Meezan Bank - Report 1

The Premier Islamic Bank
INTRODUCTION TO BANKING 1
“ What Is Bank?”
There are many definitions of the word “bank” even the standard encyclopedia and
law books find it difficult to state exactly what a bank is.
There have been many attempts by different writers to explain the exact significance
of the term “bank”. Here some of the definitions are quoted as follows.
According to banking company’s ordinance 1962 section 5(b)

defines:
“Banker means a person transacting the business of accepting for the purpose of
lending or investment, of deposits from the public, and withdrawal by cheques,
drafts, order of otherwise, and include any post office saving bank”.
According To Crowther:
“Bank is a dealer of debt, his own and of other people.”
According To Gilbert:
“A bank is a dealer in capital or dealer in money. He is an intermediary party

between the borrowers and lenders.”
According To Samulelson:
“Commercial banks provide certain services for customers and in return receive
payments from them.”
According To Holder:
“The modern banker is primarily a dealer in credit.”
1
So the comprehensive definition of the bank is:
A bank is a financial institution, which deals with money and credit. It accepts
deposits from individuals, firm and companies at a lower rate of interest and gives at a
higher rate of interest to those who need them. The difference between the terms at
which it borrows and those at which it lends from the source of it profit. A bank,
thus, is a profit earning institution.
Importance of Banking
Banks play very important role in the economic life of a nation. The growth of the
economy is dependent upon the soundness of its banking system. Although banks do
not create new wealth but borrow, exchange and consume. These make generation of
wealth. In this way they become most effective partners in the development of that
country.
To encourage the habit of saving and to mobilize these savings is its basic
purpose. Banks deposit surplus from the public and then advances these surpluses in
the form of loans to the industrialists, agriculturists, businessman and unemployed
people under different schemes so that they set up their own business. The bank helps
in capital formation.
If there are no banks, then there would be concentration of wealth in few hands and
major portion of wealth of a country would be idle. In the fewer developing countries
rate of saving is very low and due to this, rate of investment and rate of growth is also
very low. We can take bank just like a heart in the economic structure and capital
provided by it is like blood in it. As long as the blood is in circulation, the organs will
remain sound and healthy. If the blood were not provided to any organ then the
organ would become useless. So if the finance is not provided to agriculture sector or
to industrial sector, it will be destroyed.
Loan facility provided by bank works as an incentive to the producer to

increase production. Banks provide transfer of payments facility, which is cheaper,
quicker and safer. Many difficulties in the international payment have been overcome
and volume of transaction has been increased. These facilities are very much helpful
for the development of trade and commerce.
2
2. ISLMIC BANKING
A quick reading of Islamic history tells us that practices of certain forms of banking
activities go back as early as 1200 years ago in Baghdad, Damascus, Fez and
Cordoba. Deposits in current accounts and use of checks were known in these
Muslim cities at that early date. Modaraba was a major mode of financing not
only the Mediterranean trade but also trades between Indians and Scandinavians
through Arab Caravans. An inter-city transfer between traders on the two sides
of the Mediterranean was a common practice by means of intermediary
depositories in Alexandria, Tanjir and Genova.
However, the early contemporary Islamic banking institutions came in the first part
of 1960s with the Pilgrims Funds (1962) in Malaysia and the Myt Ghamr Saving Bank
(1963) in Egypt. In 1974 the Islamic Development Bank was formally established with
a capital of 2.0 billion Islamic Dinar (=SDR); and it started operation in mid 1976. The
Dubai Islamic Bank in the United Arab Emirates was established in 1974. The
numbers of Islamic banks and financial institutions have increased to 177 by the end
of 1997.
The same newspaper described Islamic banking
“As an international quasi-parallel financial system” that stretched its geographical

concurs “from the US through Europe, Africa and the Middle East into the Indian
Subcontinent to the Far East”.
Out of the 177 Islamic banks and financial institutions registered with the
International Association of Islamic banks (1997), 51 are in South Asia, 36 in Africa,
31 in South East Asia, 37 in the Middle East, 112 in Europe, Central Asia, Australia
and America.
Growth wise, over the ten-year period of 1985-1995, the numbers of Islamic banks
and financial institutions have gone up 6 and half times.
3
Salient Characteristics of Islamic Banking
An Islamic bank is a full-service intermediary financial institution that abides

by the Islamic law. However, some writers like to see in Islamic banks more
than a financial institution. This is not true. In a recent paper, Koran (1997)
said,
“Islamic banking defies the separation between economics and religion. It

invokes religious authority in a domain that modern civilization has
secularized.”
One must know the difference between Shariah, as a law, and religion. The
only authority exercised on Islamic banks is that of their respective boards of
directors and the supervision of central banks.
The commitment of Islamic finance to abide by the Islamic law determines its
main characteristics. This commitment is manifested in redefining its modes of
operation and relationships between the financial intermediary on one hand,
and the suppliers and users of funds on the other hand, in order to make them
compatible with Shari’ah.
The actual practice of Islamic banking over the past three decades and the rise
of Islamic banks as a new species of banks reveal three innovations in the
banking traditions:
(1) New kind of relationship between banks and depositors,

(2) Integration of financial and real market in financing,
(3) Incorporation of ethics and moral values in investment and
financing decisions.
4
Riba in Hadith
From Hazrat Jabir Ibn-e-Abdullah (RA)
”The Prophet, may peace be upon him, cursed the receiver & the payer of
interest, the one who records it and the witnesses to the transaction &
said: “They are all alike [in guilt].”
(Muslim, Termidhi & Musnad Ahmad)
From Hazrat Abu Hurayrah (RA)

The Prophet (PBUH) said:
“Riba has seventy segments, the least serious being equivalent to a man
committing adultery with his own mother.”
(Ibn Majah)
From Hazrat Abu Hurayrah (RA):

The Prophet (PBUH) said:
“There will certainly come a time for mankind when everyone will take
Riba & if he does not do so; its dust will reach him.”
(Abu Dawud, Ibn Majah)
Ethics and Banking
It has been noted for a long time in all societies that banks are institutions that
deal with money, not with ethics. The very idea of Islamic banking brings in
ethical values to the center of banking practices. Islamic banks are bankers that
abide by the Islamic law. The Shariah itself is loaded with moral values. Since
the establishment of the first Islamic bank in 1973, it became apparent that
Islamic banks are not permitted to establish any financing relations with
commodities, services and individuals whose moral practices are dubious. Thus,
financing of tobacco, gambling, casinos, drugs, alcohol, weapons,
5
environmentally harmful commodities, etc. are completely excluded from the

working map of Islamic banks.
One has to recognize that Islamic banks’ commitment to moral values as well
as their actual Observance came many years before the early signals of moral
commitment in Western investment funds and that the recent spread of
Islamic mutual funds and investment companies, with their obvious moral
commitment, is, in fact, a mere extension of the Islamic banking ideas and
principles to the area of mutual funds.
In other words, the establishment of Islamic banks served to pull the legs of
many new comers in the financial market; those with whom traditional banks
working in Muslim countries failed.
Islamic Banking Perception & Reality
Sermon of our Prophet (PBUH) on Hijjatul Wida in the 10th year of Hijrah
“Allah has forbidden you to take Riba; therefore all Riba Obligations
shall henceforth be waived. Your capital, however is yours to keep. You
will neither inflict nor suffer any injustice”.
A need to model a new economic system. The new Islamic economic system
was raised with immense intellectual activity, and actions, which outshone the
prevalent Jewish system, which was entirely based on interest. The transition
from an interest-based economy to interest free is possible without first tearing
down the earlier structure. Islamic temperament is to alter and transform by
taking the evil out & replacing it with rules, which provide benefit to the
humanity at large.
6
3. HISTORICAL DEVELOPMENT IN ISLAMIC BANKING
The history of interest-free banking could be divided into two parts.
 When it still remained an idea;

 When it became a reality by private initiative in some countries and by
law in others.
We will discuss the two periods separately. The last decade has seen a marked
decline in the establishment of new Islamic banks and the established banks
seem to have failed to live up to the expectations. The literature of the period
begins with evaluations and ends with attempts at finding ways and means of
correcting and overcoming the problems encountered by the existing banks.
Interest Free Banking as an Idea
Interest-free banking seems to be of very recent origin. The earliest references

to the reorganization of banking on the basis of profit sharing rather than
interest are found in Anwar Qureshi (1946), Naiem Siddiqi (1948) and
Mahmud Ahmad (1952) in the late forties, followed by a more elaborate
exposition by Mawdudi in 1950 (1961). Muhammad Hamidullah’s 1944, 1955,
1957 and 1962 writings too should be included in this category. They have all
recognized the need for commercial banks and the evil of interest in that
enterprise, and have proposed a banking system based on the concept of
Modaraba - profit and loss sharing.
In the next two decades interest-free banking attracted more attention, partly
because of the political interest it created in Pakistan and partly because of the
emergence of young Muslim economists. Works specifically devoted to this
subject began to appear in this period. The first such work is that of
Muhammad Uzair (1955). Another set of works emerged in the late sixties and
early seventies. Abdullah al-Araby (1967), Nejatullah Siddiqi (1961, 1969), al-
Najjar (1971) and Baqir al-Sadr (1961, 1974) were the main contributors.
7
Early seventies saw the institutional involvement. Conference of the Finance

Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study
in 1972, First International Conference on Islamic Economics in Mecca in
1976, International Economic Conference in London in 1977 were the result of
such involvement. The involvement of institutions and governments led to the
application of theory to practice and resulted in the establishment of the first
interest-free banks. The Islamic Development Bank, an inter-governmental
bank established in 1975, was born of this process.
The Coming into Being of Interest- Free Banks
The first private interest-free bank, the Dubai Islamic Bank, was also set up in
1975 by a group of Muslim businessmen from several countries. Two
more private banks were founded in 1977 under the name of Faisal
Islamic Bank in Egypt and the Sudan. In the same year the Kuwaiti
government set up the Kuwait Finance House.
However, small scale limited scope interest-free banks have been tried before.
One in Malaysia in the mid-forties4 and another in Pakistan in the late-fifties. 5
neither survived. In 1962 the Malaysian government set up the “Pilgrim’s
Management Fund” to help prospective pilgrims to save and profit. The savings
bank established in 1963 at Mit-Ghamr in Egypt was very popular and
prospered initially and then closed down for various reasons. However this
experiment led to the creation of the Nasser Social Bank in 1972. Though the
bank is still active, its objectives are more social than commercial.
In the ten years since the establishment of the first private commercial bank in
Dubai, more than 50 interest-free banks have come into being. Though nearly
all of them are in Muslim countries, there are some in Western Europe as well:
in Denmark, Luxembourg, Switzerland and the UK. Many banks were
established in 1983 (11) and 1984 (13). The numbers have declined
considerably in the following years.10
In most countries the establishment of interest-free banking had been by

private initiative and was confined to that bank. In Iran and Pakistan, however,
it was by government initiative and covered all banks in the country. The
governments in both these countries took steps in 1981 to introduce interest-
8
free banking. In Pakistan, effective 1 January 1981 all domestic commercial

banks were permitted to accept deposits on the basis of profit-and-loss sharing
(PLS).
New steps were introduced on 1 January 1985 to formally transform the

banking system over the next six months to one based on no interest. From
1 July 1985 no banks could accept any interest bearing deposits, and all existing
deposits became subject to PLS rules. Yet some operations were still allowed to
continue on the old basis. In Iran, certain administrative steps were taken in
February 1981 to eliminate interest from banking operations. Interest on all
assets was replaced by a 4 percent maximum service charge and by a 4 to 8
percent ‘profit’ rate depending on the type of economic activity. Interest on
deposits was also converted into a ‘guaranteed minimum profit.’ In August
1983 the Usury-free Banking Law was introduced and a fourteen-month
change over period began in January 1984. The whole system was converted to
an interest-free one in March 1985.11
The Last Decade
The subject matter of writings and conferences in the eighties have changed
from the concepts and possibilities of interest-free banking to the evaluation of
their performance and their impact on the rest of the economy and the world.
Their very titles bear testimony to this and the places indicate the worldwide
interest in the subject. Conference on Islamic Banking:
Its impact on world financial and commercial practices held in London in

September 1984, Workshop on Industrial Financing Activities of Islamic Banks
held in Vienna in June 1986, International Conference on Islamic Banking held
in Tehran in June 1986, International Conference on Islamic Banking and
Finance: Current issues and future prospects held in Washington, D.C. in
September 1986, Islamic Banking Conference held in Geneva in October 1986,
and Conference ‘Into the 1990’s with Islamic Banking’ held in London in 1988
belong to this category. The most recent one is the Workshop on the
Elimination of Riba from the Economy held in Islamabad in April 1992.
Several articles, books and PhD theses have been written on Islamic Banking during this
period. Special mention must be made of the work by M. Akram Khan in preparing
9
annotated bibliographies of all published (and some unpublished) works on Islamic

Economics (including Islamic Banking) from 1940 and before. It is very useful to
students of Islamic Economics and Banking, especially since both English and Urdu
works are included (1983, 1991, and 1992). M.N. Siddiqi’s bibliographies include early
works in Arabic, English and Urdu (1980, 1988). Turkish literature is found in
Sabahuddin Zaim (1980).
Current Practice
Generally speaking, all interest-free banks agree on the basic principles.
However, individual banks differ in their application. These differences are due
to several reasons including the laws of the country, objectives of the different
banks, individual bank’s circumstances and experiences, the need to interact
with other interest-based banks.
10
5 . HISTORICAL BACKGROUND OF MEEZAN BANK

LIMITED
Meezan Bank as 1 st Islamic Bank
Meezan Bank Limited is a publicly listed company first incorporated on

January 27, 1997. It started operations as an investment banking license under
SRO 585-(1)/87 in August of the same year. In January 2002 in an historic
initiative, the State Bank of Pakistan granted Meezan Bank the nation’s first full-
fledged commercial banking license dedicated to Islamic Banking. And it’s
started working as commercial bank from 1st May 2002.
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.
11
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,
 Shamil Bank of Bahrain,
 Islamic Development Bank, Jeddah
 Kuwait Awqaf Public Foundation
 Saudi Pak Industrial and Agricultural Investment Company (Private)
Limited.
Those in addition to their strength and stability add significant value to the
Bank through Board representation and applied synergies.
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 world-class service excellence that our customers demand, all within
the bounds of Shariah.
12
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.
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 to the dictates of Shariah. At the same time, we
endeavor to deliver competitive risk adjusted ret
13
MEEZAN BANK 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 & just society for mankind.
MISSION STATEMENT
To be a premier Islamic bank, offering a one-stop

shop for innovative value added products & services
to our customers within the bounds of shariah, while
Optimizing the shareholders, value through an
Organizational culture based on learning, fairness,
Respect for individual enterprise & performance.
SHAREHOLDING STRUCTURE OF MEEZAN BANK
14
Pak Kuwait Investment Company 30.0 %

Shamil Bank of Bahrain 25.0 %
General Public 13.1 %
Employee Share Option Program 9.9 %
Kuwait Awqaf Public Foundation 8.0 %
Saudi Pak Industrial & Agricultural Inv. Co. 5.0 %
OPERATING RESULTS OF THE BANK
During the year under review, the bank converted itself from an investment
bank to a full-fledged Scheduled Islamic Commercial Bank. The SBP granted
the first Islamic Commercial banking license on January 31, 2002 & declared
MBL as a scheduled bank
on March 20, 2002.
The bank has earned PBT of Rs. 270 million for the year ended December 31,
2002. This reflects a strong recovery & restores the excellent track record of the
bank that has been demonstrated in the past. Although the recovery is
principally attributable to significant income from capital market operations,
the bank is focusing on building its core business, which has shown growth
especially an account of the expanded commercial banking platform from
which it now operates. Total balance sheet footing of the bank grew from Rs.
2.05 billion as of December 31, 2001 to Rs. 6.97 billion as of December 31,
2002.
PRESS RELEASE
15
JCR-VIS reaffirms A+/A-1+ratings of Meezan bank Limited.

Outlook, Stable
Karachi, May 2,2003:JCR-VIS Credit Rating Company Limited has reaffirmed

the entity ratings of MBL at A+(Single A Plus) for the medium to long term and
A-1 +(A one Plus) For the short term. Outlook on the medium to long-term
rating is “Stable”.
The reaffirmation is a reflection of the strong support enjoyed by the bank
from its local and foreign sponsors, as well as its strong capital base and the
outstanding quality of its assest portfolio. MBL’s position in the niche market
for Islamic banking is good as it is widely recognized as one of the pioneers of
this form of banking in Pakistan.
However, JCR-VIS will continue to monitor the ability of the bank to meet its
existing projections in view of the increasingly competitive environment in the
financial sector in Pakistan and the effect on MBL’s niche market of the
planned entry of various commercial banks into Islamic banking.
Faheem Ahmad
President & CEO
Contact:
Safdar Qazi/Saad Ahmad Madani/Faiza Zaidi
JCR-VIS Credit Rating Company Limited
Tel: 5680766,5680996,5671822,5671833
Fax: 5681105,5671600
E –Mail vispk@cyber.net.pk
16
6. PRODUCTS BANK OFFERS
CAR IJARAH - ISLAMIC LEASING (IJARAH )
Meezan Bank’s ‘Car Ijarah’ - a Shariah compliant car financing scheme.
RIBA FREE CURRENT ACCOUN
A bank account that is ideal for businesses and individuals looking for Shariah
compliant banking and professionalism under one roof.
RIBA FREE RUPEE SAVING ACCOUNT
17
A unique bank account that offers you the opportunity to earn halal profits.
RIBA FREE CERTIFICATE OF ISLAMIC INVESTMENT
A fixed deposits product, which provide an opportunity to earn halal profits on

certificates ranging from duration of 3 months to 5 years.
RIBA FREE- DOLLAR SAVING ACCOUNT
A Dollar based saving account that offers halal returns on dollar investments.
RIBA FREE- MONTHLY MUSHARIKA CERTIFICATE
A unique deposit product whereby investors can earn monthly profits on

certificates that can be encased at any time without any loss.
MODE OF FINANCING
18
6 .ISLAMIC MODES OF FINANCING
This module will introduce the following basic Islamic modes of financing:
 Murabaha
 Istijrar
 Ijarah
 Salam
 Istisna
 Diminishing Musharakah
 Musharakah
 Modaraba
MURABAHA
Murabaha is a particular kind of sale where the seller (i.e. the Bank) expressly
mentions the cost of the sold commodity he has incurred, and sells it to
another person (i.e. Customer) by adding some profit thereon. Thus, Murabaha
is not a loan given on interest; it is a sale of a commodity for cash/deferred
price.
In other words rather than advancing money to a borrower, which is how the
system would work in a conventional banking agreement, the bank will buy
the goods from a third party and sell those goods on to the customer for a pre-
agreed price.
Murabaha is a mode of financing as old as Musharakah. Today in Islamic banks

world-over 66% of all investment transactions are through Murabaha.
Definition
“A simple Morabaha is one where there is cash payment and Morabaha Muajjal is one
on deferred payment basis”.
19
Difference between Murabaha and Sale

A simple sale in Arabic is called Musawamah a bargaining sale without
disclosing or referring to what the cost price is. However when the cost price is
disclosed to the client it is called Morabaha .
Basic Principals in Murabaha Financing

1-The subject of sale must exist at the time of the sale and posses some
value. Thus anything that may not exist at the time of sale cannot be sold
and makes the contract void.
2-The financier (i.e. the Bank) must have owned the commodity before he
sells it to the Customer. If he sells something that he has not acquired
himself then the sale becomes void.
3-The commodity must come into the possession of the seller/financier (i.e.
the Bank), whether physical or Constructive, in the sense that the
commodity must be in financier’s risk (though for a short period).
4-The sale must be instant and absolute. Thus a sale attributed to a future
date or a sale contingent on a future event is void, e.g. A tells B on 1 st
January that he will sell his car on 1st February to B the sale is void because
it is attributed to a future date.
5-Morabaha cannot be used as a mode of financing except where the
Customer needs fund to actually purchase some tangible
goods/commodities. This means that whenever funds
are needed for other purposes, like paying the price of commodities already
purchased by the customer or the bills of electricity or other utilities, or for
paying the salaries or wages, Murabaha cannot be used.
6-The subject of sale should not be a thing used for any non-Islamic
purpose.
7-The subject of sale must be specifically known and identified to the
buyer, e.g. "A" who is owner of an apartment building says to "B" that he
will sell these apartments to him. Now the sale is void because the
apartment to be sold is not specifically mentioned or pointed to the buyer.
20
8-The delivery of the sold commodity to the buyer must be certain and
should not depend on a contingency or chance.
9-Morabaha must be unconditional. A conditional sale or Murabaha is
invalid unless the condition is recognized as a part of the transaction
according to the usage of trade.
10-The certainty of price is a necessary condition for the validity of a sale.
If the price is uncertain the sale is void.
11- Once the price is fixed in Murabaha, it cannot be changed later.
 Over 60% of all business volume of Islamic banks comprises of
Murabaha transactions
 Where the transaction is done on a “cost plus profit” basis
 The distinguishing feature of Murabaha from ordinary sale is
o The seller discloses the cost to the buyer
o And a known profit is added
 Payment of Murabaha price may be
o At spot
o In installments
o In lump sum after a certain time
 The validity of Murabaha financing transaction depends on

whether conditions imposed by Shariah are being met
 Rules of shariah regarding sale should be understood to judge if
a Murabaha transaction is valid
Rules for Murabaha Financing

1. Asset to be sold must exist
2. Sale price should be determined
3. Sale must be unconditional
4. Asset to be sold
a) Should not be used for un-Islamic purpose.
b) Should be in ownership of the seller at the time of sale.
b) Should be in physical or constructive possession of the seller.
21
Step-By-Step Murabaha Financing
1. Client & bank sign an agreement to enter into Murabaha.
Islamic Client
bank
2. Client appointed as agent to purchase goods on banks behalf
Islamic Client
bank
3. Bank gives money to client for purchase of goods.
22
Islamic Client
bank
4. Clients purchases goods on bank’s behalf & take their possession .
Vendor
Client
Islamic
bank
5. Client makes an offer to purchase the goods from banks.
Islamic
bank
23
Client
6. Bank accepts the offer & sale is concluded.
Islamic Client
bank
7. Client pays agreed price to bank according to an agreed schedule. Usually an

a deferred payment basis (Bai Muajjal)
24
Islamic bank Client
25
ISSUES IN MURABAHA
Following are some of the issues in Murabaha financing:
1. Securities against Murabaha
Payments coming from the sale are a receivable and for this the client may be
asked to furnish a security. It can be in the form of a mortgage or
hypothecation or some kind of lien or charge.
2. Guaranteeing the Murabaha
The seller can ask the client to furnish a 3 rd party guarantee. In case of default
on payment the seller may have recourse to the guarantor who will be liable to
pay the amount guaranteed to him. There are 2 issues relating to this:
a) The guarantor cannot charge a fee from the original client.

The reason being that a person charging a fee for advancing a
loan comes under the definition of Riba.
b) However the guarantor can charge for any

Documentation expenses.
3. Penalty of default
Another issue with Murabaha is that if the client defaults in payment of the
price at the due date, the price cannot be changed nor can penalty fees be
charged.
In order to deal with dishonest clients who default in payment deliberately
they should be made liable to pay compensation to the Islamic Bank for the loss
suffered on account of default.
However these should be made subject to the following conditions:
26
a) The defaulter should be given a grace period of at-least one-month.
b) If it is proved beyond doubt that the client is defaulting without valid

excuse then compensation can be demanded.
4. Rollover in Morabaha
Morabaha transaction cannot be rolled over for a further period as the old
contract ends. It should be understood that Morabaha is not a loan rather the
sale of a commodity, which is deferred to a specific date. Once this commodity
is sold its ownership transfers from the bank to the client it is therefore no
more a property of the seller. Now what the seller can claim is only the agreed
price and therefore there is no question of affecting another sale on the same
commodity between the same parties.
5. Rebate on earlier payments
Sometimes the debtors want to pay early to get discounts. However in Islam
majority of Muslim scholars including the major schools of thought consider
this to be un-Islamic. However if the Islamic bank or financial institution gives
somebody a rebate on its own it is not objectionable, especially if the client is
needy.
6. Calculation of cost in Morabaha
The Murabaha can only be affected when the seller can ascertain the exact cost
he has incurred in acquiring the commodity he wants to sell. If the exact cost
cannot be ascertained then Murabaha cannot take place. In this case the sale
will take place as musawamah i.e. sale without reference to cost.
27
7. Subject matter of the sale
All commodities cannot be subject matter in Murabaha because certain

requirements need to be fulfilled. The shares of a lawful company can be sold
or purchased on Murabaha basis because according to the principles of Islam
the shares represent ownership into assets of the company provided all other
basic conditions of the transaction are fulfilled. A buy back arrangement or
selling without taking their possession is not allowed at all.
Murabaha is not possible on things that cannot become subject of sale. For
example Murabaha is not possible in exchange of currencies.
8. Arguments against Murabaha
An argument that arises in Murabaha is that profit or interest both is the same
and Murabaha financing is the same as Conventional banking. Islamic scholars
however argue that in several respects a Murabaha financing structure is quite
different to an overdraft organized along conventional lines and the former
offers several benefits to the bank and its customers. Depositors are made to
share in profits of the bank as a result of this financing. The basic difference is
however the Aqd or the contract which covers the Islamic conditions. If the
contract has interest element then it will be void.
Basic Mistakes in Murabaha Financing
Some basic mistakes that can be made in practical implications of the concept are as
follows:
1-The most common mistake is to assume that Murabaha can be used for all
types of transactions and financing. This mode can only be used when a
commodity is to be purchased by the customer. If funds are required for
some other purpose Murabaha cannot be used.
2-The document is signed for obtaining funds for a specific commodity and
therefore it is important to study the subject matter of the Murabaha.
28
3-In some cases sale of commodity to the client is affected before the
commodity is acquired from the supplier. This occurs when the various
stages of the Murabaha are skipped and the documents are signed all
together. It is to be remembered that Murabaha is a package of different
contracts and they come into play one after another at their respective
stages.
4-It is observed in some financial institutions that Murabaha is applied on
already purchased commodities, which is not allowed in Shariah and can
be affected on not yet purchased commodities.
Rules of Bai Muajjal
(Sale on deferred Payment basis)
1. Bai Muajjal is valid if the payment date is agreed upon payment date can
be fixed by
o Date
o Time
But it cannot be fixed to an event, the occurrence of which is uncertain
2. The deferred price may be more than the fixed price but it must be fixed
at the time of sale once the price is fixed it cannot be increased in case of
late payment or decreased in case of earlier payment.
3. If the sale is made in installments the seller may put a condition that in
case of default in a single payment, the seller may ask for full repayment
of balance installments
4. In order to secure the payment, the seller may ask the buyer to deposit a
security as surety
5. The seller can also take a promissory note from the buyer, but this note
cannot be traded at any value other than par.
29
ISTIJRAR
 Istijrar is another form of sale

 Purchase of goods time to time, payment lump sum in advance or
arrears.
 Terms are agreed once & not negotiated for each separate transaction
 The buyer purchases goods from time to time in different quantities
Istijrar means purchasing goods time to time in different quantities. In Islamic

jurisprudence Istijrar is an agreement where a buyer purchases something from
time to time; each
time there is no offer or acceptance or bargain. There is one master agreement
where all terms and conditions are finalized.
Types of Istijrar
The two types of istijrar are:

 Where the price is determined after all transactions of purchase are
complete
 Where the price is determined in advance but the purchase is

executed from time to time
The first kind is relevant with the Islamic mode of financing. This kind is
permissible with certain conditions.
1- In this case where the seller discloses the price of goods at the time of
each transaction; the sale becomes valid only when the buyers possess the
goods. In this situation, the amount is paid after all transactions have been
completed.
2-If a seller does not disclose each and every time to the buyer the price of
subject matter, but the contractors know that it is being sold on market
value and the market value is specified and determined in such a manner
that it does not vary and it does not lead to differences of the contractor.
30
3-If at the time of possession, the price of subject matter was unknown or
contractors agree that whatever the price shall be, the sale will be executed.
However, if there is too much difference in the market price and the agreed
price this may cause conflict. In such a case, at the time of possession, sale
will not be valid. However, at the time of settlement of the payment, the
sale will be valid. And its validity will relate to the time of possession.
Therefore the ownership of the buyer in the subject matter will be proved
from the time of possession. After the payment of price the buyer’s usage of
the subject matter will be valid from the time of the possession.
As far as the use of Istijrar in Islamic banks in concerned, Islamic banks today
are involved in four kinds of activities, namely Murabaha, Ijara, Modaraba and
Shirkat. Out of these four, the concept of Istijrar can be applied to only the first
three cases, due to the reason that Istijrar cannot be applied to borrowers of the
bank. However, the same concept can however be applied to suppliers of the
borrower.
However, Istijrar can work with suppliers of the borrower. In this case, the
bank enters into a Murabaha with the suppliers on the basis of Istijrar. The
bank enters into an Agreement to Purchase with the suppliers (which are
mainly trading companies) that it will purchase assets from them at a market
price or at a predetermined discount from the market price. Whenever the
bank has a new customer, it can purchase the assets from the Suppliers on the
basis of Istijrar and sell it onwards to the customer on the basis of Murabaha.
It might very well be probable that the bank might enter into a pseudo-Istijrar
agreement with the suppliers rather than a true one. This is the case when the
bank enters into an agreement with the customer that it is going to sell certain
assets in a certain quantity to them within a specified time period. The
customer may then purchase the assets from the banks in trenches rather than
at once and complete the whole purchase within the specified time period in
order to complete the agreement.
The above type of Istijrar is referred to, as Istijrar with Pre-agreed Sale due to
the reason that the customer purchases a given amount of assets from the bank
over a period of time but the price of the assets purchased is always known
before the sale. Given the above, there is no difference of opinion between
alims as far accepting this type of transaction as Bai-Ta’ati is concerned.
31
However, the use of Ta’ati in case of a Morabaha transaction is not acceptable,

as it leads indirectly to Riba in case the bank does not take possession of
the assets before they are sold to the customer . Hence if Ta’ati is to be used
in this case, then the only way to do it is that the bank should purchase the
assets some time before selling it to the customer. This would ensure possession
that is not just constructive but the bank would have title to the assets before
they are sold to the customer.
Given that the above conditions are complied with to their full extent, Istijrar
can be used in case of a Morabaha.
32
Ijarah/Islamic Leasing
 Ijarah is a term of Islamic fiqha

 Literally, it means “to give something on rent”
 The term “ijarah is used in two situations:
1. It means to employ the services of a parson on wages

2. Another type of ijarah relates to paying rent for use of an asset
or property
Rules Governing Ijarah
Rules governing ijarah are similar to he rules governing sale in both the cases
something is transferred from one person to another
The only difference is
 In case of sale, title of property is transferred to buyer

 In case of ijarah, title remain with the lessor
 Only the use of the property is transferred to lessee
Ijarah as a Mode of Financing
 Leasing is an acceptable transaction under shariah

 The difference between conventional lease & ijarah lies in the nature
of the contract
 Several characteristics of conventional agreements may not conform
to Shariah thus making the transaction un-islamic & thereby
invoking a prohibition
 In order to use leasing as a mode of finance changes need to be made
to the lease agreement
33
 Some basic parameters of the agreement have to be changed to reflect

the change in the nature of the transaction
Rules of Shariah Governing Ijarah
1. Leasing is a contract where the owner of an asset transfers its use to

another person against an agreed price
2. Ownership of the leased asset remains with the lessor
3. Since ownership of the leased asset remains with the lessor, all rights
& liabilities relating to ownership are borne by the lessor
4. The period of lease must be determined in clear terms
5. The lessee is responsible for damage to the asset caused by fraud or
negligence
6. Any damage to the asset not caused by the lessee’s neglect, is to be
borne by the lessor
7. Normal maintenance is Lessee’s responsibility
8. Lease rentals for the entire lease period must be fixed;
9. The rent may be tied to a known benchmark, acceptable to both the
parties.
10. The lessor may receive the rent in advance such
Payment should be recorded as an “on account” payment
Since rent can be received only for use of an asset.
11. If the leased asset is destroyed, the lease will terminate.
If the Lessee is at fault, he is liable to compensate the
Lessor for the loss.
Expenses Consequent to Ownership
 Lessor is the owner of the asset
 He is liable to pay all expenses incurred in the process of purchased

of the leased asset such as
o Purchase cost
o Import Duties
34
o Transportation to factory
o Installation cost
o Insurance
 He may build all these expenses into the asset’s cost and take them
into consideration when calculating the lease rental
Liabilities Of Parties In Case Of Loss To The Asset
 Lessee is liable for loss to the asset due to his negligence

 Can also be made liable for normal wear & tear
 But he cannot be made liable for loss caused by factors beyond his
control
 Conventional finance lease agreements do not differentiate between
these situations & are therefore not in conformity with shariah.
Variable Rentals In Leases
 Lessor would like to get a return on his asset in line with the market
 Hence, agreeing on a fixed rent for a long term lease may not be
desirable
 B/c if returns in the market change, the rent will not change with
them & the lessor will not get a return on his investment in line with
the market
 The problem can be overcome in two ways
 The lease contract may stipulate a regular increase in rent say 5% per
year
 The lease contract may be for a shorter period after which the parties
can renew the lease
 At revised terms
 With both parties having the right to refuse the renewal
Termination of Lease
35
 If the lessee contravenes any term of the lease agreement the lessor
may unilaterally terminate the agreement
 If there is no contravention, the agreement can only be terminated
by mutual consent
 Conventional financial lease agreements give termination right to
lessor in all cases. This is contrary to Shariah laws
Insurance Of The Leased Assets
 Insurance is a cost related to ownership of the assets

 And therefore should be borne by the lessor
 However, the lessor may build this factor into the asset’s cost, while
calculating the lease rent & increase the lease rent.
36
SALAM
DEFINITION
“The modern banks and financial institutions especially to finance the
agricultural sector can use this mode of financing. In Salam, the Seller
undertakes to supply specific goods to the buyer at a future date in
exchange of an advanced price fully paid at spot. The price is in cash but
the supply of purchased goods is deferred”.
PURPOSE OF USE
To meet the need of small farmers who need money to grow their crops and to
feed their family up to the time of harvest. When Allah declared Riba haram,
the farmers could not take usurious loans. Therefore Holy Prophet allowed
them to sell their agricultural products in advance.
To meet the need of traders for import and export business. Under Salam, it is
allowed for them that they sell the goods in advance so that after receiving
their cash price, they can easily undertake the aforesaid business. Salam is
beneficial to the seller because he received the price in advance and it was
beneficial to the buyer also because normally the price in Salam is lower than
the price in spot sales.
The permissibility of Salam is an exception to the general rule that prohibits forward sale
and therefore it is subject to strict conditions, which are as follows:
Conditions Of Salam
1- it is necessary for the validity of Salam that the buyer pays the price in
full to the seller at the time of affecting the sale. In the absence of full
payment, it will be tantamount to sale of a debt against a debt, which is
expressly prohibited by the Holy Prophet. Moreover the basic wisdom for
37
allowing salam is to fulfill the instant need of the seller. If its not paid in
full, the basic purpose will not be achieved.
2- Only those goods can be sold through a Salam contract in which the
quantity and quality can be exactly specified e.g. precious stones cannot be
sold on the basis of salam because each stone differ in quality, size, weight
and their exact specification is not possible.
3- Salam cannot be effected on a particular commodity or on a product of a

particular field or farm e.g. supply of wheat of a particular field or the fruit
of a particular tree since there is a possibility that the crop is destroyed
before delivery and given such possibility, the delivery remains uncertain.
4- All details in respect to quality of goods sold must be expressly specified
leaving no ambiguity, which may lead to a dispute.
5- It is necessary that the quantity of the commodity be agreed upon in
absolute terms. It should be measured or weighed in its usual measure only
meaning what is normally weighed cannot be quantified and vice versa.
6- The exact date and place of delivery must be specified in the contract.
7- Salam cannot be affected in respect of things, which must be delivered at
spot.
8- The commodity for Salam contract should remain in the market right
from day of contract up to the date of delivery or at least till the date of
delivery.
9- The time of delivery should be at least fifteen days or one month from
the date of agreement. Price in Salam is generally lower than the price in
spot sale. The period should be long enough to affect prices. But HP did not
specify any minimum period for the validity of Salam. It is all right to have
a earlier date of delivery if the seller consents to it.
10- Since price in Salam is generally lower than the price in spot sale; the
difference in the two prices may be a valid profit for the Bank.
11- A security in form of a guarantee, mortgage or hypothecation may be
required for a Salam in order to ensure that the seller delivers.
38
12- The seller at the time of delivery delivers commodities and not money to
the buyer who would have to establish a special cell for dealing in commodities
Benefits
BENIFITS
There are two ways of benefiting from the contract of Salam:
1- After purchasing a commodity by way of Salam, the financial institution

can sell it through a parallel contract of Salam for the same date of delivery.
The period of Salam in the second parallel contract is shorter and the price
is higher than the first contract. The difference between the two prices
shall be the profit earned by the institution. The shorter the period of
Salam, the higher the price and the greater the profit. In this way
institutions can manage their short term financing portfolios.
2- The institution can obtain a promise to purchase from a third party. This
promise should be unilateral from the
expected buyer. The buyer does not have to pay the price in
advance. When the commodity is received by the institution, it
can be sold at a pre-determined price to a third party
according to the terms of the promise.
All the transactions should conform to this rule, except the following two
exceptions:
o Bal’ Salam
o Bal’ Istisna
Both these are sales of special nature & are exceptions to the general rule of
sale.
 Salam is where the seller undertakes to supply some specific goods to
the buyer
39
o At a future date
o Against an advance price, fully paid at spot
o But the supply is deferred
 Salam was allowed by the Prophet (SAW) subject to certain

conditions
 The basic purpose was to meet the needs of small farmers
 Hence they were allowed to sell their agricultural products in
advance
40
ISTISNA
Istisna is the 2nd exception where a sale is allowed without delivery of the
goods sold. It relates to goods that require manufacturing If the manufacturer
undertakes to manufacture goods with material available with the
manufacturer, the istisna transaction is effected. It is necessary for the istisna
transaction that price is fixed & necessary specifications of the product are
defined.
Definition
”Istisna is a sale transaction where a commodity is transacted before it comes
into existence. It is an order to a manufacturer to manufacture a specific
commodity for the purchaser. The manufacturer uses his own material to
manufacture the required goods”.
Price: Must be fixed with consent of all parties involved. All other necessary
specifications of the commodity must also be fully settled.
Cancellation of contract : After giving prior notice, either party can cancel
the contract before the manufacturing party has
begun its work. Once the work starts, the contract cannot be cancelled
unilaterally.
Difference Between Istisna & Salam
Salam
1. Subject of Salam may be anything the subject of which fulfils the Salam
Conditions?
2. Price should be paid in full in advance
3. Salam contract, once affected, cannot be cancelled unilaterally
4. Determining the time of delivery is an essential part in Salam
41
Musharakah
Hadees-e-Qudsi
“Allah Subhan-o-Tallah has declared that He will become a partner in a

business between 2 Mushariks until they indulge in cheating or breach of
trust (Khayanat)”.
Meaning
Musharakah literal meaning is sharing. The root of the word "Musharakah" in

Arabic is Shirkah , which means being a partner. It is used in the same context
as the term "shirk" meaning partner to Allah. Under Islamic jurisprudence,
Musharakah means a joint enterprise formed for conducting
some business in which all partners share the profit according to a specific ratio
while the loss is shared according to the ratio of the contribution. It is an ideal
alternative for the interest based
financing with far reaching effects on both production and distribution.

But the term Musharkah is more restricted than "Shirkah", commonly used in
the Islamic jurisprudence. In fact the term Musharkah refers to a type of
Shirkat known as "Shirkat-ul-amwal " i.e. all partners invest some capital into a
commercial enterprise
Definition
“Musharakah is a form of partnership between two parties where each

party contributes to the capital of the partnership in equal or varying
proportions, either to establish a new venture or share in an existing
one”.
42
The Basic Rulr For Myusharakah
Musharakah or Shirkat-ul-amwal is a relationship established by the parties

through a mutual contract. Therefore, it goes without saying that all necessary
ingredients of a valid contract must be present here also. For example, the
parties should be capable of entering into a contract; the contract must take
place with free
consent of the parties without any coercion, fraud or misrepresentation, etc.
But there are certain ingredients, which are peculiar to the contract of
"Musharakah". They are summarized here:
Basic Rules For Capital
The capital in a Musharka agreement should be:

a ) Quantified (Ma’loom): Meaning how much etc.
b) Specified (Muta’aiyan): Meaning specified currency etc.
c) Not necessarily be merged: The mixing of capital is not required.

d) Not necessarily be in liquid form: Capital share may be
contributed either in cash/liquid or in the form of commodities. In case of a
commodity, the market value of the commodity shall determine the share
of the partner in the capital.
Management Of Musharakah
The normal principle of Musharakah is that every partner has a right to take
part in its management and to work for it. However, the partners may agree
upon a condition that the management shall be carried out by one of them, and
no other partner shall \
work for the Musharakah. But in this case the sleeping partner shall be entitled
to the profit only to the extent of his investment, and the ratio of profit
43
allocated to him should not exceed the ratio of his investment, as discussed
earlier. However, if all the partners agree to work for the joint venture, each
one of them shall be treated as the agent of the other in all matters of business.
Any work done by one of them in the normal course of business shall be
deemed as authorized by all the partners.
Principles For Distribution Of Profit
 Profit of each partner can be agreed as a % of the return from the

business
 Profit should be identified as a % of the actual return & not in
absolute terms
 Shares of active partners can be more than share of sleeping partners.
 The share of the sleeping partner cannot be more than the share of
the active partner
Principle Of Loss
Scholars in Islam have a consensus on the principle that in case of a loss the
share borne by each partner cannot exceed his share in the investment. Hazrat
Ali (RA)
“Profit should be on a mutual basis and loss should be shared in the ratio
of investment”
Powers & Rights Of Partners In Musharakah
After entering into a Musharakah contract, partners have the following rights:
a) The right to sell the mutually owned property since all partners are
representing each other in Shirkah and all have the right to buy & sell for
business purposes.
44
b) The right to buy raw material or other stock on cash or credit using
funds belonging to Shirkah to put into business.
c) The right to hire people to carry out business if needed.
d) The right to deposit money & goods of the business belonging to Shirkah
as depositor trust where and when necessary.
e) The right to use Shirkah’s fund or goods in Mudarabah.
f) The right of giving Shirkah’s funds as hiba (gift) or loan. If one partner
for purpose of investing in the business has taken a qard-e-hasana, then
paying it becomes liable on both.
Termination Of Musharakah
Musharakah will stand terminated in the following cases:
1- If the purpose of forming the shirkat has been achieved. For example, if
two partners had formed a shirkat for a certain
project e.g. buying a specific quantity of clothe in order to sell it and the
cloth is purchased and sold with mutual investment; the rules are simple
and clear in this case. The distribution of profit will be as per the agreed
rate whereas in case of loss, each partner will bear the loss according to his
ratio of investment.
2- Every partner has the right to terminate the musharakah at any time
after giving his partner a notice that will cause the musharakah to end. For
dissolving this partnership, if the assets are liquidated, they will be
distributed pro-rata
between the partners. However, if this is not the case, the partners may
agree either:
a) To liquidate the assets or

b) Distribute the assets as they are.
45
In case of a dispute between partners whether to seek liquidation of assets

or distribute non-liquid assets, the distribution of non-liquid assets will 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. But if the
assets are in a form that cannot be distributed such as machinery, then they
shall be sold and the sale-proceeds shall be distributed.
3- In case of a death of any one of the partners or any partner becoming
insane or incapable of effecting commercial transaction, the Musharakah
stands terminated.
4- In case of damage to the share capital of one partner before mixing the
same in the total investment and before affecting the purchase, the
partnership will stand terminated and the loss will only be borne by that
particular partner. However, if the share capital of all partners has been
mixed and could not be identified singly, then all will share the loss and the
partnership will not be terminated.
Termination Of Musharakah With Out 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. 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
46
partnership shall have to sell his share to the other partners and shall not force
them on liquidation or separation. 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 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. Therefore, such a condition seems to be
justified, and it can be supported by the general principle laid down by the
Holy Prophet (S.A.W) in his famous Hadith:
"All the conditions agreed upon by the Muslims are upheld, except a
condition which allows what is prohibited or prohibits what is lawful".
Dispute Resolution
There shall be a provision for adjudication by a Review Committee to resolve

any difference that may arise between the bank and its clients (partners) with
respect to any of the provisions contained in the Musharakah Agreement.
Security In Musharakah
In case of Musharakah agreement between the Bank and the client, the bank
shall in its own right and discretion, obtain adequate security from the party to
ensure safety of the capital invested/financed as also for the profit that may be
earned as per profit projection given by the party. The securities obtained by
the bank shall, also as usual, be kept fully insured at the party’s cost until the
Islamic alternatives for insurance i.e. Takaful becomes functional.
47
(The purpose of this security is to utilize this only in case of damage or

loss of the principal amount due to the negligence of client).
Diminishing Musharakah
Basic Concept
 Financer & client participate in joint ownership of property or

commercial enterprise
 Client agrees to purchase financier’s share periodically
 Client purchases financier’s share over a period till ownership is
completely transferred to client
48
Modaraba
 Modaraba is a partnership agreement in which the investor (the Rab-
al-maal) provide the necessary finance
 While the recipient of the funds (the mudarib or the manager)
provides the know how towards carrying out the venture
Types Of Modaraba
There are 2 types of Modaraba

 Restricted Modaraba
 Unrestricted Modaraba
Restricted Modaraba
 Rub-ul-mal may specify a particular business for the mudarib

 Mudarib can invest the money in that particular business only
Unrestricted Modaraba
 Rubb-ul-mal gives full freedom to mudarib to undertake whatever

business he deems fit.
Distribution Of Profit
It is necessary for the validity of Modaraba that the parties agree at the time of
entering into the contract on the ratio in which the actual profit will be shared.
Distribution of Loss
 Loss is borne only by rub-ul-mal b/c the mudarib doesn’t invest

anything.
49
 Mudarib’s loss is considered to be wasted effort.
50
ORGANIZATIONAL STRUCTURE
BRANCH MODEL FOR LAHORE BRANCH
BRANCH MANAGER
RECEPIONIST/TELEP
HONE OPERATOR
HEAD OF HEAD OF
CUSTOMER FOREIGN
HEAD OF HEAD OF HEAD OF
SERVICES TRADE
REMITT. /CASH CORPORAT CREDIT
AM-1 AM-1
OUTPUT E BANKING ADMIN.
AM-1 AM-1
CONTROLLER
FOREIGN CAD
CUSTOMER TELLER TRADE OFFICER
SERVICES OFFICER SO-1 OFFICER JO
SO-1 JO
RELATIONSHIP
OFFICER
AM-2
CUSTOMER CAD
SERVICE OFFICER OFFICER
JO JO
OPERATIONS RELATIONSHIP
OFFICER OFFICER
CUSTOMER JO AM-2
SERVICE OFFICER
JO
CUSTOMER
SERVICE OFFICER
JO
IT
OFFICER
JO
51
CORPORATE INFORMATION
BOARD OF DIRECTORS
BOARD OF DIRECTORS
H.E. Sheikh Ebrahim bin Khalifa Al-Khalifa Chairman

Abdulazim M.A. Al-Shamali Vice Chairman
Irfan Siddiqui President & CEO
Zaid H. Rawashdeh
Zaigham Mahmood Rizvi
Tarik Kivanc
Muhammad Abdul-Rehman Hussain
Mazen Khalid Al-Braikan
Muhammad Ali Qureshi
Ariful Islam
EXECUTIVE COMMITTEE

Tarik Kivanc
Irfan Siddiqui
SHARIAH BOARD
Justice (Retd.) Muhammad taqi Usmani Chairman

Dr. Abdul Sattar Abu Ghuddah
Sheikh Essam M. Ishaq
52
Dr. Muhammad Imran Usmani
AUDIT COMMITTEE

Irfan Siddiqui
COMPANYSECRETARY
COMPANY SECRETARY
Gohar Iqbal Sheikh
ADVISORY
Dr. Muhammad Imran Usmani Shariah Advisor

Zafar Aziz Osmani Human Resources Advisor
53
MANAGEMENT
Irfan Siddiqui President & CEO

Ariful Islam Chief Operating Officer
Najmul Hassan Corporate & Business Development
Gohar Iqbal Sheikh Finance & Human Resources
Ayaz Wasay Treasury & Financial Institutions
Aqeel Siddiqui Retail Banking
Arshad Majeed Operations
Muhammad Haris Corporate Finance
Sohail Khan SME & Consumer Finance

Emad ul Hasan Internal Audit
Mehnaz Ikram Legal Advisory
Faiz Siddiqui Information Technology
Munawar Rizvi General Services & Administration
LEGAL ADVISOR
Rizvi Isa & Hosain
AUDITORS
A.F. Ferguson & Co.
54
REGISTERED OFFICE
3rd Floor, PNSC Building, Moulvi Tamizuddin Khan road, Karachi-74000,

Pakistan.
Ph: 9221-5610582 Fax: 9221-5610375
Website: www.meezanbank.com
Email: info@meezanbank.com
REGISTER AND SHARE TRANSFER OFFICE
THK Associates (Pvt.) Limited

Ground Floor, Sheikh Sultan Trust Building No. 2,
Beaumon Road, Karachi-75530, Pakistan
Ph: 9221-5689021 Fax: 9221-5655595
55
Branch Network
56
Network
PNSC Branch
Address: 3rd Floor PNSC Building, MT Khan Road, Karachi
Phone: (92-21) 5610582
Fax: (92-21) 5610375
Email: umer.farooq@meezanbank.com
Branch Manager: Umer Farooq
FTC Branch
Address: Ground Floor, Block B, FTC Building, Shahrah-e-Faisal, Karachi
Phone: (92-21) 5650771
Fax: (92-21) 5655964
Email: tasweer.hassan@meezanbank.com
Branch Manager: Tasweer Hassan
Marriott Hotel Branch
Address: Marriott Hotel, Abdullah Haroon Road, Karachi
Phone: (92-21) 5683491
Fax: (92-21) 5683291
Email: bilal.zuberi@meezanbank.com
Branch Manager: Bilal Zuberi
Gulshan-e-Iqbal Branch
Address: B-41, Block No. 13-A, KDA Scheme 24, University Road,
Gulshan-e-Iqbal, Karachi
Phone: (92-21) 4811901-6
Fax: (92-21) 4822066
Email: tariq.mahboob@meezanbank.com
Branch Manager: Tariq Mahboob
Jodia Bazaar Branch
Address: H-91 A, Darya Lal Street, Jodia Bazaar, Karachi
Phone: (92-21) 2473326-9
Fax: (92-21) 2473277
Email: m.shafi@meezanbank.com
Branch Manager: Shafi Muhammad
F.B Area Branch
Address: C-12, Block 10, F.B Area, Karachi.
Phone: (92-21) 6805370-5 * (92-21) 6805376
Fax: (92-21) 2473277
Email: m.raza@meezanbank.com
Branch Manager: Mohammad Raza
S.I.T.E Branch
57
Address: Plot No. B/9-C, Estate Avenue, SITE Area, Karachi

Phone: (92-21) 2586351-54
Fax: (92-21) 2586373
Email: parvez.rahim@meezanbank.com
Branch Manager: Parvez Rahim
Clifton Branch
Address: Ground Floor, Al-Karam Centre, BC1, Block-7 Clifton, Main
Clifton Road, Karachi
Phone: (92-21) 537 2060-64
Fax: (92-21) 537 2065
Email: mohsin.abbas@meezanbank.com
Branch Manager: Mohsin Abbas
Cloth market Branch
Address: Atique Market, Bunder Quarters,Karachi.
Phone: (92-21) 2418137-9
Fax: (92-21) 2471223
Email: mashkoor.siddiqui@meezanbank.com
Branch Manager: Mashkoor Siddiqui
Korangi Branch
Address: Plot No. LS 3, ST-3/1, Sector No. 15, Korangi Industrial Area,
Karachi.
Phone: (92-21) 5071044
Fax: (92-21) 5071046
Email: kazi.aamir@meezanbank.com
Branch Manager: Kazi Muhammad Aamir
Shahrah-e-Faisal Branch
Address: 29-A, Ground Floor, Sabah Palace, P.E.C.H.S. Block 6, Shahrah-
e-Faisal, Karachi
Phone: (92-21) 4322184-91
Fax: (92-21) 4322192
Email: farhan.iqbal@meezanbank.com
Branch Manager: Farhan Iqbal
Gulberg Branch
Address: 60 - Main Boulevard Gulberg, Lahore
Phone: (92-42) 5879870-2
Fax: (92-42) 5879873
Email: rahat.nadeem@meezanbank.com
Branch Manager: Rahat Nadeem
Circular Road Branch
Address: Outside Shah Alam Gate, Lahore
Phone: (92-42) 7642001-05
Fax: (92-42) 7642001-10
Email: umer.iqbal@meezanbank.com
Branch Manager: Umer Iqbal
Azam Cloth Market Branch
58
Address: 61 Chandni Chowk, Azam Cloth Market, Lahore.

Phone: (92-42) 7642011-2
Fax: (92-42) 7642014
Email: naeem.siddiqui@meezanbank.com
Branch Manager: Naeem Sarfraz Siddiqui
Garden Town Branch
Address: Ground Floor, Ibrahim Centre, 1-Aibak Block, New Garden
Town, Lahore
Phone: (92-42) 5941474-77
Fax: (92-42) 5941478
Email: kamran.masud@meezanbank.com
Branch Manager: Kamran Masud Khan
Serena Hotel Branch
Address: Serena hotel, Club Road, Faisalabad.
Phone: (92-41) 2620595-7
Fax: (92-41) 2620598
Email: anwar.haq@meezanbank.com
Branch Manager: Anwar-ul-Haq
Kotwali Road Branch
Address: P-63 Kotwali Road, Faisalabad.
Phone: (92-41) 2602587
Fax: (92-41) 2602589
Email: moazzam.saeed@meezanbank.com
Branch Manager: Moazzam Saeed
People's Colony Branch
Address: 1/A-II, People's Colony-1, Faisalabad.
Phone: (92-41) 8555002-4
Fax: (92-41) 8555005
Email: zubair.sharif@meezanbank.com
Abdali Road Branch
Address: 64 Abdali Road, Multan
Phone: (92-61) 588537-8
Fax: (92-61) 588539
Email: aasim.salim@meezanbank.com
Branch Manager: Aasim Salim
Branch Manager: Zubair Sharif

Kasur Branch
Address: 216-9R-IV, Railway Road, Kasur
Phone: (92-492)764999 and (92-492)722099
Fax: (92-492)722988
Email: shahid.younas@meezanbank.com
Branch Manager: Shahid Younas
Kashmir Plaza Branch
Address: Kashmir Plaza, Near Ghalla Mandi G.T Road, Gujranwala.
59
Phone: (92-55) 3847205-8

Fax: (92-55) 3847209
Email: kamran.butt@meezanbank.com
Branch Manager: Kamran Mahmood Butt
Kashmir Road Branch
Address: Kashmir Road, Sialkot
Phone: (92-52) 4295301-3
Fax: (92-52) 4295218
Email: sarfraz.nazir@meezanbank.com
Branch Manager: Sarfraz Nazir
Bahria Town Branch

Address: Bahria Heights, Bahria Town, Phase-1 Rawalpindi.
Phone: (92-51) 5730170-5
Fax: (92-51) 5730174
Email: bilal.safdar@meezanbank.com
Branch Manager: Bilal Safdar
Saddar Branch
Address: # 47/62, Bank Road Saddar, Rawalpindi.
Phone: (92-51) 9273404-6
Fax: (92-51) 9273407
Email: nisar.kiani@meezanbank.com
Branch Manager: Nisar Kiani
Jinnah Avenue Branch
Address: 32, Sohrab Plaza, Jinnah Avenue, Blue Area, Islamabad
Phone: (92-51) 2276712-5
Fax: (92-51) 2824127
Email: mustafa.rabbani@meezanbank.com
Branch Manager: Mustafa Rabbani
Saddar Road Branch

Address: 6 Saddar Road, Peshawar Cantt, Peshawar
Phone: (92-91) 9213470-5
Fax: (92-91) 9213476
Email: sadiq.rehman@meezanbank.com
Branch Manager: Sadiq ur Rehman
60
FIELD OF ACTIVITIES
8
THERE ARE 6 MAIN DEPTT’S IN THE BANK
 OPERATIONS DEPARTMENT
 CUSTOMER SERVICES DEPARTMENT
 CREDIT DEPARTMENT
 TRADE FINANCE DEPARTMENT
 CORPORATE DEPARTMENT
 CASH DEPARTMENT
OPERATIONS DEPARTMENT
This department performs the following functions;
 Inward bills for collection

 Outward bills for collection
 Inward Clearing
 Outward Clearing
 Issuance of Demand Draft
 Issuance of Pay Order
 Issuance of Foreign Demand Draft
 FTT
INWARD BILLS FOR COLLECTION
These are bills or cheques/DD, which are sent to by outstation bank to our
bank for collection.
61
62
OUTWARD BILLS FOR COLLECTION
These are cheques bills or DD drawn on outstation bank branch sent for
collection on behalf of the customers by our bank.
INWARD CLEARING
In which cheques drawn by our customer through other bank.
OUTWARD CLEARING
In which cheques drawn by other bank customer to account holder of our

bank.
DEMAND DRAFT
It refers to the payment of money on demand to the holder of draft. Demand

draft includes DD issued and DD payable. This is issued against cash/value
received from customer for payment with in the country.
PAY ORDER
Pay Order is issued to other banks for payments by the bank. This is issued
against cash/value received from customer for payment to be made with in the
city.
FDD
It’s issued for payment to overseas.
FTT
63
This is used for urgent payments to overseas against cash value received from
customer.
CUSTOMER SERVICES DEPARTMENT
THINGS TO KNOW ABOUT CUSTOMER SERVICES
PROCUCT INFORMATION
Types of Products offered
 Rupee Savings Account

 Dollar Savings Account
 Certificates Of Islamic Investment
 Monthly Musharaka Certificates
 Current Accounts
 Car Ijarah
 Lockers
RIBA FREE-RUPEE SAVING ACCOUNT
As a step towards the mission of providing a one-stop shop for innovative value
added products to our customers, Meezan Bank is pleased to offer RIBA FREE
Current Account, a flexible Rupee based account that is ideal for businesses and
individuals looking for Shariah compliant banking and professionalism under
one roof.
NEED TO OPEN AN ACCOUNT
Just fill in the Account Opening Form, bring in your original NIC, and get
introduced by an existing banker.
This is all you need to open a Current Account with MBL and enjoy our
personalized banking services.
64
Minimum deposit::::::::::::::::::::::::::::::::::Rs. 10,000/- only
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
earn on this pool is calculated every month, and if you maintain a minimum
average monthly balance of Rs.10, 000/- you shall be eligible to receive profits
that will be disbursed to you every month.
PROFIT CALCULATION
Rs. 10,000 up to Rs. 9,999,999

Rs. 10,000,000 up to Rs. 49,999,999
Rs. 50,000,000 up to Rs. 99,999,999
Rs. 100,000,000 and above
RIBA FREE DOLLAR SAVING ACCOUNT
Minimum deposit:::::::::::::: $100 under Mudarba arrangement.
The return earn on the Mudarba pool is calculated every month and profit ratio
is declared 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 will be disbursed to you every month.
RIBA FREE-CERTIFICATE OF ISLAMIC INVESTMENT
RIBA-FREE Certificate of Islamic Investment (COII) provides the customer a

term deposit investment opportunity that is absolutely Halal.
RIBA-FREE COII
65
It is a Shariah compatible certificate.
Minimum investment::::::::::::::::::::::::::::Rs.50,000 only
Tenure::::::::::::::::: 3 & 6 months, 1,2,3, and 5 years.
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 or
 At maturity profit payment for all tenures.
*Minimum Investment Rs. 200,000.
PROFIT DISTRIBUTED AND CALCULATED
invested in a pool that consists of Ijarah and Murabaha financing. The
profit/loss earn on this pool is calculated every month on the basis of profit
sharing ratio determined by assigning weightages. Such weightages are
assigned at the beginning of each month.
CURRNT DEPOSITS
In the type of account the client is allowed to deposit or withdraw money as

and when he likes. He may, thus, deposit or withdraw several times in the day
if he likes. Usually the bank allows this and service charges are deducted by the
bank from current deposit account.
FIXED DEPOSIT
In the type of account a certain amount is deposited for a certain period such as
six months two years or longer. A fix deposit
66
receipt is issued in the same of the depositor. The officer in charge and the
bank manager sign the receipt. A notice is given
to the depositor requesting the depositor to withdraw his money or to renew
this deposit. The interest allowed on fixed varies with the period for which the
deposits are made.
FOREIGN CURRENCY ACCOUNT
Depositing foreign currency opens foreign currency account. In Meezan Bnak,

you can open foreign currency account in;
 Us Dollar ($)
 Pound sterling
 Japanese yen
 Deutsche Mark (DM)
CAR IJARAH
Ijarah is basically transferred of usufruct of a fixed asset to another person for

an agreed period, at an agreed consideration. Under Ijarah agreement the car
will be given to the customer on a rent 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
LOCKERS
Lockers operations shall not be permitted under power of attorney of a

customer. A customer wishing to allow another
person or agent may be requested to open a new locker account under joint
names and close the existing account.
In offering this facility branches have to be selective and should provide
lockers to the customers whose identity and integrity is
67
verified, who should maintain account with the branch and have potential for
deposits and other banking business. It is reiterated
that honesty, creditability and good reputation of the customer is of utmost
importance in the selection of customer for lockers.
Things to Know Regarding Each Product
 Minimum Balance Requirement for each account

 Nature of each account
 Documents Required in various accounts
Eg: Individual Accounts, Joint Accounts, Minor Account, Private
Limited Company, Public Limited Company, Trust accounts, EPF
Accounts, Sole Proprietorship Accounts, Clubs, Associations etc.
Methods Of Account Opening
 Account Opening Form

 Prepare Masks
 Open Account in MIE
 Know various Codings
 How to Complete Jackets
 Importance of extra documents required
Eg. Mandate Form, Letter of Indemnity, Zakat
Declaration, and Photo Accounts etc.
 How to send thank you letters
 How to close Accounts
Things Attached with Various Products
Certificates of Islamic Investment

 How to Fill the Form
 Complete Information about various tenures and profit payment
options
68
 Minimum balance requirement for different investments

 How to make annexure
 How and where to maintain annexure
 Encashment requests
 Where and how to file encashment requests
 Profit calculations
 How and where to file profit related advices
 Where to find previous encashment and advices
Monthly Musharaka Certificates
 How to fill forms

 Minimum balance requirements
 Profit calculations
 How to prepare annexure
 Debit/credit entry
 How and where to file MMC annexure and advices
 MMC encashment
Cheque Books Issuance
 How to fill out a requisition

 Process involved in issuance
 How to deduct charges (this includes preparation of voucher, MIE
posting and filing of record)
 Maintenance of register
Lockers Issuance
 How to fill out a form

 Requirements
 Knowledge of rent, size of lockers etc
69
 How to prepare Locker Identification cards

 Locker Issuance
 Locker Operation
 Locker surrender
 How to make entry in registers
 How to maintain files
 Debit/credit entries on issuance and surrender
Car Ijarah
 How to fill out form

 Case preparation
 Before and after approval processes
 Maintenance of files
 Complete product knowledge
 How to make provisional rental calculation sheets
Miscellaneous
 Issuance of Pay orders, DD’s etc

 Maintenance of Account Opening Register
 Issuance of Duplicate Statements
 How to put various charges
 Loose cheque issuance
 How to fill a deposit slip-cheque/cash
 Cash handling charges when $ cash is deposited
 Rules for hold mail
70
CREDIT ADMINISTRATION
The Credit department in Meezan bank is involved in giving advances & loans
to business, which may be in the form of some raw material, machinery or
building.
Here the mission of corporate banking is to make investments in projects by
keeping the past records of business in mind. Sometimes we forecast the
business and make assumptions whether or not it will earn profit.
Sometimes the bank guarantees on behalf of the importer and exporter. In this
process, high risk is involved because we are not sure whether the importer or
exporter will pay.
The credit administration department has to see the market conditions of that
particular industry in which they want to invest and after that they also have
to observe the industry conditions. After all the observations, both the
departments are able to take any decisions of whether or not investing in that
project.
71
TRADE FINANCE
 EXPORTS
 EXPORTS REFINANCE
 IMPORTS
 GUARANTEES
IN EXPORT
 Post shipment finance, foreign bill purchased, bills sent on

collection, Forward booking
 Checking all documents according to the letter of credit’s
requirements
 Preparation & posting of daily transaction voucher.
Preparation of all concern telex messages
 SBP reporting of export department
IN EXPORT REFINANCE
 refinance applications for pre and post shipment finance
under part I & part II according to the SBP regulations.
 Scrutinizing the refinance applications and processing.

Preparation & posting of relevant documents.
 Payments of quarterly mark-up against refinance loans and
the final settlement of loans
 Timely submission of EE-1 & EF-1 statements to SBP
 Ed statement & its submission to SBP
 Issuance of E forms
 Reporting of over due statement E form statement and all
other statements required by head office
 SBP FCY reporting
72
IN IMPORTS
 Process opening & amendment to letter of credit then

relevant vouchers prepared posting and LC text for the
transmission.
 After receiving documents against LC, checking of
documents according to the LC requirements.
 Forward booking, PAD lodgment & retirement.
 Head office reporting & SBP returns.
IN GURANTEES
 Issuance of Gurantees, i.e.Bid, Performance, Advance

payment, Custom and open Ended as per banks Policy.
73
CORPORATE BANKING & CORPORATE FINANCE

The Corporate Banking Department is geared towards providing
comprehensive and innovative financial solutions to the banks’ client base
through a diverse product offering. The focus is on
nurturing and developing a long-term relationship with clients by

understanding their unique financing requirements and providing Shariah
compliant financing solutions. The Bank offers following products and services
to its customers:
 Corporate Banking
 Corpora
CORPORATE BANKING
The unit tailor solutions for a broad array of financing needs, both short and
long term, and has experience of working closely with customers who are
seeking innovative Shariah compliant solutions for such needs.
Working Capital Requirements:
The Bank offers a wide range of products to meet the customers’ working
capital requirements through various Shariah compliant modes of financing
such as Murabaha, Musharakah, Modaraba, Istisna and Salam .
Project Financing/Expansion/BMR Requirements:
Meezan Bank specializes in offering unique project financing solutions, which

have been developed using a wide array of product offerings, which include
Diminishing Musharakah, Ijarah, Modaraba, Istijrar, Murabaha and Istisna
forms of financing and derivatives thereof.
74
Export Refinance:
Meezan Bank enjoys a distinction vis-à-vis its competitors, as it is the only

Bank in Pakistan to offer a Shariah compliant “Islamic Export Refinance
Scheme (IERS)” approved by the State Bank of
Pakistan (SBP). The scheme has been developed by the product development
team of Meezan Bank in close coordination with SBP keeping in view the
unique needs and requirements of exporters. The scheme is available in both
Part-I and Part-II as per the original Export Refinance Scheme (ERF) of SBP.
Trade Related Services:

The Bank offers a complete range of trade products to its customers including
Sight/Usance Letters of Credit, Letters of Guarantee, Export bill collection,
Export bill purchase etc. These products are based on various modes of Islamic
finance and have been designed to suit the need of the customers.
CORPORATE ADVANCE & ADVISORY
The unit also provides a range of Advisory services integrating industry,

product and regional specialization to help businesses address their strategic
issues and formulate and execute dynamic business strategies. In a short span of
time the unit has been able to develop core specialization in Privatization
Mandates, Mergers and Acquisition, buy-side/sell-side advisory, financial
restructuring and related fields.
The unit counsels its clients on the most advantageous a transaction structures
and tactics available and creates new structures to get difficult or complicated
M&A deals done.
Whether advising on a multi-billion-rupee M&A transaction or origination and

marketing & distribution of primary market ransactions, the Corporate Finance
75
Department brings superior innovation, experience and capabilities to each of

our clients.
CASH DEPARTMENT
The cash department is the most important department of the bank. It receives
cash from customers and then deposits it into the accounts of the customers
and maintained their balances.
In cash department following books are maintained.
 Scroll book
 Paying book
 Cash balance book
SCROLL BOOK
When cash is received at the customer it is recorded in the scroll book.
PAYING CASH BOOK
The cashier makes entry in the paying cashbook when cash is paid.
CASH BALANCE BOOK
The consolidated figure of receipt and payment of cash is entered in cash

balance book.
76
WORK DONE BY ME
9
I joined the Meezan Bnak Limited Gulberg Branch Lahore, and reported the
manager of the bank. He said Welcome words and said me to report second
officer. Then, I went to Miss Samar she is very nice lady. She offered me a cup
of tea and in the mean time she gave me a brief introduction about the various
departments of the bank. After this in her giddiness I met all the staff member
they welcomed me in their bank.
I this report, my endeavor has been to stipulate my experiences and

observations, during my internship in MEEZAN BANK LIMITED Gulberg
Branch Lahore, Which would always be memorable for me.
INTER BRANCH ACCOUNTS
Like other successful commercial banks, MBL has a network of branches all
over the country. These branches in different cities are interlinked with each
other through their correspondent accounts in other branches.
In case, there are more than one branch of a bank in the city the main branch
deals with other city branches through their correspondent accounts.Similarilr,
in one city, all branches of a bank have their corresponding accounts with each
other.
So, all payments from one branch to another branch (in the same city or
another) are made by debiting and crediting these inter-branch accounts.
77
INTER BANK ACCOUNT
Like inter-branch accounts of a bank, different banks have correspondent

accounts with each other. Main branches of banks
in a city maintain these inter-bank accounts .So; money is transferred from one
branch to another bank’s branch through these inter-banks and inter-branch
accounts.
CUSTOMER SERVICES
I start my internship in Customer Services Department. I spent two weeks of
my internship in that department Mr. Kamran in charge of the department
Welcomed me in his department.
I do work under the supervision of Miss Samar.All other department members
are also prove a helping hand for me & I learned a lot with in a short duration
of time.
Account opening and closing is the function of customer services deptt.the

bank’s customers includes individuals (single or joint), firm
(partnership/proprietorship), Autonomous corporations, Limited companies,
Charitable Institutions, associations, Educational Institutions or local bodies.
MBL accounts
 Current account
 Saving Account
 Foreign Currency Account
Brief Explanation of these accounts is as follows
78
CURRENT ACCOUNT
Current account is basically used to meet the daily transactions. The money
kept in current account is in the form of CARZE HASNA gives the advantage
for paying debts by the convenient and safe means of sending cheques through
the post thus avoiding the trouble and loss.
SAVING ACCOUNT
Mini deposit:::::::::::::::::::::::::::::::::::::Rs.10,000/- only
invested in a pool that consists of Ijarah and Murabaha financing. The profit
earn on this pool is calculated every month, and if you maintain a minimum
average monthly balance of Rs.10, 000/- you shall be eligible to receive profits
that will be disbursed to you every month. But if u’r balance is less then 10000
then u get no profit or no penalty is charges to u. there is no fixed profit b/c
every month new rate declared.
Profit Calculation
Rs. 10,000 up to Rs. 9,999,999

Rs. 10,000,000 up to Rs. 49,999,999
Rs. 50,000,000 up to Rs. 99,999,999
Rs. 100,000,000 and above
FOREIGN CURRENCY ACCOUNT
Mini deposit:::::::::::::::::::::$100 under Mudarba arrangement.
The return earn on the Mudarba pool is calculated every month and profit ratio
is declared for all investors is declared at the beginning of the month.
79
If you maintain a minimum average monthly balance of $500, you shall be

eligible to receive profits that will be disbursed to you every month.
BASIC OF ACCOUNT OPENING
The next week of my internship was to open new accounts. The opening of an
account is the establishment of banker customer relationship.
Following are the steps involved in the opening of new account.
INTRODUCTION AND PRELIMINARY INVESTIGATION
GENERAL INFORMATION ABOUT ACCOUNT OPENING
Account opening is the basic and first relationship, which is established

between Bank and the customer. In account opening extreme care has to be
exercised in case of completion of account opening documentation.
Whenever a client comes in the bank in order to open an account the first
information that is given to him/her about the types of accounts, which can be
opened, so far this purpose the client is given detailed information about the
accounts and their respective profit rates.
TYPE OF ACCOUNTS OPENED
INDIVIDUAL ACCOUNTS
80
These accounts can be opened in any one of the schemes
 CURRENT
 PLS/SAVING
 TERM DEPOSIT
 RIBA FREE
At the death of an individual account holder the account is flagged as

“deceased account”. The credit balance is not paid to anyone unless the
bank receives the court order.
IMPORTANT DOCUMENTS REQUIRED
MINOR ACCOUNT
 Bay form and copy of passport minor
 National Identity card of Guardian
 Signature requirement of guardian
 Title as follows “ABC (M) DEF (G)
JOINT ACCOUNTS
As evident from the name these accounts can be jointly opened by any number
of persons. The minimum number of persons required to open a joint account
is two but there is no maximum limit.
 National Identity card of all Applicants.
 Signature of all Applicants.
 Zakat Affidavit of all Applicants (In case of zakat Examption).
 Operation of account clearly mentioned.
 The options available to operate the account are:
o Jointly
o Either or Survivor
o Other(s)(Please specify)
81
INDIVIDUAL ACCOUNT
 Copy of national identity card

 Complete account opening form
 Letter of introduction if required
 Visiting Card (if the person is employed)
CLUB /SOCIETY/ASSOCIATION
 Certified copy of resolution

 Certified copy of rules
 Copies of National Identity cards of all directors/passports

 Completed account opening form
 Specimen Signature Card
TRUSTS ACCOUNTS
 Completed account opening form

 Specimen Signature Card
 Certified copy of trust deed
 Copy of rules/by laws
 Copies of National Identity cards of all trustees
82
CORPORATE ACCOUNTS
1.ACCOUNTS OF SOLE PROPRIETOR
These accounts can also be opened in any one of the schemes mentioned
before.
 Declaration Letter
 Copy of NIC/Passport of the proprietor
 National Tax Certificate
 Declaration of Sole Proprietor on company letterhead
 Business registration Certificate
 Specimen Signature Cards and completed account op
2.ACCOUNT OF PARTNARSHIP
These accounts can also be opened in any one of the schemes.
 Partnership Deed, certified copy.

 Photocopies of NIC of all partners.
 Partnership Mandate(Prescribed Format).
3.ACCOUNT OF LIMITED COMPANIES
A lot of documentation is required in case of these accounts.
83
 List of Directors of company.

 NIC of all Directors.
 Copy of certificate of Incorporation.
 Memorandum of Association.
 Article of Association.
 Copy of Board Resolution.
 Latest Copy of Form-29
 Stamp of Company, which is to be affixed on the account opening
form.
 Certificate of Commencement of Business
ACCOUNTS OF LITERATE
Features
 These accounts can be opened individually or jointly.

 For men, the right hand thumb impression and for women, the left hand
thumb impression is taken on account opening form.
 The customer is given advice to come to bank himself in order to
withdraw any cash or deposit the cheque.
 Photocopy of NIC of Account Holder.

 Two-three passport size photographs.
ACCOUNTS OF MINORS
Features
 The name of guardian is written in Title of Account.

 The account can be in any one of the schemes.
84
 Signatures of the guardian are always used to perform any transaction.
 Birth Certificate of minor.

 Photocopy of NIC of guardian.
THINGS TO BE CONSIDERED BEFORE OPENING AN

ACCOUNT
 Verification of the customers’ credentials.

 The suitability of the prospective customer.
 The proposed relationship should be violate:
o Any of the local laws.
o State Bank’s rules and regulations.
o The Bank’s own policy.
 The prospective profitability of the relationship.
IMPORTANT POLICIES REGARDING ACCOUNT

OPENING
 Some of the important policies of bank that has to be considered before

opening an account are as follows:
 Identification and screening of customer.
 Completion of all relevant columns of account opening form.
 Ascertaining the genuineness of credentials furnished by customer.
 Proper completion of documentation.
 Verify the genuineness of introduction.
 Account should be opened after seeing the originals documents like
o NIC
85
o Passport
o Partnership Deed, etc.
FUNCTIONS PERFORMED IN CUSTOMER SERVICES/
ACCOUNT OPENING DEPARTMENT
 ACCOUNT OPENING
 ACCOUNT CLOSING
 GENERAL CLIENT DEALING
 LOCKER OPENING
INFORMATION TO BE FILLED IN ACCOUNT OPENING
FORM
 Type of account
 Title of account
 Personal Information of Applicant
I. Name
II. Father’ Name
III. Mother’s Maiden Nam
IV. Occupation
V. Employer
VI. Job Title
VII. Address of employer
VIII. Nationality
IX. Country of Residence
X. NIC
XI. N.T.N. number
XII. Passport number
XIII. Date & Place of Issue
XIV. Residential Address
86
XV. Correspondence Add.

XVI. Hold Mail Instruction (Either Yes or No)
XVII. E-Mail Address
XVIII. Fax No.
XIX. Telephone No.
a. Next of Kin
b. Corporate Account
c. Type of Entity/Organization
d. Nature of Account
e. Currency of Account
f. Zakat Deduction
g. Signature Requirement
h. Details of other Bank Account
i. Introduced By (most important part in account opening process
without which no account can be opened.)
INTRODUCER CAN BE
 Anyone from the staff members.

 A well reputed customer of the Bank.
 Another well reputed Bank.
 Customer employer, if he/she is of good repute.
PROCEDURES FOR ACCOUNT OPENING
First of all, after inquiring from the customer what type of account he/she
wants to open, the account opening form is got
filled from the customer and signed it. Along with the account opening form,
the customer is also signed two Specimen Signatures Cards.
After fulfilling all the formalities of account opening, the computer generated
account number is given to the customer that is of special series depending on
the type of account.
87
DIFFERENT SERIES OF ACCOUNT NUMBERS
Sr. No. ACCOUNT TYPE SERIES

1 SAVING/PLS 0085
2 CURRENT 0081
3 MARK UP 0666
REQUISITION SLIP
A requisition slip is given to the customer to sign it so that the customer can
get chequebook.
Chequebook is issued after one-two days of receiving the requisition slip.
LETTER OF THANKS
After opening the account “A Letter Of Thanks” is send to the customer in

order to thank the customer for opening an account in the Bank. This letter
tells all the information regarding his/her account, which are kept very
confidential.
ACCOUNT OPENING REGISTER
After an account is opened, an entry is made in the account opening register,

which has the following columns:
 Date
 Account Number
 Name & Address
 Telephone Number
 Initial Deposit
Customer Services /Relation Officer enters the new account opened in

computer and the Specimen signature Cards are also
88
scanned so that whenever a cheque of the respective account comes for

encashment, the signatures can be verified.
CAR IJARAH PAKISTAN’S FIRST ISLAMIC
CAR FINANCING SCHEME

After working two weeks in Customer Service department, I was moved on to
the Car ijarah.
"CAR IJARAH"
Car Ijarah is Pakistan's first "Interest Free" car-financing scheme

based on Islamic financing mode of Ijarah or Islamic leasing. This
product is ideal for interest averse individuals, looking for a car
financing scheme that provides the convenience of a well designed
product while avoiding an interest based transaction.
Car Ijarah is simply a rental agreement under which the
car will be given to the customer on rent for a period, agreed at the time of the
contract. Meezan Bank purchases the car and rents it out to the customer for a
period of 3, 4 or 5 years.
WHAT MAKE CAR IJARAH UNIQUE
 First Islamic Car Financing Scheme (Approved by Meezan Bank’s

Shariah Board)
 Free from Interest/Riba
 It is not a Hire-Purchase agreement
KEY FEATURES OF CAR IJARAH
 No applying fee
 Ease of acquiring any new locally assembled car
89
 No upfront Insurance Payment

 No advance Rental
 Available in tenures of 3, 4 and 5 years
 As little as 20% security deposit
RENTAL CALCULATIONS
To calculate the monthly rentals simply multiply the cost of the car
with the rental factors given in the table below;
Rental Calculation **
Security Deposit 3 years 4 years 5 years
20% 0.023837 0.020854

0.028994
25% 0.027386 0.022544 0.019741
30% 0.025779 0.021252 0.018629
35% 0.024171 0.019960 0.017517
40% 0.022564 0.018667 0.016405
45% 0.020956 0.017375 0.015293
50% 0.019349 0.016083 0.014180
* No separate Insurance will be charged
Eligibility Criteria
You can enjoy the benefits of Car Ijarah if you:
 Are a salaried individual/ self-employed professional/businessman

 Have a net take home income exceeding three times your monthly
installment
90
 Have 3 years working/professional /business experience

 Are working with your present employer for at least 6 months (for salaried
individuals)
DOCUMENTATION REQUIRED FOR CAR IJARAH
It is very easy to apply for Car Ijarah, just bring the following documents.
INDIVIDUALS/SELFEMPLOYED/PROFESSIONALS/
BUSINESSMEN
 Copy of NIC
 Two recent passport sized photo
 Recent Utility Bill (Electric/Gas/Water) received at the residential

address graphs
 Last Six Month Bank Statement
 Last Six Month Bank Statement of Business (for Businessmen)

Certified/Original copy of Recent Pay slip (for Salaried Individuals)
 Copy of Rent Agreement (if applicable)
PROCEDURE
Simple! All you need to do is fill out a customer application form, attach the
required documents mentioned in the form and get your financing approved in
a 1-2 working days. To experience the comfort of personalized services just
visit your nearest Meezan Bank Branch.
91
TRADE FINANCE
After working Car Ijarah I was moved on to the Trade Finance

Department.Mr.Farhan Zaidi, Incharge Trade Finance, not welcomed me in
open arms. But he has a very nice and cooperative person and has complete
knowledge about trade finance. I am lucky to do work under supervision of Mr.
Farhan because no one intern is allowed to work in that department.
DEFINITION
“Trade finance means that trade which returns we get finance”.
TWO MAIN POINTS
 Imports
 Exports
IMPORTS
 Letter of credit
 Registered contract
 Advance Payments
EXPORTS
 Export Negotiation
 Collection
 Advance Payments
92
LETTER OF CREDIT
Letter of credit is very useful instrument in facilitating commercial relations

b/w businessman at various places.
A letter of credit is a financial instrument issued by a bank on behalf of one of
its customers, which authorizes an individual or a business firm to which it is
addressed to draw draft on the bank for its account under certain conditions as
set forth in the document.
DEFINITION
“The letter of credit is a written instrument issued by the buyers bank

authorizing the seller to draw in accordance with certain terms & conditions”.
Or
“The letter of credit is commitment on the part of the buyers bank to pay or
accept drafts drawn upon it provided such drafts do not exceed a specified
amount”.
Or
“The essence of this letter is that the person taking bills on the faith of it is to
have the absolute benefit of the undertaking in the letter, and to have it in
order to obtain the acceptance of the bills, which r negotiable instruments
payable according to their tenor, without reference to any collateral or cross
claims”.
Letter of credit state the limit of the credit and the time during which it is held
at the disposal of the grantee, but they are
neither negotiable nor transferable. Letter of credit also known as

DOCUMENTRY CREDIT.
93
PROCESS BEFORE OPENING OF LC
 LC AGAINST SECURITY
A.LAND & BUILDING
 Equitable mortgage
 Registered Mortgage
B. PLANT & MACHINERY
 Hypothecation & current assets of the co.,

 1st charge
 2nd charge
 So on

LAND & BUILDING
It’s the security of LC against land & building.
EQUITABLE MORTGAGE
It’s the agreement b/w bank & party that in case of default the letter party have
the right to sell the property & recover his money.
REGISTERED MORTGAGE
If equitable mortgage is registered by the registrar of the companies its

registered mortgage.
PLANT & MACHINARY
94
It’s the security of LC against plant & machinery
HYPOTHECATION & CURRENT ASSETS OF THE CO.,
Firstly one customer comes to bank and ask for opening of LC. Then bank
evaluate its assets land & building plant & machinery plant & machinery or
Balance sheet analysis for security purpose. The corporate deptt of bank do this
work. After evaluation all documents are prepared. Then all documents send to
the customer for signsatures.then further procedure of LC is done.
1 ST PARI PASSU CHARGE
Means if customer comes to bank & request to open LC against securities or

same as go to another bank to open an LC. Then 1 st bank allows to another
bank then its 1st pari passu charge or in case of default all the assets, stocks or
receivables are divided equally b/w two banks
2 nd CHARGE
In 2nd charge more then two banks are involve. In case of default 1 st bank firstly
recover all his money then 2nd & 3rd bank divided banks assets equally.
Same as 3rd 4th or so on pari passu charges.
NOTE
But mostly all blue chip banks do only 1st parri passu charge.
LIMIT
When customer says that open an LC of 50 thousand. The bank says no we

only open an LC of 25000.then customer or bank agrees in one rate its called
limit.
95
TYPES OF LETTER OF CREDIT
 REVOCABLE LC
 IRREVOCABLE LC
REVOCABLE LC
The issuing bank reserves the right to cancel the LC at any time and the bank
will be under no obligation to give a notice of cancellation to the beneficiary.
IRREVOCABLE LC
The bank alone cannot cancel credit, and it will have to run its full course; but
it can be cancelled if the beneficiary agrees to such cancellation .
PARTIES OF LC
 A customer, buyer, importer

 Importer issuing applicant bank
 Seller exporter beneficiary
 Exporter bank
TYPES OF SHIPMENT
 Part shipment
 Transshipment
MODE OF PAYMENT OF LC
 Sight LC
96
 Usance LC
EXPORT
EXPORT NEGOTIATION
It’s simply the purchase of documents. Negotiation means the giving of value
for draft or documents by the bank authorized to negotiate. Mere examination
of the documents without giving of value does not constitute a negotiation.
COLLECTION
Collection means the handling of documents by the bank in accordance with

instructions given by the exporter .the exporter after having shipped the goods
to the required port (normally the buyer country) Furnishes the export
documents to his bank.
These documents are broadly categorized into 2 types.
 Financial documents
 Commercial documents
FINANCIAL DOCUMENTS
Bill of exchange, promissory note, in international trade use of promissory note

is restricted.
COMMERCIAL DOCUMENTS
Means invoices, transport documents, documents of title of goods or any

document that whatsoever not being financial documents. Some of such
documents are :
 Commercial invoice, Performa invoice
97
 Packing list
 Bill of lading, airway Bill Sea way bill (transport documents)
 Certificate of origin
 Documents of title of goods
ADVANCE PAYMENT
In this method of settlement of payment, the buyer pays 4 the goods to be
purchased in advance. This method facilitates the exporter to go ahead with
out any difficulty where there is a
Paucity of funds. This method is best-suited 4 the exporter but highly risky 4
the importer b/c the exporter may default in delivery .the buyer agrees 4 it in
cases where he has utmost faith in the exporter.
98
99
Corporate Banking & Corporate Finance
The Corporate Banking Department is geared towards providing comprehensive and

innovative financial solutions to the bank’s client base through a diverse product
offering. The focus is on nurturing and developing a long-term relationship with
clients by understanding their unique financing requirements and providing Shariah
compliant financing solutions. The Bank offers following products and services to its
customers:
Corporate Banking
The unit tailors solutions for a broad array of financing needs, both short and long
term, and has experience of working closely with customers who are seeking
innovative Shariah compliant solutions for such needs.
 Working Capital Requirements

The Bank offers a wide range of products to meet the customers’ working
capital requirements through various Shariah compliant modes of financing
such as Murabaha, Musharakah, Modaraba, Istisna and Salam
Here is brief description of the Islamic modes which are frequently in use in
MEEZAN BANK LIMITED.
Mudaraba / Mudarabah
The term refers to a form of business contract in which one party brings capital and
the other personal effort. The proportionate share in profit is determined by mutual
agreement. But the loss, if any, is borne only by the owner of the capital, in which
case the entrepreneur gets nothing for his labor. The financier is known as "rab-al-
maal" and the entrepreneur as "mudarib". As a financing technique adopted by Islamic
banks, it is a contract in which all the capital is provided by the Islamic bank while
the business is managed by the other party. The profit is shared in pre-agreed ratios,
and loss, if any, unless caused by negligence or violation of terms of the contract by
the "mudarib" is borne by the Islamic bank. The bank passes on this loss to the
depositors.
100
Murabaha
Sale on profit; cost plus profit, sale at stated cost price and mark-up, sale at a specified
profit margin. The term is, however, now used to refer to a sale agreement whereby
the seller purchases the goods desired by the buyer and sells them at an agreed
marked-up price, the payment being settled within an agreed time frame, either in
installments or lump sum. The seller undertakes all the management needed for the
purchase and also bears the risk for the goods until they have been delivered to the
buyer. See also bay' al-mu'ajjal. This has been adopted as a mode of financing by a
number of Islamic banks. As a financing technique, it involves a request by the client
to the bank to purchase a certain item for him. The bank does that for a definite profit
over the cost which is settled in advance. Some people have questioned the legality of
this financing technique because of its similarity to Riba or interest.
Salam
Salam is sale whereby the seller undertakes to supply some specific goods to the buyer
at a future date in exchange of an advanced fully paid at spot. Here the price is in cash
but the purchased goods is deferred.
Istisna
Istisna is the second kind of sale where a commodity is transacted before it comes into
existence. It means to order a manufacturer a specific commodity for the purchaser. If
the manufacturer undertakes to manufacture the goods for him with material from
the manufacturer, the transaction of istisna comes into existence, but for the validity
of istisna it is important that the price of the commodity is fixed.
Ijara/ Ijarah
Letting on lease. Technically: sale of a definite usufruct in exchange for a definite

reward. Commonly used for wages, it also refers to a contract of land lease at a fixed
rent payable in cash. It is contrary to "Muzarah" when rent is fixed as a certain
percentage of the produce of land. It also refers to a mode of financing adopted by
Islamic banks. It is an arrangement under which an Islamic bank leases equipment, a
building or other facility to a client against an agreed rental. The rent is so fixed that
the bank gets back its original investment plus a profit on it.
101
 P roject Financing/Expansion/BMR Requirements
Meezan Bank specializes in offering unique project financing solutions, which

have been developed using a wide array of product offerings, which include
Diminishing Musharakah, Ijarah, Modaraba, Istijrar, Murabaha and Istisna
forms of financing and derivatives thereof.
 Export Refinance:
Meezan Bank enjoys a distinction vis-à-vis its competitors, as it is the only

Bank in Pakistan to offer a Shariah compliant “Islamic Export Refinance
Scheme (IERS)” approved by the State Bank of Pakistan (SBP). The scheme has
been developed by the product development team of Meezan Bank in close
coordination with SBP keeping in view the unique needs and requirements of
exporters. The scheme is available in both Part-I and Part-II as per the original
Export Refinance Scheme (ERF) of SBP.
 Trade Related Services:
The Bank offers a complete range of trade products to its customers including
Sight/Usance Letters of Credit, Letters of Guarantee, Export bill collection,
Export bill purchase etc. These products are based on various modes of Islamic
Finance and have been designed to suit the needs of the customers.
Corporate Finance & Advisory
The unit also provides a range of Advisory services integrating industry, product and
regional specialization to help businesses address their strategic issues and formulate
and execute dynamic business strategies. In a short span of time the unit has been able
to develop core specialization in Privatization Mandates, Mergers and Acquisition,
buy-side/sell-side advisory, financial restructuring and related fields.
The unit counsels its clients on the most advantageous a transaction structures and
tactics available and creates new structures to get difficult or complicated M&A deals
done.
102
Whether advising on a multi-billion rupee M&A transaction or origination and

marketing & distribution of primary market transactions, the Corporate Finance
Department brings superior innovation, experience and capabilities to each of its
clients.
PRINCIPLES OF FINANCING
Five basic financing principles are followed by MEEZAN BANK LIMITED
 Safety:
Banker’s funds are comprised of money, which is mainly borrowed from numerous
customers on various accounts. This shows that whatever money the banker holds
belongs to his customers, who trust the banker with it only because they have full
confidence in the expert handling of their money by the bankers.
 Character of person:
 It is the most important factor in determining the safety of advance,

for there is no substitute for character. Borrowers character can indicate his
intension to repay the advance, since his honesty and integrity is of primary
importance.
 If the past record of the borrower shows that his integrity has been
questionable the banker should avoid him, especially when he offers security is
inadequately covering the full amount of advance.
 Good habits, personality, the ability and willingness to carry out a
project through from beginning to end, and the reputation of the people with whom
he deals, will go to make the character of the customer.
 I t is obligatory on the banker to ensure that his borrower is a person
of character, and has enough capacity to repay the money, including the interest.
 This can be judged from the following:
1) Past record
2) Experience in that particular industry
3) Amount of capital invested by the customer
103
 Capacity for repayment of loan:
This is the management ability factor, which tells us how successful a business has
been in the past, and what are the future possibilities.
He may not have vast financial resources but with some management abilities
including the inside into a specific business, he may make his business very
profitable.
On the other hand if a person who has no insight into the particular business for
which he wants to borrow funds from the banker, there are more chances of loss to
the banker.
 Capital:
The role of the bank is to provide short-term capital for commerce and industry, yet
some borrowers would insist that their bankers provide most of the capital required
by them. This makes the banker a partner. But the banker must consider the fact that
whether the amount requested is reasonable against borrowers own investment or
resources.
 Liquidity of securities against loan & financing :
Liquidity means the possibility of recovering the advances in emergency, because all
the money borrowed by the customer is repayable in lump sum on demand.
Generally the borrowers repay their advances steadily and the funds therefore
released can be used to allow fresh loans to the other customers.
Nevertheless the banker must ensure that the money he is lending is not blocked for
a longer period of time and also the fact that a borrower should be able to repay the
amount outstanding against them on short notice.
In such a situation, it is very important for a banker to study his borrowers’ assets to
liquidity, because he would prefer to lend only for a short period in order to meet the
short falls in the working capital.
104
 MBL CREDIT POLICY:
 Safety = nature and extent of risk

 Liquidity = maturities
 Profitability= spreads and profit margins.
 BASIC REQUIREMENTS OF CREDIT ADVANCES:
 Belief on the person.

 Good repute of client.
 Trust in a person’s ability and intention to pay back at a later time for
goods and services supplied.
105
106
Credit process of MEEZAN BANK is as follows:
1. Credit Marketing
2. Credit Analysis
3. Credit Proposal Processing
4. Credit Proposal Evaluation and Decision
5. Credit Administration
i. Completion of documents
ii. Credit monitoring
iii. Dealing with non performing accounts
107
Credit line proposal processing

documentation
STEP 1
REQUEST LETTER
The Manager
MEEZAN BANK Ltd
XXXXXXXXXX Branch
City XXXXXX
Date: XXXXX
Dear Sir,
REQUEST FOR CREDIT LIMIT OF RS = XXXXX
FOR XYZ REASON:
This is to request you to -------------------------
Thanks & Regards
Mr. XXXXXXX
Address House no XXXX
108
X-Block, X housing authority, Lahore
STEP II
Date: [ ]
LIMIT TYPE: NEW/RENEWAL
EXPIRY:[date]
CREDIT APPROVAL
FOR FUNDED/UNFUNDED FACILITIES TO
Company name
INTRODUCTION
Introduction to Company, group overview, nature of business,

commencement of operations, location of facility(ies), legal status, stock
exchanges etc.
EXISTING RELATIONSHIP & ACCOUNT PERFORMANCE
Discuss the existing relationship and performance of account with MBL in

terms of: Levels of Limits, Utilization of Limit, Account Performance, Account
Profitability, Funded/Non-funded Business etc.
PROPOSED LIMITS
The current proposal is being put forward to the

management to seek a RENEWAL/NEW LIMIT for ABC.
Funded Existing New
Istijrar
UnFunded Existing New

L/C’s (Usance and or
Sight)
Guarantees
Forward Cover
The funded Facility is Valid for upto [Insert date] or for [Insert time Period]
109
years from the date of first drawdown. The non-funded facilities are valid till
[ insert date ]
Note: MBL’s per party exposure (30% of its unimpaired capital and
reserves) as at xx-xx-20xx is Rs mm and that the proposed limits are within
the exposure. Furthermore, MBL’s per group exposure as at xxx is Rs xxmm
and that the overall exposure to the group is within the allowable limit.
Give reasons/justification for your recommendation i.e. for enhancement /

reduction in limits
TERMS AND CONDITIONS
Funded
Facility type Master Murabaha
Facility amount
Purpose
Profit Rate
Facility Tenor
Sub Murabaha Tenor
Payment of Murabaha
Cost component
Payment of Murabaha
Profit component
Security
Non-Funded
Facility Type Letters of Credit Facility (Usance and or Sight)
Purpose
Facility Amount
Security [Preferably for both sight and usance. However, usance line must
be secured as a policy and exception could only be allowed after
COO/CEO approval.]
Facility Service Charges [PKR Equivalent]
Facility Expiry
Facility Type Guarantees
Purpose
Facility Amount
Facility Service Charges [PKR Equivalent]
110
Facility Expiry
Security
111
SPONSORS/GROUP PROFILE
Sponsors/group background, overview, brief financials, associated
companies etc. It is highly recommended that two worksheets providing
consolidated key group financials (B/S as well as I/S items) and
summarizing MBL’s exposure (funded & nonfunded) to the entire group are
attached as annexure to the memo.
COMPANY PROFILE
The section must cover the following areas of business/operations in
detail:
Raw material & supplier info (reliance on suppliers, alternative sources of

raw material, terms of credit offered etc)
Technical information on Plant and equipment, Capacity utilization, recent
BMR, new technology, ISO certification etc
Products and Product break up (market share w.r.t competitive products)
Pricing and credit terms of Product
Distribution, Selling/ Marketing strategy
Financial Strategy
Buyers Info. (names of major buyers with their share of total sales)
Ownership & Board of Directors:
Board of Directors and ownership structure
Shareholders Percentage
shares held
Total 100.00
Must clearly mention the shareholding owned directly by the sponsors
and/or through other group companies.
Management Overview and Strategy:

Discuss the Key Management along with experience and competence of key
managers. Brief overview of the management business strategy etc.
112
Recent Operational Performance Overview:

Discuss the recent operational performance of the company – in terms of
production and sales, marketing, etc
FINANCIAL REVIEW (AUDITED RESULTS UPTO JUNE 30, SEPT 30, DEC 31, 200X)
The following table illustrates selective financial highlights of the company

over the past three years (atleast)
Insert Table (last 3 years key financials(audited) as well as latest

available un-audited numbers)
Financial review of the company is discussed in terms of profitability,

leverage, efficiency, liquidity and activity as follows:
Profitability (Discuss Income Statement, Net Sales, Gross Margins, Operating

Margins etc)
Leverage (Discuss Leveraging, debt financing, short term and long term
finances, purpose of such financing – inventory financing/BMR etc.)
Operating Efficiency Ratios (Discuss Inventory Turnover, Days receivable,

Days Payable, Operating Cycle Days, asset turnover etc)
Liquidity and Cashflow (Current Ratio, Net Operating Cash Flow, EBIDA, Net
working Capital)
Projections and Debt Capacity Calculations (Mandatory for Long Term

Financing requests of tenors over 3 years)
The section should also discuss the most recent financials available – (management accounts, un-
audited accounts, projections etc).
Note: The commentary on the financial performance must explain the underlying reasons for any
changes in margins, ratios, increase/decrease etc. For example, a statement only stating that the
gross margin improved from x% to y% is not acceptable. The fact must be supported by reasons
for such change.
113
FINANCIAL ARRANGEMENTS
Short Term Finances:
Short-term finance and security (facility Type, rate, security)
Redeemable Capital and Long Term Finance Facilities:
Long-term finance and security (facility Type, rate, security)
INDUSTRY & MARKET
In case if the industry section is lengthy (say over 2 pages), the same may be attached as annexure
and an industry report synopsis may be provided (here) in the credit memo.
Global Industry overview
 Key Industry dynamics

 Demand-Supply Stats
 Key Players
 Growth estimates and future outlook
Industry Overview in Pakistan
 Demand Supply Stats

 Growth estimates
 Structure of Industry: Raw Material, Suppliers Key Players and market share
 Domestic Market Dynamics (Bargaining Power of Buyers, Bargaining Power of
Suppliers, Threat of Competition, Threat of Potential Entrants, Product
Substitutes)
 Critical Success Factors – Regulatory Framework, Taxation, Laws etc
 Future outlook
Assessment of Business Risks and their Mitigants:
Raw material & supplier (reliance on suppliers, alternative sources of raw

material, terms of credit offered etc)
Technology, Capacity utilization, certification etc
Market share w.r.t competitive products, Demand / Supply dynamics
Pricing. Reliance on few large buyers
Distribution, Selling/ Marketing strategy
114
Duty/tax structure
Succession risk
CREDIT CHECK/MARKET CHECK (FROM OTHER FINANCIAL INSTITUTIONS, CUSTOMERS,
INDUSTRY SOURCES/EXPERTS ETC.)
[Atleast two references must be obtained and filed in the credit file. Any
credit reference being reported must include the name & contact no. of the
person. For any new relationship with a private limited, partnership or
proprietorship, a credit report from D&B is recommended.]
Any facility(ies) rescheduling done with any FI over the last 5 years must be
mentioned in this section along with relevant details.
COMPLIANCE WITH PRUDENTIAL REGULATIONS [NEW PR] AND AUDIT

As per the audited Accounts Required Actual
dated xxxx
CIB REPORT
[Must be requested at the time of initiating the credit proposal and should be part of the package
to be submitted for management’s approval]
If credit is being recommended despite overdues reported in the CIB, the same must be justified.
SEARCH REPORT
Discuss findings of Search Report
[Disbursement will be subject to clear CIB and satisfactory search report.]
115
RECOMMENDATION
It is recommended that Meezanbank may renew the facilities at current/enhanced levels as below
on the basis of following strengths:
 Strength 1
 Strength 2
 Strength 3
Funded New
stijrar Rs 100 Mn
UnFunded New
L/C’s (Usance and or Rs 100 Mn
Sight)
Guarantees Rs 40 Mn
Prepared by Reviewed By
___________________
116
APPROVAL SHEET–GRADING OF RISK
To: Date:
Office: Our Ref:
From Your
Ref:
CLIENT: GROUP:
Total Limits (Rs. in Fund Based (Rs. in ‘000) Non-Fund Based (Rs. in ‘000)
‘000)
Financial Statements obtained for the period ending xxxxx 2004
Audited / Un-audited
Qualified / Un-qualified
Branch observations :
Symptoms/Weaknesses identified`:
Branch Recommendations:
Previous (if applicable)
New
Grade:
Risk Index Level (RIL):
Condition:
Trend (Financials):
Lowest Grading Assigned to any Group Account:
Judgmental Risk Assessment:
Justification for Judgmental Risk Assessment:
BCC Chairman BCC Member BCC Member

BCC Member
Area Office Recommendations:

For Head Office Use:
Final Assessment:
Justification for Judgmental Risk Assessment (if different from the Branch & Area Office
Recommendations:
Further Action Required: Recommendations:
117
Signature:
COMPOSITE CREDIT APPRAISAL
Branch Date
Ref no. CLP Review Date
Client Customer Identification Code
Group Group Code -
Sector
Business Segment
3
Section–A (Weight age Tick  appropriate box
40%) Strong Fair
Business Information: Good Poor Score Out of
1- Ownership Governme MNC/ Public Partnership
structure nt Public Ltd. L Sole
ent (Listed) t Proprietorship
ity d
.
(
U
n
li
s
t
e
d
)
P
v
t.
L
t
d
.
Scores: 8 5 3 1 8
118
2- Sector/exposure Prime Less Risk

preference for Preferred Undesired
BAL (Target
Market) Branch
to decide on the
basis of economic
(operating)
environment,
industry
situation and
outlook, market
conditions recent
business failures.
Scores: 3 2 1 0 3
3- Position in the Top 10% Top 75% Insignificant/
industry Top 50% Unknown
Scores: 3 2 1 0 3
4- Market Good Acceptab Poor/
reputation Satisfactor l Unknown
y e
(Bank’s,
competitors,
buyers, &
suppliers.
Scores: 4 3 2 0 4
5- No. of years in 5 Years 1-2
business 3-4 Years Y Less than 1
e Year
a
r
s
Scores: 3 2 1 0 3
119
6- Management Have good Has Has No professional

Quality/Professio trai average a training and
nin training & v experience.
nal g& few years e
Qualifications: ma experience r
(Technical & ny in his line a
Commercial) yea of g
rs business. e
exp t
eri r
enc a
e/ i
exp n
ert i
in n
his g
lin &
e
of o
bus n
ine l
ss. y
t
h
e
o
r
e
ti
c
a
l
e
x
p
e
r
i
e
n
c
e
.
Scores: 3 1
2 0 3
7- Existing bankers Over 15 3 to 6
7 to 15 Up to 2
120
Scores: 3 1
2 0 3
8- Availability of Over Rs. Rs. 100 M Rs. 10 M Less than Rs.
financing 20 to Rs.199 t 10 M
0 M o
(Excluding BAL) M R
s.
9
9
M
Scores: 3 1
2 0 3
9- Instant Strong Fair
Repayment Good Limited
Ability
Scores: 5 1
3 0 5
10 Willingness to Offer all Partially
- provide inf On request a Resist
or v information
information ma a
tio il
n a
b
l
e
Scores: 5 2
3 0 5
Total
Section– B (Weight age Strong Fair
30%) Good Poor Score Out of
Financial Information:
1- Availability of 3 Years B/S 2 Years B/S 1Year B/S No
financials & & & Financials
P P P
& & &
L L L
Scores: 3 2 1 0 3
2- Evaluation: Debt 50:50 60:40 70:30 80:20
to Net Worth
Scores: 5 3 2 1 5
121
3- Working Capital Positive & Positive Positive & Negative

im dec
pro lini
vin ng
g
Scores: 5 3 1 0 5
4- Sales & Steady & Fluctuatio
Profitability abo ns,
ve but
trend (Sales, Ind at
Margins & . goo
Operating Cash ave d
Flows) rag lev
e. el
in
lin
e
Scores: 7 1
4 0 7
5- Payment Prompt Rescheduli
information on Occasional ng/ Default
delay Res
Long-term tru
Debts /. Short ctu
term finances rin
g
Scores: 10 3
7 0 10
Total 30
Section– C (Weight age Strong Good Fair Poor Score Out of

15%)
Other Information:
1- Compliance of Fully Minor Major Deviations
lending Co dev dev will not be
mp iati iati complied
stipulations and lie ons ons
covenants d but but
wil wil
l l
be be
co co
mp mp
lie lie
d d
122
Scores 2 1 0 0 2
2- SBP CIB Clean CIB Clean CIB Overdue Default
Scores 1 1 0 0 1
3- Dispute/Court None Dispute Under Suit Filed
Action/Litigation Exi liti by
sts gat Banks/Dec
ion reed
wit
h
ba
nks
Scores 2 1 0 0 2
4- Rescheduling / None Once But Twice but More than
Restructuring of no no two times
w w
Loans reg reg
ula ula
r r
Scores: 1 1 0 0 1
5- Group Account / Regular Substandard CIB Default
Associates Ov
erd
ue
Scores 1 0 0 0 1
6- Account Conduct Excellent Good (very Fair (some Needs
(import (no little foll improveme
foll follow-up ow nt
settlements, ow required) -up (extensive
export -up req follow up
realizations, req uir required)
mark-up uir ed)
payments, loan ed)
repayments,
submission of
stock reports,
renewal of
insurance policies
etc.)
Scores 8 5 2 0 8
Total 15
123
Section– D (Weight age Strong Good Fair Poor Score Out of

15%)
Collateral:
1- Security support Cash/near +Easily +Pledge of Ranking
(must be assessed cas rea sto Reg.
h liz cks Charge on
according to the col abl /1 st FA/CA,
stringent criteria lat e Re Un-reg.
that take into era sec g. Hypo.
account our past l, uri Hy Charge on
experiences with LG ty, po. Stocks &
& DF Sto Receivable
the realization of LC I cks s, PG,
such collateral s of Gt /Re Clean
for ees cei Facility
eig , vab
n Ma les,
ba rke Fix
nks tab ed
acc le Ass
ept sha ets,
abl res Re
e (C g. /
to DC EM
BA ) ove
L, r
Ba pro
nk per
Gt ties
ees
Scores: 15 12 5 0 15
Total 100
124
FACTOTS LEADING TO COMPOSITE CREDIT

APPRAISAL:
1. Grading of Account:
2. Risk Index Level:
3. Condition:
4. Trend (Financials):
Current Grading:
Regular Accounts Company’s Net Worth

Grade-1 (in Rs. M)
1A Over Rs. 500 M
1B 250 499
1C 100 249
1D 10 99
1E Up to Rs. 9 M
Note:
Even if the facilities are fully cash collateralized the account grade should be based purely on the above
criteria. Once an account becomes irregular or doubtful, its initial rating should not be considered. At
the time of upgrade, equity criteria should be applied again to ascertain its new placement (in other
words an account will lose its initial grading alphabet due to successive losses).
Grade 2 Accounts
WATCHLIST
Grade – 2A Where current audited financial statement are not available, or are more than 21
months old (if applicable 24 months) non-adherence of lending covenants, charge /
security documentation formalities are incomplete.
Grade – 2B Weak borrowers who indicate signs of deterioration such as worsening of financials
positions, e.g., operating losses, slide in ratios and liquidity etc., hardcore cash flow,
frequent requests for TOD/Excess over limit, delay in servicing of mark-up/principal,
forced loans under litigation with any bank.
Grade – Accounts experiencing prolonged irregularity under Grade 2 (Watch list) to be
3Accounts included in Grade 3 (Substandard) accounts.
SUBSTANDARD
Grade – 4 Accounts in which there is highly probability of some loss on the basis of
Accounts information available e.g. customer attains a negative net worth and the weakening
DOUBTFUL of security.
Grade – 5 Accounts for which no further recoveries can reasonably be expected i.e. debts for
Accounts which full provision has been made.
LOSS
Account Upgrade:
125
To formalize upgrading of an account reason for change of grade should be explained. Where
downgrading was initiated and effected by Head Office prior approval of H.O to upgrade the account
must be obtained.
Accounts graded 3, 4 and 5 should be upgraded only with prior approval of Head Office. However, the
concerned Branch Credit Committee must support with valid evidence, the proposed upgrading, before
it is presented to the Head Office.
While watch listing the account, the credit officer / Branch Credit Committee should determine the
period for monitoring the account under watch list. The reason for watch listing should be
documented and specific remedial actions should be recommended by Branch Credit Committee for
approval to Credit Division on the attached format (Annexure-A). Progress relating to remedial
strategy should be reviewed on quarterly basis by Area Office and Credit Division/ Credit Monitoring
Division.
When classification of a borrower is warranted under grade 3,4 & 5

accounts, categories “substandard/doubtful/loss” will be assigned
depending upon severity of the weakness, determined on the basis of
“time” and / or “event” related criteria. To assign the proper classification,
Credit officer / Branch Credit Committee must:
- Differentiate between symptoms and their causes.
- Assess the borrower’s ability to rectify the problems within a reasonable time frame.
- Consider the options available to improve its position as creditor.
Risk Index Level (RIL):
BAL Risk Index is based on a scale of 1 to 10, where 1 represents a lower and 10 a higher percentage of
observed Business Failures:
Total Score Risk Index

Level
100 1
90 2
80 3
70 4
60 5
50 6
40 7
30 8
20 9
10 10
126
Condition:
The condition of account will be categorized on aggregate score of
the borrower under following serial number of sections A, B & C.
Serial Section A Max Score Actual
Number Score
4 Market Reputation (Banks, Competitors, Buyers & Suppliers) 4
9 Instant Repayment Ability 5
10 Willingness to provide information 5
TOTAL 14
Section B
1 Availability of Financials 3
3 Working Capital 5
4 Sales & Profitability Trends 7
5 Payment information on long term debt / short term facilities 10
Total 25
Section C
1 Compliance of lending stipulations & covenants 2
2 SBP CIB Report 1
5 Group Accounts / Associates 1
6 Account conduct (Import settlement, export realizations, 8
markup payments etc)
Total 12
Based on above criteria conditions should be determined on
following parameters:
Aggregate score under above serial no’s in Section A, B, & C Condition
(12+20+8)=40
41 and above i.e. 60% to 79% Strong
31 to 41 i.e. 60% to 79% Good 
21 to 30 i.e. 41% to 59% Fair
20 and below i.e. 40% & less Poor
To qualify for categories Strong and Good, mentioned above customers borrowing relationship during
the last one year should have been satisfactory and all the lending stipulations and covenants have
been complied with. In addition to that, there must not be any default / hard-core over dues in the
customer accounts.
Moreover, in case of new relationship, such accounts should not be placed in the category of “Strong”
while recommending credit facilities for the first time.
127
Trend (Earnings Performance / Profitability Situation):
Strong Good Fair Poor
Sustainable income Fluctuations, but Balanced or negative Information either not

situation positive and income situation and available or more than
above the industry at good level but satisfactory equity; 18 months old. Negative
average: in line with income situation and
shortage of equity /
Cash flow comfortably
industry average: Cash flow covers assets.
covers obligations and obligations, it is not Cash flow does not cover
generates an above sufficient, however to current obligations
Cash flow comfortably
average return on allow equity to earn a
covers obligations and
equity and a financial return and create a
generates an average
cushion for the future. financial cushion for the
return on equity and
future
financial cushion for the
future
Special Events: (Critical legal information, change of management, mergers, legal

notices, winding-up orders, fire, large debts, changes within the subject’s
business etc.) NA
Adverse Listings: (Slow payments, bad debts, auditor’s observation etc.) NA
128
E LIGIBILITY S CORE S HEET
Applicant’s Name: xxxxxxxxxxxx Branch: xxxxxxxxxxxxxxxxxxxxxxxxx

Date: xxxxxxx
Ref: No.xxxxxxxxxxxxxx
More than 50% 25 points
40% or more 20 points
Equity 30% or more 15 points
20% or more 10 points
Monthly payment less than 20% of gross
15 point
monthly income
Monthly payment more than 20% but < 30% 10 points
Repayment Ability Monthly payment more than 40% or less (-5) points
Monthly payment more than 45% or less (-10) points
Monthly payment more than 50% or less (-20) points
Holds credit card for the last 2 years and or is
Credit History or has been a borrower of bank loan during the 10 points
last one year with no delayed payment history
Completely verifiable Income on our own 10 points
Income Verification Verifiable through authorized agency 5 points
Permanent employee of a corporate

10 points
organization for the last 2 years
Other salaried job 5 points
Profession Status Self employed with audited Balance Sheet 10 points
Self employed without audited Balance Sheet 5 points
Is member of employer’s pension scheme or
Investments has life insurance
5 points
Tax payer 5 points
Tax payer Non tax payer 0 points
Statement of Bank account for the last 6
10 points
months with satisfactory conduct
Statement of Bank account under 6 months
Profession with satisfactory conduct
0 points
No Bank account (-10) points
On – profession list (-25) points
Property Location In – listed area (-15) points
CIB Unclear CIB or on the – list of Data Check (-15) points

Minimum qualifying points needed = 50
SCORE=_____________________
129
___________________
APPRAISER
XYZ Client Date
130
Offer letter
Address
Kind Attn: Mr. ABC
Dear Sirs:
Assalaam-o-Alaikum,
Subject: Grant of Credit Facility to M/s. XYZ
With reference to your recent discussion with us, we are pleased to offer through this
letter the following facilities to you on the terms and conditions stated hereunder:
Funded
Facility # 1 Istijrar (Master Murabaha) Facility / Import Murabaha
Facility for both Sight & Usance LCs / Export Murabaha
Facility
Facility amount PKR 300 MM (Rupees Three Hundred Million Only) or
Equivalent US$ Amount (subject to availability of US
Dollars at MBL’s end).
Facility Structure MBL and XYZ will enter into a Master Murabaha Facility
agreement amounting to PKR 300 Million (or Equivalent
US $ amount). XYZ will be allowed to draw down the
facility under a series of Sub-Murabaha tranches for local
purchase or import of following items. Maturity of each
Sub Murabaha shall be agreed at the time of disbursement
of each tranche. Each Sub-Murabaha shall mature by the
Facility expiry date (365 days from date of first draw down).
Purpose For local purchase / import of raw material, stocks, stores,
tools, spare parts, plant & machinery etc.
Profit Rate To be negotiated at the time of each Sub-Murabaha
transactions
(KIBOR & LIBOR shall serve as the respective bench mark
for PKR Denominated & USD Denominated transactions)
Sub-Murabaha Tenor Sub-Murabaha’s upto 365 days for PKR Denominated Sub-
131
Murabahas & upto 180 days incase of USD Denominated

Sub-Murabahas.
Repayment of Bullet repayment of principle at the maturity of each Sub
Principle Murabaha.
Profit Payment Profit for each Sub Murabaha will be as per the following
schedule:
Maturity of Sub Murabaha Profit Payments
facility
Maturity upto 90 days At Maturity
Maturity greater than 90 days Quarterly in arrears
Security First Joint Pari-Passu charge over all present and future
current assets of XYZ with 20% margin (With regard to
enhancement of XYZ’s funded limit from PKR 200 Million
to PKR 300 Million & non-funded LCU & LG Limits of
PKR 100 Million, FPPC of PKR 455 Million is already in
place as against required PKR 500 Million. The client shall
initially arrange for creation of Ranking Charge for balance
amount of PKR 45 Million with an undertaking in favor of
MBL to upgrade it to first parri passu status at the time of
next supplemental agreement).
Funded (Sub-Limit of Facility # 1)

Facility # 2 CAD Negotiation Facility
Facility amount PKR 200 MM (Rupees Two Hundred Million Only).
Purpose Negotiation of Export CAD documents
Security Same as Facility # 1.
Non-Funded
Facility # 3 Foreign Letters of Credit Facility (Sight L/Cs)
Purpose For the purchase of imported raw material, spare parts,
tools, stores equipment, plant & machinery etc.
Facility Amount PKR 500 Million (Rupees Five Hundred Million Only).
Security Lien on import documents.
Service Charges 0.03% per quarter (L/C Opening Charges)
0.03% (L/C Retirement Charges)
132
Non-Funded (Sub-Limit of Facility # 3)

Facility # 4 Inland & Foreign Letters of Credit Facility (Usance L/Cs)
Purpose For the purchase of local / imported raw material, spare
parts, tools, stores equipment, plant & machinery etc.
Facility Amount PKR 100 Million (Rupees One Hundred Million Only).
Security Accepted Drafts
Same as Facility # 1.
L/C charges 0.03% per quarter (L/C opening charges)
0.03% (L/C retirement charges)
Non-Funded (Sub-Limit of Facility # 3)

Facility # 5 Letter of Guarantee Facility (L/G)
Purpose To issue Advance Payment, Bid Bond & Performance Bond
L/Gs favoring Government, Semi-Government & other
institutions.
Facility Amount PKR 100 Million (Rupees One Hundred Million Only).
Security Same as Facility # 1.
Service Charges 0.10% per quarter
Facility # 6 Bank Risk Line

Purpose To facilitate exports of the company (Negotiation of Export
Sight & / or Usance Letters of Credit).
Facility Amount PKR 200 Million (Rupees Two Hundred Million Only).
Security Lien on Export Bills drawn against L/Cs opened by Banks
approved by MBL’s Treasury Deptt.
Other Terms and Conditions:

The Facility shall be governed by the all the rules and regulations of the Government
of Pakistan and the State Bank of Pakistan (IXYZUDING SBP PRUDENTIAL
REGULATIONS) now in force and as amended from time to time and credit
restrictions imposed by the SBP from time to time.
133
The Customer will not create any charge on the pledged, hypothecated and/or Leased
Assets by way of pledge, hypothecation, mortgage, or in any other way with any
banks, financial institutions or any other person in any manner whatsoever without
written permission of Meezan Bank Limited.
The pledged, hypothecated and/or leased assets shall be duly insured in favor of MBL
with MBL as the loss payee. The insurance company in such a case shall be approved
by MBL.
The hypothecated/pledged and/or Leased Assets may be inspected by MBL as and

when required by it and the Customer shall allow access to and cooperate with the
authorized representatives of MBL in carrying out such inspections.
Any security created in favor of MBL for the facility by way of mortgage,
hypothecation, pledge or otherwise shall be maintained throughout the tenor of the
facility.
MBL will require evidence by way of invoices or otherwise from the Customer, that
the Murabaha/Import Murabaha/Export Murabaha/Lease Finances have been utilized
for the purpose of acquiring the assets in terms of the Master Murabaha /Import
Master Murabaha / Export Master Murabaha/ Lease Finance Agreement.
The Customer shall not change its scope of activities as specified in its Articles and
Memorandum of Association without obtaining prior permission in writing from
MBL. Any material change in the shareholding structure, ownership or management
of the Customer during the tenor of the Murabaha/Lease facility shall constitute an
event of default under the Murabaha/Import Murabaha / Export Murabaha/ Lease
agreement and the Bank shall be entitled at its sole discretion to amend, cancel or
terminate the Murabaha/Import Murabaha/Export Murabaha/Lease agreement.
All expenses incurred on account of documentation, valuations, charge registration or

any other costs in relation to the Facility mentioned in this letter including bank
charges, legal/documentation expenses, excise duties, Government of Pakistan’s and
State Bank of Pakistan’s levies, duties, stamp duties, fees, etc. (or other similar taxes or
charges) now or hereafter levied on the Bank in respect of or in connection with the
Facility and security thereof shall be payable by the Customer immediately on the
Bank’s demand.
134
The Bank reserves the rights to amend, cancel or terminate the Funded / Non-Funded
Credit facilities without assigning any reason thereof.
Draw down of above mentioned facilities will be made available to the Customer after
execution and satisfactory review of all documentation, successful financial close
along with perfection of securities as per terms & conditions of this offer letter and
other facility and security related documents to be executed between MBL & XYZ.
Kindly return to us this letter IN ORIGINAL signed by XYZ’s authorized signatories

latest by
April 31, 2005 as a token of acceptance of the above-mentioned terms & conditions.
Assuring you of our best co-operation & assistance.
Yours truly,
RM Corporate Banking Manager Corporate Banking

Branch Manager
We accept the above terms and conditions for and on behalf of XYZ.
Authorized Signatory Authorized

Signatory
Please affix Corporate Seal/Company Stamp here
135
CONCLUSION
THE FIGURES OF TRADE FINANCE FOR INDIVIDUAL BANKS WHEN
COMBINED TOGETHER SHOWS THE WHOLE PICTURE OF COUNTRY’S
TRADE. THE FIGURES REPORTED BY COMMERCIAL BANKS TO STATE
BANK OF PAKISTAN ARE COMPILED AND THEN FORWARDED TO ALL
LOCAL CHAMBER OF COMMERCE OFFICES. THE FIGURES SHOWS
COUNTRYWISE, CURRENCY WISE AND COMMODITYWISE IMPORTS
AND EXPORTS.
136
OVER ALL CONCLUSION

Islamic banking is a very young concept. Yet it has already been
implemented as the only system in two Muslim countries; there are
Islamic banks in many Muslim countries, and a few in non-Muslim
countries as well. Despite the successful acceptance there are problems.
These problems are mainly in the area of financing.
With only minor changes in their practices, Islamic banks can get rid of
all their cumbersome, burdensome and sometimes doubtful forms of
financing and offer a clean and efficient interest-free banking. All the
necessary ingredients are already there. The modified system will make
use of only two forms of financing loans with a service charge and
Mudaraba participatory financing both of which are fully accepted by all
Muslim writers on the subject.
Such a system will offer an effective banking system where Islamic

banking is obligatory and a powerful alternative to conventional banking
where both co-exist. Additionally, such a system will have no problem in
obtaining authorization to operate in non-Muslim countries.
Participatory financing is a unique feature of Islamic banking, and can

offer responsible financing to socially and economically relevant
137
development projects. This is an additional service Islamic banks offer

over and above the traditional services provided by conventional
commercial banks.
LATEST ACHIEVMENTS
The Governor State Bank of Pakistan, Dr. Ishrat Husain presented
his vision about the evolution of Islamic Banking in Pakistan.
State Bank Governor outlines the Evolution of Islamic Banking.
Meezan Bank selected as key Lead Manager for SSGC Privatization.
SSGC shares subscription at all Meezan Bank’s branches from Feb 9-11, 2004
PKR.910 million Islamic Finance Facility arranged by Meezan

Bank
Meezan Bank becomes Lead Arranger for PKR.910 million Islamic Finance
Facility, largest ever provided by an Islamic Bank.
Meezan Bank airs Islamic Banking talkshows on ARY Digital.
Meezan Bank brings Islamic Banking to your TV.
Meezan Bank 2nd Annual Corporate Conference concludes with

exciting results.
The 2nd Annual Corporate Conference reviews the successes of 2003, and
highlights the grand plans for 2004.
Meezan Bank’s new Jodia Bazaar branch brings Islamic Banking to

the heart of this vibrant business area.
138
Meezan Bank’s new Jodia Bazaar branch, its fifth in Karachi, now open
Meezan Bank to open its doors to Jodia Bazaar.
Jodia Bazaar branch, Meezan Bank’s fifth branch in Karachi, to be functional

by mid December 2003.
The Wait is Over! EasyHome - Islamic Housing Finance has

arrived!
Meezan Bank is pleased to announce EasyHome – Islamic Housing Finance.

The totally halal, comprehensive, and hassle-free way to the home of your
dreams.
Meezan Islamic Fund Launched – Introduction of a new

Investment Solution
Al Meezan Investment Management Limited introduces Meezan Islamic Fund -

A Shariah compliant solution for stock market investors.
Meezan Bank’s new Multan branch in full swing.
Meezan Bank now open at Abdali Road, Multan
New premises in Islamabad takes branch banking to the next level
Meezan Bank relocates to a new premises in Islamabad.
EASY HOME: comprehensive Islamic Home Financing to address

all customer needs.
Meezan Bank's EASY HOME to open it's doors soon!
139
Islamic Housing Finance chosen to facilitate the Karachi DHA

Creek City Project.
Meezan Bank chosen as the preferred provider of Islamic Home Financing for
the Karachi DHA Creek City Project.
Meezan Bank to expand its operations to Multan.
Meezan Bank announces the upcoming launch of its new branch in Multan.
Meezan Bank launches its Islamic Banking Financial Advisory

Program
Meezan Bank launches another first in Pakistan, with an Islamic Banking

Advisory Program for the Bank of Khyber
Meezan Bank now has two full-fledged branches in Faisalabad.
Meezan Bank opens its second branch in Faisalabad.
Meezan Bank Lahore branch inaugurated by Governor Punjab
Meezan Bank officially inaugurates its new branch premises in Lahore.
Meezan Bank now in Gulshan-e-Iqbal, Karachi
Meezan Bank opens another branch in Karachi on University Road, Gulshan-e-

Iqbal.
Meezan Bank Car Ijarah Special Discount Offer
Meezan Bank Limited is pleased to announce a special Discount Package on

Car Ijarah - Pakistan’s First Islamic Car Financing Scheme.
Meezan Bank Limited commenced operations in the textile city of

Faisalabad
140
Meezan Bank Limited commenced operations in the textile city of Faisalabad

by opening its branch on 1st October, 2002
General Pervez Musharraf formally inaugurates Meezan Bank’s

commercial operations.
President of the Islamic Republic of Pakistan General Pervez Musharraf

formally inaugurated Meezan Bank’s commercial operations on September
17,2002.
Meezan Bank announces half yearly profit of Rs 92.3 million
Meezan Bank announces half yearly profit of Rs 92.3 million.
International Islamic Banking Conference
The International Conference on Islamic Banking and Finance concludes with

a pledge to work for Islamic Banking system in Pakistan.
Meezan Bank acquires SG's Pakistan operations
Meezan Bank Limited - the first scheduled Islamic commercial bank of

Pakistan successfully acquires SG's Pakistan operations.
License for the first Islamic Commercial Bank
License for the first islamic commercial bank issued to Meezan Bank
First Islamic bank to be functional in March
Dawn Jan 31,2002: Al Meezan Bank receives the licence to set up the first
Islamic commercial bank from State Bank.
141
FINANCIAL STATEMENT 10
ANALYSIS
In this chapter of the report the financial statements of MBL relating to year
ending as at 31st December 02 are analyzed, for the purpose of comparing the
banks performances of the year with the previous year. The financial
statements used for this purpose are Balance Sheet and profit and loss A/C both.
In this chapter I have analyzed B/S and P& L account both horizontal and
vertically.
With the help of the analysis we can check the performance of the bank easily
comparing with the previous year.
1. Balance Sheet
2. Profit and Loss Account
142
3. Common size Balance Sheet

4. Common size Profit and Loss account
5. Horizontal analysis of balance sheet
6. Horizontal analysis of Profit and Loss Account
7. Vertical analysis of balance sheet
8. Vertical analysis of Profit and Loss Account
143
144
145
146
147
148
MEEZAN BANK LTD.

VERTICAL ANALYSIS OF BALANCE SHEET
AS ON DECEMBER 31 ST 2002
Assets 2002 %age 2001 %age

Rs. In 000
Cash & balance with treasury 659349 9.458 7998 .3895
bank `
Balance with other banks 1058074 15.177 172664 18.409
Due from financial institutions - - - -
Investments 855766 12.275 587720 28.625
Financings 3532188 50.666 864783 42.119
Other assets 818081 11.732 412539 20.093
Operating fixed assets 35942 .5156 7484 .3645
Deferred tax 12048 .1728 - -
Total marks 6971448 100 2053188 100
149
CAPITAL & LIABILITIES
LIABILITIES 2002 %age 2001 %age

Bills Payable 46842 .6719 - -
Due to financial institutions 11831 .1697 - -
Deposits and other A/C 5079478 72.86 637444 31.047
Other liabilities 247389 3.549 212869 10.367
Share Capital 1001454 14.365 901000 43.883
Capital Reserve 264867 3.799 151313 7.369
Deferred taxation 209630 3.007 150562 7.333
Surplus on reevaluation of 109957 1.577 - -
investments
Total 6971448 100.00 2053188 100.00
MEEZAN BANK LTD

Vertical Analysis of Profit & Loss Account
For The Year Ended December 31,2002
PARTICULARS 2002 %Age 2001 %Age

INCOME Rs. In 000
Return on financing & 311183 46.698 81292 296.39
placement earned
Reversal of provision 67184 10.082 - -
Fee commissioning & 71968 10.799 41484 151.25
brokerage income
Capital gain 52809 7.925 8581 31.28
Dividend income 111302 16.703 29011 105.78
Income from dealing in 5799 .870 - -
foreign currency
150
Other income 46129 6.922 (132941) (484.708)

Total 666374 100 27427 100
EXPENSES 195045 79.596 35560 65.51
Other charges 2619 1.068 - -
Taxation 47381 19.336 18722 34.49
Total 245045 100 54282 100
151
RATIO ANALYSIS
Ration analysis is very important measure to judge the performance of an

organization and to compare that performance ratio with previous year ratios
and future of the position of the organization.
RATIOS
1. PROFITABILITY RATIOS
 Net profit ratio
 Return on assets
 Return on shareholder fund
 Return on equity capital
 Earning per share
2. LIQUIDITY RATIOS
 Current ratio
 Loan to deposit ratio
 Loan to asset ratio
3. LONG TERM SOLVENCY AND CAPITAL RATIOS

 Equity capital to asset ratio
 Proprietary ratio
152
 Debt equity ratio
PROFITABILITY RATIO
NET PROFIT RATIO

Net profit after tax
=  100
Net spread earned
2001 2002
Net profit/(loss)after tax (53865) 223149
Net spread earned 52198 119510
Net profit ratio (103.195)% 186.72%
NET PROFIT RATIO
300
200
Percentage
100
0
-100 2001 2002
-200
Years
Net profit as %age of net spread earned increased a title in 2002 (from
103.194% to 186.72%).
Net profit is not sufficient; the firm shall not able to achieve a satisfactory
return on its investment.
When higher the ratio in 2002 means better is the profitability.
153
RETURN ON ASSETS

=  100
Total assets
2001 2002
Net profit after tax (53865) 223149
Total assets 2053188 6971448
Return on assets (2.6235)% 3.2008%
4
3
2
Percentage
1
0
-1 2001 2002
-2
-3
Years
This ratio shows that the return is in negative as compare to return on asset in
the year 2002.
Another reason of decrease in return is the reduction in lending rate and
increase in financial cost. Total assets in 2001 have also decreased substantially
than 2002 so that’s why return on assets is negative in 2001.
RETURN ON SHARE HOLDER FUNDS
154

=  100
Shareholder fund
2001 2002
Shareholder fund 1202875 1585908
Return on share holder funds (4.478)% 14.070%
16
12
Percentage
0
2001 2002
-4
-8
Years
This ratio is one of the most important ratios used for measuring the overall efficiency
of a firm. This ratio reveals how were the resources of a firm are being used, higher
the ratio, better are the result.
In year 2001 this ratio indicates that the ROSF is not satisfactory or shareholder is in
loss. But in year 2002 this ratio indicates that the ROSF is 14.070 paisas per rupee. On
the investor would like to invest only where the return is higher.If this ratio decrease
due to decrease in profit its not a positive sign. The sharp decline in years 2001 is due
to decrease in profits.
RETURN ON EQUITY CAPITAL
155

=  100
Equity capital
2001 2002
Equity capital 901000 1001454
R.O.E. Share Capital (5.978)% 22.28%
16
12
Percentage
4
0
2001 2002
-4
-8
Years
Calculation made on the base of data available shows that profit earning after
tax in 2002 has increased due to decreased financial cost of funds for which
expected investment avenues aid open up the situation rather worsened with
increased return on lending.
EARNING PER SHARE
156

= No. of equity share  100
2001 2002
No. of equity share 100145425 100145425
Earning per share 0.53 .2228
The EPS is a good measure of profitability. It gives a view of the comparative

earnings or earning power of firm. The shareholder wants higher return on
their investment.
157
LIQUIDITY RATIOS
CURRENT RATIO
Current assets
=
Current liabilities
2001 2002
Current assets 2045704 6925058
Current liabilities 850313 5385540
Current ratio 2.40:1 1.286:1
A higher C.R is an indication that the firm is liquid and has the ability to pay
its current obligations in time as and when they become due.
On other hand, a relatively low current ratio represents that the liquidity
position of the firm is not good and the firm shall not be able to pay its C.L. in
time without facing difficulties. An increase in the current ratio represents
improvement in the liquidity position of firm while a decrease in the current
ratio indicates that there has been deterioration in the liquidity position of the
firm.
158
LOAN TO DEPOSITS RATIO
Total loans
=  100
Total deposits
2001 2002
Total loans 45386 45386
Total debts 637444 5079478
Loan to deposits ratio 7.119% .8935%
10
8
Percentage
6
4
0
2001 2002
Years
This ratio shows a relationship between loans and advances and reveals how
much productivity the deposits are used. Analysis shows on decrease in loan to
deposit ratio.
159
LOAN TO ASSET RATIO
Total Loans
=  100
Total Assets
2001 2002
Total Loans 45386 45386
Total assets 2053188 6971448
Loan to asset ratio 2.2105 .6510
4
Percentage
0
2001 2002
Years
Total assets of the bank increased from Rs. 2 million to 5 million and advances
net of provision have same in the both years.
That’s why loan to asset ratio decreases
160
LONG TERM SOLVENCY & CAPITAL RATIO

EQUITY CAPITAL TO ASSET RATIO
Equity capital
=  100
Total Assets
2001 2002
Equity capital 901000 1001454

Total assets 2053188 6971448
Equity capital to asset ratio 43.88% 14.365%
50
40
Percentage
30
20
10
0
2001 2002
Years
In current year banks assets have been increased from 2053188 to 6971448. On
the other hand banks equity also increased so this is the reason that ratio equity
to asset has decreased.
161
PROPRIETARY RATIO
Shareholde r fund
=  100
Total assets
2001 2002
Shareholder fund 1202878 1585908
Total assets 2053188 6971448
Proprietary ratio 58.586% 22.748%
70
60
50
Percentage
40
30
20
10
0
2001 2002
Years
This ratio explains that participation in the assets by the shareholder fund is limited
by outsiders fund. We see that ratio has decrease in 2002 as compare to the year 2001.
Reason behind this is that increase in assets in financed by outsiders fund rather than
the fund provided by the shareholders b/c. There is lesser increase in shareholders
fund as compared to increase in total assets.
162
DEBT EQUITY RATIO
Long term debt

=  100
Shareholder equity
2001 2002
Long term debt 850313 5385540
Shareholder equity 1202875 1585908
Debt equity ratio 70.69% 339.58%
350
300
250
Percentage
200
150
100
50
0
2001 2002
Years
This ratio depicts the relation between equity and debt financing. The current
year ratio shows an increase in ratio from 70.69% to 339.58% time.
The ultimate increase in this ratio has decrease the long term solvency of the
bank. Because lesser will be soundness of the bank. The reason behind this
increase is an increase in internal debt but rate of increase in external
borrowing.
163
RECOMMENDATIONS
11
During my two months internship with MBL I have learned a lot about
banking system, observed deeply the functioning of the branch. In the light
of these observances, I have following suggestions for the MBL. These
recommendation base on my observations:
 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.
 The bank should do proper and effective advertisement, and enhance its
public image, goodwill and attract more customers towards Islamic
Banking by doing effective advertisement.
 Due to healthy competition bank introduces different facilities for
customers like ATM card and Credit card.
 Availability of Online facility
 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-
164
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.
 Due to growing competition in the market, the effective banks are
offering different products, the MBL should take also step to introduce
like: ATM- card, Credit Card facility, etc.
LACK OF ADVANCED FACILITIES
MBL has not changed itself at the pace of time. At present banks are very fatly
moving towards computerized and online banking. Although management of HBL
has also taken some steps towards computerization but still pace is very slow.
 There is immediate need, to reconstruct the personnel policies. Selecion

should be through newspaper advertisements. In this way more intelligent,
efficient and qualified staff can be formulated.
 Along with the officers, the training must also be given to the clerical staff
because of MBL are running on manual system and the training of its staff
directly improving their efficiency of work.
 Working condition must be improved for the employees. Bank will
definitely get more benefits after some expenditure on the working
conditions as it improves efficiency and productivity of the employees.
 There is also a need of proper recruitment and selection programme. New

young talent should be introduced to inject the new ideas.
 Special attention should be given to the behavior of the employees towards
the customers, as customer is the most important person for any bank.
 Political influences in the bank should be eliminated.
 To motivate the employees of the bank, regular bonuses and incentives
should be given to them.
165
 Business promotional activities should be increased to enhance the

business.
 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.
 Branches working environment should be improves and renovated with
latest furniture and interior decorations.
 The bank has not offered ATM-card facility yet.
166

Meezan Bank - Report 1

Uploaded by

Copyright:

Available Formats

You might also like

Meezan Bank - Report 1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Meezan Bank - Report 1

Uploaded by

Copyright:

Available Formats

The Premier Islamic Bank

According to banking company’s ordinance 1962 section 5(b)

“Bank is a dealer of debt, his own and of other people.”

“A bank is a dealer in capital or dealer in money. He is an intermediary party

“The modern banker is primarily a dealer in credit.”

So the comprehensive definition of the bank is:

Loan facility provided by bank works as an incentive to the producer to

“As an international quasi-parallel financial system” that stretched its geographical

Salient Characteristics of Islamic Banking

An Islamic bank is a full-service intermediary financial institution that abides

“Islamic banking defies the separation between economics and religion. It

(1) New kind of relationship between banks and depositors,

From Hazrat Jabir Ibn-e-Abdullah (RA)

(Muslim, Termidhi & Musnad Ahmad)

From Hazrat Abu Hurayrah (RA)

From Hazrat Abu Hurayrah (RA):

Ethics and Banking

environmentally harmful commodities, etc. are completely excluded from the

Islamic Banking Perception & Reality

3. HISTORICAL DEVELOPMENT IN ISLAMIC BANKING

The history of interest-free banking could be divided into two parts.

 When it still remained an idea;

Interest Free Banking as an Idea

Interest-free banking seems to be of very recent origin. The earliest references

Early seventies saw the institutional involvement. Conference of the Finance

The Coming into Being of Interest- Free Banks

In most countries the establishment of interest-free banking had been by

free banking. In Pakistan, effective 1 January 1981 all domestic commercial

New steps were introduced on 1 January 1985 to formally transform the

The Last Decade

Its impact on world financial and commercial practices held in London in

annotated bibliographies of all published (and some unpublished) works on Islamic

5 . HISTORICAL BACKGROUND OF MEEZAN BANK

Meezan Bank as 1 st Islamic Bank

Meezan Bank Limited is a publicly listed company first incorporated on

 Pak-Kuwait Investment Company,

At Meezan Bank, we strive to find commonalties with the conventional

Furthermore, the Bank has built a strong Information Technology and

We believe in adding value to our customers’ lives and businesses through

MEEZAN BANK VISION

Establish Islamic banking as banking of first choice

To be a premier Islamic bank, offering a one-stop

SHAREHOLDING STRUCTURE OF MEEZAN BANK

Pak Kuwait Investment Company 30.0 %

OPERATING RESULTS OF THE BANK

JCR-VIS reaffirms A+/A-1+ratings of Meezan bank Limited.

Karachi, May 2,2003:JCR-VIS Credit Rating Company Limited has reaffirmed

6. PRODUCTS BANK OFFERS

CAR IJARAH - ISLAMIC LEASING (IJARAH )

Meezan Bank’s ‘Car Ijarah’ - a Shariah compliant car financing scheme.

RIBA FREE CURRENT ACCOUN

RIBA FREE RUPEE SAVING ACCOUNT

RIBA FREE CERTIFICATE OF ISLAMIC INVESTMENT

A fixed deposits product, which provide an opportunity to earn halal profits on

RIBA FREE- DOLLAR SAVING ACCOUNT

RIBA FREE- MONTHLY MUSHARIKA CERTIFICATE

A unique deposit product whereby investors can earn monthly profits on

6 .ISLAMIC MODES OF FINANCING