Submitted to : Dr.

Mubeeen Khalid

Submitted by:
Muhammad Shoiab MHRM 23 (Repeater)
Rehman Hanif MHRM 27 (Repeater)
Waqar HanifBS-64-S-F20
Tahir MasoodBS-130-S-F20
ABOUT ISLAMIC BANKING:
Islamic banking is defined as banking system which is in consonance with the spirit, ethos and
value system of Islam and governed 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 based not only to avoid interest-based
transactions prohibited in Islamic Shariah but also to avoid unethical and un-social practices. In
practical sense, Islamic Banking is the transformation of conventional money lending into
transactions based on tangible assets and real services. The model of Islamic banking system
leads towards the achievement of a system which helps achieve economic Prosperity.

PHILOSOPHY OF ISLAMIC BANKING

The philosophy of Islamic banking takes the lead from Islamic Shariah. According to Islamic
Shariah, Islamic banking cannot deal in transactions involving interest/riba (an increase
stipulated or sought over the principal of a loan or debt). Further, they cannot deal in the
transactions having the element of Gharar or Maiser. Moreover, they cannot deal in any
transaction, the subject matter of which is invalid (haram in the eyes of Islam). Islamic banks
focus on generating returns through investment tools which are Shariah compliant as well.
Islamic Shariah links the gain on capital with its performance. Operating within the ambit of
Shariah, the operations of Islamic banking are based on sharing the risk which may arise through
trading and investment activities using contracts of various Islamic modes of finance.

INTRODUCTION OF MEEZAN BANK

• Meezan Bank is the largest Pakistani Islamic commercial bank founded in 2002.
• Meezan Bank is the first and also the largest Islamic Banking Network of the country
over 925 Branches.
• Meezan bank is a publicly listed company with a paid-up capital of Rs. 14.1 billion.
• The bank provides a comprehensive range of Islamic banking products and services
retail banking network.
• The bank has a market share of 35% in the Islamic banking industry of the country.
• Registered Office & Head Office (Meezan Bank Limited, Meezan House, C-25 Estate
Avenue, SITE, Karachi)
MEEZAN HISTORY
• State bank was granted the first ever Islamic Commercial Banking license to
Meezan Bank Ltd in year 2002. Before start of commercial banking, it was an
investment company with the name of Al-Meezan Investment, Al-Meezan
Investment company started its operation in 1997. The Bank has head office at
Meezan House in Karachi.
• The bank has market share of 35% in the Islamic banking industry of the country.
• Being the 4th largest banking network of Pakistan, it has 925 branches in 250 cities
providing a large range of Islamic Banking products and services. Meezan Bank
has a strong Shariah-compliance setup.
VISION STATEMENT
• 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 STATEMENT
• 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
stakeholder’s value through an organizational culture based on learning, fairness, respect
for individual enterprise and performance.

STRUCTURE

Regulatory Framework:

The Regulations applicable vide circulars (issued by Islamic Banking department-SBP) are specifically for Islamic Banking
 Institutions and are in addition to general regulations which are applicable on all banking institutions or as prescribed by State

Bank of Pakistan from time to time.

Regulations by topic:

 Shariah Governance Framework for Islamic Banking Institutions

 Instructions for Profit & Loss Distribution and Pool Management for Islamic Banking Institutions

 Guidelines for Islamic Microfinance Business by Financial Institutions

 Guidelines on Islamic Financing for Agriculture

 Risk Management Guidelines for Islamic Banking Institutions

 Policies for Promotions of Islamic Banking

Functioning:-

Elements of Islamic Bank Business association is fundamentally started for benefit by performing
legal exercises. Banks are likewise one of the business associations that give a bunch of items and
administrations to create benefits. Beginning of Islamic financial practices in Pakistan set out different
dangers and open doors to live up to clients' assumptions by the arrangement of value administrations.
It started a sound contest for Islamic banks to contend with their friends and traditional banks for more
prominent benefits. It was seen that the financial business experienced fierce opposition with banks
and with other monetary organizations to draw in possible clients (Body, 2002). Islamic bank
functions as an exchanging concern and monetary middle person to perform revenue free exercises
simply as indicated by standards of Sharia'h. A government assistance association advances business
and exchange exercises by pooling the monetary assets for benefit and misfortune for common
advantage. It is found that Islamic bank performs exercises in the correct bearing towards human turn
of events. It assumes a positive part towards financial improvement having primary spotlight on
human improvement while carrying out its roles (Al-Harran, 1993). It is reported that banks have seen
more benefits on Murabaha offices when contrasted with typical mortgages because of benefit and
misfortune base of Islamic items (Ebraim, 1999). Uzair (1976) proposed the functioning design of
Islamic bank and made sense of its capabilities. Banking exchanges are attempted among three
gatherings for example real clients of the capital or business visionaries; the bank as a go-between and
incomplete client of assets; the providers of assets or investors. The review suggested that every one of
the exchanges ought to be founded on benefit and misfortune contracts among the concerned
gatherings and solely without interest. It is likewise detailed that Islamic banks could advance reserve
funds and speculation exercises by assurance of a harmony benefit dividing proportion among
investors and borrowers (Siddiqui, 1979). Islamic banks have various open doors in Pakistan with a
populace of over 96% Muslims. Islamic banks need to confront different difficulties because of solid
response from regular banks since they were well established and famous among general society to
meet their necessities. There are 6 undeniable Islamic manages an account with 341 branches offering
revenue free items in Pakistan (SBP, 2007). Ahmad et al. (2010) explored the consumer loyalty's
among Islamic and ordinary banks in Pakistan. A review of 760 bank clients were embraced to
evaluate the clients fulfillment in regards to various capabilities performed by Islamic and traditional
banks in Pakistan. The review reasoned that clients of Islamic banks have higher fulfillment when
contrasted with traditional banks. Islamic banks play out an assortment of asset based and non-reserve
based capabilities to work with their clients. Islamic banks assume a fundamental part in the economy
to advance useful exercises that upgrade financial development and thriving. Islamic banks guarantee
stable economy;fair appropriation of pay; diminish foul play; risk sharing, lesser monetary emergency;
work with creation and business exercises Islamic banks carry out two sorts of roles for example
reserve based and non-store based. Reserve based exercises are called essential elements of Islamic
bank for example acknowledgment of stores from savers on benefit and misfortune premise and loan
cash to insufficient people/specialty units on benefit and misfortune premise. Islamic Bank
acknowledges stores against reserve funds and current records. It acknowledges stores against
venture/bank accounts to create pay under unambiguous speculation record or general speculation
account. Islamic Bank puts this sum into various productive endeavors as a specialist and offers the
results. Bank might get stores from individuals under current record and pay no revenue except for
may charge an expense for its administrations. Islamic banks loan cash to borrowers for present
moment, medium-term and long haul venture (Musharika, Mudariba, Ijara, Salam, Murabaha and so
on) based on benefit and misfortune. In this manner contributor, bank and borrower share chance of
misfortune as per a substantial deal. It makes areas of strength for an on the standards of
straightforwardness and responsibility. Islamic bank plays out some non-store based capabilities like
organization administrations and general utility administrations. Islamic bank can go about as a
specialist to give the various sorts of administrations like assortment of checks, assortment of profits,
execution of standing requests, and buy/offer of protections. It additionally plays out the overall utility
administrations for example an assortment of service bills, unfamiliar trade settlements, giving Hajj
administrations, cash trades and ATM administrations and so on.

Regulatory role of SBP 
One may ask whether all these regulatory measures specified by the Basel Committee are also
necessary for Islamic financial institutions? The answer has to be positive even though on the face of it
one may feel differently. It may be argued that because investment depositors participate in the risk,
Islamic banks should not be subjected to regulations any more than normal corporations are. However,
there is a significant difference. Firstly, there are systemic considerations. While the failure of a
corporation may affect primarily its own Shareholders, who are expected to be on the guard, the
failure of a bank has implications for the health and stability of the whole payments system as
well asthe development of the economy. If depositors lose confidence in the system, they will
withdraw their deposits, which will not only destabilise the financial system but also jeopardise their
availability for financing development. Secondly, there is the interest of demand depositors which
needs to be safeguarded. However, investment depositors also need greater safeguards than what
shareholders do in normal non-bank corporations. This is because of the significantly higher leverage
in banking business. Such leverage would come from demand deposits. The higher the proportion of
demand deposits, the higher would be the leverage. This would necessitate the adoption of certain
procedures by banks to prevent arbitrariness in investment decisions, mismanagement and excessive
risk exposure, and to manage prudently whatever risks they take. They would also have to build
adequate reserves to avoid excessive erosion of investment deposits. Thirdly, it is also necessary to
ensure the faithful compliance of banks with the teachings of the Sharī‘ah. Fourthly, there is the
imperative of making Islamic banks accepted in the inter-bank market of the international financial
system. This will not happen unless they conform to international regulatory standards.
Hence the difference between the nature of Islamic and conventional banking will not reduce the need
for regulations and the related supervision to ensure their effective enforcement. This call for
regulation is, however, not something new. It was also made as long ago as March 1981 by the
governors of central banks and monetary authorities of the member countries of the organizations of
the Islamic Conference (OIC), in their detailed Report on “Promotion, Regulation and Supervision of
Islamic Banks” approved by them in their Fourth Meeting held in Khartoum on 7-8 March 1981.
A number of measures would be needed to ensure the safety of both demand and investment deposits.
Among the most important of these measures would have to be better macro-management of the
economy combined with efficient micro-management of banks under an umbrella of proper
regulation and supervision, and the building of adequate loss-offsetting reserves. These may have to
be reinforced, if necessary, by the insurance of at least demand deposits.
Depositors would be able to safeguard their interests more effectively if they are allowed to participate
actively in the shareholders’ meetings and also to have their representatives on the banks’ board of
directors. Since it would be difficult for them to elect these representatives directly, particularly if the
banks are large and have several branches not only within the country but
also abroad,the regulatory authority may have to play an important role in the appointment of
representatives on behalf of depositors on the banks’ boards of directors. The banks may, however,
resent this, even though this is important not only for safeguarding the depositors’ interests but also for
systemic stability. If such representation is ruled out, then it may be worth considering the
establishment of specialized chartered firms in the private sector to protect the interest of depositors,
just like auditors, one of whose job it is to protect the interests of shareholders. If this is also not
considered feasible, then the only other way to protect the depositors’ interests would be for the
regulator to ensure greater transparency so that the depositors know what is going on and are thus able
to play a greater role in safeguarding their interest. This cannot be sufficient and has to be further
reinforced by effective regulation and supervision.
With respect to conformity with the Sharī‘ah, it is necessary to ensure that the banks faithfully comply
with the conditions laid down by the Sharī‘ah. Such conformity cannot be ensured until all the
outstanding fiqhi issues related to finance have been satisfactorily resolved.29 It is also necessary for
preparing a widely-agreed legal framework, the absence of which is creating obstacles in the path of
developing standardized products for Islamic banking, imposing a penalty on loan defaulters and
compensating banks for the loss of income, and managing risks more effectively through the adoption
of certain techniques used by conventional banks internationally for this purpose. It is also necessary
to specify clearly the specific roles of the Sharī‘ah board, the central bank, and the chartered auditing
firms in ensuring that the banks do not violate the teachings of the Sharī‘ah. This indicates the greater
importance of regulation and supervision in an Islamic financial system, which is still in its embryonic
stage. Without such regulation and supervision, the system may not be able to raise the confidence
of the people in its strength and future prospects for development. Any serious failures at this early
stage will tend to bring the system into disrepute and do tremendous harm to the movement for
Islamisation of the financial system in Muslim countries. However, as indicated earlier, regulation
 should not be so strict and cumbersome that it hurts the profitability and development of Islamic
banks and makes them in competitive in relation to conventional banks. It has also to be determined
what it is that should be stipulated legally and what it is that should be left to the discretion of the
supervisors. A proper understanding of what the two can and cannot accomplish will enable the
financial system to be more flexible and able to develop within the framework of its own country-
specific circumstances. Moreover, regulation should also be accompanied, as discussed later, by a
number of measures to help the proper functioning of Islamic banks in a relatively difficult and hostile
environment.

Investment opportunities for Islamic financial products 

The basic Islamic financial model works on the basis of mutual risk and reward sharing while
avoiding payment and receipt of interest. Any Islamic banking institution is not permitted to finance or
borrow from customers and other banks on interest. Both the customer and the bank share the risk of
investments on agreed terms, and divide profits or losses between them. In addition, investments
should only support practices that are not forbidden; for example, trades in alcohol, pork, betting,
pornography and such. While Islamic financial institutions (IFIs) have not managed to emerge
unharmed from the current financial crisis, the extent of impact has been limited as compared to their
conventional banking counterparts. This has largely been due to Islam’s ban on interest, which
prohibits these institutions from investing in collateralised debt instruments (CDOs), complex hedging
instruments and derivatives, when their primary objective is to mimic underlying securities and seek
only the economic benefits with miniscule risk exposure.Since Islamic banks distanced themselves
from derivatives; they kept relatively safe. However, IFIs have faced other risks. The concentration of
their exposure remained high in real estate, which was also impacted by the international downturn.
• Financing products
Musharakah
Equity participation, investment and management from all Partners; profits are shared
according to a pre-agreed ratio, Losses according to equity contributions
.
Mudarabah
A profit-sharing partnership to which one contributes the capital And the other the
entrepreneurship; or the bank provides the Capital, the customer manages the project.
Profit is shared According to a pre-agreed ratio.

Qard al-Hasanah
Charitable loans free of interest and profit-sharing margins, Repayment
by instalments.A modest service charge is Permissible.

Wakalah
An authorization to the bank to conduct some business on the Customer’s behalf.

Hawalah
 An agreement by the bank to undertake some of the liabilities of The customer for which
the bank receives a fee. When the Liabilities mature the customer pays back the
bank Advance purchase financing products:
 
Murabahah
A sales contract between a bank and its customers, mostly for Trade financing. The bank
purchases goods ordered by the Customer; the customer pays the original price plus a
profit Margin agreed upon by the two parties. Repayment by Installments within a
specified period
 
Istithna’ 
A sales contract between bank and customer where the Customer specifies goods to be
made or shipped, which the Bank then sells to the customer according to a pre-
agreed Arrangement. Prices and instalment schedules are mutually Agreed upon in
advance.
 
Mu’ajjal (Bai al Salam )
Purchase with deferred delivery: A sales contract where the Price is paid in advance by the
bank and the goods are delivered Later by the customer to a designee.
 
Lease and Hire Purchase: 
A contract under which the bank leases equipment to a Customer for a rental fee; at the end
of the lease period the Customer will buy the equipment at an agreed price minus
the Rental fees already paid.

• Deposit products 
Wadi’ah
Deposits, including current accounts (giro wadi’ah)

Mudarabah
Deposit products based on revenue-sharing between depositor And bank, including savings
products withdrawable at any time And time deposit products.

Qard al-Hasanah Unremunerated deposit products, usually for charitable Purposes

(widespread in Iran, but not found in Indonesia)

• Insurance products
Tadamun, Takaful 
Islamic insurance with joint risk-sharing
 
Weblinks
https://www.researchgate.net
https://www.sbp.org.pk
https://elibrary.worldbank.org
https://www.imf.org
https://en.m.wikipedia.org
 
References
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