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8/8/2019 Presentation by Muhammad Asad on Islamic Banking
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Presentation On Islamic Banking
By
Muhammad AsadMBA, ICMA, DAIBP
Head O&S, Bank of Khyber, Pakistan
8th 9th June, 2010
Kabul, Afghanistan
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Presentation On Islamic Banking
Contents
1. Definition
2. Comparison of Islamic and
Conventional Systems
3. Profit Distribution Mechanism4. Concept of Weightages
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Definition (From General Public Point Of View)
Islamic Banking is a system where depositscollected on profit & loss sharing basis areinvested in profitable Projects using any Shariahbased mode and net income/loss is shared
between the depositors and the bank. It has three parts.
Collection of deposits on PLS basis.
Investing deposits in profitable ventures using
shariah based modes. Distributing profit or loss among depositors and
the bank.
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Definition (From Economists Point Of View)
It is the pooling of cash resources (means) of theeconomy and diverting it to projects which havethe greatest positive impact on the GNP anddistributing the benefits of increased GNPamong the segments of the economy.
It has four parts. Pooling of cash resources.
Diverting it to projects which have positive impact onGNP
Distributing GNP benefits among resource providers
Benefiting the Different segments of the economythrough increased GNP.
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Comparison of the Islamic and Conventional systems
Conventional Banking Conventional Banks take deposit on interest
basis and lend on the basis of interest. A part ofinterest is paid to the depositors and the
remaining interest is left for the bank as itsincome. If this residual is more than itsexpenses, it will have Net Income otherwise itwill have Net loss.
Islamic Banking Islamic Banking accepts deposits on PLS basis
and invest in Shariah based modes. Whatever isthe profit, it is shared with depositors. If there isa loss it will also be shared.
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Comparison of the Islamic and Conventional systems
Conventional Banking Equation of Banks FailureAdmn Exp + Interest Exp > Total Income + Reserves
Equation of Banking System Failure
Admn Exp + Interest Exp > Total Income + Reserves + Equity
Islamic Banking (Musharakah Model) Equation of Banks Failure
Net Operational Losses > Reserves + PLS Deposits
Equation of Banking System Failure
Net Operational Losses > Reserves + PLS Deposits + Equity
Net Operational Losses
There is net operational loss if result of following equation is positive.
Net Operational Losses = Admn Exp + Losses (Income) from Invest
Islamic Banking (Mudaraba Model) Equations of Banks Failure
Gross Expense > Income (Loss) E + Income (Loss) C + Management Fee
Equations of System Failure Net Losses from (Investment E + Invest C) + Management Exp > Management Fee + Equity
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Comparison of the Islamic and Conventional systems
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Comparison of the Islamic and Conventional systems
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Comparison of the Islamic and Conventional systems
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Profit Distribution Mechanism
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Profit Distribution Mechanism
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Profit Distribution Mechanism
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Concept of Weightages
What is Weightages? Muslims are very well aware of the Weightages. However, they do not know
it by the name of Weightages. Distribution of wealth between heirs of a
deceased is on the basis of Weightages. In distribution, the Weightages of
Son is 2 and of daughter is 1. It means if a daughter gets one rupee the son
will get two rupees. Deceased property will remain same, and Weightages
of son and daughters will remain unchanged but if heirs are more in
number, each will get less amount, if they are few in number, each will get
more amount.
In the same manner, Bank decide and declare Weightages and distribute
profit on its basis.
Amount of profit to be distributed remains unchanged.
Higher is the Weightages, higher will be the share in profit of the party.
If there are more depositors, each of them will get less profit and profit rate
will be lower as if there are more heirs each will get less and if the heirs are
less each will get more from same amount of distributable assets.
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Concept of Weightages
Weightages:
Decided by the Management under criteria to be applied
uniformly
declared before start of Month.
Criteria set for determining Weightages shall be applied
uniformly.
Bank can reduce Weightages for equity for profit distribution.
In case of loss Weightages shall be ignored. Can not be changed during a month.
displayed on Notice Board as well as website of Bank.
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