Deposits Presentation NBP

7/29/2019 Deposits Presentation NBP

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Liability Management in

Islamic Banksby

Atiquzzafar Khan

Presented at

Training Workshop

National Bank of Pakistan


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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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Nature of Deposits in Conventional BanksDeposits made in Conventional Banks are Qard

according to Shariah and not Amanah (trust)

as generally belived since according toShariah

Amanah can not be used by the holder

Ameen can not be held responsible for any

loss or demage without is negligenceBoth of these characteristics are missing in

conventional bank deposits


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Islamic Modes used in Liability

Management

Mudarabah

Musharakah

Ijarah


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Mudarabah

It is a partnership agreement in which oneparty 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 MudarabahRestricted Mudarabah (Mudarabah Muqayyadah)

Unrestricted Mudarabah (Mudarabah Mutlaqah)


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Musharakah

Musharakah means a joint pool of fundsformed for conducting some business in

which all partners contribute capital aswell as efforts.

They can agree on any ratio for

distribution of profit but the loss isshared as per the ratio of investment ofeach partner.


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Ijarah

Ijarah in Islamic Law refers to acontract in which a known benefit or

service is sold against a knownconsideration for a defined time or work

Types

Ijarat ul AshkhasIjaratul Ashya


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Types of Accounts in Islamic Banks

Current Account (Qarz-e-Hasan A/C)

PLS Account

Riba Free Certificates

Wakalatul Istismar (Investment Agency)arrangement


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It is based on the concept of Qarz-e-Hasanaand not on Ammanah

Account holder can withdraw its deposits atany time without giving any notice.

The bank can use it i.e. invest it.

The Depositors will not be entitled to anyprofits

The Depositors will not be liable for anylosses.

Current Account


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A Normal saving account product

Based on the concept of Musharaka

Equivalent to conventional partnership

Where all partners (including bank) have equitystake

All deposit accepted are invested in ShariahCompliant Business approved by the ShariahSupervisory Board.

All the partners share in the Financing businessMinimum deposit for profit eligibility= Rs. 5,000.

Minimum Balance to open Account = Rs. 500.

Profit announced every month credited in

January & July.

PLS Accounts


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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 CompliantBusiness approved by the Shariah Supervisory Board.



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Profit payment options:

Profit will be calculated on a daily productbasis.

Profit may be payable Monthly, Quarterly,

Six monthly, Annually or on maturity.



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On maturity the depositors principal and profitwill be reinvested on the same terms andconditions or on the customers instructions

returned to him/her.On premature Encashment, profits ratesapplicable to the nearest RFCs period will begiven and for broken period PLS rate will begiven.

In case of difference in the profit already paid oraccrued and the profit payable on encashment,the difference amount will be transferred to theCharity Account.


Encashment and pre-mature Encashment


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Profit Mechanics

The Profit Mechanics is explained in the foregoingsections.

Briefly the whole profit from the assets given in the poolis distributed among the funds providers on the basis ofweighted funds.

Income of the bank from other sources, such as servicecharges, proposal examination fees etc. is not dividedamong 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 followingdeductions from the income of the Pool: Actual administration costs.

Management Fee based on pre-declaredpercentage of the total profit not exceeding 30 %.

Stabilization Reserve.

Note: The bank has to declare the percentage ofManagement Fee at the beginning of each month.


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Basis of Profit Calculations

Minimum Average Balance required for profitSharing is Rs. 5000

Average Balance Calculated on daily productbasis.

For the first month of deposit of money,average Balance is calculated on the basis ofnumber of days from the date of deposit toend of month and not the total number of

days of month. Profit is payable on the basis of daily product.

The tire of deposit and rates applicable isdecided on the basis of monthly average of

daily products.


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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 areupdated on our website immediately

The weightages are changed on need basisonly.

NOTE:

The Weightage of Banks equity can not behigher than double the maximum weightageallowed to any depositor group.

BEGINNING OF THE MONTH


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Bank of Khyber: A Case Study


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BEGINNING OF THE MONTH


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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

Pool for RFCs/Saving Account


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SIZE OF THE POOL EQUITY SIDE

Avg. investment in the pool is calculated

for: Saving Account Holders - Amount

Tier Wise

RFCs depositors- Maturity Profile

Wise Equity of the Bank-

END OF THE MONTH


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SIZE OF THE POOL ASSET SIDE

The use of funds invested is ascertained by grossing up:

Average Murabaha balance (Based on those allocatedat the beginning of the month)

Average Ijarah balance (Based on those allocated atthe beginning of the month)

Average placement through Treasury.

11% of the average Deposits mobilised are added forthe purpose of Statutory Liquidity Requirement.

Balance (if any) is treated as kept in a non-earningcurrent account

END OF THE MONTH


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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 proportionateadministration cost at actual and a management fee upto amaximum of 30% of the return on earning assets.

Stabilization Reserve is deducted to arrive at DistributableIncome

The Bank has discretionary powers to waive both theadministrative expenses and management fee fully or

partially.

END OF THE MONTH


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StatementA


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Statement of Average Funds employed

Statement B


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Break up of Pool IncomeStatement C


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Profit rates Declaration Sheet

Deposits Presentation NBP

Documents

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