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Presentation Outline
Nature of Deposits in Conventional Banks Basic Concepts of Mudarabah & Musharakah Types of Deposits in Islamic Banks Deposit Management in Islamic Banks A Case study Bank of Khyber
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Mudarabah
It is a partnership agreement in which one party invests while the other manage the business. Both Parties can decide any ratio of profit but loss is to be borne by Financier (Rab ul Maal) alone. There are two types of Mudarabah
Restricted Mudarabah (Mudarabah Muqayyadah) Unrestricted Mudarabah (Mudarabah Mutlaqah)
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Musharakah
Musharakah means a joint pool of funds formed for conducting some business in which all partners contribute capital as well as efforts. They can agree on any ratio for distribution of profit but the loss is shared as per the ratio of investment of each partner.
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Ijarah
Ijarah in Islamic Law refers to a contract in which a known benefit or service is sold against a known consideration for a defined time or work Types Ijarat ul Ashkhas Ijaratul Ashya
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Current Account (Qarz-e-Hasan A/C) PLS Account Riba Free Certificates Wakalatul Istismar (Investment Agency) arrangement
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Current Account
It is based on the concept of Qarz-e-Hasana and not on Ammanah Account holder can withdraw its deposits at any time without giving any notice. The bank can use it i.e. invest it. The Depositors will not be entitled to any profits The Depositors will not be liable for any losses.
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PLS Accounts
A Normal saving account product Based on the concept of Musharaka Equivalent to conventional partnership Where all partners (including bank) have equity stake All deposit accepted are invested in Shariah Compliant Business approved by the Shariah Supervisory Board. All the partners share in the Financing business Minimum deposit for profit eligibility= Rs. 5,000. Minimum Balance to open Account = Rs. 500. Profit announced every month credited in January & July. 12/03/2013 10
A Certificate of Riba Free Investment (RFC) Based on the concept of Musharaka Available for five tenures - 6 months - 12 months - 2 years 3-years 5-years Minimum deposit= Rs. 10,000. Profit rates announced every month. Profits are paid in January and July All deposit accepted are invested in Shariah Compliant Business approved by the Shariah Supervisory Board.
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Profit will be calculated on a daily product basis. Profit may be payable Monthly, Quarterly, Six monthly, Annually or on maturity.
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On maturity the depositors principal and profit will be reinvested on the same terms and conditions or on the customers instructions returned to him/her. On premature Encashment, profits rates applicable to the nearest RFCs period will be given and for broken period PLS rate will be given. In case of difference in the profit already paid or accrued and the profit payable on encashment, the difference amount will be transferred to the Charity Account.
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Profit Mechanics
The Profit Mechanics is explained in the foregoing sections. Briefly the whole profit from the assets given in the pool is distributed among the funds providers on the basis of weighted funds. Income of the bank from other sources, such as service charges, proposal examination fees etc. is not divided among depositors. Income allocable to equity holders come from three sources, (1) Management Fee (2) Income from other Sources (3) Income allocated to equity from distributable Income
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Distributable Profit
The profit applicable on Deposits and RFCs is based on weightages after the following deductions from the income of the Pool:
Actual administration costs. Management Fee based on pre-declared percentage of the total profit not exceeding 30 Stabilization Reserve.
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Note: The bank has to declare the percentage of Management Fee at the beginning of each month.
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Specific weightages are assigned to all the partners in the Musharaka pool comprising of: Saving Account Holders - Amount Tier Wise RFCs depositors- Maturity Profile Wise Equity of the Bank If weightages are changed, the same are updated on our website immediately The weightages are changed on need basis only. NOTE: The Weightage of Banks equity can not be higher than double the maximum weightage allowed to any depositor group.
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Single pool of assets for both RFCs/ Saving Accounts Our typical pool comprises of: Average Murabaha Balance Average Ijarah Balance Average Placement Through Treasury Placement with other Islamic Banking Institutions Placement with SBP for SLR @ 11% Balance in Non-earning account
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Avg. investment in the pool is calculated for: Saving Account Holders - Amount Tier Wise RFCs depositors- Maturity Profile Wise Equity of the Bank-
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The use of funds invested is ascertained by grossing up: Average Murabaha balance (Based on those allocated at the beginning of the month) Average Ijarah balance (Based on those allocated at the beginning of the month) Average placement through Treasury. 11% of the average Deposits mobilised are added for the purpose of Statutory Liquidity Requirement. Balance (if any) is treated as kept in a non-earning current account
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INCOME OF THE POOL Return from earning assets of the pool (Murabaha, Ijarah & placement through Treasury) is calculated.
Net return is calculated by deducting proportionate administration cost at actual and a management fee upto a maximum of 30% of the return on earning assets. Stabilization Reserve is deducted to arrive at Distributable Income The Bank has discretionary powers to waive both the administrative expenses and management fee fully or partially.
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Statement A
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Statement B
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