Features of a Bank

Importance of Banking
Banking is the most important sector of the modern day economy. It provides an opportunity to the household with surplus capital to select the best mix of investments in terms of return and tenors & security. It provides an opportunity to businesses and Governments to finance their activities through obtaining surplus funds.

Importance of Banking
Efficient Banking system is necessary to bring economic prosperity. However, the present conventional banking system is based on

Riba / interest Gharar

And unfortunately today for many interest is more than a way of life, it is fact of life.

Features of a Bank
Deposit creation

Corporate & Consumer Financing

Agency services Issuing LGs / LCs

Advisory services
Other related services

Features of a Bank
Balance Sheet View
Assets Corporate
- Short term financing - Long term financing

Liabilities & Equity Accounts

- Current Accounts - Saving Accounts - Term Deposits/COI

Consumer Financing
- Car, Housing,Durable - Personal loan, cash advance Inter-bank lending: Call, Repo

Borrowing
- Inter-bank borrowing - Central bank borrowing

Investment - Govt Bonds, Treasury bills

Equity
- Shareholders

Comparison between Islamic Bank & Conventional Bank

Comparison - Liability side

Current Accounts Conventional Current Accounts primarily offers two benefits Safety & Withdrawal facility Extra Services linked to the balance in the account.

In Islamic Banking Current Accounts can be developed by using the concept of Qard/loan.
Repayment of funds can be guaranteed by the bank. However, extra benefits linked to the balance cannot be offered. Bank may use the funds at its own discretion.

Comparison - Liability side

Saving / Term Deposit / COII Conventional Saving & Term Deposit Accounts primarily offers two benefits Guaranteed Investment Regular Interest Payments In Islamic Bank, the Investment accounts can be based on: Musharakah Mudrabah Wakalatul Istismar Many Islamic banks have successfully launched such schemes based on the above modes.

Comparison - Liability side

Musharaka Model
Depositors
Profits Deposits

Bank
Equity

Weightage System
Profits

Pool of Funds
Profits

Financing

Businesses/Corporates

Comparison - Liability side

Mudarabah Model
Depositors
Profits Deposits Deposits

Weightage System
Profits

Pool of Funds
Profits

Financing

Businesses/Corporates

Comparison - Asset side

Corporate & Consumer Finance Conventional Banks undertake different kinds of financing business which can be divided into two broad categories: Short Term Financing Running Finance (Overdraft)

Import/Export Financing
Agricultural Finance Long Term Financing Consumer Finance (Car, Housing, CC, Cash etc) Generally speaking these needs are met through interest based loans with different of combinations securities and tenors.

Comparison - Asset side

General Islamic Modes of Financing on ASSET SIDE
Corporate Financing Musharakah Mudarabah Consumer Financing Diminishing Musharakah Ijarah Murabaha Salam Istisna

Diminishing Musharakah
Ijarah Murabaha Salam Istisna Istijrar Wakalah

Application of Modes
Mode 1 2 3 4 5 6 7 8 9 Murabaha Ijarah Musharakah Diminishing Musharakah Mudarabah Salam Application
PKR Murabaha, Dollar Murabaha, Syndicated Murabaha Facility, Murabaha against Usance Bills Car Ijarah, Fixed Assets Ijarah (medium to long term) Musharakah TFCs, Joint ventures Arrangements, IERS House Financing (Build, Buy, Renovate & Replace) Plant & Machinery, Commercial Premises Fayzan Manufacturing Mudarabah with ICI Foreign Currency Salam - Alternative for Sight Bill Discounting

Istisna Islamic Export Refinance Scheme (IERS) Wakaltul-Istismar Sister concern -Investment Management Co Musawamah
Usance bill negotiation

Application of Modes
Based on the criteria for selection of modes, the appropriate modes is applied to fulfill the customers need.

Need

Mode Selection

Mode Application

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

Other Permissible Services

Zakat deduction. Sale & purchase of foreign currency Sale & purchase of travelers checks (local & foreign currency) ATM services Remittance Electronic online transfer Telegraphic transfer (of cash) Demand draft Pay order Lockers & custodial services Clearing facility Sales & purchase of shares/stock (of companies involved in halal activities) Collection of dividends Electronic banking window Telephone banking.

Uniqueness of Islamic banks

Commingling between Finance & Religion and ethics Shariah Supervisory Boards (SSB)/Shariah Advisor Studies Articles of associations and bylaws Approval of all contracts Contribute in designing new products Audit the actual implementations Issuance of Fatwas Research - Training

Conclusion
Islamic banking is a viable alternative

Islamic alternates of Banking Products can be very effectively developed for all types of needs
However, there is a need for proper research and development. Ulema and professionals need to coordinate more frequently.

May Allah give us success in these efforts. - Ameen