internship report on meezan bank complete

Islamia University Of Bahawalpur (Rahim Yar Khan Campus)

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Meezan is a publicly listed company first incorporated on January 27, 1997. It started operations as an investment bank in August of the same year. In January, 2002 in an historic initiative, Meezan Bank was granted the nation's first full-fledged commercial banking license dedicated to Islamic Banking, by the State Bank of Pakistan.

Our Vision Establish Islamic banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind.

Our Mission To be a premier Islamic bank, offering a one-stop shop for innovative value added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders value through an organizational culture based on learning, fairness, respect for individual enterprise and performance.

Introduction of Products  Riba Free Meezan Providence  Riba Free - Certificates of Islamic Investment  Riba Free - Monthly Musharakah Certificate  Riba Free - Dollar Saving Account  Riba Free - Rupee Saving Account  Riba Free - Current Account  Car Ijarah - Islamic Car Financing  Riba Free Meezan Providence:


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Islamic Mode of Financing  Musharakah  Mudarabah  Murabaha  Salam  Istisna  Ijarah

Net Profit Years profit

2005 20.15

2006 17.80

2007 16.27

2008 8.27

2006 19.50

2007 38.55

2008 21.48

Share Price in Stock Market Years Share Price

2005 23.25

MBL is incorporated in Pakistan and engaged in Islamic and commercial banking. It is listed on all the stocks exchanges in Pakistan. The bank’s registered office and principal office are situated the adoption of new technology and offering new products has made MBL one of the best domestic bank of Pakistan. According to the department internship program I completed my eight weeks internship at MBL Rahim Yar Khan. General banking department is concerned with daily operation of the branch. This department is divided into four sections which are Cash section, Clearing section,


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Remittance section and fixed deposit section. Cash section performs cash related function like receipt of cash, payment of cash and collection of utility bills. Clearing section performs the clearing of cheques for collection. Remittance section performs transferring of funds from one branch to another or from one account to another. Credit department issues short term and long-term loan. MBL offer two types of loans or finances, fund based finances and non-fund based finances. Funds based finances include running finance, demand finance, cash finance and staff finance. Non fund base finance include letter of credit and guarantees like performance guarantees, mobilization guarantees shipping guarantees, bid bonds and security deposit guarantees.


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Meezan bank is a premier Islamic bank and publicly listed company first incorporated on January 27, 1997. It started operations as an investment bank in August of the same year. In January, 2002 in an historic initiative, Meezan Bank was granted the nation's first full-fledged commercial banking license dedicated to Islamic Banking, by the State Bank of Pakistan. Meezan Bank stands today at a noteworthy point along the evolution of Islamic Banking in Pakistan. The banking sector is showing a significant paradigm shift away from traditional means of business and is catering to an increasingly astute and demanding financial consumer who is also becoming keenly aware of Islamic Banking. Meezan Bank bears the critical responsibility of leading the way forward in establishing a stable and dynamic Islamic Banking system replete with dynamic and cutting-edge products and services. The Bank has made fundamental and significant progress forward, and in doing so has established a strong and credible management team comprised of experienced professionals, which have achieved a strong balance sheet with excellent operating profitability, including a capital adequacy ratio that places the Bank at the top of the industry, a long-term entity rating of A+, and a short-term entity rating of A1+, the highest short-term rating. The Bank's main shareholders are leading local and international financial institutions, including Pak-Kuwait Investment Company, the only AAA rated financial entity in the country, the Islamic Development Bank of Jeddah, and the renowned Shamil Bank of Bahrain, that in addition to their strength and stability, add significant value to the Bank through Board representation and applied synergies.


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The Bank has an internationally renowned, very high caliber and pro-active Shariah Supervisory Board presided over by Justice (Retd.) Maulana Muhammad Taqi Usmani, a renowned figure in the field of Shariah, particularly Islamic Finance. He holds the position of Deputy Chairman at the Islamic Fiqh Academy, Jeddah and in his long and illustrious career has also served as a Judge in the Shariat Appellate Bench, Supreme Court of Pakistan. The Bank also has a resident Shariah advisor, Dr. Imran Usmani, who strictly monitors the regular transactions of the Bank. The board also includes Sheikh Essam M. Ishaq (Bahrain), and Dr. Abdul Sattar Abu Ghuddah (Saudi Arabia). At Meezan Bank, we strive to find commonalties with the conventional banking system with absolutely no compromise on Shariah rulings. The bank has developed an extraordinary research and development capability by combining investment bankers, commercial bankers, Shariah scholars and legal experts to develop innovative, viable, and competitive value propositions that not only meet the requirements of today's complex financial world, but do so with the worldclass service excellence that our customers demand, all within the bounds of Shariah. Furthermore, the Bank has built a strong Information Technology and customer knowledge-based focus that continues to use state of the art technology and systems. The Bank's Corporate and Investment Banking business unit is geared towards nurturing and developing a long-term relationship with clients by understanding their unique financing requirements and providing Shariah compliant financing solutions across the horizon of corporate banking and structured finance. The Bank is also implementing robust and aggressive strategic and tactical initiatives on the consumer banking side. The Bank has a rapidly growing branch network across all major cities nation-wide. Providing our customers accessibility and convenience is a prime target, within an atmosphere and culture of dedicated service and recognition of their needs.


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We believe in adding value to our customers' lives and businesses through dynamic and competitive products and services that fulfill their needs while conforming completely with the dictates of Shariah. At the same time, we endeavor to deliver competitive risk adjusted returns to our stakeholders.

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History of Islamic banking in Pakistan

Al-Meezan Investment Management Limited (AMIM) was established in 1995 as a joint venture between Pakistan Kuwait Investment Company (PKIC), National Investment (Trust) Limited, and Jardine Fleming Investment Management International Limited (Jardine Fleming). AMIM has over the years benefited immensely from domestic investment management expertise of PKIC and National Investment (Trust) Limited and international expertise of Jardine Fleming. Jardine Fleming made a substantial contribution towards the development of systems and procedures for AMIM during its six years of association with the company. The key investment professionals of Jardine Fleming, Hong Kong who served as Directors of AMIM for these six years, contributed to the development of strategic plans and investment policies of the company.

The Holy Quran "We must work our destiny in our own way and present to the works an economic system based on true Islamic concept of equality of manhood and social justice "Quaid's concept of Islamic Banking [Opening Ceremony of The State Bank of Pakistan on July 1, 1948]


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What is Riba? The Holy Quran did not give any definition for the term for the simple reason that it was well known to its immediate audience. But many scholars defined Riba in the following words. “Riba is Arabic word. It means increase, addition, expansion or growth. Imam Abubakr Al-Jassas (D.380 AH) in his famous work Ahkamul Quran has explained riba in the following words: “And the riba which was known to and practiced by the Arabs was that they used to advance loan in the form of Dirham (silver coin) or Dinar (gold coin) for a certain term with an agreed increase on the amount of the principal advanced.”

Shariah Board The members of the Shariah Board of Meezan Bank are Internationally-renowned scholars serving on the boards of many Islamic banks operating in different countries. The members of the Shariah Board are:  Justice (Retd.) Muhammad Taqi Usmani  Dr. Abdul Sattar Abu Ghuddah  Sheikh Essam M. Ishaq  Dr. Muhammad Imran Ashraf Usmani - Shariah Advisor  Permanent Member International Islamic Fiqh Academy, Jeddah  Vice President, Darul Uloom Karachi


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 Chairman, Shariah Council AAOIFI, Bahrain  Member, Islamic Fiqh Academy of Rabita-al-Alam-e-Islami, Makkah  Member, European Council of Fatwa and Research, Dublin, Ireland  Chairman, Center for Islamic Economics Pakistan since 1991  Chairman, Shariah Board Dow Jones Islamic Market Index, New York  Chairman, Shariah Board, Bahrain Monetary Agency, Bahrain  Chairman, Shariah Board, Amana Investments Limited, Sri Lanka  Chairman, Shariah Board Abu Dhabi Islamic Bank, UAE  Chairman, Shariah Board Islamic House of Britain plc, UK  Member, Shariah Board, First Islamic Investment Bank, Bahrain  Member Shariah Board, Islamic Corporation for Development of the Private Sector, (ICD) an organ of IDB, Jeddah.  Member Shariah Board, Guidance Financial Group, USA  Member Shariah Board, Saudi American Bank  Member Shariah Supervisory Board, First Islamic Investment Bank

BOARD OF DIRECTORS

 H. E. Sheikh Ebrahim Bin Khalifa Al-Khalifa (Chairman) (Undersecretary, Ministry of Finance & National Economy, State of Bahrain)  Naser Abdul Mohsen Al-Marri (Vice Chairman)  Yousif Saleh Khalaf  Zaigham Mahmood Rizvi


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 Mohammad Hussain  Tarik Kivanc  Mazen Khalid Al-Braikan  Irfan Siddiqui (President & Chief Executive Officer)  Ariful Islam (Chief Operating Officer)  Rana Ahmad Humayun


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Meezan bank is provide services in the market to their customers and shareholders its nature is reflected by its admission statements.

Our Vision

Establish Islamic banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind.

Our Mission

To be a premier Islamic bank, offering a one-stop shop for innovative value added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders value through an organizational culture based on learning, fairness, respect for individual enterprise and performance.


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Our Objectives

To develop a committed service culture which ensures the consistent delivery of our products and services within the highest quality service parameters, promoting Islamic values and ensuring recognition and a quality banking experience to our customers.


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Introduction of Products Types of products offered  Riba Free Meezan Providence  Riba Free - Certificates of Islamic Investment  Riba Free - Monthly Musharakah Certificate  Riba Free - Dollar Saving Account  Riba Free - Rupee Saving Account  Riba Free - Current Account  Car Ijarah - Islamic Car Financing

 Riba Free Meezan Providence:

It is a long term investment product especially designed for the need and to fulfil the requirements of the corporate and business concerns for purpose of investing their provident, pension and Gratuity Funds as any sensible and wise person who wants to invest his earning, his main concerns would be total security along with the best returns possible, especially as these earnings or funds are a trust from his employees and one that bears an important responsibility.


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Meezan Providence rests on the well known and solid financial strength of Meezan Bank, which has a strong and credible balance sheet with excellent operating profitability, including a capital adequacy ratio that has placed the Bank at the top of the industry. Furthermore, its sterling track record shows consistently beneficial and highly competitive returns for their broad range of investors. Finally, comes the benefit of truly Halal returns, a benefit you may not have had the opportunity to enjoy before and one that you can now pass on to your employees, many of whom would be grateful for such an opportunity.

Key Features of Meezan Providence  A 100% hilal investment in strict compliance with Shariah  High returns  Long Term security ensured  Minimum investment amount: PKR 1,000,000  Available tenures of 3, 5 and 7 years.  Pre-mature withdrawal options available


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 Riba –Free-Certificates of Islamic Investment: This investment product is designed to meet the short term and long term needs. The minimum investment is PKR 50,000 and it is available in tenures of 3 and 6 months, 1, 2, 3 and 5 years. Furthermore, these certificates can be encashed at any time without any charge or penalty, only the profit rates will be adjusted according to the tenure completed. You can earn profit on your investment on the following basis:

 Monthly profit on 1, 2, 3 and 5 years  Quarterly profit on 1, 2, 3 and 5 years  At maturity profit payment for all tenures In the Riba Free COII, you enter into the Musharakah agreement that is strictly in conformity with the principles of Islamic Shariah. The deposits of the customers together with the Bank’s contribution are invested in a pool that consists of Ijarah and Murabaha financing. The profit/loss on this pool is calculated every month on the basis of profit sharing ratio determined by assigning weightings. Such weightings are assigned at the beginning of every month and are displayed on the bank notice board and website. This facility is available during the course of investment. However, profit shall be paid only after completion of one month of investment.

 Riba Free-Monthly Musharakah Certificate: The riba free Monthly Musharakah Certificates are a flexible investment product which has been designed to give the depositor a monthly return which is Halal. The depositors participate with the bank in the pool of investments Islamia University Of Bahawalpur (Rahim Yar Khan Campus)

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which is

comprised of

Murabaha

and Ijarah transactions. The minimum

investment required is required is only PKR 100,000 and you receive profit for each complete month of investment with the bank. The profit rate, so calculated, is applied to all investments which mature between the periods starting from the 6thday of each month to the 5thday of the next month. During your relationship with us, you would be entitled to receiving the following additional benefits. •

Personalized cheque books.

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No restriction on withdrawals.

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Call centre facilities.

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Monthly profit payment to your current or saving account with us.

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Free bank balance certificates

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Personal financial consultancy services

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Access to priority desk

 Riba Free-Dollar Saving Account With a minimum of only $100 you can open a Dollar Saving Account with us under a Mudarabah arrangement that is strictly in conformity with the principles of Islamic Shariah. The return earned on the Mudarabah pool is calculated every month and the profit ratio for all investors is declared at the beginning of the month. If you maintain a minimum average monthly balance of $ 500, you shall be eligible to receive profits that shall be disbursed to you every month. Apart from first class service and personalized attention that our customers get when they bank with us, we offer the following additional conveniences to our customers.


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Personalized cheque books

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No restriction on withdrawals or number of transactions.

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Call centre facilities

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Monthly profit payment

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Free bank balance certificates

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Taking stop payment instructions.

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Taking hold mail instructions.

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Issuance of duplicate statement of account.

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Personal financial consultancy services.

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Access to priority desk.

 Riba Free-Rupee Saving Account With a minimum of only PKR 10,000 THE Rupee Saving Account can be opened under musharakah agreement. The profit earned is calculated every month. And if the client maintains a monthly balance of PKR 10,000 the client is eligible for the profits that will be disbursed every month. However, the clients of COII may open this account with any minimum balance. Profit calculation is based on weight ages in the following tiers: PKR 10,000 up to PKR 9,999,999 PKR 10,000,000 up to PKR 49,999,999 PKR 50,000,000 up to PKR 99,999,999 Islamia University Of Bahawalpur (Rahim Yar Khan Campus)

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PKR 100,000,000 and above

 Riba Free - Current Account In this type of account the client is allowed to deposit or withdraw money as he likes. He may, thus, deposit or withdraw several times in a day as he likes. Usually the bank allows this and charges service charges are deducted by the bank from current deposit account. It gives advantage for paying debts by the convenient and safe means of sending cheques through the post thus avoiding the trouble and loss. This bank account that is ideal for businesses and individuals looking for Shariah compliant banking and ease of access. With a minimum amount of only Rs.10,000 this product offers you a range of benefits including personalized checking facility, no restrictions on the number of transactions, free Call Centre facilities, free balance certificates, priority banking and much more.

 Car Ijarah – Islamic Car Financing Car Ijarah is Pakistan's first "Interest Free" car-financing based on Islamic financing mode of Ijarah or Islamic leasing. This product is ideal for interest averse individuals, looking for a car financing that provides the convenience of a well designed product while avoiding an interest based transaction. Car Ijarahtotally halal auto finance facility that is very affordable, with quick processing and minimal documentation. Car financing that is very competitively priced, hassle-free, and totally Halal. As Ijarah is basically is the transfer of usufruct of a fixed asset to another person for an agreed period, at an agreed consideration. Under car Ijarah agreement the


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car will be given to the customer for the period agreed on the time of contract. In car Ijarah the asset remains in the ownership and risk of bank and the customers only pay the rentals for use of the asset: just like house rent. The product has grown all over the country with a portfolio of Rs 291 million as of 31st December with non-performing contracts.

Key Features of Car Ijarah  No application fee  Ease of acquiring any new locally assembled car  No upfront Insurance Payment  No advance Rental  Available in tenures of 3, 4 and 5 years  Minimum security deposit as low as 20%

Islamic Mode of Financing These modes of financing have been written by Maulana Taqi Usmani who is the former Chairman of Shariah board of Meezan Bank. After studying these we will be in a position to understand the 90% working of the bank. The important modes of financing are:

1.

Musharakah

2.

Mudarabah

3.

Ijarah


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Musharakah Hadees-e-Qudsi Allah SubhanoTAllah has declared that He will become a partner in a business between two Mushariks until they indulge in cheating or breach of trust (Khayanah).

Introduction:'Musharakah' is a word o f Arabic origin which literally means sharing. In the context of business and trade it means a joint enterprise in which all the partners share the profit or loss of the joint venture. It is an ideal alternative for the interest-based financing with far reaching effects on both production and distribution. In the modern capitalist economy, interest is the sole instrument indiscriminately used in financing of every type. Since Islam has prohibited interest, this instrument cannot be used for providing funds of any kind. Therefore, 'Musharakah' can play a vital role in an economy based on Islamic principles.

Difference between Interest and Musharakah Interest' predetermines a fixed rate of return on a loan advanced by the financier irrespective of the profit earned or loss suffered by the debtor, while Musharakah does not envisage a fixed rate of return. Rather, the return in Musharakah is based on the actual profit earned by the joint venture. The financier in an interestbearing loan cannot suffer loss while the financier in Musharakah can suffer loss, Islamia University Of Bahawalpur (Rahim Yar Khan Campus)

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if the joint venture fails to produce fruits. Islam has termed interest as an unjust instrument of financing because it results in injustice either to the creditor or to the debtor. If the debtor suffers a loss, it is unjust on the part of the creditor to claim a fixed rate of return; and if the debtor earns a very high rate of profit, it is injustice to the creditor to give him only a small proportion of the profit leaving the rest for the debtor.

The Concept of Musharakah “Musharakah” is a term frequently referred to in the context of Islamic modes of financing. The connotation of this term is a little limited than the term "Shirkah" more commonly used in the Islamic jurisprudence. For the purpose of clarity in the basic concepts, it will be pertinent at the outset to explain the meaning of each term, as distinguished from the other. "Shirkah" means "Sharing" and in the terminology of Islamic Fiqh, it has been divided into two kinds:

Some objections on Musharakah Financing 1) Risk of Loss 2) Dishonesty 3) Secrecy of the Business 4) Clients' Unwillingness to Share Profits Let us now examine some objections raised from practical point of view against using Musharakah as a mode of financing.

Risk of Loss:-


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It is argued that the arrangement of musharakah is more likely to pass on losses of the business to the financier bank or institution. This loss will be passed on to depositors also. The depositors, being constantly exposed to the risk of loss, will not want to deposit their money in the banks and financial institutions and thus their savings will either remain idle or will be used in transactions outside of the banking channels, which will not contribute to the economic development at national level. This argument is, however, misconceived. Before financing on the basis of musharakah, the banks and financial institution will study the feasibility of the proposed business for which funds are needed. Even in the present system of interest-based loans the banks do not advance loans to each and every applicant. They study the potentials of the business and if they apprehend that the business is not profitable, they refuse to advance a loan. In the case of musharakah, they will have to carry out this study with more depth and precaution. Moreover, no bank or financial institution can restrict itself to a single musharakah. There will always be a diversified portfolio of musharakah. If a bank has financed 100 of its clients on the basis of musharakah, after studying the feasibility of the proposal of each one of them, it is hardly conceivable that all of these Musharakah or the majority of them will result in a loss. After taking proper measures and due care, what can happen at the most is that some and them make a loss. But on the other hand, the profitable Musharakah are expected to give more return than the interest-based loans, because the actual profit is supposed to be distributed between the client and the bank. Therefore, the Musharakah portfolio, as a whole, is not expected to suffer loss, and the possibility of loss to the whole portfolio is merely a theoretical possibility

which

should not

discourage

the depositors. This theoretical

possibility of loss in a financial institution is much less than the possibility of loss


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in a joint stock company whose business is restricted to a limited sector of commercial activities. Still, the people purchase its shares and the possibility of loss does not refrain them from investing in these shares. The case of the bank and financial institutions is much stronger, because their Musharakah

activities will be so diversified that any possible loss in one Musharakah will be more than compensated by the profits earned in other Musharakah. Apart from this, 'an Islamic economy must create a mentality which believes that any profit earned on money is the reward of bearing risks of the business. This risk may be minimized through expertise and diversifying the portfolio where it becomes a hypothetical or theoretical risk only. But there is no way to eliminate this risk totally. The one, who wants to earn profit, must accept this minimal risk. Since this understanding is already there in the case of normal joint stock companies, nobody has ever raised the objection that the money of the shareholders is exposed to loss. The problem is created by the system which separates the banking and financing from the normal trade activities, and which has Compelled the people to believe that banks and financial institutions deal in money and papers only, and that they have nothing to do with the actual results emerging in trade and industry. Therefore, it is argued that they deserve a fixed return in any case. This separation of financing sector from the sector of trade and industry has brought great harms to the economy at macro-level. Obviously, when we speak of Islamic banking, we never mean that it will follow this conventional system in each and every respect. Islam has its own values and principles which do not believe in separation of financing from trade and industry. Once this Islamic system is understood, the people will invest in the financing sector, despite the theoretical risk of loss, more readily than they invest in the profitable joint stock companies.


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Dishonesty:Another apprehension against Musharakah financing is that the dishonest clients may exploit the instrument of Musharakah by not paying any return to the financiers. They can always show that the business did not earn any profit. Indeed, they can claim that it has suffered a loss in which case not only the profit, but also the principal amount will be jeopardized.

It is, no doubt, a valid

apprehension, especially in societies where corruption is the order of the day. However, solution to this problem is not as difficult as is generally believed or exaggerated. If all the banks in a country are run on pure Islamic pattern with a careful support from the Central Bank and the government, the problem of dishonesty is not hard to overcome. First of all, a well-designed system of auditing should be implemented whereby the accounts of all the clients are fully maintained and properly controlled. It is already discussed that the profits may be calculated to the basis of gross margins only. It will reduce the possibility of disputes and misappropriation. However, if any misconduct, dishonesty or negligence is established against a client, he will be subjected to punitive steps, and may be deprived of availing any facility from any bank in the country, at least for a specified period. These steps will serve as strong deterrent against concealing the actual profits or committing any other act of dishonesty. Otherwise also, the clients of the banks cannot afford to show artificial losses constantly, because it will be against their own interest in many respects. It is true that even after taking all such precautions, there will remain a possibility of some cases where dishonest clients may succeed in their evil designs, but the punitive steps and the general atmosphere of the business will gradually reduce the number of such cases (Even in an interest-based economy, the defaulters have always been creating the Islamia University Of Bahawalpur (Rahim Yar Khan Campus)

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problem of bad debts) But it should not be taken as a justification, or as an excuse, for rejecting the whole system of musharakah. Undoubtedly, the apprehension of dishonesty is more severe for the Islamic Banks and Financial institutions working in isolation from the main stream of conventional banks. They have not much support from their respective governments and central Banks. They cannot change the system, nor can they impose their own laws and regulations. However, they should not forget that they are not just commercial institutions. They have been established to introduce a new system of banking which has its own philosophy. They are duty bound to promote this new system, even if they apprehend that it will reduce the size of their profits to some extent. Therefore, they should start using the instrument of musharakah, at least on a selective basis. Each and every bank has a number of clients whose integrity is beyond all doubts. The Islamic banks should, at least, start financing them on the basis of true musharakah. It will help setting good precedents in the market and induce others to follow suit. Moreover, there are some sectors of financing where musharakah can be used easily. For example, the use of musharakah instrument in financing exports has not much room for dishonesty. The exporter has a specific order from abroad. The prices are agreed. The cost is not difficult to determine. Payments are normally secured by a letter of credit. The payments are made through the bank itself. There is no reason in such cases why the musharakah arrangement should not be adopted. Similarly, financing of imports may also be designed on the basis of musharakah with some precautions, as explained earlier in this chapter.

Secrecy of the Business: Another criticism against musharakah is that, by making the financier a partner in the business of the client, it may disclose the secrets of the business to the financier, and through him to other traders.


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However, the solution to this problem is very easy. The client, while entering into the musharakah, may put a condition that the financier will not interfere with the management affairs, and he will not disclose any information about the business to any person without prior permission of the client. Such agreements of maintaining secrecy are always honored by the prestigious institutions, especially by the banks and financial institutions whose entire business is based on confidentiality.

Clients' Unwillingness to Share Profits Many a time, it is mentioned that the clients are not willing to share with the Banks the actual profits of their business. The reluctance is based on two reasons: 1. They think that the bank has no right to share in the actual profit, which may be substantial, because the bank has nothing to do with the management or running of the business and why they should (the clients) share the fruit of their labor with the Bank who merely provides funds. The Clients also argue that conventional banks are content with a meager rate of interest and so should be the Islamic Banks. 2. Even if the above was not a factor, the Clients are afraid to reveal their true profits to the Banks, lest the information is also passed on to the tax authorities and Clients' tax liability increases. The solution to the first part, though not easy, is not difficult or impossible either. Such Clients need to be convinced and persuaded that borrowing on interest is a cardinal sin, unless there is a dire necessity for such borrowing. Mere expansion of business is not a dire need, by any stretch of imagination. By making a legitimate arrangement for obtaining funds for their business, by way of Musharakah, not only do they earn Allah's pleasure but also a legitimate return for themselves, as well as for the Islamic Banks.


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In respect of the second factor, all that can be said is that in some Muslim countries, rate of taxation are indeed prohibitive and unjust. Islamic Banks as well as their Clients must lobby with the governments and struggle to change the laws which hamper the progress towards Islamic banking. The governments should also try to appreciate the fact that if rates of taxation are reasonable and if the tax-payers are convinced that they will benefit by honestly paying their taxes, this would increase, and notdecrease, government revenues.

Termination of Musharakah Musharakah is deemed to be terminated in any one of the following events: (1) Every partner has a right to terminate the musharakah at any time after giving his partner a notice to this effect, whereby the musharakah will come to an end. In this case, if the assets of the musharakah are in cash form, all of them will be distributed pro rata between the partners. But if the assets are not liquidated, the partners may agree either on the liquidation of the assets, or on their distribution or partition between the partners as they are. If there is a dispute between the partners in this matter i.e. one partner seeks liquidation while the other wants Partition or distribution of the non-liquid assets themselves, the latter shall be preferred, because after the termination of musharakah, all the assets are in the joint ownership of the partners, and a co-owner has a right to seek partition or separation, and no one can compel him on liquidation. However, if the assets are such that they cannot be separated or partitioned, such as machinery, then they shall be sold and the sale-proceeds shall be distributed. (2) If any one of the partners dies during the currency of musharakah, the contract of musharakah with him stands terminated. His heirs in this case, will have the option either to draw the share of the deceased from the business, or to continue with the contract of musharakah.


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(3) If any one of the partners becomes insane or otherwise becomes incapable of effecting commercial transactions, the musharakah stands terminated. Termination of Musharakah without closing the business If one of the partners wants termination of the musharakah, while the other partner or partners like to continue with the business, this purpose can be achieved by mutual agreement. The partners who want to run the business may purchase the share of the partner who wants to terminate his partnership, because the termination of musharakah with one partner does not imply its termination between the other partners. However, in this case, the price of the share of the leaving partner must be determined by mutual consent, and if there is a dispute about the valuation of the share and the partners do not arrive at an agreed price, the leaving partner may compel other partners on the liquidation or on the distribution of the assets themselves. The question arises whether the partners can agree, while entering into the contract of the musharakah, on a condition that the liquidation or separation of the business shall not be effected unless all the partners, or the majority of them wants to do so, and that a single partner who wants to come out of the partnership shall have to sell his share to the other partners and shall not force them on liquidation or separation. Most of the traditional books of Islamic Fiqha seem to be silent on this question. However, it appears that there is no bar from the Shariah point of view if the partners agree to such a condition right at the beginning of the musharakah. This is expressly permitted by some Hanbali jurists. This condition may be justified, especially in the modern situations, on the ground that the nature of business,

in most cases today, requires continuity for its success, and the


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liquidation or separation at the instance of a single partner only may cause irreparable damage to the other partners.

If a particular business has been started with huge amounts of money which has been invested in a long term project, and one of the partners seeks liquidation in the infancy of the project, it may be fatal to the interests of the partners, as well as to the economic growth of the society, to give him such an arbitrary power of liquidation or separation.

Murabaha Introduction Most of the Islamic banks and financial institutions are using "Murabaha" as an Islamic mode of financing, and most of their financing operations are based on "Murabaha". That is why this term has been taken in the economic circles today as a method of banking operations, while the original concept of "Murabaha" is different from this assumption. "Murabaha" is, in fact, a term of Islamic Fiqh and it refers to a particular kind of sale having nothing to do with financing in its original sense. If a seller agrees with his purchaser to provide him a specific commodity on a certain profit added to his cost, it is called a "Murabaha" transaction. The basic ingredient of "Murabaha" is that the seller discloses the actual cost he has incurred in acquiring the commodity, and then adds some profit thereon. This profit may be in lump sum or may be based on a percentage.


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Some Basic Rules of Sale 'Sale' is defined in Shariah as 'the exchange of a thing of value by another thing of value with mutual consent'. Islamic jurisprudence has laid down enormous rules governing the contract of sale, and the Muslim jurists have written a large number of books, in a number of volumes, to elaborate them in detail. What is meant here is to give a summary of only those rules which are more relevant to the transactions of Murabaha as carried out by the financial institutions. 1. The subject of sale must be existing at the time of sale. Thus, a thing which has not yet come into existence cannot be sold. If a non-existent thing has been sold, though by mutual consent, the sale is void according to Shari„ah. Example: A sells the unborn calf of his cow to B. The sale is void. 2. The subject of sale must be in the ownership of the seller at the time of sale. Thus, what is not owned by the seller cannot be sold. If he sells something before acquiring its ownership, the sale is void. Example: A sells to B a car which is presently owned by C, but A is hopeful that he will buy it from C and shall deliver it to B subsequently. The sale is void, because the car was not owned byA at the time of sale.

Some Basic Mistakes in Murabaha Financing After explaining the concept of Murabaha and its relevant issues, it will be pertinent to highlight some basic mistakes often committed by the financial institutions in the practical implementation of the concept. 1. The first and the most glaring mistake is to assume that Murabaha is a universal instrument which can be used for every type of financing offered by


35

conventional interest-based banks and NBFIs. Under this false assumption, some financial institutions are found using Murabaha for financing overhead expenses of a firm or company like paying salaries of their staff, paying the bills of electricity etc. and setting off their debts payable to other parties. This practice is totally unacceptable, because Murabaha can be used only where a commodity is intended to be purchased by the customer. If funds are required for some other purpose, Murabaha cannot work. In such cases, some other suitable modes of financing, like musharakah, leasing etc. can be used according to the nature of the requirement. 2. In some cases, the clients sign the Murabaha documents merely to obtain funds. They never intend to employ these funds to purchase a specific commodity. They just want funds for unspecified purpose, but to satisfy the requirement of the formal documents, they name a fictitiously commodity. After receiving money, they use it for whatever purpose they wish. Obviously this is a fictitious deal, and the Islamic financiers must be very careful about it. It is their duty to make sure that the client really intends to purchase a commodity which may be subject to Murabaha. This assurance must be obtained by the authorities sanctioning the facility to the customer. Then, all necessary steps must be taken to confirm that the transaction is genuine. For example: (a) Instead of giving funds to the customer, the purchase price should be paid directly to the supplier.


36

(b) If it becomes necessary that the client is entrusted with funds to purchase the commodity on behalf of the financier, his purchase should be evidenced by invoices or similar other documents which he should present to the financier. (c) Where either one of the above two requirements is not possible to be fulfilled, the financing institution should arrange for physical inspection of the purchased commodities. Anyhow, the Islamic financial institutions are under an obligation to make sure that Murabaha is a real and genuine transaction of actual sale and is not being misused to camouflage an interest-based loan. 3. In some cases, sale of commodity to the client is effected before the commodity is acquired from the supplier. This mistake is invariably committed in transactions where all the documents of Murabaha are signed at one time without

taking

into

account

various

stages

of

the

Murabaha. Some

institutions have only one Murabaha agreement which is signed at the time of disbursement of money, or in some cases, at the time of approving the facility. This is totally against the basic principles of Murabaha. It has already been explained in this article that the Murabaha arrangement practiced by the banks is a package of different contracts which come into play one after another at their respective stages. These stages have been fully highlighted earlier while discussing the concept of 'Murabaha Financing'. Without observing this basic feature of Murabaha financing, the whole transaction turns into an interest-bearing loan. Merely changing the nomenclature does not make it lawful in the eyes of Shariah. The representatives of the Shariah Boards of the Islamic banks, when they check the transactions of the bank with regard to their compliance with Shariah, must make sure that all these stages have been really observed, and every transaction is effected at its due time.


37

4. International commodity transactions are often resorted to for liquidity management. Some Islamic banks feel that these transactions, being assetbased, can easily be entered into on Murabaha basis, and they enter the field ignoring the fact that the commodity operations as in vogue in the international markets, do not conform to the principles of Shariah. In many cases, they are fictitious transactions where no delivery takes place. The parties end up paying differences. In some cases, there are real commodities but they are subjected to forward sales or short sales which are not allowed in Shariah. Even if the transactions are restricted to spot sales, they should be formulated on the basis of Islamic principles of Murabaha by fulfilling all the necessary conditions already mentioned in this book. 5. It is observed in some financial institutions that they affect Murabaha on commodities already purchased by their clients from a third party. This is again a practice never warranted by the Shariah. Once the commodity is purchased by the client himself, it cannot be purchased again from the same supplier. If it is purchased by the bank from the client himself and is sold to him, it is a buy-back technique which is not allowed in Shariah, especially in Murabaha. In fact, if the client has already purchased a commodity, and he approaches the bank for funds, he either wants to set-off his liability towards his supplier, or he wants to use the funds for some other purpose. In both cases an Islamic bank cannot finance him on the basis of Murabaha. Murabaha can be affected only on commodities not yet purchased by the client.

Uses of Murabaha Murabaha can be used in following conditions:

Short / Medium / Long Term Finance for:


38

 Raw material  Inventory  Equipment  Asset financing  Import financing  Export financing (Preshipment)  Consumer goods financing  House financing  Vehicle financing  Land financing  Shop financing  PC financing

Ijarah "Ijarah" is a term of Islamic fiqh. Lexically, it means 'to give something on rent'. In the Islamic jurisprudence, the term 'Ijarah' is used for two different situations. In the first place, it means 'to employ the services of a person on wages given to him as a consideration for his hired services." The employer is called 'musta‟jir' while the employee is called 'ajir'. Therefore, if A has employed B in his office as a manager or as a clerk on a monthly salary, A is musta‟jir, and B is an ajir. Similarly, if A has hired the services of a porter to carry his baggage to the airport, A is a musta‟jir while the porter is an ajir, and in both cases the transaction between the parties is termed as Ijarah. This type of Ijarah includes every transaction where the services of a


39

person are hired by someone else. He may be a doctor, a lawyer, a teacher, a labor or any other person who can render some valuable services. Each one of them may be called an 'ajir' according to the terminology of Islamic law, and the person who hires their services is called a 'musta‟jir', while the wages paid to the ajir are called their 'ujrah'. The second type of Ijarah relates to the usufructs of assets and properties, and not to the services of human beings. 'Ijarah' in this sense means 'to transfer the usufruct of a particular property to another person in exchange for a rent claimed from him.' In this case, the term 'Ijarah' is analogous to the English term 'leasing'. Here the lessor is called 'Mu‟jir', the lessee is called 'musta‟jir' and the rent payable to the lessor is called 'ujrah' Both these kinds of 'Ijarah' are thoroughly discussed in the literature of Islamic jurisprudence and each one of them has its own set of rules. But for the purpose of the present book, the second type of Ijarah is more relevant, because it is generally used as a form of investment, and as a mode of financing also. The rules of Ijarah, in the sense of leasing, are very much analogous to the rules of sale, because in both cases something is transferred to another person for a valuable consideration. The only difference between Ijarah and sale is that in the latter case the corpus of the property is transferred to the purchaser, while in the case of Ijarah, the corpus of the property remains in the ownership of the transferor, but only its usufruct i.e. the right to use it, is transferred to the lessee. Therefore, it can easily be seen that ‘Ijarah’ is not a mode of financing in its origin. It is a normal business activity like sale. However, due to certain reasons, and in particular, due to some tax concessions it may carry, this transaction is being used in the Western countries for the purpose of


40

financing also. Instead of giving a simple interest - bearing loan, some financial institutions started leasing some equipment’s to their customers. While fixing the rent of this equipment, they calculate the total cost they have incurred in the purchase of these assets and add the stipulated interest they could have claimed on such an amount during the lease period. The aggregate amount so calculated is divided on the total months of the lease period, and the monthly rent is fixed on that basis. The question whether or not the transaction of leasing can be used as a mode of financing in Shari„ah depends on the terms and conditions of the contract. As mentioned earlier, leasing is a normal business transaction and not a mode of financing. Therefore, the lease transaction is always governed by the rules of Shari„ah prescribed for Ijarah. Let us, therefore, discuss the basic rules governing the lease transactions, as enumerated in the Islamic Fiqh. After the study of these rules, we will be able to understand under what conditions the Ijarah may be used for the purpose of financing. Although the principles of Ijarah are so numerous that a separate volume is required for their full discussion, we will attempt in this chapter to summarize those basic principles only which are necessary for the proper understanding of the nature of the transaction and are generally needed in the context of modern economic practice. These principles are recorded here in the form of brief notes, so that the readers may use them for quick reference.

Basic Rules of Leasing 1. Leasing is a contract whereby the owner of something transfers its usufruct to another person for an agreed period, at an agreed consideration.


41

2. The subject of lease must have a valuable use. Therefore, things having no usufruct at all cannot be leased. 3. It is necessary for a valid contract of lease that the corpus of the leased property

remains

in the ownership of the seller, and only its usufruct is

transferred to the lessee. Thus, anything which cannot be used without consuming cannot be leased out. Therefore, the lease cannot be effected in respect of money, eatables, fuel and ammunition etc. because their use is not possible unless they are consumed. If anything of this nature is leased out, it will be deemed to be a loan and all the rules concerning the transaction of loan shall accordingly apply. Any rent charged on this invalid lease shall be an interest charged on a loan. 4. As the corpus of the leased property remains in the ownership of the lessor, all the liabilities emerging from the ownership shall be borne by the lessor, but the liabilities referable to the use of the property shall be borne by the lessee. Example:A has leased his house to B. The taxes referable to the property shall be borne by A, while the water tax, electricity bills and all expenses referable to the use of the house shall be borne by B, the lessee. 5. The period of lease must be determined in clear terms. 6. The lessee cannot use the leased asset for any purpose other than the purpose specified in the lease agreement. If no such purpose is specified in the agreement, the lessee can use it for whatever purpose it is used in the normal course. However if he wishes to use it for an abnormal purpose, he cannot do so unless the lessor allows him in express terms.


42

7. The lessee is liable to compensate the lessor for every harm to the leased asset caused by any misuse or negligence on the part of the lessee. 8. The leased asset shall remain in the risk of the lessor throughout the lease period in the sense that any harm or loss caused by the factors beyond the control of the lessee shall be borne by the lessor. 9. A property jointly owned by two or more persons can be leased out, and the rental shall be distributed between all the joint owners according to the proportion of their respective shares in the property. 10. A joint owner of a property can lease his proportionate share to his co-sharer only, and not to any other person. 11. It is necessary for a valid lease that the leased asset is fully identified by the parties. Example:A said to B. "I lease you one of my two shops." B agreed. The lease is void, unless the leased shop is clearly determined and identified.

Determination of Rental:12. The rental must be determined at the time of contract for the whole period of lease. It is permissible that different amounts of rent are fixed for different phases during the lease period, provided that the amount of rent for each phase is specifically agreed upon at the time of effecting a lease. If the rent for a subsequent phase of the lease period has not been determined or has been left at the option of the lessor, the lease is not valid.


43

Example (1) A leases his house to B for a total period of 5 years. The rent for the first year is fixed as Rs. 2000/- per month and it is agreed that the rent of every subsequent year shall be 10% more than the previous one. The lease is valid. Example (2): In the above example, A puts a condition in the agreement that the rent of Rs. 2000/- per month is fixed for the first year only. The rent for the subsequent years shall be fixed each year at the option of the lessor. The lease is void, because the rent is uncertain. 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 Shari„ah, if both parties agree to it, provided that all other conditions of a valid lease prescribed by the Shari„ah are fully adhered to. 14. The lessor cannot increase the rent unilaterally, and any agreement to to this effect is void. 15. The rent or any part thereof may be payable in advance before the delivery of the asset to the lessee, but the amount so collected by the lessor shall remain with him as 'on account' payment and shall be adjusted towards the rent after its being due. 16. The lease period shall commence from the date on which the leased asset has been delivered to the lessee, no matter whether the lessee has started using it or not.


44

17. If the leased asset has totally lost the function for which it was leased, and no repair is possible, the lease shall terminate on the day on which such loss has been caused. However, if the loss is caused by the misuse or by the negligence of the lessee, he will be liable to compensate the lessor for the depreciated value of the asset as; it was immediately before the loss. When I have start internship of Islamic Meezan Bank at 2nd September 2008. In first day I have sat with Mr. Subtain (Operation Manager). He has very good person and he have help me in this department that they have customer relationship department and try to good information to customer or me relative to Meezan Bank so I have under your work of one week. All members of the branch are very committed to their work. According to hierarchy chart from top to bottom are very committed of work and prove helpful for me during my internship.

Introduction of Rahim Yar Khan Branch Bank has decided to open a branch in Rahim Yar khan due its business market or market potential. Today there is only one branch in Rahim Yar khan. This branch has appointed 21 officers. Meezan Bank, stands today at a noteworthy point along the evolution of Islamic Banking in Pakistan. The banking sector is showing a significant paradigm shift away from traditional means of business, and is catering to an increasingly astute and demanding financial consumer who is also becoming keenly aware of Islamic Banking. Meezan Bank bears the critical responsibility of leading the way forward in establishing a stable and dynamic Islamic Banking system replete with dynamic and cutting-edge products and services. Duration of my internship program I am started my internship program 1st July. 2007 and ending date of this program 31st of August. I have done in all mostly work in every department. Islamia University Of Bahawalpur (Rahim Yar Khan Campus)

45

•

Marketing department

•

Credits

•

Deposits

•

Clearing department

•

Car finance department

Training program 1st week I started my first day of internship with the introduction of bank employees and with introduction of bank departments. In This week just know how work done in the various departments in the bank Like: •

Finance

•

Marketing

•

IT

•

Operation Management etc

•

I knew about the purpose of the bank and the functions of the bank and judge the practical performance of the departments.

•

I started my second day of internship with the lecture of the bank officer. He told us about Riba and its types:



Riba al Nasiah



Riba al Fadl


46

•

Then he told about important element Basic Mode of Financing in which Mudaraba and Musharaka lies.

•

I learnt about characteristics and procedure of Mudaraba and Musharaka.

•

Then I moved to Accounts Department for learning something new.

•

I learnt about IBTDR (Islamic Bank Term Deposit Receipts) and knew what its meaning and functions.

•

Basically IBTDR involves Accounts:

•

Saving Deposit accounts

•

Term Deposit accounts

•

I knew about different types of saving accounts like MBA (Meezan Bachat Account), KMA (karobari Munafa Account), COII, MMC, MAC and etc. these are MUDARABA based deposits products.

•

I learnt about the profit rates of the accounts and procedures to open these accounts.

I learnt about also CDR (Call Deposit Receipts) and its procedure and knew its purpose and how to fill it an proceed.

2nd & 3rd week I started this week with the lectures of the Bank officer about bank and its performance. I learnt the actual means of practical work in the bank. First of all I started my work in the ACCOUNT OPPENING DEPARTMENT of the bank in which I learnt how an account can be opened in a bank, which documents are necessary to attach it with the account opening form and how many kinds of account are used in bank like

•

Single

•

Joint personal

•

Sole proprietorship


47

The requirement for opening these types of a/c are •

Select the nature of a/c

•

Attested photo of applicant

•

Then the permanent address

•

NIC copy.

•

occupation

•

The reference of any person who has already the a/c or any respected personality

•

The other information related to the a/c filled on choice of applicant.

•

The signatures are done on form as well as on the specimen signature card from where the signature will be scanned as a record in computer  Partnership  Limited company  Trusts  Clubs  Association etc.

The requirement for opening these types of a/c are For partnership

•

Attested photocopy of CNIC of all partners

•

Attested copy of Partnership Deed duly signed by all partners of firm.

•

Attested copy of Registration Certificate with register of Firm. In case the partnership is unregistered this fact should be clearly mentioned on the a/c opening form

•

Authority letter, in original, in favor of the person authorized to operate on the a/c of the firm.


48

For Joint Stock Company •

Resolution of Board of Directors for opening of a/c specifying the person(s) authorized to operate the company a/c

•

Memorandum and articles of association.

•

Certificate of incorporation

•

Certificate of Commencement of Business

•

Attested photocopies of CNIC of all directors

•

List of directors on Form 29 issued by the Registrar Joint Stock Company

For Clubs, societies and Associations

•

Certificate copies of Certificate of registration By- law / rules ®ulations

•

Resolution of the Governing Body / Executive Committee for opening of a/c authorized the person to operate the a/c and attested copy of the CNIC of the authorized person(s)

•

As understanding signed by all authorized persons on behalf of the institute mentioning that when any change takes place in the persons authorized to operate on the a/c, the banker will be informed immediately.

For Agents a/c •

Certificate of power of Attorney

•

Attested photocopy of CNIC of the agent.

Trusts a/c •

Attested copy of Certificate of Registration

•

Attested photocopy of CNIC of all the trustees


49

•

Certified copy of instrument of Trust.

"The most difficult task related to bank for a common citizen is to open an a/c in any bank" said Sir Tanveer. Then the two applicant forms are filled in front of me. It took too much time to gather the information from applicant. •

I filled up some forms for practical practices and knew about the nature of the form.

•

I practically performed how letter of thanks attached to the forms and send to the customer.

•

I learnt about the different types of stamps, which are necessary for the account opening and learnt about the use of the stamps at the right place.

•

I learnt how to attach signature specimen card to the account opening form for bank record.

4th Week

I started my week of internship with the daily lectures of the bank officer (Mr. Subtain [OGII]) who is the organizer of internship program for internees in meezan bank. •

I learnt about the role of STATE BANK OF PAKISTAN in Pakistan’s economy from the lecture and know about the prudential regulations briefly not explanatory which are Regulation M-1 Know Your Customer (KYC) Regulation M-2 Anti-Money Laundering Measures Regulation M-3 Record Retention Regulation M-4 Correspondent Banking Regulation M-5 Suspicious Transactions


50

•

In account opening department I learnt the use of ATM card and learnt how to fill ATM form.

•

Then I know how to receipts are filled.

•

I learnt how on line payments are made and how cash or receipts are transferred.

•

First of all I learnt about ATM PIN ISSUANCE procedure and knew why it is necessary for customer or account holder.

•

Then he showed us module in computer that how he enters the data of customer and how it proceeds.

•

After proceeding computer shows a pin number that is issued for that customer who filled the form for ATM. And this work is done means pin issuance by Head Office.

Then I learnt about the term ATM Cash Replenish. He told us that how it works and what its procedure and why it is used.

5th Week I started my working day with some work, which has to complete from the previous week with account opening forms. •

I learnt about inward and out ward clearing and learnt how the transactions are made.

•

I learnt how to write the inward clearing cheques in the transaction record book.

•

I learnt to deduct the return cheques from the added amount of all cheques.

•

I learnt the entry of pay orders in the record book.


51

•

Know how of employees.

THEN I started my work again in Accounts Department. The officer also does/handle the other work Like REMITTANCE department.

•

I learnt about the PAY ORDER and DEMAND DRAFT. He told us the difference of Pay Order and DD.

•

I learnt also about the procedure of it. I also saw the Pay Order cheque and knew about its attributes.

•

But DD is not made in Sahiwal Branch. But sometimes if necessary then they made it. But mostly Pay Orders are made and send it to other cities also. Only Meezan Bank provide this opportunity of Pay Order to send outside the city also.

•

I also learnt about the facility of LOCKERS and its functions.

•

Lockers have 3 types of it: Small Size Lockers Medium Size Lockers Large Size Lockers

•

The officer told us its functions and charges and I knew about that how can hold locker and which documents are required for getting the lockers. Lockers are the fire proof. I attended the weekly meeting of bank manager with employees and attended the lecture about modern way of banking delivered by the bank manager for the success if the branch’s business.


52

6th & 7th week I started my day with the daily lecture and general discussion about banking and scope of banking in Pakistan in coming years. •

I revised all practices according to account opening departments and cleared my all confusion related to that department trough got work in that field.

•

I gave my feedback as a internee about the environment of the bank and about my work experience in that department

•

I started my day with the daily lecture about Bank.

•

After that I went to ACCOUNTS DEPARTMENT and started my work. First of all I cleared my all confusions about the previous topics then I started to learn further.

•

I learnt about FTT (Foreign Telegraphy Transfer) also known as SWIFT Message.

•

In it I knew that how can get and send money from and to foreign countries.

•

He told us its procedure and function. I knew about how the message can create and what sources are used for it.

•

Then I learnt about SMS ALERTS. He told us its function and I knew about that what information is required for its activation and what information it gives to customer through SMS.

•

I learnt what are the Local Posting and Online Transferring and how it is done.

•

Then I learnt what Stop Payment is and how it is performing and what its terms and conditions.

•

I knew about what Account Closing is and what its procedures to close it and what charges are required for it.


53

•

Then I saw the module of daily Accounts and Expense Entries posting. And knew about the reason of entering it.

8th Week I started my 8th week of internship with the lecture of the Bank Manager who is Mr. Shoaib, the lecture was about Islamic banking and its differences in convention banking. •

I knew about the Shariah and the sources of Islamic Shariah.

•

Then I learnt about Islamic Banking and knew what its actual meaning.

•

In Islamic Banking a term Riba Free is used which means “Avoid Interest”.

•

Islamic Banking is a system of Trade where Goods and Services are sold and Capital is invested to earn Halal profit by taking Risk.

•

Interest Free Banking is subset of Islamic Banking concept representing a number of Banking Operations which avoid Interest.

•

I learnt about Convention Banking which is based on Pricing money and earning Interest.

•

Apparently Islamic and Convention Banking may look same but Islamic Banking is permissible means “Allah has permitted trade and forbidden Riba”.

•

I learnt about difference b/w Islamic and Convention Banking up to some extent.

•

Then I moved to next department that was ACCOUNTS DEPRTMENT.(with the hold of IT deptt, Remittance deptt)

•

I started my work in Accounts Department.

•

The Officer who is Mr. Faysal gave the overview of his working that he does.

•

I learnt about cheques how to fill them and knew about its functions.

•

I learnt that in banking cheque is known as Dr. Instrument.


54

•

Then I learnt about cross cheque and cross cheque has two types: Simple crossing Special crossing

•

I knew also another type of cheque that is Order Cheque and its

purpose and

function. That day I learnt about cheque procedure and its use in different ways.


55

Net Profit Years profit

2005 20.15

2006 17.80

2007 16.27

2008 8.27

Net Profit 25 20 15 10 5 0 1

2 2005

2006

3 2007

4 2008

From above we can analyze that growth are decreasing as per year so the bank has to work over to improve their net profit. Bank has to remove if there is any barrier.


56

Market Share With the Strategic Plan in place our task for 2008 will be very challenging in the current political situation and economic slow down witnessed in the last three months. However, the Bank has a positive outlook for the country and believes that the future government will continue with the growth policies. Therefore, the Bank will continue to build market share through an aggressive branch expansion plan supported by a strong technology backbone. Meezan Bank plans to expand its branch network to approximately 140 branches by the end of the year that will further increase its customer out-reach INSHALLAH. With 166 Branches (including 35 sub-branches) in 40 cities across Pakistan, Meezan Bank is clearly positioned as the leading Islamic Bank in the country. Work starts on the construction of Meezan Bank’s new Head Office building. The financing and investment portfolio of local Islamic banks reached Rs. 185 billion in December 2008 compared to Rs. 137.6 billion in December 2007. Market share in the overall banking increased to five per cent at end December 2008 compared with four per cent at end December 2007. Total assets of Islamic banking reached Rs. 271.1 billion in December 2008 compared to Rs. 205.2 billion in December 2007.

Volume of Assets (millions)

Years Total Assets

2005 30676

2006 46439

2007 67179


2008 85276

57

Assets 100000 80000 Value of 60000 Assets 40000 20000 0

1

2

3

4

2005 2006 2007 2008

Share Price In Stock Market Years Share Price

2005 23.25

2006 19.50

2007 38.55

2008 21.48

Share Price 50 40 30 20 10 0

Series1

1

2

3

4

2005 2006 2007 2008

From above we can analyze that the share price is low as compared to previous year, so we have to keep focus on it. Make a plan to improve or increase price to attract previous share holders.


58

Number of Employees Meezan Bank continued to attract and recruit staff through 2008 for its aggressive branch expansion plan as well as for its Head Office departments. Meezan Bank believes that its 3000+ employees are its greatest asset and a major reason for its growth and success.

Years Employees

2005 786

2006 1389

2007 2205


2008 3170

59

Liquidity Ratio It is the relationship between the current assets and current liabilities of a concern. Current Ratio = Current Assets/Current Liabilities

Year Current assets Current liabilities Current Ratio

2005 6812761 3242446 2.1

2006 10212269 4848440 2.10


2007 9373577 3607766 2.59

2008 7108685 5065513 1.4

60

Liquidity Current Ratio 3 2.1

2

2.59

2.1

1.4

1 0 1

2 2005

3

2006

2007

4 2008

Solvency Ratio

Debt equity Ratio = Debt liabilities/ Net assets

Year Debt liabilities Net assets Debt equity Ratio

2005 24408794 6812761 3.58

2006 36826824 10212269 3.60


2007 57864137 5706656 10.13

2008 74325579 5974978 12.4

61

Debt Equity Ratio 20 10 0 Series1

1

2

3

4

3.58

3.6

10.13

12.4

2005

2006

2007

2008

Profitability ratio

Year Net Profit margin Gross profit margin Return on capital employed

2005 18.5 43.83 .018

2006 17.80 45.86 0.0020


2007 16.27 46.39 .0022

2008 8.27 54.61 .0024

62

Profitability ratio 0.02 0.01 0 Series1

1

2

3

4

0.018

0.002

0.0022

0.0024

2005

2006

2007

2008

Return on capital employed =(PBIT / Capital employed)*100 PBIT = Core banking income before provision Capital Employed = Equity + Long term liabilities 2008

6341 + 11025091 = 11031432

2007

5720 + 57864137 = 57869857

2006

4763 + 36826824 = 36831587

2005

3821 + 24408794 = 24412615

Investment Ratio Year Earning Per Share Price Earning Ratio Dividend Per Share

2005 1.16 15.92 16

2006 1.88 10.51 10


2007 1.96 15.2 20

2008 1.26 17.03 8.6

63

Earning Per Share 4 2 0 Series1

1

2

3

4

1.16

1.88

1.96

1.26

2005

2006

2007

2008

In 2007 the per share earning is good but it decreases in 2008 1.96 to 1.26 so the management has to give attention here.


64

Price Earning Ratio 20

15.92

17.03

15.2 10.51

10 0 Series1

1

2

3

4

15.92

10.51

15.2

17.03

2005

2006

2007

2008

Here the management has recovered their position and improved.

Dividend Per Share 25 20 15 10 5 0

20

16 10

1 2005

2 2006

8.6 3 2007

4 2008

The dividend has decreased 20 to 8.6 R.s. This is very bad for company’s good will or stock market. Management has to focus over it other wise the company has to bear more loss in future.


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Capital Adequacy Ratio (Capital to Risk (Weighted) Assets Ratio) Year Average Ratio Average Equity

2005 1.67 16.70

2006 1.57 15.64

2007 1.70 10.30

2008 .82 18.39

Average Ratio 2

1.67

1.5

1.7

1.57

1 0.5

0.82

0 1

2

3

4

2005 2006 2007 2008

Average Equity 20

16.7

15

18.39

15.64 10.3

10 5 0 1

2

3

4

2005 2006 2007 208


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“Authentic marketing is not the art of selling what you make but knowing


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what to make. It is the art of identifying customer needs and creating solutions that deliver satisfaction to the customers, profits to the producer and benefits to the stakeholders”.

Philip Kotler A small survey was conducted by asking some of the bank employees to do a SWOT analysis of the bank in light of their experience in the banking field. My analysis, consolidated with theirs', is given below:

Strengths •

First exclusive Islamic bank.

•

The largest Islamic Bank in Pakistan with a network of over 166 branches in 40 cities. And ending this year they have increase his branches in Pakistan to 180 branches.

•

Strong growth of its Islamic banking SBU.

•

The members of the Shariah Supervisory Board of Meezan Bank are Internationally-renowned scholars, serving on the boards of many Islamic banks operating in different countries.

•

Meezan Providence Certificate is a long-term investment certificate specially designed to cater to the needs of corporate and business concerns for purposes of investing their Provident, Pension and Gratuity Funds. As any prudent investor, your main concerns would be total security along with the best returns possible, especially as these funds are a trust from your employees and one that bears an important responsibility.

•

Karachi, August 20, 2008: Meezan Bank, the largest Islamic Bank in Pakistan has been conferred the Best Islamic Bank Award by Rawalpindi Chamber of


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•

Commerce and Industry. The Chief Minister of Punjab Mr. Shahbaz Sharif bestowed this award to Mr. Saleem Khan Regional Manger - North, Meezan Bank at 21st RCCI achievement awards ceremony held at the Convention Center in Islamabad.

•

Dedicated and professional staff

•

Shariah board of renowned scholars

•

Healthy working environment

•

Strong shareholding

Weaknesses

•

High charges for different activities such as online or Demand Draft as compared to competitors.

•

lack of promotions and advertising of their products and services.

•

Lengthy & extensive documentation

•

Centralized procedures making process slow

•

Weak marketing strategy, Target market not identified

•

Offering fewer services than the competitors

•

Risk Averse, approach of Head office.

•

The Islamic economic system is not something that can work in isolation of the geo-political and legislative system, as well as, and more importantly the society's behaviors towards the injunctions of Islamic Shariah in personal and collective matters. Accordingly, one can easily imagine that in an economy whereby most of the businessmen are not honest in fairly presenting the financial statements of


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their businesses, how difficult it is to introduce a profit-and-loss sharing based financial solution. •

Meezan Bank Limited has no Credit card facility

•

Restricted Shariah based policies

Opportunities •

House financing sector can be targeted to maximize the profit.

•

Growing demand of Islamic financial product and services.

•

Venturing into Islamic groups out side the countries as opportunity to expand business in UAE and Golf states. i-e financial institutions.

•

Coming up with. Products for the SME to targeting the medium level customers.

•

Doing business with companies having Islamic mindset. I-e Islamic financial Institutions.

•

Increase branch network within the country.

Threats •

New competitors setting up their Islamic banking sections and they have the infrastructure, skill, ability, resources & attitude to capture the market more than the Meezan bank.

•

High Interest Rate from SBP

•

SBP has not special policy regarding Islamic Banking.


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•

Disassociation of Maulana Taqi Usmani from the Shariah advisory board of Meezan Bank.

•

Govt. policies are mostly for conventional banking system not for specially designed for Islamic banking.

•

Change in Government's attitude towards Islamic banking.

•

Fears on the credibility of Islamic banking ethical compliance and monitoring systems.

Reviewing this SWOT analysis from time to time would help evaluate the bank's position. It would help the management in comparing their strengths of the past with those of the present and to what extent the management has been able to overcome the weaknesses.


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I spent eight weeks of my internship in MBL RYK Branch. During these eight weeks, I felt myself to be a part of bank. Even, this was my first experience of working in a bank, but I learned a lot from this experience. Based on my experience & observation regarding the operations and policies of Meezan Bank, I have tried to stipulate some recommendations for further improvement.  Meezan Bank Limited should establish a Department of Human Resource Management.  Meezan Bank Limited should continue to expand its business, by increasing its deposit portfolio through aggressive market penetration strategies.  Meezan Bank Limited needs to improve its website.  More information relating to financial performance of the bank should be available on the website.  Management should distribute work equally among different employees.  Some of the employees are overburdened while some sections are overstaffed. Related jobs should be assigned to the employees so that they can work more efficiently.  Cheques, which are drawn on Meezan Bank Branch and returned unpaid in clearing, are not reflected in the Statement of Account of the customers. These cheques must be reflected in the accounts so that credibility of the customers may be assessed.  The employees should be signed jobs for specific period and than they should shifted to other department so that they gain knowledge of other jobs. Lockers, ATM, all these facilities should be provided to attract more customers.  Increase the Size of waiting room.


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For Future Here it been a conventional bank equipped with an extensive network and complete portfolio of products, we would have proposed…. "Early to bed, early to rise Work like hell & ADVERTISE" But this is not the case with Meezan Bank. The network and the portfolio of the products offered are limited. For this we would propose... “Early to bed, early to rise Work like hell & IMPROVISE" In this particular scenario, the word IMPROVISE stands for; •

Innovation

•

Market perceptions

•

Prudence

•

Rifle approach

•

Objectives clearly understood

•

Vision

•

Identifying & understanding customer needs

•

Satisfying customer needs

•

Educating the customers


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•

TV. Advertising

•

Press Advertising

•

Spreading awareness through Dars

•

Wall clocks for mosques

•

Awareness through curriculum

•

Umra and Haj packages

•

It will ensure proper auditing and monitoring, which will in turn inspire public confidence in the bank.

•

RIBA FREE COMMERCIAL BANKING to be set up in all countries of the world/ Muslims & non-Muslims. This will greatly facilitate international export import trade without the fear of being involved in any riba dealing

•

Increase consumer banking

•

Develop the healthy and sound competition b/w employees and bosses.

•

Meezan bank does not provide job security to the employees. Mostly are hired on contractual basis. More people must be employed on permanent basis/ providing job security and satisfaction.

•

There is no separate department for the training of new employees. There should be establishment of a separate department for the training of the new employee and a competent teaching staff should be hired for their training.

•

MBL should become very specific about its competitors, so that it can understand whose its competitor is in the first degree and who is in the second degree. Then the first-degree

•

Competitors should be closed closely.

•

A research cell should continuously try to gather information about the present action so its competitors and expected future actions. So in this way more effective strategies can be formulated.

•

The performance reward linkage should be making strong as it is said “A happy employee delivers more than he receives from the organization". The MBL should also try to make its employees happier.


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•

The management should develop in workers the operator ownership to encourage them and make them responsible for their work.

•

The worker should be given sense of teamwork and the managers should be trained to manage the team as a good leader.

•

Maximum automated machines should be used.

•

New schemes should be introduced and maximum privileges should be given to customer, so that to win money market.

•

Working hours should be increased for customer’s convenience; night banking service may be used to increase the business.

•

New marketing strategies should be developed to attract new customers.


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One of the most important aims of the student life is to express him / her correctly and adequately. This was believed in my mind when I first decided to go to Islamic Meezan Bank Limited to complete my internship program. The organization has been not growing both in size and profit for past few years and but repute in the market is good. The employee turnover is very high which they have to cut down as they are losing a number of good trained employees due to its poor policy. The year 2007 is expected to offer increased competition in the secured assets business as more Islamic banks are in the market. With their focused strategy and product development initiatives planned for the year, Meezan Bank is strongly positioned to meet these challenges. The bank has very well repute in the market. Overall bank is going well and doing a good business but there are few problems for that I have tried to give few recommendations that might help company to improve. So finally this internship program has helped me a lot in gaining practical knowledge of job that will help me in the practical life once I complete my BBA.


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Reference& sources:  I used following references to prepare my reports  Manager of the branch  1I collect information from manager in the form interviews  Operation manger  Employees of the branch  1I collect information from other staff members of the branch in the form interviews.  Pamphlet or brochure  I also study the different pamphlet of the different products and department  Friends and teachers  The most important of me in the preparation in my reports are my friends and my teachers who help me and guided at each step.  Internet  The very important source where I collect data about the Meezan bank is the internet. I visit cite of the Meezan bank and AL-Meezan investment group. Following are both the websites are.  www.meezanbank.com.pk  www.almeezan.com.pk  Annual Report 2007, 2008


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internship report on meezan bank complete

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