats Bank Alfalah is facing at the moment are discussed in the
following lines.

∗ Private sector banks


∗ Heavy reliability on only one market segment i.e. Textile.

93
∗ Network expansion by foreign banks
∗ If Pakistani banks (especially state owned banks), backed by huge network
improve the service they give and their employee skill set
∗ Terrorist image of the country
∗ Inconsistency in government policies

RECOMMENDATIONS
The following recommendations include short term as well as long-term issues.

∗ Bank Alfalah Limited should continue to expand its business, by increasing


its deposit portfolio through aggressive market penetration strategies.
∗ Bank Alfalah Limited needs to use more marketing channels to make the
public aware of its products and services. In the presence of intense
competition Bank Alfalah Limited has to realize the importance of marketing.
∗ Management should distribute work equally among different employees.
Some of the employees are overburdened while some sections are
overstaffed.
∗ There are a disproportionate number of seasoned bankers in the top
management who have the responsibility of making strategic decisions. This
think tank should also include a reasonable proportion of young bankers
whose mindsets teem with new creative ideas, which might prove to be
invaluable for Bank Alfalah Limited.
∗ The top management should immediately start thinking in terms of rotating
the employees in various departments, as this transforms work force into
human capital. If a particular individual keeps on employing his / her efforts
in one sphere of banking it would not only create a sense of monotony and
boredom, but also not help improving the skill set of Bank Alfalah Limited
employees.
∗ Bank Alfalah Limited should embark upon an even more aggressive
management strategy of expansion of branch network not only in the local

94
market (Pakistan), but also in foreign markets because that is a huge untapped
opportunity for Bank Alfalah Limited.

One of the most pressing needs of the time is to


advertise Bank Alfalah Limited in the electronic media.
Bank Alfalah Limited has not, till date, employed
advertisement in electronic media as a full fledge
marketing tool. I think it is high time that BAL does this.

95
CORPORATE INFORMATION

Board of Directors
H.E. Sheikh Hamdan Bin Mubarak Al Nahayan Chairman
Mr. Abdulla Khalil Al Mutawa Director
Mr. Abdulla Nasser Hawaileel Al-Mansoori Director
Mr. Khalid Mana Saeed Al Otaiba Director
Mr. Ikram Ul-Majeed Sehgal Director
Mr. Nadeem Iqbal Sheikh Director
Mr. Mohammad Saleem Akhtar Chief Executive Officer

Board Advisory Committee


Mr. Abdulla Khalil Al Mutawa Director
Mr. Khalid Mana Saeed Al Otaiba Director
Mr. Bashir A. Tahir Member
Mr. Ganpat Singhvi Member
Mr. M. Iftikhar Shabbir Secretary

Board Audit Committee


Mr. Abdulla Khalil Al Mutawa Director
Mr. Khalid Mana Saeed Al Otaiba Director
Mr. Bashir A. Tahir Member
Mr. Ganpat Singhvi Member
Mr. M. Iqbal Saifi Secretary

Central Management Committee


Mr. Mohammad Saleem Akhtar Chairman
Mr. Parvez A. Shahid Deputy Chairman
Mr. Sirajuddin Aziz Member
Mr. Mohammad Yousuf Member
Mr. Shakil Sadiq Member

96
Mr. Shahid M. Murtaza Member
Mr. Nadeemul Haq Member
Mr. Bakhtiar Khawaja Member
Mr. Adil Rashid Member
Mr. Ijaz Farooq Member
Mr. Arfa Waheed Malik Member
Mr. Adnan Anwar Khan Member

Company Secretary
Mr. Hamid Ashraf

Chief Financial Officer


Mr. Zahid Ali H. Jamall

Auditors
KPMG Taseer Hadi & Co.,
Chartered Accountants

Registered / Head Office


B. A. Building
I. I. Chundrigar Road
Karachi.

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