presentation by muhammad asad on islamic banking

8/8/2019 Presentation by Muhammad Asad on Islamic Banking

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Presentation On Islamic Banking

By

Muhammad AsadMBA, ICMA, DAIBP

Head O&S, Bank of Khyber, Pakistan

8th 9th June, 2010

Kabul, Afghanistan


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Presentation On Islamic Banking

Contents

1. Definition

2. Comparison of Islamic and

Conventional Systems

3. Profit Distribution Mechanism4. Concept of Weightages

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Definition (From General Public Point Of View)

Islamic Banking is a system where depositscollected on profit & loss sharing basis areinvested in profitable Projects using any Shariahbased mode and net income/loss is shared

between the depositors and the bank. It has three parts.

Collection of deposits on PLS basis.

Investing deposits in profitable ventures using

shariah based modes. Distributing profit or loss among depositors and

the bank.

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Definition (From Economists Point Of View)

It is the pooling of cash resources (means) of theeconomy and diverting it to projects which havethe greatest positive impact on the GNP anddistributing the benefits of increased GNPamong the segments of the economy.

It has four parts. Pooling of cash resources.

Diverting it to projects which have positive impact onGNP

Distributing GNP benefits among resource providers

Benefiting the Different segments of the economythrough increased GNP.

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Comparison of the Islamic and Conventional systems

Conventional Banking Conventional Banks take deposit on interest

basis and lend on the basis of interest. A part ofinterest is paid to the depositors and the

remaining interest is left for the bank as itsincome. If this residual is more than itsexpenses, it will have Net Income otherwise itwill have Net loss.

Islamic Banking Islamic Banking accepts deposits on PLS basis

and invest in Shariah based modes. Whatever isthe profit, it is shared with depositors. If there isa loss it will also be shared.

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Conventional Banking Equation of Banks FailureAdmn Exp + Interest Exp > Total Income + Reserves

Equation of Banking System Failure

Admn Exp + Interest Exp > Total Income + Reserves + Equity

Islamic Banking (Musharakah Model) Equation of Banks Failure

Net Operational Losses > Reserves + PLS Deposits

Equation of Banking System Failure

Net Operational Losses > Reserves + PLS Deposits + Equity

Net Operational Losses

There is net operational loss if result of following equation is positive.

Net Operational Losses = Admn Exp + Losses (Income) from Invest

Islamic Banking (Mudaraba Model) Equations of Banks Failure

Gross Expense > Income (Loss) E + Income (Loss) C + Management Fee

Equations of System Failure Net Losses from (Investment E + Invest C) + Management Exp > Management Fee + Equity

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Profit Distribution Mechanism

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Concept of Weightages

What is Weightages? Muslims are very well aware of the Weightages. However, they do not know

it by the name of Weightages. Distribution of wealth between heirs of a

deceased is on the basis of Weightages. In distribution, the Weightages of

Son is 2 and of daughter is 1. It means if a daughter gets one rupee the son

will get two rupees. Deceased property will remain same, and Weightages

of son and daughters will remain unchanged but if heirs are more in

number, each will get less amount, if they are few in number, each will get

more amount.

In the same manner, Bank decide and declare Weightages and distribute

profit on its basis.

Amount of profit to be distributed remains unchanged.

Higher is the Weightages, higher will be the share in profit of the party.

If there are more depositors, each of them will get less profit and profit rate

will be lower as if there are more heirs each will get less and if the heirs are

less each will get more from same amount of distributable assets.

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Concept of Weightages

Weightages:

Decided by the Management under criteria to be applied

uniformly

declared before start of Month.

Criteria set for determining Weightages shall be applied

uniformly.

Bank can reduce Weightages for equity for profit distribution.

In case of loss Weightages shall be ignored. Can not be changed during a month.

displayed on Notice Board as well as website of Bank.

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presentation by muhammad asad on islamic banking

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