Meezan Bank Limited FINAL PROJECT.docx

7/28/2019 Meezan Bank Limited FINAL PROJECT.docx

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COMPARISON

BETWEEN

ISLAMIC BANKING & CONVENTIONAL BANKING

PRODUCTS.

&


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ISLAMIC BANKING

INTRODUCTION:

Islamic banking has been defined as banking in consonance with the ethos and value

system of Islam and governed, in addition to the conventional good governance and

risk management rules, by the principles laid down by Islamic. Interest free banking

is a narrow concept denoting a number of banking instruments or operations, which

avoid interest. Islamic banking, the more general term is expected not only to avoid

interest-based transactions, prohibited in the Islamic Shariah, but also to avoid

unethical practices and participate actively in achieving the goals and objectives of

an Islamic economy.

Islamic banking refers to a system of banking or banking activity that is consistent

with the principles of Islamic law (Sharia) and its practical application through the

development of Islamic economics. Sharia prohibits the payment or acceptance of

interest fees for the lending and accepting of money respectively, (Riba, usury) for

specific terms, as well as investing in businesses that provide goods or services

considered contrary to its principles (Haraam, forbidden). While these principles

were used as the basis for a flourishing economy in earlier times, it is only in the late

20th century that a number of Islamic banks were formed to apply these principlesto private or semi-private commercial institutions within the Muslim community.

PHILOSOPHY OF ISLAMIC BANKING:

Basically the philosophy of Islamic Shariah & Islamic banking is to prohibit interest

but it does not prohibit us from gains on capital. It is only the increase stipulated or

sought over the principal of a loan or debt that is prohibited. Islamic principles simply

require that performance of capital should also be considered while rewarding thecapital. The prohibition of a risk free return and permission of trading, as enshrined

in the Verse 2:275 of the Holy Quran, makes the financial activities in an Islamic set-

up real asset-backed with ability to cause value addition.
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Islamic banking system is based on risk-sharing, owning and handling of physical

goods, involvement in the process of trading, leasing and construction contracts

using various Islamic modes of finance. As such, Islamic banks deal with asset

management for the purpose of income generation. They will have to prudently

handle the unique risks involved in management of assets by adherence to bestpractices of corporate governance. Once the banks have stable stream of Halal

income, depositors will also receive stable and Halal income.

The forms of businesses allowed by Islam at the time the Holy Quran was revealed

included joint ventures based on sharing of risks & profits and provision of services

through trading, both cash and credit, and leasing activities. In the Verse II:275, Allah

the Almighty did not deny the apparent similarity between trade profit in credit sale

and Riba in loaning, but resolutely informed that Allah has permitted trade and

prohibited Riba.

Profit has been recognized as reward for (use of) capital and Islam permits gainful

deployment of surplus resources for enhancement of their value. However, along

with the entitlement of profit, the liability of risk of loss on capital rests with the

capital itself; no other factor can be made to bear the burden of the risk of loss.

Financial transactions, in order to be permissible, should be associated with goods,

services or benefits. At macro level, this feature of Islamic finance can be helpful in

creating better discipline in conduct of fiscal and monetary policies.

Besides trading, Islam allows leasing of assets and getting rentals against the usufructtaken by the lessee. All such things/assets corpus of which is not consumed with

their use can be leased out against fixed rentals. The ownership in leased assets

remains with the lessor who assumes risks and gets rewards of his ownership.

HISTORY OF ISLAMIC BANKING:

In early golden Islamic age, forms of proto-capitalism and free markets were present

in the Caliphate, where an early market economy and an early form ofmercantilismwere developed between the 8th-12th centuries, which some refer to as "Islamic

capitalism". A vigorous monetary economy was created on the basis of the

expanding levels of circulation of a stable high-value currency (the dinar) and the

integration ofmonetary areas that were previously independent.
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During this age, number of innovative concepts and techniques were introduced in

early Islamic banking which are still existing in this modern Islamic banking world,

including bills of exchange, the first forms ofpartnership (mufawada) such as limited

partnerships (mudaraba), and the earliest forms of capital (al-mal), capital

accumulation (nama al-mal), cheques, promissory notes, trusts (see Waqf), startupcompanies, , transactional accounts, loaning, ledgers and assignments.

Organizational enterprises similar to corporations independent from the state also

existed in the medieval Islamic world, while the agency institution was also

introduced during that time. Many of these early capitalist concepts were adopted

and further advanced in medieval Europe from the 13th century onwards.

HISTORICAL DEVELOPMENT:

Moreover, the development in the history of Islamic banking started when a system

of interest free banking is launched. History of interest free banking is divided intotwo parts, first I took it as an idea and secondly after implementing when it becomes

reality.

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 Hamidullahs 1944, 1955, 1957 and 1962 writings too should be

included in this category. They have all recognised the need for commercial banks

and the evil of interest in that enterprise, and have proposed a banking system based

on the concept ofMudarabha - profit and loss sharing.

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-forties and another in Pakistan in the late-fifties. Neither

survived. In 1962 the Malaysian government set up the Pilgrims Management

Fund to help prospective pilgrims to save and profit. The savings bank established in
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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.

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

initiative and were confined to that bank. In Iran and Pakistan, however, it was by

government initiative and covered all banks in the country. The governments in boththese countries took steps in 1981 to introduce interest-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 servicecharge 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.

ISLAMIC BANKING IN PAKISTAN:

Islamization of banks and financial institution of Pakistan were started in 1977-78.

Pakistan was among the three countries in the world that had been trying to

implement interest free banking at Comprehensive. But as it was a mammoth task,

the switchover plan was implemented in phases. The Islamization measures included

the elimination of interest from the operations of specialized financial institutions

including HBFC, ICP and NIT in July 1979 and that of the commercial banks during

January 1981 to June 1985. The legal framework of Pakistan's financial and corporate


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system was amended on June 26, 1980 to permit issuance of a new interest-free

instrument of corporate financing named Participation Term Certificate (PTC). An

Ordinance was promulgated to allow the establishment of Mudaraba companies and

floatation of Mudaraba certificates for raising risk based capital. Amendments were

also made in the Banking Companies Ordinance, 1962 (The BCO, 1962) and relatedlaws to include provision of bank finance through PLS, mark-up in prices, leasing and

hire purchase.

ACCOUNTING AND AUDITING ORGANIZATIONS FOR FINANCIAL

INSTITUTIONS:

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is

an Islamic international autonomous non-for-profit corporate body that prepares

accounting, auditing, governance, ethics and Shari'a standards for Islamic financial

institutions and the industry. Professional qualification programs (notably CIPA, the

Sharia Adviser and Auditor "CSAA", and the corporate compliance program) are

presented now by AAOIFI in its efforts to enhance the industrys human resources

base and governance structures.

AAOIFI was established in accordance with the Agreement of Association which was

signed by Islamic financial institutions on 1 Safar, 1410H corresponding to 26

February, 1990 in Algiers. Then, it was registered on 11 Ramadan 1411

corresponding to 27 March, 1991 in the State of Bahrain.

The objectives of AAOIFI are:

1. to develop accounting and auditing thoughts relevant to Islamic financial

institutions;

2. to disseminate accounting and auditing thoughts relevant to Islamic financial

institutions and its applications through training, seminars, publication of periodical

newsletters, carrying out and commissioning of research and other means;

3. to prepare, promulgate and interpret accounting and auditing standards forIslamic financial institutions; and

4. to review and amend accounting and auditing standards for Islamic financial

institutions.


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AAOIFI carries out these objectives in accordance with the precepts of Islamic Sharia

which represents a comprehensive system for all aspects of life, in conformity with

the environment in which Islamic financial institutions have developed. This activity

is intended both to enhance the confidence of users of the financial statements of

Islamic financial institutions in the information that is produced about theseinstitutions, and to encourage these users to invest or deposit their funds in Islamic

financial institutions and to use their services.

The Islamic Financial Services Board (IFSB):

The Islamic Financial Services Board (IFSB), which is based in Kuala Lumpur, was

officially inaugurated on 3rd November 2002 and started operations on 10th March

2003. It serves as an international standard-setting body of regulatory and

supervisory agencies that have vested interest in ensuring the soundness and

stability of the Islamic financial services industry, which is defined broadly to includebanking, capital market and insurance. In advancing this mission, the IFSB promotes

the development of a prudent and transparent Islamic financial services industry

through introducing new, or adapting existing international standards consistent

with Shari'ah principles, and recommend them for adoption.

the IFSB has issued seven Standards, Guiding Principles and Technical Notefor the

Islamic financial services industry. The published documents are on the areas of:

1. Risk Management2. Capital Adequacy

3. Corporate Governance

4. Supervisory Review Process

5. Transparency and Market Discipline

6. Recognition of Ratings on Shar`ah-Compliant Financial Instruments

7. Development of Islamic Money Markets

The IFSB is also working on five new standards and guidelines. They are:

8. Special Issues in Capital Adequacy9. Governance for Collective Investment Schemes

10.Corporate Governance in Takaful Operations

11.Shariah Governance

12.Market conduct.


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Major modes of Islamic banking:

Following are the main modes of Islamic banking and finance:

MURABAHA

Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale

in which the seller declares his cost and profit. Islamic banks have adopted this as a

mode of financing. As a financing technique, it involves a request by the client to the

bank to purchase certain goods for him. The bank does that for a definite profit over

the cost, which is stipulated in advance.

IJARAH

Ijarah is a contract of a known and proposed usufruct against a specified and lawful

return or consideration for the service or return for the benefit proposed to betaken, or for the effort or work proposed to be expended. In other words, Ijarah or

leasing is the transfer of usufruct for a consideration which is rent in case of hiring of

assets or things and wage in case of hiring of persons.

IJARAH-WAL-IQTINA

A contract under which an Islamic bank provides equipment, building or other assets

to the client against an agreed rental together with a unilateral undertaking by the

bank or the client that at the end of the lease period, the ownership in the asset

would be transferred to the lessee. The undertaking or the promise does not becomean integral part of the lease contract to make it conditional. The rentals as well as the

purchase price are fixed in such manner that the bank gets back its principal sum

alongwith with profit over the period of lease.

MUSAWAMAH

Musawamah is a general and regular kind of sale in which price of the commodity to

be traded is bargained between seller and the buyer without any reference to the

price paid or cost incurred by the former. Thus, it is different from Murabaha in

respect of pricing formula. Unlike Murabaha, seller in Musawamah is not obliged to

reveal his cost. Both the parties negotiate on the price. All other conditions relevant

to Murabaha are valid for Musawamah as well. Musawamah can be used where the

seller is not in a position to ascertain precisely the costs of commodities that he is

offering to sell.


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ISTISNAA

It is a contractual agreement for manufacturing goods and commodities, allowing

cash payment in advance and future delivery or a future payment and future

delivery. Istisnaa can be used for providing the facility of financing the manufacture

or construction of houses, plants, projects and building of bridges, roads and

highways.

BAI MUAJJAL

Literally it means a credit sale. Technically, it is a financing technique adopted by

Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the

bank earns a profit margin on his purchase price and allows the buyer to pay the

price of the commodity at a future date in a lump sum or in installments. It has to

expressly mention cost of the commodity and the margin of profit is mutually

agreed. The price fixed for the commodity in such a transaction can be the same as

the spot price or higher or lower than the spot price.

MUDARABAH

A form of partnership where one party provides the funds while the other provides

expertise and management. The latter is referred to as the Mudarib. Any profits

accrued are shared between the two parties on a pre-agreed basis, while loss is

borne only by the provider of the capital.

MUSHARAKAH

Musharakah means a relationship established under a contract by the mutual

consent of the parties for sharing of profits and losses in the joint business. It is an

agreement under which the Islamic bank provides funds, which are mixed with the

funds of the business enterprise and others. All providers of capital are entitled to

participate in management, but not necessarily required to do so. The profit is

distributed among the partners in pre-agreed ratios, while the loss is borne by each

partner strictly in proportion to respective capital contributions.

BAI SALAM

Salam means a contract in which advance payment is made for goods to be deliveredlater on. The seller undertakes to supply some specific goods to the buyer at a future

date in exchange of an advance price fully paid at the time of contract. It is necessary

that the quality of the commodity intended to be purchased is fully specified leaving

no ambiguity leading to dispute. The objects of this sale are goods and cannot be

gold, silver or currencies. Barring this, Bai Salam covers almost everything, which is

capable of being definitely described as to quantity, quality and workmanship.


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HISTORY:

Meezan Bank Limitedis a publicly listed company, first incorporated on January

27, 1997. It started operations as an Islamic investment bank in August of the same

year. In January, 2002, in an historic initiative, Meezan Bank was granted the Nations

first full-fledged commercial banking license dedicated to Islamic Banking, by

the State Bank of Pakistan.

Meezan Bank, stands today at a noteworthy point along the evolution of Islamic Banking in

Pakistan. The banking sector is showing a significant paradigm shift away from

traditional means of business, and is catering to an increasingly astute and

demanding financial consumer who is also becoming keenly aware of Islamic

Banking. Meezan Bank bears the critical responsibility of leading the way forward in

establishing a stable and dynamic Islamic Banking system replete with dynamic and

cutting-edge products and services.

The Banks main shareholders are leading local and international financial

institutions, including "Pak Kuwait Investment Company", the only AAA

rated financial entity in the country, the Islamic Development Bank of Jeddah, and

the renown Shamil Bank of Bahrain. The established position, reputation, strength

and stability, of these institutions add significant value to the Bank through Board

representation and applied synergies.

Vision:

Establish Islamic banking as banking of first choice to facilitate the implementation ofan equitable economic system, providing a strong foundation for establishing a fair

and just society for mankind.
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Mission:

To be a premier Islamic bank, offering a one-stop shop for innovative value added

products and services to our customers within the bounds of Shariah, while

optimizing the stakeholders value through an organizational culture based on

learning, fairness, respect for individual enterprise and performance.

Services:

Bank is providing the following services all over the country and working as a full

fledged Islamic banking in a country.

Personal Banking and Finance

Corporate Finance

Commercial Finance Syndicated & Structured finance

Project Financing

Financial Advisory Services

Treasury

Car Ijarah - Car Financing

Easy Home - Home Financing

Asset Management.

MEEZAN BANK Car Ijarah, Pakistans FirstIslamic Car Financing

As a step towards Meezan Banks mission to provide a one-stop shop for innovative

value added Shariah compliant products, Meezan Banks Car Ijarah unit provides a

car financing, based on the principles of Ijarah and is free of the element of

interest.

" Car I jarah"

Car Ijarah is Pakistans first "Interest Free" car financing based on the Islamic

financing mode of Ijarah (Islamic leasing). This product is ideal for individuals

looking for car financing while avoiding an interest-based transaction.

Meezan Banks Car Ijarah is a car rental agreement, under which the Bank
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purchases the car and rents it out to the customer for a period of 3 to 5 years,

agreed at the time of the contract. Upon completion of the lease period the

customer gets ownership of the car against his initial security deposit.

Meezan Banks Car Ijarah is a car rental agreement, under which the Bank

purchases the car and rents it out to the customer for a period of 3 to 5 years,agreed at the time of the contract. Upon completion of the lease period the

customer gets ownership of the car against his initial security deposit.

Car Ijarah is unique and is approved by Meezan Banks Shariah Board

Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory

Board, is unique to car leasing facilities provided by other banks. Rights &

liabilities of Owner v/s User

An Islamic Ijarah is an asset-based contract, i.e. the Lessor should have ownership ofthe asset during the period of the contract. Under Islamic Shariah, all ownership

related rights and liabilities should lie with the owner while all usage-related rights

and liabilities should lie with the user. A conventional lease contract does not

distinguish between the nature of these liabilities and places all liabilities on the user

of the asset, contradictory to Islamic Shariah. Under Ijarah, all ownership-related

risks lie with the Bank while all usage related risks lie with the user, thus making the

Lessor the true owner of the asset and making the income generated through the

contract permissible (Halal) for the Bank.

Continuation of lease rentals in case of total loss or theft of vehicle

If the leased vehicle is stolen or completely destroyed, the conventional

leasing company continues charging the lease rent till the settlement of the

Insurance claim. Under the Islamic system, rent is consideration for usage of the

leased asset, and if the asset has been stolen or destroyed, the concept of rental

becomes void. As such, in the above-mentioned eventualities, Meezan bank does not

charge the lease rental.

Permissibi li ty for Penalty of Late Payment of Rent under I slamic Shariah

In most contemporary financial leases, an extra monetary amount is charged,in their income, if the rent is not paid on time. This extra amount is the considered

as Riba and is Haram. Under Ijarah, the Lessee may be asked to undertake, that if he

fails to pay rent on its due date, he will pay certain amount to a charity, which will be

administered through the Islamic Bank. For this purpose the bank maintains a charity

fund where such amounts may be credited and disbursed for charitable purposes.


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Key Features of Car I jarah

1. Ease of acquiring any new locally assembled car

2. No upfront Insurance Payment

3. No advance Rental

4.

Available in tenures of 3, 4 and 5 years

5. Minimum security deposit as low as 15%

Car I jarah also features Used Vehicles

In addition to our leasing of new cars, Meezan Bank also provides the unique

opportunity of leasing second hand, locally assembled, vehicles as well. This feature

is specifically designed as a highly economical option. The Used Car Ijarah facility is

made available at a minimum-security deposit as low as 20%.

Used Car Selection Criter ia

The second hand car selected should be from its first owner.The vehicle should not be older than 5 years.

The minimum security deposit for a vehicle up to 2 years of age is 20%, while

minimum security deposit for a vehicle over 2 years of age is 30%.

At the time of termination of the Ijarah agreement, the vehicle should not be more

than 8 years old. This means that if a car is 5 years old, the Car Ijarah tenure is not

more than 3 years and if its 4 years old, the tenure may be set for a maximum 4 year

term.

This facility is for locally manufactured cars of Suzuki, Toyota, Honda & the new

model of Santro only.Second hand vehicles selected should not be worth more than

Rs. 1 million and less than Rs. 250,000/-. Meezan Bank will have the vehicle valued

by an independent valuation company accordingly.

Documentation:

Individuals/Self-Employed Professionals/Businessmen

1 Copy of NIC

2 Two recent passport sized photographs

3 Recent Utility Bill (Electric/Gas/Water) received at the residential address

4 Last Six Month Bank Statement

5 Last Six Month Bank Statement of Business (for Businessmen)


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6 Certified/Original copy of Recent Pay slip (for Salaried Individuals)

7 Copy of Rent Agreement (if applicable)

The details and the monthly payment for car ijarah financing scheme are given

below:

Calculations:

New Car Payment Details

Car Description:Honda CITY I-VTEC CVT 1.3 L(Vario)

Cost Price: Rs. 1,329,000.00/-

Tenure: 5 Years

Initial Payment

Security Deposit: Rs. 332,250.00/- (25%)

Processing Fee: Rs. 5,000.00/-

Total: Rs. 337,250.00/-

Monthly Payment

60 Monthly Rentals ofRs. 30,547.00/- approx.

If you wants to apply for used car then meezan Islamic banking is also providing

the facility of used car financing. The details of the car and monthly payments of

the used car are given below:

Old Car Payment Details

Car Description: Honda

Cost Price: Rs. 800,000.00/-

Tenure: 4 Years

Initial Payment

Security Deposit: Rs. 200,000.00/- (25%)

Evaluation Fee: Rs. 1,500.00/-

Processing Fee: Rs. 3,000.00/-

Total: Rs. 204,500.00/-

Monthly Payment

48 Monthly Rentals ofRs. 20,863.00/- approx.


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MEEZAN BANK HOME FINANCING:

Welcome to Pakistans long awaited totally Shariah-compliant Home Finance facility!One that is comprehensive, affordable, and totally hassle-free. For at Meezan Bank,

we are committed to meeting our customers needs, in a truly Shariah-compliant

manner coupled with dedicated service excellence. Meezan Banks Easy Home is the

answer youve been waiting for.

I slamic Financing on a Diminishing Musharakah basis:

With Easy Home you participate with Meezan Bank in a joint ownership of your

property, where the Bank will provide a certain amount of financing (usually up to80%). You agree to a monthly payment to the bank of which a component is for the

use of the home, and another for your equity share. In fact, the total monthly

payment is reduced regularly as your share in the property grows. When you have

made the full investment, which had been agreed upon, you become the sole owner

with a free and clear title to the property.

EASY HOME SHARIAH COMPLAINT:

As a Diminishing Musharakah it conforms to Shariah laws specifically related to

financing, ownership and trade. Taking ownership through a partnership and then

transferring complete ownership to the consumer instead of simply lending money is

the major factor that makes our product Shariah compliant. The nature of the

contract is a co-ownership and not a loan because the transaction is not based on

the lending and borrowing of money but on the joint ownership of an asset. Meezan

Bank shares in the cost of the asset being purchased, for example in the case of

buying a home. In conventional mortgages the interest charged is a mark-up on the

money lent. The profit charged by Meezan Bank is the utilization payment for your

use of our share throughout the life of the contract. Your payments to Meezan Bank

are completely riba-free.

PROFI T MARGIN CHARGED:

At Meezan Bank, the profit margin is directly correlated to market trends to provide

a competitive product to our customers. Shariah allows the use of any conventional

market factor as a benchmark to determine the profit rate of a particular product.


16/37

The mere fact that the applied profit rate of our product is based on similar factors

used in determining the applied rate of interest of a mortgage does not render the

transaction or the contract invalid from the Shariah perspective, and neither does it

make the transaction an interest-bearing one. On the other hand, it is the underlying

structure of the product that determines its Shariah compliance.

PAYMENT PLAN:

In payment plan meezan bank used two models:

1. Step-up model

2. UMI MODEL

Step-up Model

The Step-up Payment plan is introduced for customers who intend to avail maximum

financing facility with lower installments. The step up model is based on Shariah

Compliant structure of Diminishing Musharakah. In this model, the banks share s

divided into more Musharakah units and in the initial half of the facility tenure, the

customer purchases one Musharakah unit from bank every month and in the later

half of the facility tenure, the customer purchases two Musharakah units from bank

every month. Thus the monthly installment during initial years is comparatively

lower which is easily affordable. This model is a Shariah Compliant Alternative

available to the customers who wish to avail maximum financing facility from bank.

UM I Model

Easy Home is structured under the concept of diminishing Musharakah where

Meezan Bank and Customer enter into a Musharakah Agreement whereby both the

parties provide their investments to be utilized for the purposes of

purchase/construct/renovate the property. The Joint ownership is created in the

property between Bank & customer by virtue of the Musharakah agreement. (This is

based on the principle ofShirkat ul Milk) Banks share is divided into units and is

given to the client on rent and Client promises to purchase Banks share (units) overthe tenure of transaction Client purchases the units every month and will eventually

become the owner of the property. Rental amount is adjusted according to the

banks share (units) remaining in the property. In UMI , the Musharakah unit price

remains constant throughout the financing period.
http://www.meezanbank.com/AjaxFunction.aspx?id=354&width=250http://www.meezanbank.com/AjaxFunction.aspx?id=354&width=250


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Maximum F inancing Tenure

Now you can avail financing facility for maximum up to 25 years period.

Buy, Bui ld, Renovate, or Replace!

Buying a Home is Easy & Halal!

Choose it and be ready to move in. Meezan Bank will finance up to maximum

of 70%(Salaried, SEP, NRP) of the appraised value of your new home or up to a

value of Rs. 40 million, and a maximum of 60%(Businessman) up to a value of

Rs 5 Million with a financing tenor of up to 20 years.

Building a home is Easy & Halal!

For that special home you want to build yourself. Meezan Bank provides

financing up to 70%(salaried, SEP, and NRP) of the appraised value or Rs. 40

million, and a maximum of 60%(Businessman) up to a value of Rs 5 Million fora tenor of up to 20 years.

Renovating your home is Easy & Halal!

Making your home even better or just repairing it. Meezan Bank helps with

financing up to 30% and a financing tenor of up to 15 years.

Replacing your existing Mortgage is Easy & Halal!

The wait is over. Now continue to enjoy your home but with the added

satisfaction and peace of mind you have always wanted. Meezan Bank will

help you switch your existing liability over to us and let you enjoy the benefitsof Halal and totally flexible financing. Financing up to Rs. 40 million(Salaried,

SEP, NRP) and Rs 5 million(Businessman) and a tenor of up to 20 years.

Special Benefits of Easy Home

Flexible Financing Tailored to Support You

o High financing amounts

o Adequate financing against property value

o Flexibility to make partial prepayments

o Minimal processing charges

o Affordable and competitive installment amounts with a regular

reducing monthly rental

o Rate relaxation for select MNCs & LCGs


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Quick Processing Time

Absolutely hassle-free. Quick turn-around-times, with no burdensome

complexity or excess paper work. It is simple, halal, and easy!

Even the eligibility is Easy!

We at Meezan Bank, as prescribed by Islamic Shariah, seek to guarantee equalaccess to financing for all qualified applicants, while ensuring that the

qualification process is bias-free.

Non Resident Pakistanis

Non Resident Pakistanis can apply with peace of mind for the fastest

processing of their case.

Special Offer for Chartered Accountants

Qualified Chartered Accountants and Corporate CFOs can avail discounted

rates and flexible repayment option with no pre-payment charges on earlypayment either partially or full.

Special Offer for Easy Replacement Cases

Why paying high installment on high rate? Transfer your existing home finance

facility to Meezan Bank and avail attractive profit rate with flexible payment

options.

Easy Home Payment Plan SummaryCost Price:(PKR)

2,500,000 /- Total Units 103

CustomerShare: (PKR)

1,000,000 /-Unit Sale Price:(PKR)

14,563 /-

Bank Share:(PKR)

1,500,000 /-Monthly Rent PerUnit: (PKR)

192 /-

Profit Rate: 15.78 %Total StartingRent: (PKR)

6,575 /-

Tenure inYears:

10 Starting MonthPayment: (PKR)

6,575 /-

Segment: SalariedEasy HomeCategory:

Builder (Construction) (UMI)


19/37

Tentative Payment Schedule

TrancheTrancheAmount(PKR)

MonthsRent(PKR)

Unit Price(PKR)

MonthlyPayment(PKR)

BalanceUnit Value(PKR)

BalanceUnits

1 500,000 0 500,000 103

1 6,575 6,575 500,000 103

2 6,575 6,575 500,000 103

2 500,000 3 6,575 6,575 1,000,000 103

4 13,150 13,150 1,000,000 103

3 500,000 5 13,150 19,725 1,500,000 103

6 19,725 19,725 1,500,000 103

7 19,725 19,725 1,500,000 103

8 19,725 19,725 1,500,000 103

9 19,725 19,725 1,500,000 103

10 19,725 19,725 1,500,000 103

11 19,725 19,725 1,500,000 103

12 19,725 19,725 1,500,000 103

Tentative Schedule to be revised on Anniversary

13 19,725 19,725 1,500,000 103

14 19,725 19,725 1,500,000 103

15 19,725 19,725 1,500,000 103

16 19,725 19,725 1,500,000 103

17 19,725 19,725 1,500,000 103

18 19,725 14,563 34,288 1,485,437 102

19 19,533 14,563 34,097 1,470,874 101

20 19,342 14,563 33,905 1,456,311 100

21 19,150 14,563 33,714 1,441,748 99

22 18,959 14,563 33,522 1,427,184 98

23 18,767 14,563 33,331 1,412,621 97

24 18,576 14,563 33,139 1,398,058 96

25 18,384 14,563 32,948 1,383,495 95

26 18,193 14,563 32,756 1,368,932 9427 18,001 14,563 32,565 1,354,369 93

28 17,810 14,563 32,373 1,339,806 92

29 17,618 14,563 32,182 1,325,243 91

30 17,427 14,563 31,990 1,310,680 90

31 17,235 14,563 31,799 1,296,117 89

32 17,044 14,563 31,607 1,281,553 88


20/37

33 16,852 14,563 31,416 1,266,990 87

34 16,661 14,563 31,224 1,252,427 86

35 16,469 14,563 31,033 1,237,864 85

36 16,278 14,563 30,841 1,223,301 84

37 16,086 14,563 30,650 1,208,738 8338 15,895 14,563 30,458 1,194,175 82

39 15,703 14,563 30,267 1,179,612 81

40 15,512 14,563 30,075 1,165,049 80

41 15,320 14,563 29,883 1,150,485 79

42 15,129 14,563 29,692 1,135,922 78

43 14,937 14,563 29,500 1,121,359 77

44 14,746 14,563 29,309 1,106,796 76

45 14,554 14,563 29,117 1,092,233 75

46 14,363 14,563 28,926 1,077,670 7447 14,171 14,563 28,734 1,063,107 73

48 13,980 14,563 28,543 1,048,544 72

49 13,788 14,563 28,351 1,033,981 71

50 13,597 14,563 28,160 1,019,417 70

51 13,405 14,563 27,968 1,004,854 69

52 13,214 14,563 27,777 990,291 68

53 13,022 14,563 27,585 975,728 67

54 12,831 14,563 27,394 961,165 66

55 12,639 14,563 27,202 946,602 65

56 12,448 14,563 27,011 932,039 64

57 12,256 14,563 26,819 917,476 63

58 12,065 14,563 26,628 902,913 62

59 11,873 14,563 26,436 888,350 61

60 11,682 14,563 26,245 873,786 60

61 11,490 14,563 26,053 859,223 59

62 11,299 14,563 25,862 844,660 58

63 11,107 14,563 25,670 830,097 57

64 10,916 14,563 25,479 815,534 56

65 10,724 14,563 25,287 800,971 55

66 10,533 14,563 25,096 786,408 54

67 10,341 14,563 24,904 771,845 53

68 10,150 14,563 24,713 757,282 52

69 9,958 14,563 24,521 742,718 51


21/37

70 9,767 14,563 24,330 728,155 50

71 9,575 14,563 24,138 713,592 49

72 9,384 14,563 23,947 699,029 48

73 9,192 14,563 23,755 684,466 47

74 9,001 14,563 23,564 669,903 4675 8,809 14,563 23,372 655,340 45

76 8,618 14,563 23,181 640,777 44

77 8,426 14,563 22,989 626,214 43

78 8,235 14,563 22,798 611,650 42

79 8,043 14,563 22,606 597,087 41

80 7,852 14,563 22,415 582,524 40

81 7,660 14,563 22,223 567,961 39

82 7,469 14,563 22,032 553,398 38

83 7,277 14,563 21,840 538,835 3784 7,086 14,563 21,649 524,272 36

85 6,894 14,563 21,457 509,709 35

86 6,703 14,563 21,266 495,146 34

87 6,511 14,563 21,074 480,583 33

88 6,320 14,563 20,883 466,019 32

89 6,128 14,563 20,691 451,456 31

90 5,937 14,563 20,500 436,893 30

91 5,745 14,563 20,308 422,330 29

92 5,554 14,563 20,117 407,767 28

93 5,362 14,563 19,925 393,204 27

94 5,171 14,563 19,734 378,641 26

95 4,979 14,563 19,542 364,078 25

96 4,788 14,563 19,351 349,515 24

97 4,596 14,563 19,159 334,951 23

98 4,405 14,563 18,968 320,388 22

99 4,213 14,563 18,776 305,825 21

100 4,022 14,563 18,585 291,262 20

101 3,830 14,563 18,393 276,699 19

102 3,639 14,563 18,202 262,136 18

103 3,447 14,563 18,010 247,573 17

104 3,256 14,563 17,819 233,010 16

105 3,064 14,563 17,627 218,447 15

106 2,873 14,563 17,436 203,883 14


22/37

107 2,681 14,563 17,244 189,320 13

108 2,490 14,563 17,053 174,757 12

109 2,298 14,563 16,861 160,194 11

110 2,107 14,563 16,670 145,631 10

111 1,915 14,563 16,478 131,068 9112 1,724 14,563 16,287 116,505 8

113 1,532 14,563 16,095 101,942 7

114 1,341 14,563 15,904 87,379 6

115 1,149 14,563 15,712 72,816 5

116 958 14,563 15,521 58,252 4

117 766 14,563 15,329 43,689 3

118 575 14,563 15,138 29,126 2

119 383 14,563 14,946 14,563 1

120 192 14,563 14,755 0Total 1,308,425 1,499,989 2,815,000


23/37

UBL was set up in 1959 and is today one of Pakistan's major banks in terms ofdeposits and advances with a huge domestic and international network. Its salient

features are:

Company Description:

UBL is a Banking Company, which is engaged in Commercial & Retail Banking and

related services domestically and overseas.

H istory of the Company:

UBL was established in 1959 and is one of the major commercial banks of Pakistan.

The Bank is making every effort to meet the up-coming challenges through strategic

planning and making the best use of the resources at its command. A professional

team was appointed in mid 1997 to restructure the bank and to commence

rightsizing. The management is also in the process of rationalizing the branch

network and identifying and recovering its doubtful and classified portfolio. It has

planned to institute major improvements in customer services and internal systems

to improve efficiency. It also intends to launch innovative products. The bank is

increasing resource mobilization through regular deposit campaigns and accelerating

the process of recovery of outstanding advances and non-performing assets.

Operational Structure:

UBL operates 1375 domestic and a subsidiary viz. United Executors and Trustees

Company Ltd. as on 30.06.2000. It has 20 overseas branches situated in the UK, USA,

UAE, Yemen, Bahrain and Qatar. It also operates one offshore branch in the Export

Processing Zone, Karachi and it has representative offices in Cairo-Egypt and Tehran-

Iran. It also has a joint venture Oman United Exchange Co., Oman Muscat and a

subsidiary United Bank A.G. Zurich, Switzerland set up in 1968. It has 21 ATMs with8 in the UAE, 3 in Bahrain, 1 in Doha, 7 in Islamabad and 2 in Karachi.


24/37

Vision

To be a world class bank dedicated to excellence, and to surpass the highest

expectations of our customers and all other stakeholders.

MISSION:

Our mission is to:

1. Set the highest industry standard for quality across all areas of operation, on a

sustained basis;

2. Optimize people, processes and technology to deliver the best possible financial

solutions to our customers;

3. Become the most sought after investment;

4. Be recognized as the employer of choice.

UBL DRIVE ( CAR FINANCING )

UBL Drive is a unique auto financing product which offers you features, options

and flexibility unmatched by any other bank, because at UBL, You come first.New Car Financing

UBL Drive allows you to drive away in your own car by making a down paymentof just 15% and to top that with low monthly installments.

Pricing Plan

Tenure 1 to 2 years 3 to 4 years 5 to 6 years 7 yearsRate 20.00% 20.50% 21.00% 21.50%

Used Car FinancingWith UBL Drive you can buy your favorite used car (up to 5 years old) at the

most affordable rates.


25/37

Pricing Plan

Tenure 1 to 2 years 3 to 4 years 5 yearsRate 21.00% 21.50% 22.00%

Car Replacement Plan

Drives Car Replacement Plan is the slogan name for a premier auto financing

product. Customers who intend to avail loan facility from UBL Drive under this

variant can readily have their existing cars replaced after a year of financing.

Product Features

Free Tracking Device

Option will be provided to the customers on affordable rates. this will be done incollaboration with the insurance companies on our panel.Free L ife I nsurance Coverage

Includes accidental death coverage and medical reimbursement to the customers

in case of any unforeseen circumstances.Zero Pre-Payment Penal ty

No penalty will be charged from the customer if the loan is been paid off after a

year.Payment H olidays

A unique concept whereby which payment breaks will be given to the customerson occasions such as Eid etc. Payment Holidays will be givenonce a year to the

customers.Payment Flexibil ity

Whereby which the customer will be provided the flexibility to change the loan

tenor, opt for partial payment of the outstanding principal amount.


26/37

I nsurance OptionsUBL Drive offers you the following insurance options:

Comprehensive insurance

Insurance financing for the first year

Discounted rates with Trakker car security device

installed at customers' cost

Processing Charge

A processing charge of Rs. 5,000 will apply.

Financing Details

Vehicle Honda City I-DSI CVT 1.3L

Price Rs. 1,359,000

Tenure 5 Years

Security deposit

( 15%-50% )15%

Financed amount Rs. 1,155,150

Markup 18%Insurance co. NJI

Insurance rate 4.5%

Rates are inclusive of mandatory tracker unit cost, installation and annual monitoring charges.


27/37

I nitial Cash Outlay

Security deposit Rs. 203,850

Insurance premium

1st Year Rs.61,155

Total upfront

payment Rs.265,005

Schedule of Bank Charges*

Application Processing Fee Rs.5,000/-(Non-Refundable)

Including 16% FED Charges

Early settlement charges 1. Termination prior to delivery of vehicle,

upto 11.60% of outstanding amount at thetime of settlement.2. Termination after delivery of vehicle, upto

5.80% of outstanding amount at the time of

settlement.

Partial Payment allowed upto 20% of Principalper annum

Charges upto 5.80% of Partial Paymentamount.

Re-possession Charges Actual - upto Rs.35,000/-

Plus FED @ 16% to be recovered

Late Payment Charges Upto Rs.600/- Flat per late payment

Monthly I nstalments

MonthsMonthly installment

w/o insuranceInsurance Total monthly payment

1-12 29,965 4,587 34,552

13-24 29,965 4,077 34,042

25-36 29,965 3,567 33,532

37-48 29,965 3,058 33,023

49-60 29,965 0 29,965


28/37

UBL HOUSE FINANCE:

Owning a house of your very own is a cherished dream. A lot of planning and hard

work is involved in making this dream come true. That is why, at UBL we aim to

make your decision easier, by offering you the right ingredients that can help yourealize your dream with absolute convenience.

UBL Address empowers you to become the proud owner of a home by offering a

variety of product and pricing options that are flexible yet affordable. So choose the

best product option and pricing to suit your needs.

All product options are amortized and range over a tenor of 3 - 20 years.

Buying a HomeWhy rent when you can buy? Buying a home of your choice has never been

so easy. With a maximum financing limit of 70% you can easily buy a house

or apartment that best fits your requirements. So go ahead and start the

search for your dream home because with easy and affordable installments

you need not think of renting a house when youve got UBL Address.

Bui lding a Home

Have you ever settled for anything less than perfect? Theres nothing likebuilding your perfect home, your way. With every detail in place like the

elegant French windows or the perfectly manicured lush green lawn, just

the way youve always imagined. By chalking out well planned fund

tranches at each phase of the building process, UBL Address brings you

your dream house one step closer.

Land Plus ConstructionWhat do you do with an empty piece of land? Construct your dream house

with all the aesthetic details youve ever wished for. UBL Address helps you

through every stage of construction by providing you with well planned out

fund tranches so that you can better manage your construction.


29/37

F loating Rate

Payment charges on early payment either partially or full.

Eli gibility Criteria

1. Minimum monthly income: Rs.50,000

2. Age: 23 to 65 years

3. Resident Pakistani

4. Self-employed businessman/professional or salaried individual

5. Minimum loan size: Rs. 500,000

Documentation Requirements

Copy Of NIC

Two recent Photographs each of primary as well as co-borrowers

Signed Lou (Letter of Understanding), which states the applicable rate at the time

of booking of loan.

General Income Documents for Salaried and SEB/SEP are given below. However,

your exact Documentation Requirement as per your specific Segment & Profession

will be communicated to you by our respective ROs.

Segments Docs Requi red

Salaried Employment Certificate confirming last 12 months work

experienceTax Document for the past 24 months

Current Salary Slip

Bank Statement for the last 12 months

SEB/SEP Last 3 years Tax Assessment Order or Registered

Partnership Deed

Bank Statement for the last 12 months

Salary Slip/Salary Certificate

Other Documents are required to substantiate the length of business

Markup RatesBoth Floating and Adjustable Rate Options are available. The Floating Rate Option is

subject to annual revision from the time of loan booking. Any change in the mark

up rate may be either upward or downward revision (if required) after every twelve


30/37

(12) months from the date of the booking of the loan(upward or downward only to

the extent of Kibor).

Markup rates are calculated on the basis of the prevailing one year Karachi Inter-

Bank Offered Rate (KIBOR*) which is taken as the base rate. A margin that varies

from one pricing option to another is charged over and above the base rate, the

details of which are as follows:

Segments Pricing

Salaried KIBOR + 3.5% = Applicable Markup Rate

SEB/SEP KIBOR + 4.5% = Applicable Markup Rate

The applicable markup rate will be the rate prevailing at the month of booking. This

will be communicated to the applicant through the Repayment Schedule -

To know more about the applicable rates for various pricing options, please call UBLPhone Banking at 111-825-888.

* KIBOR is defined as the average rate ask side for one year tenure as published

on Reuters Page KIBOR or as published by Financial Market Association of Pakistan

in case Reuters Page in unavailable.

Penalty & Charges

Type of Penal ty &

ChargesAmount & penalty %age

Late Fees (per

installment)

Rs.1000

Appraisal Charges Rs 5,000

Legal Charges Rs 5,000

Life Insurance Optional

Property Ins Complimentary

Processing Charges Rs 5,000 (Non refundable)

Partial Payoff Max 6 monthly installments.

Penalty charges apply on amount exceeding Rs 50, 000 or 6

monthly installments.

8% for Year 1

5% in Year 2

3% in Year 3 & onwards


31/37

In this option, you get a fixed rate for a period of 12 months, which gets

repriced annually. (Upward or downward, only to the extent of Kibor).

Cost Price: (PKR) 2,500,000 /-

Customer Share: (PKR) 1,000,000 /-

Bank Share: (PKR) 1,500,000 /-

Profit Rate: 15.78 %

Tenure in Years: 10

Segment: Salaried

Months Amount Interest Principal Balance

0 1500000

1 24200.24 18750 5450.24 1494550

2 24200.24 18681.87 5518.37 1489031

3 24200.24 18612.89 5587.35 1483444

4 24200.24 18543.05 5657.19 1477787

5 24200.24 18472.34 5727.91 1472059

6 24200.24 18400.74 5799.51 1466259

7 24200.24 18328.24 5872 1460387

8 24200.24 18254.84 5945.4 1454442

9 24200.24 18180.53 6019.72 1448422

10 24200.24 18105.28 6094.96 1442327

11 24200.24 18029.09 6171.15 1436156

12 24200.24 17951.95 6248.29 1429908

13 24200.24 17873.85 6326.39 1423582

14 24200.24 17794.77 6405.47 1417176

15 24200.24 17714.7 6485.54 1410690

16 24200.24 17633.63 6566.61 1404124

17 24200.24 17551.55 6648.7 1397475

18 24200.24 17468.44 6731.8 1390743

19 24200.24 17384.29 6815.95 1383927

20 24200.24 17299.09 6901.15 1377026

21 24200.24 17212.83 6987.42 1370039

22 24200.24 17125.49 7074.76 1362964

23 24200.24 17037.05 7163.19 1355801

24 24200.24 16947.51 7252.73 1348548

25 24200.24 16856.85 7343.39 1341205


32/37

26 24200.24 16765.06 7435.18 1333770

27 24200.24 16672.12 7528.12 1326241

28 24200.24 16578.02 7622.23 1318619

29 24200.24 16482.74 7717.5 1310902

30 24200.24 16386.27 7813.97 1303088

31 24200.24 16288.6 7911.65 1295176

32 24200.24 16189.7 8010.54 1287166

33 24200.24 16089.57 8110.67 1279055

34 24200.24 15988.19 8212.06 1270843

35 24200.24 15885.54 8314.71 1262528

36 24200.24 15781.6 8418.64 1254110

37 24200.24 15676.37 8523.87 1245586

38 24200.24 15569.82 8630.42 1236955

39 24200.24 15461.94 8738.3 1228217

40 24200.24 15352.71 8847.53 121936941 24200.24 15242.12 8958.13 1210411

42 24200.24 15130.14 9070.1 1201341

43 24200.24 15016.76 9183.48 1192158

44 24200.24 14901.97 9298.27 1182859

45 24200.24 14785.74 9414.5 1173445

46 24200.24 14668.06 9532.18 1163913

47 24200.24 14548.91 9651.33 1154261

48 24200.24 14428.27 9771.98 1144489

49 24200.24 14306.12 9894.13 1134595

50 24200.24 14182.44 10017.8 112457751 24200.24 14057.22 10143.03 1114434

52 24200.24 13930.43 10269.81 1104165

53 24200.24 13802.06 10398.19 1093766

54 24200.24 13672.08 10528.16 1083238

55 24200.24 13540.48 10659.77 1072579

56 24200.24 13407.23 10793.01 1061786

57 24200.24 13272.32 10927.92 1050858

58 24200.24 13135.72 11064.52 1039793

59 24200.24 12997.41 11202.83 1028590

60 24200.24 12857.38 11342.87 1017247

61 24200.24 12715.59 11484.65 1005763

62 24200.24 12572.03 11628.21 994134.5

63 24200.24 12426.68 11773.56 982360.9

64 24200.24 12279.51 11920.73 970440.2

65 24200.24 12130.5 12069.74 958370.5

66 24200.24 11979.63 12220.61 946149.9


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67 24200.24 11826.87 12373.37 933776.5

68 24200.24 11672.21 12528.04 921248.4

69 24200.24 11515.61 12684.64 908563.8

70 24200.24 11357.05 12843.2 895720.6

71 24200.24 11196.51 13003.74 882716.9

72 24200.24 11033.96 13166.28 869550.6

73 24200.24 10869.38 13330.86 856219.7

74 24200.24 10702.75 13497.5 842722.2

75 24200.24 10534.03 13666.22 829056

76 24200.24 10363.2 13837.04 815219

77 24200.24 10190.24 14010.01 801209

78 24200.24 10015.11 14185.13 787023.8

79 24200.24 9837.8 14362.45 772661.4

80 24200.24 9658.27 14541.98 758119.4

81 24200.24 9476.49 14723.75 743395.782 24200.24 9292.45 14907.8 728487.9

83 24200.24 9106.1 15094.15 713393.7

84 24200.24 8917.42 15282.82 698110.9

85 24200.24 8726.39 15473.86 682637

86 24200.24 8532.96 15667.28 666969.8

87 24200.24 8337.12 15863.12 651106.6

88 24200.24 8138.83 16061.41 635045.2

89 24200.24 7938.07 16262.18 618783.1

90 24200.24 7734.79 16465.46 602317.6

91 24200.24 7528.97 16671.27 585646.392 24200.24 7320.58 16879.66 568766.7

93 24200.24 7109.58 17090.66 551676

94 24200.24 6895.95 17304.29 534371.7

95 24200.24 6679.65 17520.6 516851.1

96 24200.24 6460.64 17739.6 499111.5

97 24200.24 6238.89 17961.35 481150.2

98 24200.24 6014.38 18185.87 462964.3

99 24200.24 5787.05 18413.19 444551.1

100 24200.24 5556.89 18643.35 425907.7

101 24200.24 5323.85 18876.4 407031.3

102 24200.24 5087.89 19112.35 387919

103 24200.24 4848.99 19351.26 368567.7

104 24200.24 4607.1 19593.15 348974.6

105 24200.24 4362.18 19838.06 329136.5

106 24200.24 4114.21 20086.04 309050.5

107 24200.24 3863.13 20337.11 288713.4


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108 24200.24 3608.92 20591.33 268122.1

109 24200.24 3351.53 20848.72 247273.3

110 24200.24 3090.92 21109.33 226164

111 24200.24 2827.05 21373.19 204790.8

112 24200.24 2559.89 21640.36 183150.5

113 24200.24 2289.38 21910.86 161239.6

114 24200.24 2015.49 22184.75 139054.8

115 24200.24 1738.19 22462.06 116592.8

116 24200.24 1457.41 22742.83 93849.95

117 24200.24 1173.12 23027.12 70822.83

118 24200.24 885.29 23314.96 47507.87

119 24200.24 593.85 23606.4 23901.48

120 24200.24 298.77 23901.48 0

This will change with the 1 Year KIBOR rate.

COMPARISON:

An Islamic alternative to conventional car financing is Islamic Car Ijarah, which meets

the principals of Islamic Shari'ah. This is the ultimate solution or the best alternative

being considered. Lease is not originally a mode of financing. It is simply atransaction meant to transfer the usufruct of a property from one person to another

for an agreed period and an agreed upon consideration. Leasing can be used as a

mode of financing in the Islamic banks as an alternative to the conventional car

financing. (when we click more, then rest of the material should open up) However

the consideration of leasing as a mode of financing should be based on certain

conditions. It should be understood by all, using it as a mode of financing that it is

not sufficient to substitute the name of interest by the name of rent and the term

mortgage instead of the leased asset. There must be a significant difference betweenleasing and an interest-bearing loan. This form of lease is an alternative to car Ijarah

because it deals with the problem of interest by charging rent only after the car has

been delivered to the client or the lessee. Where as in the conventional car financing

the payment of the rent (interest) starts before the delivery of the car to the lessee

which is nothing but pure interest.


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Moreover in the leasing or Car Ijarah the risk is not entirely of the lessee as in the

case of conventional car financing. The lessee only has the risk of the damage to the

property done due to his negligence otherwise the bank bears all the liability of the

ownership of the car.

Thus car Ijarah is the best alternative chosen for the Islamic mode which is

permissible by Fiqh and Shariah.

One must refrain from making a direct comparison between Islamic banking and

conventional banking (apple to apple comparison). This is because they are

extremely different in many ways. The key difference is that Islamic Banking is basedon Shariah foundation. Thus, all dealing, transaction, business approach, product

feature, investment focus, responsibility are derived from the Shariah law, which

lead to the significant difference in many part of the operations with as of the

conventional

The foundation of Islamic bank is based on the Islamic faith and must stay within the

limits of Islamic Law or the Shariah in all of its actions and deeds. The original

meaning of the Arabic word Shariah is 'the way to the source of life' and is now used

to refer to legal system in keeping with the code of behaviour called for by the Holly

Qur'an (Koran). Amongst the governing principles of an Islamic bank are :

* The absence of interest-based (riba) transactions;

* The avoidance of economic activities involving oppression (zulm)

* The avoidance of economic activities involving speculation (gharar);

* The introduction of an Islamic tax, zakat;

* The discouragement of the production of goods and services which contradict the

Islamic value (haram)

On the other hand, conventional banking is essentially based on the debtor-creditor

relationship between the depositors and the bank on one hand, and between the


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borrowers and the bank on the other. Interest is considered to be the price of credit,

reflecting the opportunity cost of money.

Islamic law considers a loan to be given or taken, free of charge, to meet any

contingency. Thus in Islamic Banking, the creditor should not take advantage of the

borrower. When money is lent out on the basis of interest, more often that it leads

tosome kind of injustice. The first Islamic principle underlying for such kind of

transactions is "deal not unjustly, and ye shall not be dealt with unjustly" [2:279]

which explain why commercial banking in an Islamic framework is not based on the

debtor-creditor relationship.

The other principle pertaining to financial transactions in Islam is that there should

not be any reward without taking a risk. This principle is applicable to both labor and

capital. As no payment is allowed for labor, unless it is applied to work, there is no

reward for capital unless it is exposed to business risk.

Thus, financial intermediation in an Islamic framework has been developed on the

basis of the above-mentioned principles. Consequently financial relationships in

Islam have been participatory in nature.

Lastly, for the interest of the readers, the unique features of the conventional

banking and Islamic banking are shown in terms of a box diagram as shown below:-

Conventional Banks Islamic Banks

1. The functions and operating modesof conventional banks are based onfully manmade principles.

1. The functions and operating modesof Islamic banks are based on theprinciples of Islamic Shariah.

2. The investor is assured of apredetermined rate of interest.

2. In contrast, it promotes risk sharingbetween provider of capital (investor)and the user of funds (entrepreneur).

3. It aims at maximizing profit withoutany restriction.

3. It also aims at maximizing profit butsubject to Shariah restrictions.

4. It does not deal with Zakat. 4. In the modern Islamic bankingsystem, it has become one of theservice-oriented functions of theIslamic banks to be a Zakat CollectionCentre and they also pay out theirZakat.


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5. Lending money and getting it backwith compounding interest is thefundamental function of theconventional banks.

5. Participation in partnership businessis the fundamental function of theIslamic banks. So we have tounderstand our customer's businessvery well.

6. It can charge additional money(penalty and compounded interest) incase of defaulters.

6. The Islamic banks have no provisionto charge any extra money from thedefaulters. Only small amount ofcompensation and these proceeds isgiven to charity. Rebates are give forearly settlement at the Bank'sdiscretion.

7. Very often it results in the bank'sown interest becoming prominent. It

makes no effort to ensure growth withequity.

7. It gives due importance to thepublic interest. Its ultimate aim is to

ensure growth with equity.

8. For interest-based commercialbanks, borrowing from the moneymarket is relatively easier.

8. For the Islamic banks, it must bebased on a Shariah approvedunderlying transaction.

9. Since income from the advances isfixed, it gives little importance todeveloping expertise in projectappraisal and evaluations.

9. Since it shares profit and loss, theIslamic banks pay greater attention todeveloping project appraisal andevaluations.

10. The conventional banks givegreater emphasis on credit-worthinessof the clients.

10. The Islamic banks, on the otherhand, give greater emphasis on theviability of the projects.

11. The status of a conventional bank,in relation to its clients, is that ofcreditor and debtors.

11. The status of Islamic bank inrelation to its clients is that ofpartners, investors and trader, buyerand seller.

12. A conventional bank has toguarantee all its deposits.

12. Islamic bank can only guaranteedeposits for deposit account, which is

based on the principle ofal-wadiah,thus the depositors are guaranteedrepayment of their funds, however ifthe account is based on themudarabah concept, client have toshare in a loss position..