Islamic Banking

Submitted By: Rizwan Ghani 768

Bilal Hussan 776

Muhammad Ahmad 795

Zafar Iqbal 798

Muhammad Bilal 799

Hafiz.M. Asif 800

Hafiz Muhammad Tanveer 806

Submitted To:
Mrs.: Fouzia Ali

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 Table of Contents
Definitions: ................................................................................................................................ 5

Why Study Islamic Banking and Finance?............................................................................. 5

Shari’ah ................................................................................................................................. 5

Riba ....................................................................................................................................... 5

Islamic banking in Pakistan ..................................................................................................... 6

Islamic banking as defined by state bank of Pakistan .................................................. 6

The philosophy of Islamic banking and finance................................................................... 6

History of Islamic Banking in Pakistan ................................................................................ 7

Islamic Banking Subsidiaries ............................................................................................. 10

The Islamic Banking Global Scenario............................................................................... 12

The Major modes of Islamic banking and finance ............................................................. 14

MURABAHA ......................................................................................................................... 14

IJARAH................................................................................................................................. 14

IJARAH-WAL-IQTINA ........................................................................................................... 15

MUSAWAMAH ..................................................................................................................... 15

BAI MUAJJAL....................................................................................................................... 15

MUDARABAH....................................................................................................................... 16

MUSHARAKA ....................................................................................................................... 16

BAI SALAM........................................................................................................................... 16

The features of State Bank’s Islamic Export Refinance Scheme..................................... 18

An Islamic bank to impose penalty for late payment................................................. 19

Riba ..................................................................................................................................... 21

Prohibition of Riba........................................................................................................... 21

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 By Quran.......................................................................................................................... 21

By Hadit ........................................................................................................................... 21

Riba types........................................................................................................................ 21

Riba An-Nasiyah ............................................................................................................. 21

Riba Al-Fadl ..................................................................................................................... 22

Meezan bank......................................................................................................................... 23

Shariah Supervisory Board ................................................................................................. 23

Vision Meezan Bank ........................................................................................................... 23

Mission ................................................................................................................................. 23

Types of Accounts in Meezan Bank.................................................................................. 23

Riba free saving account .............................................................................................. 29

Dollar Saving Account ................................................................................................... 30

Meezan Bachat Account .............................................................................................. 30

Karobari Munafa Account............................................................................................. 31

Investment types.................................................................................................................... 31

Certificate of Islamic Investment ...................................................................................... 31

Key Features.................................................................................................................... 32

Meezan Aamdan Certificate............................................................................................ 32

Key Features of Meezan Aamdan Certificates............................................................ 32

Meezan Providence Certificate ....................................................................................... 32

Key Features.................................................................................................................... 33

Monthly Mudarabah Certificates ..................................................................................... 33

Additional Features ........................................................................................................ 34

Dollar Mudarabah Certificate .......................................................................................... 34

Consumer Financing ............................................................................................................. 34

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 Car Ijarah ............................................................................................................................ 34

Shariah Compliance.......................................................................................................... 35

Meezan Easy Home ........................................................................................................... 35

Special Benefits of Easy Home....................................................................................... 36

Non-Resident Pakistani Banking ........................................................................................... 36

Non-Resident Pakistani Banking........................................................................................ 36

Advantages of Meezan Home Remittance................................................................. 36

24/7 Banking........................................................................................................................... 36

Debit Card .......................................................................................................................... 36

Meezan Internet Banking .................................................................................................. 39

Difference Between Islamic and Conventional Banking ................................................... 40

Reference............................................................................................................................... 41

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 Definitions:

Islamic banking is a banking system consistent with Islamic law (Shari’ah) principles and guided
by Islamic economics. In particular, Islamic law prohibits the collection and payment of interest.
Generally, it also prohibits trading in financial risk (seen as a form of gambling). It also prohibits
investing in businesses considered haram (prohibited, forbidden), such as those selling alcohol or
pork.

Why Study Islamic Banking and Finance?

Islamic banking is now one of the fastest growing sectors of the financial market place, largely
driven by the new wealth of the Middle East and by the need for Muslims, representing one-fifth
of the world’s population, to find islamically acceptable financial products.

Shari’ah

An Arabic word for Islamic law, or the Law of Allah, Shari’ah governs both secular and
religious life of devout Muslims. It covers religious rituals and many aspects of day-to-day
living, politics, economics, banking, and law.

Riba

The meaning of this Arabic word is close to the charging of interest, which is forbidden by the
Quran. Riba also connotes a loan in which the borrower makes a return to the lender that is more
or better than what was borrowed.

As an overview the rules of Islamic financing are summarized as follows:

a) Any predetermined payment over and above the actual amount of principal is
prohibited.
Islam allows only one kind of loan and that is “qard-el-hassan” (literally good loan) whereby the
lender does not charge any interest or additional amount over the money lent.

b) The lender must share in the profits or losses arising out of the enterprise for which the
money was lent.
Islam encourages Muslims to invest their money and to become partners in order to share profits
and risks in the business instead of becoming creditors. As defined in the Shariah, Islamic
finance is based on the belief that the provider of capital and the user of capital should equally
share the risk of business ventures, whether those are industries, farms, service companies or
simple trade deals.

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c) Making money from money is not Islamically acceptable.
Money is only a medium of exchange, a way of defining the value of a thing; it has no value in
itself, and therefore should not be allowed to give rise to more money, via fixed interest
payments, simply by being put in a bank or lent to someone else. The human effort, initiative,
and risk involved in a productive venture are more important than the money used to finance it.

d) Gharar (Uncertainty, Risk or Speculation) is also prohibited.

Under this prohibition any transaction entered into should be free from uncertainty, risk and
speculation. Contracting parties should have perfect knowledge of the counter values intended to
be exchanged as a result of their transactions. Also, parties cannot predetermine a guaranteed
profit. This is based on the principle of ‘uncertain gains’ which, on a strict interpretation, does
not even allow an undertaking from the customer to repay the borrowed principal plus an amount
to take into account inflation. The rationale behind the prohibition is the wish to protect the weak
from exploitation. Therefore, options and futures are considered as un-Islamic and so are forward
foreign exchange transactions because rates are determined by interest differentials.

e) Investments should only support practices or products that are not forbidden -or even
discouraged- by Islam.
Trade in alcohol, for example would not be financed by an Islamic bank; a real-estate loan could
not be made for the construction of a casino; and the bank could not lend money to other banks
at interest.

Islamic banking in Pakistan

Islamic banking as defined by state bank of Pakistan

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 Shariah. 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.

The philosophy of Islamic banking and finance

Islamic Shariah prohibits ‘interest’ but it does not prohibit all 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
the capital. 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’.

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
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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 best practices 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 2:275, 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, alongwith 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 usufruct taken 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 lesser who assumes
risks and gets rewards of his ownership.

History of Islamic Banking in Pakistan

Steps for Islamization of banking and financial system 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/national level. 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 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 related laws to include provision
of bank finance through PLS, mark-up in prices, leasing and hire purchase.

Separate Interest-free counters started operating in all the nationalized commercial banks, and
one foreign bank (Bank of Oman) on January 1, 1981 to mobilize deposits on profit and loss
sharing basis. Regarding investment of these funds, bankers were instructed to provide financial
accommodation for Government commodity operations on the basis of sale on deferred payment
with a mark-up on purchase price. Export bills were to be accommodated on exchange rate
differential basis. In March, 1981 financing of import and inland bills and that of the then Rice
Export Corporation of Pakistan, Cotton Export Corporation and the Trading Corporation of
Pakistan were shifted to mark-up basis. Simultaneously, necessary amendments were made in the
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related laws permitting the State Bank to provide finance against Participation Term Certificates
and also extend advances against promissory notes supported by PTCs and Mudaraba
Certificates. From July 1, 1982 banks were allowed to provide finance for meeting the working
capital needs of trade and industry on a selective basis under the technique of Musharaka.

As from April 1, 1985 all finances to all entities including individuals began to be made in one of
the specified interest-free modes. From July 1, 1985, all commercial banking in Pak Rupees was
made interest-free. From that date, no bank in Pakistan was allowed to accept any interest-
bearing deposits and all existing deposits in a bank were treated to be on the basis of profit and
loss sharing. Deposits in current accounts continued to be accepted but no interest or share in
profit or loss was allowed to these accounts. However, foreign currency deposits in Pakistan and
on-lending of foreign loans continued as before. The State Bank of Pakistan had specified 12
modes of non-interest financing classified in three broad categories. However, in any particular
case, the mode of financing to be adopted was left to the mutual option of the banks and their
clients.

The procedure adopted by banks in Pakistan since July 1 1985, based largely on ‘mark-up’
technique with or without ‘buy-back arrangement’, was, however, declared un-Islamic by the
Federal Shariat Court (FSC) in November 1991. However, appeals were made in the Shariat
Appellate Bench (SAB) of the Supreme Court of Pakistan. The SAB delivered its judgment on
December 23, 1999 rejecting the appeals and directing that laws involving interest would cease
to have effect finally by June 30, 2001. In the judgment, the Court concluded that the present
financial system had to be subjected to radical changes to bring it into conformity with the
Shariah. It also directed the Government to set up, within specified time frame, a Commission
for Transformation of the financial system and two Task Forces to plan and implement the
process of the transformation.

The Commission for Transformation of Financial System (CTFS) was constituted in January
2000 in the State Bank of Pakistan under the Chairmanship of Mr. I.A. Hanfi, a former Governor
State Bank of Pakistan. A Task Force was set up in the Ministry of Finance to suggest the ways
to eliminate interest from Government financial transactions. Another Task Force was set up in
the Ministry of Law to suggest amendments in legal framework to implement the Court’s
Judgment. The CTFS constituted a Committee for Development of Financial Instruments and
Standardized Documents in the State Bank to prepare model agreements and financial
instruments for new system.

The CTFS in its Report identified a number of prior actions, which were needed to be taken to
prepare the ground for transformation of the financial system. It also identified major Shariah
compliant modes of financing, their essentials, draft seminal law captioned ‘Islamization of
Financial Transactions Ordinance, 2001’, model agreements for major modes of financing, and
guidelines for conversion of products and services of banks and financial institutions.

The Commission also dealt with major products of banks

and financial institutions, both for assets and liabilities side, like letters of credit or guarantee,
bills of exchange, term finance certificates (TFCs), State Bank's Refinance Schemes, Credit

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Cards, Interbank transactions, underwriting, foreign currency forward cover and various kinds of
bank accounts.

The Commission observed that all deposits,

except current accounts, would be accepted on Mudaraba principle. Current accounts would not
carry any return and the banks would be at liberty to levy service charge as fee for their handling.
The Commission also approved the concept of Daily Product and Weight age System for
distribution of profit among various kinds of liabilities/deposits. The Report also contained
recommendation for forestalling willful default and safeguarding interest of the banks, depositors
and the clients.

According to the Commission, prior/preparatory works for introduction of Shariah compliant

financial system briefly included creating legal infrastructure conducive for working of Islamic
financial system, launching a massive education and training program for bankers and their
clients and an effective campaign through media for the general public to create awareness about
the Islamic financial system.

The Finance Minister of Pakistan in his budget speech for the FY02 declared the following:
“ Government is committed to eliminate Riba and promote Islamic banking in the country. For
this purpose a number of steps are under way which are:

A legal framework is designed to encourage practice of Islamic banking by banks and

financial institutions as subsidiary operations of their main operations;

Consultations and exchanges are undertaken with brother Islamic countries and renowned
institutions of Islamic learning such as middle eastern countries and Al-Azhar University
of Egypt, to learn more about their experiences and practices;

Amendments in HBFC Act are being made in line with the directive of the Supreme
Court. With these changes, HBFC would be fully Shariah compliant institution, which
will play an effective role both in promotion of Islamic financing method but also in the
development of the important housing sector;

Shariah compliant modes of financing like Musharaka and Mudaraba will be encouraged
so that familiarity and use of such products is enhanced and their adoption at a wider
scale made possible.

It is government’s intention to promote Islamic banking in the country while keeping in
view its linkages with the global economy and existing commitments to local and foreign
investors”.

The House Building Finance Corporation had shifted its rent sharing operations to interest
based system in 1989. The Task Force of the M/O Law proposed amendments in the HBFC
Act to make it Shariah Compliant. Having vetted by the CTFS, the amended law has been
promulgated by the Government. Accordingly, the HBFC launched in 2001 Asaan Ghar
Scheme in the light of amended Ordinance based on the Diminishing Musharaka concept. A
Committee was constituted in the Institute of Chartered Accountants, Pakistan (ICAP),
wherein the SBP was also represented, for development of accounting and auditing standards
for Islamic modes of financing. The Committee is reviewing the standards prepared by the
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Bahrain based Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) with a view to adapt them to our circumstances and if considered necessary, to
propose new accounting standards.

It was decided in September 2001 that the shift to interest free economy would be made in a
gradual and phased manner and without causing any disruptions. It was also agreed that State
Bank of Pakistan would consider for:

Setting up subsidiaries by the commercial banks for the purpose of conducting Shariah
compliant transactions;

Specifying branches by the commercial banks exclusively dealing in Islamic products,
and

Setting up new full-fledged commercial banks to carry out exclusively banking business
based on proposed Islamic products.

Accordingly, the State Bank issued detailed criteria in December 2001 for establishment of
full-fledged Islamic commercial banks in the private sector. Al Meezan Investment Bank
received the first Islamic commercial banking license from SBP in January 2002 and the
Meezan Bank Limited (MBL) commenced full-fledged commercial banking operation from
March 20, 2002. Further, all formalities relating to the acquisition of Society General,
Pakistan by the MBL were completed, and by June, 2002 it had a network of 5 branches all
over the country, three in Karachi, one in Islamabad and one in Lahore. The MBL now
maintains a long term rating of A+ and short term rating of A1+, assessed by JCR VIS Credit
Rating Co Ltd, signifying a consistent satisfactory performance.

The Government as also the State Bank is mainly concerned with stability and efficiency of
the banking system and safeguarding the interests, particularly, of small depositors. With this
concern in mind it has been decided to operate Islamic banking side by side with traditional
banking. The approach is to institute best practice legal, regulatory and accounting
frameworks to support Islamic banks and investors alike. The year 2002-2003 witnessed
strengthening measures taken in the areas of banking, non-bank financial companies and the
capital markets.

Islamic Banking Subsidiaries

A new clause (aa) was inserted in sub-section (1) of Section 23 of the Banking Companies
Ordinance 1962 by an amendment notified in the Gazette of Pakistan on November 4 2002,
which provided that banks could form subsidiaries for “carrying on of banking business
strictly in conformity with the Injunctions of Islam as laid down in the Holy Quran and
Sunnah.” In January, 2003 the State Bank issued BPD Circular No. 01 outlining detailed
instructions on the remaining two parts of the strategy, viz. setting up of subsidiaries and
Stand-alone branches for Islamic Banking by existing commercial banks. The criteria for
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subsidiaries are almost similar to the criteria for setting up scheduled Islamic commercial
bank with emphasis on complete segregation of accounts of Islamic banking subsidiaries and
the parent banks doing conventional banking. The subsidiaries shall have minimum paid up
capital of Rs 1,000 million that is equal to the capital requirement for full-fledged
commercial banks.
Islamic Banking through Stand-alone Branches

For Part-III of the strategy, guidelines for opening of stand-alone branches for Islamic
banking by existing commercial banks, enlisting eligibility criteria, licensing requirements
and other operational details on the subject were issued on January 1 2003. The criteria
pertain to financial strength of the applicant bank as evident from its capital base (net capital
free of actual and potential losses), adequacy of its capital structure, record of earning
capabilities, future earning prospects of the bank, managerial capabilities, bank’s liquidity
position, track record of the bank’s adherence to prudential regulations, credit discipline,
quality of customer services and the convenience and the needs of the population of the area
to be served by the proposed branches. Further, banks seeking permission should have
CAMELS rating of 1, 2 and 3 in the last ON-SITE inspection and there should not be major
adverse inspection findings against the bank. The applying bank is required to submit
proposal to the State Bank, outlining the following details:

Number of branches along with name of city where the Islamic Banking Branch (IBB) is
to be offered within the next financial year.
Products and services to be offered by the IBB including deposits, financing, investment,
etc.

Method of segregating the funds of IBB from the funds of commercial banking of the
applying bank.

Infrastructure and logistic requirements, including manpower and training programs.

The name, qualification and experience of Shariah Adviser (s), and
Accounting aspects, such as accounting policies to be followed, profit and loss sharing
mechanism, manuals, etc.

The bank will also be required to set up Islamic Banking Division (IBD) at the Head
Office/Country Office in Pakistan. The responsibilities of this Division have been depicted in
detail. The bank would also appoint a Shariah adviser/Shariah Supervisory Committee
consisting of Shariah scholar(s) of repute to advise the IBD on matters pertaining to Shariah.
Moreover, the bank shall ensure that proper systems and controls are in place in order to
ensure segregation of funds and to protect the interest of depositors. The banks shall ensure
proper maintenance of records for all transactions for disclosure of assets, liabilities,
expenses and income of IBD/IBB(s). The IBD will also comply with statutory liquidity and
cash reserve requirements determined by SBP.

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As regards the status of Islamic banking industry in the country (End June 2004), Meezan
Bank is operating with 10 branches in 5 cities as a full-fledged Islamic bank. In addition to it,
5 banks (MCB, Bank of Khyber, Bank Alfalah, Habib Bank AG Zurich and Standard
Chartered Bank) have been issued licenses for 12 dedicated Islamic Banking Branches (IBB)
of which 10 branches are operating in Karachi, Islamabad, Peshawar, Lahore, Faisalabad and
Multan. These banks are planning to offer Islamic banking products in Quetta, Hyderabad,
Gujranwala and other major cities during the year 2004. SBP has also given in principle
approval for opening 10 more Islamic banking branches during 2004 by MCB and Bank
Alfalah.

Habib Bank Limited and Bank Al Habib Limited have been granted in principle approval to
open two Islamic banking branches. They are expected to start these branches during the year
2004. At least five more banks are expected to open Islamic banking branches during the
year ending December, 2004. Applications for two new full-fledged Islamic banks are also
under scrutiny while the license of a foreign Islamic bank is being converted to Islamic
banking. Some of the banks who are operating Islamic banking branches are also offering
Islamic banking products through their existing conventional branches by using hub & spoke
arrangement. It will increase the outreach of Islamic banking products in other cities as well.

The Islamic Banking Global Scenario

Over the last three decades Islamic banking and finance has developed into a full-fledged
system and discipline reportedly growing at the rate of 15percent per annum. Today, Islamic
financial institutions, in one form or the other, are working in about 75 countries of the
world. Besides individual financial institutions operating in many countries, efforts have
been underway to implement Islamic banking on a country wide and comprehensive basis in
a number of countries. The instruments used by them, both on assets and liabilities sides,
have developed significantly and therefore, they are also participating in the money and
capital market transactions. In Malaysia, Bahrain and a few other countries of the Gulf,
Islamic banks and financial institutions are working parallel with the conventional system.

Bahrain with the largest concentration of Islamic financial institutions in the Middle East
region, is hosting 26 Islamic financial institutions dealing in diversified activities including
commercial banking, investment banking, offshore banking and funds management. It
pursues a dual banking system, where Islamic banks operate in the environment in which
Bahrain Monetary Agency (BMA) affords equal opportunities and treatment for Islamic
banks as for conventional banks. Bahrain also hosts the newly created Liquidity Management
Centre (LMC) and the International Islamic Financial Market (IIFM) to coordinate the
operations of Islamic banks in the world. To provide appropriate regulatory set up, the BMA
has introduced a comprehensive prudential and reporting framework that is industry-specific
to the concept of Islamic banking and finance. Further, the BMA has pioneered a range of
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innovations designed to broaden the depth of Islamic financial markets and to provide
Islamic institutions with wider opportunities to manage their liquidity.

Another country that has a visible existence of Islamic banking at comprehensive level is
Malaysia where both conventional and Islamic banking systems are working in a competitive
environment. The share of Islamic banking operations in Malaysia has grown from a nil in
1983 to above 8 percent of total financial system in 2003. They have a plan to enhance this
share to 20 percent by the year 2010. However, there are some conceptual differences in
interpretation and Shariah position of various contracts like sale and purchase of debt
instruments and grant of gifts on savings and financial papers.

In Sudan, a system of Islamic banking and finance is in operation at national level. Like other
Islamic banks around the world the banks in Sudan have been relying in the past on
Murabaha financing. However, the share of Musharaka and Mudaraba operations is on
increase and presently constitutes about 40 percent of total bank financing. Although the
Islamic financial system has taken a good start in Sudan, significant problems still remain to
be addressed.

Like Sudan, Iran also switched over to Usury Free Banking at national level in March 1984.
However, there are some conceptual differences between Islamic banking in Iran and the
mainstream movement of Islamic banking and finance.

Owing to the growing amount of capital availability with Islamic banks, the refining of
Islamic financing techniques and the huge requirement of infrastructure development in
Muslim countries there has been a large number of project finance deals particularly in the
Middle East region. Islamic banks now participate in a wide financing domain stretching
from simple Shariah-compliant retail products to highly complex structured finance and
large-scale project lending. These projects, inter alia, include power stations, water plants,
roads, bridges and other infrastructure projects. Bahrain is the leading centre for Islamic
finance in the Middle East region. The establishment of the Prudential Information and
Regulatory Framework for Islamic Banks (PIRI) by the BMA in conjunction with AAOIFI
has gone a long way towards establishing a legal and regulatory framework to meet the
specific risks inherent in Islamic financing structures.

The BMA has quite recently signed MoU with the London Metal Exchange (LME) to pool
assets to develop and promote Shariah compliant tradable instruments for Islamic banking
industry. The arrangement is seen as a major boost for industry’s integration in the global
financial system and should set the pace for commodity-trading environment in Bahrain.
BMA has also finalized draft guidelines for issuance of Islamic bonds and securities from
Bahrain. In May 03, the Liquidity Management Centre (LMC) launched its debut US$ 250
million Sukuk on behalf of the Government of Bahrain.
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 National Commercial Bank (NCB) of Saudi Arabia has introduced an Advance Card that has
all the benefits of a regular credit card. The card does not have a credit line and instead has a
prepaid line. As such, it does not incur any interest. Added benefits are purchase protection,
travel accident insurance, etc and no interest, no extra fees with No conditions, the card is
fully Shariah compliant. It is more secure than cash, easy to load up and has worldwide
acceptance. This prepaid card facility is especially attractive to women, youth, self employed
and small establishment employees who sometimes do not meet the strict requirements of a
regular credit card facility. Saudi Government has also endorsed an Islamic-based law to
regulate the kingdom's lucrative Takaful sector and opened it for foreign investors.

Islamic banks have also built a strong presence in Malaysia, where Standard & Poor's
assigned a BBB+ rating to the $600 million Sharia-compliant trust certificates (called sukuk)
issued by Malaysia Global Sukuk Inc. Bank Negara Malaysia (BNM) has announced to issue
new Islamic Bank licenses to foreign players. The Financial Sector Master plan maps out the
liberalization of Malaysia's banking and insurance industry in three phases during the next
decade. It lists incentives to develop the Islamic financial sector and enlarge its market share
to 20 percent, from under 10 percent now. A dedicated high court has been set up to handle
Islamic banking and finance cases.

In United Kingdom, the Financial Services Authority is in final stages of issuing its first ever
Islamic banking license to the proposed Islamic Bank of Britain, which has been sponsored
by Gulf and UK investors. The United States of America has appointed Dr. Mahmoud El
Gamal, an eminent economist/expert on Islamic banking to advise the US Treasury and
Government departments on Islamic finance in June 2004.

The Major modes of Islamic banking and finance

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

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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 be taken, 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 become an 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.

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.

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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.

MUSHARAKA

Musharaka 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 delivered later 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.

Can Islamic banks play any role in economic development of the Country?

Islamic banks, while functioning within the framework of Shariah, can perform a crucial task of
resource mobilization, their efficient allocation on the basis of both PLS (Musharaka and
Mudaraba) and non-PLS (trading & leasing) based categories of modes and strengthening the
payments systems to contribute significantly to economic growth and development. Sharing
modes can be used for short, medium and long-term project financing, import financing, pre-
shipment export financing, working capital financing and financing of all single transactions. In
order to ensure maximum role of Islamic finance in development of the economy it would be
necessary to create an environment that could induce financiers to earmark more funds for
Musharaka/Mudarabah based financing of productive units, particularly of small enterprises.
The non-PLS techniques, as acceptable in the Islamic Shariah, not only complement the PLS
modes, but also provide flexibility of choice to meet the needs of different sectors and economic
agents in the society. Trade-based techniques like Murabaha with lesser risk and better liquidity
options have several advantages vis-à-vis other techniques but may not be as fruitful in reducing
income inequalities and generation of capital goods as participatory techniques. Ijarah related
financing that would require Islamic banks to purchase and maintain the assets and afterwards

16
dispose of them according to Shariah rules, require the banks to engage in activities beyond
financial intermediation and can be very much conducive to the formation of fixed assets and
medium and long-term investments.

On the basis of the above it can be said that supply and demand of capital would continue in an
interest-free scenario with additional benefit of greater supply of risk-based capital alongwith
more efficient allocation of resources and active role of banks and financial institutions as
required in asset based Islamic theory of finance. Islamic banks can not only survive without
interest but also could be helpful in achieving the objective of development with distributive
justice by increasing the supply of risk capital in the economy, facilitating capital formation, and
growth of fixed assets and real sector business activities.

Salam has a vast potential in financing the productive activities in crucial sectors, particularly
agriculture, agro-based industries and the rural economy as a whole. It also provides incentive to
enhance production as the seller would spare no effort in producing, at least the quantity needed
for settlement of the loan taken by him as advance price of the goods. Salam can also lead to
creating a stable commodities market especially the seasonal commodities and therefore to
stability of their prices. It would enable savers to direct their savings to investment outlets
without waiting, for instance, until the harvesting time of agricultural products or the time when
they actually need industrial goods and without being forced to spend their savings on
consumption.

Banks might engage in fund and portfolio management through a number of asset management
and leasing & trading companies. Such companies/entities can exist in the economy on their own
or can be an integral part of some big companies or subsidiaries, as in the case of Universal
Banking in Europe. They would manage Investors Schemes to mobilize resources on Mudarabah
basis and to some extent on agency basis, and use the funds so collected on Murabaha, leasing or
equity participation basis. Subsidiaries can be created for specific sectors/operations, which
would enter into genuine trade and leasing transactions. Low-risk Funds based on short-term
Murabaha and leasing operations of the banks in both local as well as foreign currencies would
be best suited for risk-averse savers who cannot afford possible losses, in PLS based
investments. Under equity based Funds, banks can offer a type of equity exposure through
specified investment accounts where they may identify possible investment opportunities from
existing or new business clients and invite account-holder to subscribe. Instead of sharing in the
bank’s profit, the investors would share the profits of the enterprise in which funds are placed
with the bank taking a management fee for its work. Banks can also offer open-ended Multiple
Equity Funds to be invested in stocks.

Small and medium enterprises (SME) sector has a great potential for expanding production
capacity and self-employment opportunities in the country. Enhancing the role of financial sector
in development of SME sub-sector could mitigate the serious problems of unemployment and
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low level of exports. The banks may introduce ‘SME Financing Funds’ with various
geographical locations. The corporate sector and the commercial banks may set up a network of
such Funds under the aegis of SECP by establishing institutions under syndicate arrangements or
otherwise.

The features of State Bank’s Islamic Export Refinance Scheme

The State Bank of Pakistan has introduced a Musharaka-based Islamic Export Refinance Scheme
(IERS) to meet the export financing requirements of banks conducting operations under Islamic
Modes. IBIs can avail this facility under both parts of SBP’s Export Finance Scheme (EFS). The
framework of the IERS is based on the concept of Profit & Loss Sharing. The State Bank shares
the actual profit of the Musharaka pool of the Islamic Bank. However, in case the actual profit of
the pool is more than ongoing rates under conventional EFS, the excess profit so received by
SBP would be credited to the Takaful fund, a reserve fund to be maintained by SBP under
Islamic modes for risk mitigation that would be used to meet future losses arising on
implementation of IERS. Salient features of the Scheme are as under:

The facility is allowed only against transactions, designed on the basis of Islamic Modes
of financing approved by the Shariah Advisor/Board of the concerned bank.

Each Islamic bank shall be under obligation to create a Musharaka pool (having a
minimum of 10 companies - to be achieved in first year of operations) consisting of
financing to blue chip companies on Islamic modes. The blue chip companies shall mean
such companies involved in the export business or other business or both, or a
manufacturing concern marketing their products in Pakistan or abroad, who have
 good track record on the stock exchange or
 have a rating of minimum B + or equivalent by the rating agencies approved by
the State Bank for rating banks in Pakistan, such rating should be acceptable to
the bank as per its own lending policies, for advancing loans, or
 companies having Return on Equity (ROE) during last three years which should
be at least higher than the rates of finance prescribed by the State Bank during
those years on its conventional EFS. In case of a company which is in operation
for less than three years, the ROE of the available number of years shall be
considered. The Islamic Bank shall ensure that companies selected for Musharaka
Pool under the above criteria does not have adverse Credit Information Bureau
report as also export over dues of more than one year.

The State Bank will share in the overall profit (gross income less any provision created
under Prudential Regulations during the period plus amount recovered against prior
periods’ losses and reversal of provision) earned by the Islamic bank on the Musharaka
pool under provisions of the IERS calculated on daily product basis.

If, on the basis of the annual audited accounts of the Islamic Bank, the profit accruing to
the SBP is more than the profit paid to the SBP on quarterly basis as per un-audited
accounts of earnings of the pool, the difference shall be deposited by the Islamic bank,
within 7 days of its determination, in a special non remunerative reserve fund viz.
“Takaful Fund” to be maintained at the office of the SBP BSC (Bank), where the head
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 office/country office of the concerned bank is situated. This arrangement shall remain
effective for all intents and purposes for the duration of the agreement.

If, on the basis of the annual audited accounts of the pool, the share of the State Bank in
the profit works out to be less than the amount, which has already been paid to the State
Bank on provisional basis, the State Bank will refund the excess amount involved out of
balance held in the Takaful Fund, if any.

In the event of loss suffered on the Musharaka pool on the basis of annual audited
accounts, the Islamic bank and the State Bank shall share the loss in the proportion of
their share of investment in the Musharaka Pool expressed on daily product basis. The
share of loss to State Bank will first be met out of credit balance in the Takaful Fund, if
any. The loss not met from the Takaful Fund shall be borne by the State Bank.

In case of loss, the Islamic bank shall be entitled to claim refund on account of share of
profit paid by it to SBP on provisional basis, along with SBP’s share in the loss of
principal amount extended to the Musharaka pool.

An Islamic bank to impose penalty for late payment

In Islamic law it is permissible to penalize a debtor who is financially sound but delays payment
of debt without any genuine reason. Such act of the debtor is unjust as the Prophet (PBUH) has
said, "A rich debtor who delays payment of debt commits Zulm".
A heavy non-performing portfolio and default on part of the clients is a serious problem
confronting the financial institutions all over the world including Pakistan. This problem could
be a threat to success of Islamic banking system. If clients do not honor their commitment in
respect of timely payment of a debt created in installment sale, Murabaha, leasing or do not pay
banks’ share of profit in participatory modes or do not deliver goods at stipulated time in Salam
and Istisnaa, it could cause irreparable loss to the system, the banks and financial institutions and
ultimately to savers and the economy. The jurists allow punishment (T´azir) to such borrower in
the form of fine. In the opinion of some Maliki jurists a delaying borrower would be obliged to
pay for charitable activities. In view of the severity of the problem, all Shariah bodies like
Islamic Fiqh Academy of the OIC, Shariat Appellate Bench of the Supreme Court of Pakistan,
etc. have approved the provision of penalty clause in the contractual agreements that keeps a
balance between the requirement in view of severity of the problem and that of the Shariah
conditions/principles to keep the fine difference between interest and Murabaha profit intact.
However, the penalty proceeds would be used for charity because penalty on default in
repayment cannot become an automatic source of income for the creditor.

Can Islamic banks claim solatium damages on account of late payments?

The contemporary Shariah scholars have evolved a consensus that banks are authorize to impose
late fees on the delinquent. But proceeds of such penalty are to be used for charity purposes.
Only the court or any independent body can allocate any part of the penalty as liquidated
damages / solatium for the banks.

Liquidated damages can be given to banks in case of default on the part of banks’ clients
provided it is based on actual financial loss. The court may reasonably adjust the amount of

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compensation. The ‘actual financial loss’ cannot be the loss in terms of conventional
‘opportunity cost’. It has to be proved by the bankers themselves to the satisfaction of the court
or any arbitrator. However, some Shariah Boards allow Islamic banks to charge from the
defaulter the rate realized by them on their Murabaha portfolio during a specific period. They
also recommend that the financial condition of the client be taken into account.

There is a perception in the West and the USA that Islamic banks finance
terrorists. What is the true situation?
In the post –9/11 global scenario anti money laundering measures by regulatory authorities of
banking and finance have gained extraordinary importance. It is pertinent to indicate in this
regard that Islamic banks, by their nature, are less likely to engage in money laundering and
other illegal activities. They cannot undertake activities which are detrimental to society and its
moral values and have to go through an exhaustive test of Shariah compliance. They are not
allowed to invest in narcotics, casinos, nightclubs, breweries etc. This requires that the clients of
Islamic banking must have business which should be socially beneficial for the society, creating
real wealth and adding value to the economy rather than making paper transactions. Therefore, a
stringent ‘Know Your Customer’ (KYC) policy is an inbuilt requirement for an Islamic bank.

The Governor, State Bank of Pakistan while addressing an international seminar on “The
Financial War on Terrorism and the Role of Islamic Banking” held in London on April 7, 8
2003, observed that Islamic modes of financing and deposit-taking discourage
questionable/undisclosed means of wealth which form the basis of money-laundering operations.
The Islamic banks disclosure standards are stringent because they require the customers to
divulge the origins of their funds in order to ensure that they are not derived from un-Islamic
means. Islamic financing modes are used to finance specific physical assets like machinery,
inventory, and equipment.

Further, the role of Islamic banks is not limited to a passive financier concerned only with timely
interest payments and loan recovery. Islamic bank is a partner in trade and has to concern itself
with the nature of business and profitability position of its clients. To avoid the loss and
reputational risk, the Islamic banks have to be extra vigilant about their clientele. As such,
Islamic banks are less likely to engage in illegal activities such as money laundering and
financing of terrorism than conventional banks.

However, the existence of rogue elements cannot be ruled out in any type of organization.
Keeping this in view, Pakistan has adopted a strategy by adopting uniform international
standards to ensure fair play by all kinds of banks and financial institutions also including
Islamic banks. After reviewing its existing systems and procedures, it has developed a multiple-
track strategy in its financial war on terrorism and money laundering. It has also put in place
stringent regulations in order to effectively curb money laundering. The ‘Know Your Customer’
(KYC) regulation has been sharpened to provide more detailed guidelines to banks/DFI’s for due
20
diligence in respect of customers. All banks are required to properly investigate transactions
which are out of character with the normal operation of the account involving heavy
deposits/withdrawals/transfers.

Riba

Riba is an Arabic word and the word sood we use in our daily life is a Persian word. The
meaning of sood is increase whether legally or illegally.

Prohibition of Riba

By Quran

By Hadit

By Quran

In (surah al-Rum, verse 39)

“That which you give as interest to increase the peoples’ wealth increases not with God; but
that which you give in charity, seeking the goodwill of God, multiplies manifold.”

In (surah al-Baqarah, verse 276)

“God deprives interest of all blessing but blesses charity; He loves not the ungrateful
sinner.”

By Hadit

From Jabir: The Prophet (PBUH) ma cursed the receiver and the payer of interest,

The one oho records it and the two witnesses to the transaction and said: “They are all
alike [in guilt].” (Muslim, Kitab al-Musaqat, Bab la’ ni akili al-riba wa mu’ kilihi; also in
Trimidhi and Musnad Ahmad)

From Abu Hurayrah: The Prophet (PBUH) said:”There will certainly come a time for
mankind when everyone will take Riba and if he does not do so, its dust will reach him”.
(Abu Dawud, Kitab-al-Buyu, Bab Fi Ijtinabi al shubuhat, also in Ibn Majah)

Riba types

Riba An-Nasiyah

Riba Al-Fadl

Riba An-Nasiyah

It is defined as take excessive value of money on money.

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Example: a person take loan from a bank 100,000 and the bank is charging interest at the rate of
15%. This type of interest is called riba an-nasiyah.

Riba Al-Fadl

It is defined as take excessive value of commodity on commodity.

Example: a person take 1000 kg wheat to a person as loan and the wheat lender charging the
wheat borrower excessive wheat at the rate of 100 grams per kg.

Rapid Growth of Islamic Banking:

Total assets of Islamic banks exceed the limits of US $ 5 billion. And the growth rate of Islamic
banking is 12-15%. And in Pakistan the Islamic banking growth rate is 15-22%.

In Pakistan there are working now six full fledge Islamic banks.

The Islamic in Pakistan was started in 1985 but there are some difficulties and mistakes in
working of Islamic banks at that time. Meezan bank is one of them.

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Meezan bank
A publicly listed company incorporated in Pakistan on January 27, 1997. In January 2002,
Meezan Bank was granted first full-fledged commercial banking license dedicated to Islamic
Banking, by the State Bank of Pakistan. Meezan Bank is the largest Islamic Bank in Pakistan
with a network of 166 branches in 40 cities.

Shariah Supervisory Board

The members of the board are:

Justice (Retd). Muhammad Tariq Usmani (Chairman)

Dr. Abdul Sattar Abu Ghuddah

Sheikh Essam M. Ishaq

Dr. Muhammad Imran Ashraf Usmani (Advisor)

Vision Meezan Bank

“Establish Islamic banking as banking of first choice to facilitate the implementation of an

equitable economic system, providing a strong foundation for establishing a fair and just society
for mankind.”

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.”

Types of Accounts in Meezan Bank

Riba Free Current Account

Rupee Saving Account:

Dollar Saving Account:

Karobari Munafa Account:

Meezan Bachat Account:

For opening an account the forms are given here.

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Riba Free Current Account
 Riba-Free Current Account, a flexible Rupee based account that is ideal for individuals
and businesses looking for Shariah compliant banking and professionalism.
 The Meezan Bank Current Account is a comprehensive Halal method of acquiring a
secure and easily maintainable Riba Free bank account.
 Bundled with 24/7 and special banking services, the Meezan Bank Current Account is an
innovative value added account which provides customers both ease of utility and
unmatched service quality.
Key features of the Riba Free Current Account
 Free Online Banking services at all Meezan Bank branches nationwide
 Instant access to funds at any online branch
 No restriction on withdrawals or number of transactions
 Stop Payment & Hold Mail instructions
 24/7 Card your ATM & Debit Card in one
 24/7 Call Center with complete Tele-banking services
 Personal financial consultancy services
 Specialized 8 to 8 banking at selected branches.

Riba free saving account

A unique bank account that offers the opportunity to earn Halal profits, while enjoying a range of
added benefits. It can be opened with a minimum amount of only Rs.10,000. The profit on this
account is calculated and paid on a monthly basis, and comes with a variety of free benefits, no
restrictions on transactions, priority banking and more.

 Minimum amount required to open account= Rs. 10,000

 Riba Free COII Holders may open accounts without any minimum balance
requirements.

Riba Free Rupee Saving Account works under the principles of Mudarabah and is strictly in
conformity with the rules of Islamic Shariah. Profit calculation and all banking transactions are
in strict adherence to the Islamic Shariah, monitored by our Shariah Advisor and the Shariah
Supervisory Board.

Key features of Riba free saving account

 Instant access to funds at any online branch.

 Free Online Banking services at all Meezan Bank branches nationwide
 No restriction on withdrawals or number of transactions
 Bank balance certificates & duplicate statements of account
 Stop Payment & Hold Mail instructions
 24/7 Card your ATM & Debit Card in one
 24/7 Call Center with complete Tele-banking services
 Personal financial consultancy services
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  Specialized 8 to 8 Banking at selected branches

Dollar Saving Account

• a foreign-currency based investment opportunity that is set up on the principles of

Shariah and as a result is free from the element of interest.
• With a minimum of only $100 you can open a Dollar Saving Account with us under a
Mudarabah arrangement
• . The return earned on the Mudarabah pool is calculated every month and the profit ratio
for all investors is declared at the beginning of the month. If you maintain a minimum
average monthly balance of $ 500, you shall be eligible to receive profits that shall be
disbursed to you every month.

Key features of dollar saving account

 No restriction on withdrawals or number of transactions.

 24/7 Call Center with complete Tele-banking services
 Monthly profit payment
 Taking stop payment instructions
 Taking hold mail instructions
 Personal financial consultancy services

Meezan Bachat Account

Meezan Bachat Account is a unique saving account that provides high monthly returns with the
flexibility to withdraw savings if needed. Thus Meezan Bachat Account offers a higher expected
rate of return with the convenience of a savings account.

With a Meezan Bachat Account, you are entitled for a higher the profit with a higher account
balance. You receive profit even if your balance falls below Rs. 25,000/- in any one month.
Profit is credited to your account every month and is calculated with reference to the minimum
balance maintained in the account during the preceding month.

The Riba-Free Meezan Bachat Account works under the principles of Mudarabah and is strictly
in conformity with the rules of Islamic Shariah. Profit calculation and all banking transactions
are in strict adherence to the Islamic Shariah, monitored by our Shariah Advisor and the Shariah
Supervisory Board.

Key Features of Meezan Bachat Account

 Highest expected rate of return

 Riba-free profit paid every month
 Minimum balance for account opening is just Rs.25,000/-
 Maximum balance limit for getting highest profit rate is Rs. 1,000,000/-

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  Waiver of application fee for Car Ijarah & Easy Home for accounts with minimum
balance of Rs. 500,000
 Free Online Banking services at all Meezan Bank branches nationwide
 Free bank balance certificates.
 24/7 Card your ATM & Debit Card in one
 24/7 Call Center with complete Tele-banking services
 Specialized 8 to 8 Banking at selected branches

Karobari Munafa Account

Karobari Munafa is a savings account specifically tailored for large Corporate or GoP controlled
entities. It allows customers to earn higher returns on surplus cash balances. It has no preset
transaction limits and comes with a variety of free packaged benefits.

Key Features

 Profit will be calculated on a Daily Product Basis

 Minimum balance requirement for account opening is Rs. 1 Million

 No restriction on deposits and withdrawals

 Free facilities: cheque books and payorders

 Dedicated account / relationship manager

Investment types

Certificate of Islamic Investment

The Riba Free Certificate of Islamic Investment Certificate is a Shariah compatible investment
certificate with a minimum investment of Rs. 50,000 and tenures from 3 months to 5 years.
Profit on investment may be earned on the following basis:

 Monthly profit on 1, 2, 3 and 5 years (Minimum Investment Rs. 200,000)

 Quarterly profit on 1, 2, 3 and 5 years

 At maturity profit payment for all tenures

 Withdraw your investment any time during the course of your investment.
(Profit shall be paid only after completion of one month of investment)

Riba-Free Certificate of Islamic Investment (COII) works under the principles of Mudarabah and
is strictly in conformity with the rules of Islamic Shariah. Profit calculation and all banking

31
transactions are in strict adherence to the Islamic Shariah, monitored by our Shariah Advisor and
the Shariah Supervisory Board.

Key Features

 High and very competitive returns

 Long-term security ensured
 Pre-mature withdrawal options available
 Free Online Banking services at any of our branches
 24/7 Call Center with complete Tele-banking services
 Specialized 8 to 8 Banking at selected branches

Meezan Aamdan Certificate

 The Riba-Free Meezan Aamdan Certificate (MAC) is a long-term deposit certificate with
an exceptionally high monthly profit designed especially for those individuals and
corporations who are in need of regular stream of monthly income. MAC is a monthly
income (mahana aamdani) certificate with a variety of free packaged benefits.

 Working under the principles of Mudarabah, the Meezan Aamdan Certificate and is
strictly in conformity with the rules of Islamic Shariah. Profit calculation and all banking
transactions are in strict adherence to the Islamic Shariah, monitored by our Shariah
Advisor and the Shariah Supervisory Board.

Key Features of Meezan Aamdan Certificates

 High and very competitive returns

 Ensured Long-term security
 Minimum investment amount: Rs. 100,000/-
 Special attraction for Widows and Senior citizens with minimum investment of PKR
50,000/-
 Available tenures of 5½ years and 7 years
 Profit payment on monthly basis.
 Pre-mature withdrawal options available.
 Free cheque book
 Free ATM withdrawals on investment of Rs.500,000/- and above ( 5 per month)
 Free Online Banking services at all Meezan Bank branches nationwide
 Free Internet banking facility
 24/7 Call Center with complete Tele-banking services
 Specialized 8 to 8 Banking at selected branches

Meezan Providence Certificate

Meezan Providence Certificate is a long-term investment certificate specially designed to

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

Meezan Providence rests on the well known and solid financial strength of Meezan Bank,
which has a strong and credible balance sheet with excellent operating profitability, including
a capital adequacy ratio that has placed the Bank at the top of the industry, a long-term entity
rating of A+, and a short-term entity rating of A1. Furthermore, our sterling track record
shows consistently beneficial and highly competitive returns for our broad range of investors.

Finally, comes the benefit of truly Halal returns, a benefit we may not have had the
opportunity to enjoy before and one that we can now pass on to our employees, many of
whom would be grateful for such an opportunity.

Riba-Free Meezan Providence Certificate (MPC) works under the principles of Mudarabah
and is strictly in conformity with the rules of Islamic Shariah. Profit calculation and all
banking transactions are in strict adherence to the Islamic Shariah, monitored by our Shariah
Advisor and the Shariah Supervisory Board.

Key Features

 Enjoy a range of valuable features including:

 A 100% halal investment in strict compliance with Shariah
 High Returns
 Long-term security ensured
 Minimum investment amount: PKR 1,000,000
 Available tenures of 2, 3, 5 and 7 years
 Pre-mature withdrawal options available

Monthly Mudarabah Certificates

Riba Free Monthly Mudarabah Certificates is a flexible rupee based investment which has been
designed to give you a monthly return. The minimum investment required is only Rs. 100,000
and you receive profit for each complete month of investment with the Bank.

Working under the principles of Mudarabah and in strict conformity with the rules of Islamic
Shariah, the Profit calculation of Monthly Mudarabah Certificates and all other banking
transactions are in strict adherence to the Islamic Shariah, monitored by our Shariah Advisor and
the Shariah Supervisory Board.

The weight ages used for profit calculation of the Monthly Mudarabah Certificate are in the
following tiers:

 Rs. 100K up to Rs. 4.99 Mn

 Rs. 5.00 Mn up to Rs. 9.99 Mn
 Rs. 10 Mn up to Rs. 49.99 Mn
 Rs. 50 Mn up to Rs. 99.99 Mn
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  Rs. 100 Mn up to Rs. 499.99 Mn
 Rs. 500 Mn & above

Additional Features

 A 100% halal investment in strict compliance with Shariah

 Monthly profit payment to your current or saving account with us
 Pre-mature withdrawal options available
 Bank balance certificates
 Free Online Banking services at all Meezan Bank branches
 24/7 Call Center with complete Tele-banking services
 Personal financial consultancy services
 Specialized 8 to 8 Banking and Ladies Banking at selected branches

Dollar Mudarabah Certificate

The Riba Free Dollar Mudarabah Certificate is a flexible dollar based investment which has been
designed under the principles of Mudarabah and is strictly in conformity with the rules of Islamic
Shariah.

The Certificate works under the principles of Mudarabah and is strictly in conformity with the
rules of Islamic Shariah. Profit calculation and all banking transactions are in strict adherence to
the Islamic Shariah, monitored by our Shariah Advisor and the Shariah Supervisory Board.

Key Features

 High and very competitive returns

 Six monthly profit payment to your current or saving account with us
 Long-term security ensured. Minimum investment amount: USD 10,000/-
 Available tenures of 3 months, 6 months, 1 year, and 3 years
 Pre-mature withdrawal options available
 Bank balance certificates
 24/7 Call Center with complete Tele-banking services
 Personal financial consultancy services

Consumer Financing

Car Ijarah

Car Ijarah, Pakistan’s First Islamic Car Financing

As a step towards Meezan Bank’s mission to provide a one-stop shop for innovative value added
Shariah compliant products, Meezan Bank’s Car Ijarah unit provides a car financing, based on
the principles of Ijarah and is free of the element of interest.
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Car Ijarah is Pakistan’s 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 Bank’ 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.

In addition to Meezan Bank leasing of new cars, Meezan Bank also provides the unique
opportunity of leasing second hand, both locally assembled and imported vehicles. 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%. Financing of used cars are subject to a
selection criteria.

Shariah Compliance

Car Ijarah, designed under the supervision of Meezan Banks Shariah Supervisory Board, is
unique to car leasing facilities provided by other banks.

 Difference in the Rights & Liabilities of Owner v/s User

 Calculation of lease rentals in case of total loss or theft of vehicle
 Takkaful instead of Insurance
 Permissibility for Penalty of Late Payment of Rent under Islamic Shariah

Key Features of Car Ijarah

 Low monthly rental

 Rental paid after delivery, not in advanced
 Fastest processing and delivery
 Tracker option available
 Minimum security deposit as low as 10%
 All new, used, local, imported and luxury vehicles can be financed
 Rental Calculations

Meezan Easy Home

Islamic Financing on a Diminishing Musharaka basis

With Easy Home we participate with Meezan Bank in a joint ownership of our property, where
the Bank will provide a certain amount of financing (usually up to 80%). We agree to a monthly
payment to the bank of which a component is for the use of the home, and another for our equity
share. In fact, the total monthly payment is reduced regularly as our share in the property grows.
When we have made the full investment, which had been agreed upon, we become the sole
owner with a free and clear title to the property.

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Special Benefits of Easy Home

 High financing amounts

 Adequate financing against property value
 Flexibility to make partial prepayments
 Minimal processing charges

Non-Resident Pakistani Banking

Non-Resident Pakistani Banking

Meezan Bank Remittance services are simple and reliable. They are available at our doorstep
through a wide and efficient network of corresponding banks worldwide. Only leading global
financial institutions form this network of correspondent banks.

Advantages of Meezan Home Remittance

 Quick Remittance in major currencies i.e. USD, GBP, EUR, JPY, CHF, SGD, AUD
 Extensive branch network in all major cities of Pakistan
 Instant online transfer within our branch network without any charges
 Free Internet banking facility

If we wish to remit money to Pakistan, simply give instructions to our existing bank for money
transfer by providing the name of our preferred Meezan Bank branch and beneficiary account
number.

24/7 Banking

Debit Card

Accepted at most prominent outlets across Pakistan, the Meezan Bank Debit Card offers us
safety, convenience and control on spending 24 hours a day, seven days a week. And unlike
credit cards, there are no monthly bills, no service charges and no late payment fees!

Convenient and simple to use

Step 1

The cashier will swipe the Debit Card across the ORIX machine and enter the purchase amount.

Step 2

Select our desired account from the options: Current or Savings.

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Step 3

Enter your 4-digit PIN for verification. These are same 4 digits as our ATM PIN.

Step 4

After verification, the machine will issue a slip. Confirm our transaction amount and collect our
Debit Card.

Step 5

The transaction is complete and the amount will be debited from our account on the spot.

The purchase limit on our Debit Card is PKR 50,000 per day, subject to sufficient funds being in
our selected account to cover our transaction.

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Meezan Internet Banking

Meezan Internet Banking is the smarter way to bank, providing us global access to our account
24 hours a day, 7 days a week. With Meezan Internet Banking, we can get secure and convenient
access to the following facilities: -

 Balance inquiry of multiple accounts

 View account statement
 Real time cheque status and stop payment request
 Cheque book and pay order request
 Lodging and tracking status of complaints
 Change of mailing address and contact details
 Account activity alerts
To utilize the Meezan Bank internet banking facilities, simply follow the two-step registration
process by filling in the online registration form and submitting a signed indemnity form at our
branch.

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 Difference Between Islamic and Conventional Banking

Sr.
Islamic Banking Conventional Banking
No

1 It is an Islamic banking system It is a conventional banking system

In Islamic bank there is no concept of The conventional banking system is based on

2
interest as well as it opposes the interest interest

3 It opens profit and loss sharing account It opens profit and loss saving account

4 It starts in 1979 in Pakistan It starts in Pakistan form its beginning

It invests customer’s money in Halal It invests customer’s money with interest

5
businesses business

6 It grants home loans on ownership basis It grants home loans for interest

It normally prefers accounts of non-profit It opens all type of organizations and

7
organizations and institutions institutions

8 Consumption (Charity, Zakat, Ushr) Profit (charging interest)

It breaks the chain of flow of money by stress

9 It creates flow of money from rich to poor
on savings

Profit and loss sharing account is opened Profit and loss saving account is opened with
10
with a minimum balance of Rs. 100 a minimum balance of Rs. 500

11 There is chance of loss There is no chance of loss

12 Return on the basis of profit Fixed interest rate

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Reference

http://en.wikipedia.org/wiki/Meezan_Bank_Limited

http://www.islamicbankingcourses.com/

http://www.universityislamicfinancial.com/file/News/BostonFederalReserve.Summer.2006.pdf

http://www.sbp.org.pk/ibd/faqs.asp#q1

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