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SUBMITTED BY: GROUP-A ROLL NO: 1 TO 50 CLASS: BBA-III (M) SUBJECT: ISLAMIC BANKING SUBMITTED TO: MADAM ANUM

Group(A) Members
Afaque Abdullah Shah Aftab Ahmed Ahtisham Ali Gul Amrita Anum Asif Ali Gad Asma Parveen Bilal Ali Dayo Bushra Fatima Danish Faraz Ahmed Ghulam Abbas Hafeezullah Ibrar Ahmed Iftikhar Ahmed Javed Iqbal Kamran Hussain Kanwal Saba Komal Kumari Manzoor Lashari Muhammad Noman Moomal Soomro Muhammad Ali Rajpar

Roll #
101 104 105 107 109 111 112 118 120 123 124 125 128 132 134 136 139 140 141 142 143 145 148 149 150

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A Network under the Supervision of the Community

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ACKNOWLEDGEMENT

By the Grace of Almighty Allah, the most Merciful, and the most Beneficial, due to the bounteous blessing of Almighty Allah, we become able to contribute this report on the topic i.e. Community Development Banks. We are thankful to our subject teacher . Madam Anum Who gives us chance to express our views in the shape of report. This report will definitely helps us in understanding the The Banking approach in the development of community

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TABLE OF CONTENTS
AbstractVI Banking activities...1-2 Community development banks (CDBs)/ community development financial institutions (CDFIs) /eco banks...3 What is CDBs or CDFIs or Eco Banks? 3 What are the main characteristics of the Community Development Banks? 4 What is the objective of a Community Development Bank? ....................................4 What is the management structure of the Community Development Bank? 5 How do you finance Community Development Banks? ...5 Services of Community Development Banks6 Who are the main potential customers of Community Development Banks? ..7 Understanding the Relevance of Community Development Banks..8
The community development banks assure financial and banking services to different communities 8 A Community Development Bank helps in the process of Community Organization.......9 The Community Development Bank gives visibility and credibility to the neighborhood/municipality and the Community Local Organization..10 The Community Development Bank opens the door for new financing opportunities. ...11 A Community Development Bank boosts the Territorial Capacities...13 The Community Development Bank and the Legal Framework ..14

How to establish a community development bank in a neighborhood/municipality15 Famous community development banks...16 Community development banks v/s Islamic banking..18 Islamic Banking has some concept as CDBs If yes, how? ....................................18 Area Restricted factor takes away from Islam? ..19
Why only micro credits are provided by the CDBs? Why not involving other institution for assistance? 19

Conclusion20

ABSTRACT
This report is highlighting the importance of Community development banks and explaining the roles and functions of CDBs for the development of the community In this report, first we have explained the definition, characteristics, objectives, management structure, financing, services and potential customers of CDBs then we have expounded the importance of CDBs. In last portion of report we have elaborate the establishment procedure of CDBs , famous examples of CDBs and Compare the function of CDBs with Islamic Banking We have concluded that the major difference between CDBs and Islamic banking is that: No concept of profit and loss sharing & Prohibition of Riba (Interest) in CDBs. The concept of area restriction is not prohibited in Islam. In the distribution of Zakat, the first priority is given to the poor family members and the neighborhood. So this concept is similar to the Area restriction of CDBs i.e. the first priority is given to community in case of employment opportunity of bank or any other financial facilities. CDBs arent working as the commercial bank, who gives financial assistance to middle class and high class people at higher interest rates. They are working for in low-income communities and gives financial assistance at lower interest rate for their development. CDBs lend the amount which is collected through funds and donation of the Government & the members of the community The data which is accumulated in this report has been collected through secondary sources

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BANKING ACTIVITIES

Banks' activities can be divided into

Retail Banking Dealing directly with individuals and small businesses

Business Banking Providing services to mid-market business

Corporate Banking Directed at large business entities

Private Banking Providing wealth management services to high net worth individuals and families

Investment Banking Relating to activities on the financial markets

Most banks are private enterprises. However, some are owned by government. Types of Retail Banking There are several types of notable retail banks. These include the offshore, community and savings banks, as well as the community development banks, building societies, postal savings banks, ethical banks and Islamic banks. Note:

Offshore banks operate in areas of reduced taxes, as compared to the country in which the investor lives in. This is why most offshore banks are private banks.

Community banks are monetary organizations operated on a local basis, while

Community development banks cater to the populations or markets that have typically not been served properly.

COMMUNITY DEVELOPMENT BANKS (CDBS)/ COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS (CDFIS) /ECO BANKS

What is CDBs or CDFIs or Eco Banks?? The mission is to support and provide resources for low-income communities which are traditionally financially underserved. Unlike ordinary banks with one (financial) bottom-line, community development banks also consider the social impact of the loans they make, and measure their success based on a double bottom-line (supporting people and communities, and operating profitably) or a triple bottom-line (which also includes environmental impact)

What are the main characteristics of the Community Development Banks? 1. The community itself decides to create the bank, becoming its manager and proprietor 2. It always acts with two credit lines: one in Real currency (Rs) and another one in circulating social currency 3. Its credit lines stimulate the creation of local production and consumption networks, promoting the endogenous development of the area 4. It supports enterprises, as a commercialization strategy (solidarity shops, fairs, central office for commercialization etc. 5. It acts in areas characterized by a high degree of exclusion and social inequality 6. It is aimed at a public characterized by a high degree of social vulnerability, in particular the beneficiaries of governmental programs 7. It aims to become financially sustainable in the short term, obtaining subsidies justified by their social utility. What is the objective of a Community Development Bank? Promote the development of low income areas, through the encouragement and creation of local production and consumption networks, with the support of the economic initiatives of the Solidarity Economy and its diverse scope. For instance: socioproductive enterprises, service provider, support for commercialization (markets, solidarity fairs) and consumer organizations.
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What is the management structure of the Community Development Bank? CDBs are managed from within the structure of the community organizations (associations, councils, forums etc) and other type of civil society initiatives that are recognized within the community (unions, NGOs, Church). Thus, its functioning involves the establishment of a team in charge of the executive coordination at the heart of the associative organization itself. Accordingly, its management involves a shared dimension with strong components of local social control, based on the mechanisms of direct democracy. How do you finance Community Development Banks? Its financing is done through access to public resources as well as a solidarity fund for community investment. This fund is formed by multiple sources of funding, from private donations from people and/or legal entities, membership fees (person or Legal entity), commercial services provided that face no competition and other types of services provided.

Services of Community Development Banks

They make lots of loans to help people and organizations in lowincome communities buy homes

Start small businesses

Develop non-profits, and build and rehab affordable housing.

They may also make small loans to individuals abroad (micro-credit). They often make loans to people who have trouble finding loans anywhere else-- people with bad credit histories or no credit history at all, people without collateral or cosigners-- so they take on a somewhat greater risk than traditional banks. But the rate of default on their loans is actually pretty comparable to traditional banks

Who are the main potential customers of Community Development Banks? CDBs are aimed at a public characterized by a high degree of social vulnerability. In particular, because of its condition as a citizens initiative focused on the development of the area. Such experiences should also involve other types of publics in some specific market segments, for instance: women, the youth, merchants, new entrepreneurs, etc.

UNDERSTANDING THE RELEVANCE OF COMMUNITY DEVELOPMENT BANKS


The community development banks assure financial and banking services to different communities CDBs offer financial services to the community, some of these services are provided by the bank itself and some through partnerships with public banks. At the moment without any legal framework for solidarity finances the CDB functions in partnership with a public bank characterizing itself as a banking correspondent. This partnership allows the CDBs to bring banking services to the most remote communities. Services that otherwise would only be available at the conventional banks. If it were not for the CDBs it is unlikely that there would be any financial services in these communities. A commercial bank is not interested in establishing a branch in hard to access areas, characterized by poverty, with specific populations (retired, indigenous people, quilombola2 communities) organized in small groups. Commercial banks need to have profits and those branches would not generate the return expected from a financial institution. The CDB reaches those areas, and places the community as the manager of those services. Established within the headquarters of the community associations, unions, community halls, forums, councils and other social organizations, the CDB contributes to humanizing the process, making the access to financial services available to all, when it used to be a privilege of the few, and furthermore without bureaucracy.

In addition, the CDBs not only deliver those services, but they accomplish this in a different way, therefore contributing to strengthen personal relationships, trust and sense of community amongst the residents. For example: when a resident pays the water bill at the local branch of a commercial bank or at any other authorized location they are simply completing a financial transaction (paying the bills). When the same action takes place in a CDB, it is generating various positive externalities: the resident engages in a conversation with the bank representative, and he/she is updated on the events and news from the community, receives educational material (neighborhood newsletter, etc.), he/she is invited to participate in the events taking place in the neighborhood, and last but not least he/she is informed on the different trainings that the CDB is offering in the weeks to come. Thus, the financial services that the CDBs deliver also function as a tool to increase: peoples confidence, their reception, mobilization and organization of the community. This is what we referred to when we talk about commercial services that face no competition. In these cases, only a CDB would be able to transform a simple water bill payment into a tool of human and social transformation. A Community Development Bank helps in the process of Community Organization. One just needs to take a look at how a CDB is established within a community in order to perceive its great capacity to organize and mobilize. First of all, several meetings need to take place, where it is decided whether to open the bank or not. Later on the community chooses or ratifies the social organization that is going to be responsible for the management of the bank. Once this is done, the discussion relating to everything about its functioning begins: first the name of the bank, the name of the social currency, the branding, the products, the credit lines, the services and priorities of the bank, summing up, the whole strategy of the CDB within the area of operation.

From there the community selects the managers and credit agents that would be instructed on how to run the bank and its day to day tasks. All that process in itself helps to mobilize the community and contributes to the development of the social actors in the region. As a consequence, the community is also going to collect and demand results as well as voice its opinion. Exercising in that manner a social control over the bank Thus, it becomes clear that the CDB is much more than just an institution that establishes itself in the community simply offering financial services. Its contribution goes beyond that. An agreement is made with the logic of confidence and complementarily which requires dialogue and a community organization process. The strategy for economic development organizes and finances producers and consumers putting each side in constant communication and interaction. The credits are granted through the guaranty of the neighborhood where the neighbor vouches for the ethical behavior of the credit applicant. In order to make the social currency circulate within the community several information sessions have to be organized, along with education campaigns, visits to entrepreneurs and social organizations within neighborhood. This permanent relationship bank + resident + producer + merchant generate synergies for a strong community mobilization process. The participative process constitutes an important part of the DNA of a CDB. Without the strong participation/involvement of the community the methodology is unlikely to succeed. As a result the CDBs are also training schools where people learn to become active citizens, creating/developing what is referred to us human capital, i.e. organized people, expressing their views and deciding about the future of the community. The Community Development Bank gives visibility and credibility to the neighborhood/municipality and the Community Local Organization It is important to remember that a community is not able to establish a bank every day. The audacity to create a CDB, offering credit and other financial services for the community, puts the neighborhood/municipality and the managing association of the bank in foremost position. Experience shows that communities that establish a CDB, in a short period of time, are able to increase their credibility inside and outside the community itself. This is easily explained when observing three critical aspects: first, the bank is owned by the community itself and managed by a
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local community organization; second CDBs are always established in areas characterized by poverty, therefore lacking public and financial services, as a result CDBs become relevant in the development of the area; thirdly operating a circulating social currency, a situation never experienced by the community and hence, completely strange to the regular functioning of the community. All CDBs gain rapid access to the media, and frequently appears in the news. Usually, a CDB becomes well known relatively soon at the national level. This visibility, if properly used can turn into a powerful tool for the community, since it increased the credibility and influence of the neighborhood to be recognized as a space for social innovation. With the implementation of the CDB, the neighborhood/municipali ty is seen as part of the solution, and even if it already had that recognition, it ratifies its capabilities in social entrepreneurship. The visibility and recognition fuel other victories for the CDB and the community. Thus, it is essential that the name of the bank, its currency, brand and logo, carry the identity, characteristics and culture of the local community, linking the image of the bank with its own community. Last but not least, one has to remain weary of the glamour brought by the media. It only makes sense, if things are actually happening. Daily practices are far more important than the fame or popularity that might come from them. Besides, when dont work out, the media goes away just as fast as it arrived The Community Development Bank opens the door for new financing opportunities. Our experience shows us that in the majority of cases, within a year of opening a CDB, the local organization in charge of the bank increases its wealth by 100% to 200%. Not only due to its financial revenues: loans,
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interest rates, fees, but also because since the day it opened its doors, it has been able to find new sources of funding from other partners. New partners are gained because CDBs represent: a) A great entrepreneurial reference with social technology and an innovative capacity in the community b) A great product that serves as an example to other communities c) A practice that positively impacts peoples lives. Another important factor is that the CDB functions in the territory integrated with the local production chain. The bank fosters credit, production, commerce and consumption. This diversity opens the possibility for new projects in different areas. Indeed, this is not automatic. It does not take place in the same way in every single CDBs. Each bank depending on its organizational structure and capacity to formulate ideas is able to get better results in more or less time. It is important to have a sense of opportunity and to take advantage of the chances that lie before you. These opportunities can appear in a seminar, in a visit to the bank, in an interview, during a trip or when reviewing a project. It is important to always be ready and willing. In this respect the following recommendations can be useful when trying to obtain new sources of funding: Always have ready and in hand an explanatory brochure

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It is a key to be aware that a CDB can function as a large bridge that takes the community to new and concrete financial possibilities. Crossing the bridge is something that depends on the strategy and effort of each organization. A Community Development Bank boosts the Territorial Capacities The whole dynamic of a CDB requires a huge learning process for the local leadership and the community as a whole. Learning on the financial and economic fields, the relationship with the public sector, conflict management, interaction with the media, creativity, and showing audacity in many other fields. The community, studies, worries, learns, is better informed, is empowered and thus participates in the discussions in a more decisive way. However, this process of training and learning is only one more benefit to having a CDB inside the neighborhood. The strengthened territorial capacities help foster several movements such as the appearance of new leadership, the development of new struggles, new

To have one or two strategic projects prepared and a brochure in hand

Create the proper office atmosphere.

Having ample knowledge of the numbers and the ability to explain their meaning with clarity.

Emphasize the potential of a CDB and other common procedures

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victories, and an increased citizen eagerness, mobilization and participation of the population. Here lies the true sustainability of a territorial development project: the territorial capacity to create new leaders in order to continue its actions with the firm believe and the local technical skill to take the project forward. The Community Development Bank and the Legal Framework Thus far there is no legal framework for the CDBs. This does not make them illegal. The products developed by the CDB are all within the law: credit, circulating social currency, creating of businesses and social enterprises, shops, fairs and so on and so forth. Even when we put all that together and we call it Community Development Bank, there is no national law that regulates it, i.e. which acknowledges the existence of this instrument referred to as CDB. The importance of the legal framework is critical in order to have access to funds from the federal budget and also to guarantee public policies within the state and municipal spheres.

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HOW TO ESTABLISH A COMMUNITY DEVELOPMENT BANK IN A NEIGHBORHOOD/MUNICIPALITY

Required logistics and resources Generally, in order to establish a CDB it is necessary to mobilize resources to: a) Encourage: the process of community mobilization, the training of resident and bank managers, the development of management tools and one year subsidies for the credit agents. b) Local infrastructure: office, computer, internet c) Credit: starting resources in order to promote production and consumption credits d) Local management entity: it is required to have a local organization responsible for the management of the bank. The ways to mobilize such resources can vary greatly. Normally, besides other types of support, one counts on local governments.

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FAMOUS COMMUNITY DEVELOPMENT BANKS


One of the best known community development banks was ShoreBank, founded in Chicago in 1973.ShoreBank had branches in Chicagos South and West sides, Cleveland, and Detroit. The bank established subsidiaries that provide equity investing, consulting, and environmental banking services and affiliated nonprofits that provide related financing, technical assistance, and consulting services. ShoreBank and its affiliated companies have projects in 30 countries. Notably, ShoreBank incorporated environmental conservation into its mission during the 1990s. On August 20, 2010, ShoreBank's banking operations were closed by the FDIC, reopening under Urban Partnership Bank. The first Community Development Bank was founded in January of 1998 in the neighborhood of Conjunto Palmeira, Fortaleza, and Cear. By 2003, the solidarity finances methodology of CDBs is being discussed in several municipalities as an effective instrument in the generation of income for the poor. One year afterwards, in September of 2004, the second CDB is opened with the name of Banco Par, in the municipality of Paracuru, Cear, 70 Kms away from Fortaleza. By 2005, two more banks are established in the state of Espiritu Santo Banco Bem (Municipality of Vitoria) and Banco Terra (Municipality of Vila Velha). Year after year more banks are established taking us to our current number of 46 CDBs and growing. All CDBs are spread over the states of Par, Maranho, Piau, Paraiba, Bahia, Espiritu Santo, So Paulo, Mato Grosso do Sul and Minas Gerais.
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The Grameen Bank of Bangladesh is a microfinance organization community development bank founded by Muhammad Yunus. The bank has grown into a family of over two dozen for-profit and nonprofit enterprises including the Grameen Foundation, and the Grameen Bank and its founder were awarded the Nobel Peace Prize in 2006.Other famous community development banks (CDBs) or community development financial institutions (CDFIs) or Eco banks are

and

Albina Community Bank in Portland

Carver Federal Savings Bank in New York, NY

Central Bank of Kansas City in Kansas City, MO

City First Bank of D.C. in Washington D.C.

Dryades Savings Bank in New Orleans, LA

Hope Community Credit Union in Jackson, MS

Liberty Bank & Trust in New Orleans, LA

Louisville Community Development Bank in Louisville, KY

Neighborhood National Bank in San Diego, CA

One Pacific Coast Bank in California, Oregon, Washington

Southern Bancorp in Arkadelphia, AR

University National Bank in St. Paul, MN

One United Bank in Boston, MA

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COMMUNITY DEVELOPMENT BANKS V/S ISLAMIC BANKING

Islamic Banking has some concept as CDBs If yes, how? The major difference between CDBs and Islamic banking is that: No concept of profit and loss sharing & Prohibition of Riba (Interest) in CDBs Islamic banks and CDBs have two similar concepts like issuing loans, supporting people & communities, and operating profitably another similar concept is the area restriction described in the next question

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Area Restricted factor takes away from Islam? The concept of area restriction is not prohibited in Islam. In the distribution of Zakat, the first priority is given to the poor family members and the neighborhood. So this concept is similar to the Area restriction of CDBs i.e. the first priority is given to community in case of employment opportunity of bank or any other financial facilities. Why only micro credits are provided by the CDBs? Why not involving other institution for assistance? CDBs arent able to return the macro credits because they are not working as a commercial bank who gives financial assistance to middle class and high class people at higher interest rates. They are working for in low-income communities and gives financial assistance at lower interest rate for their development. CDBs lend the amount which is collected through funds and donation of the Government & the members of the community

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CONCLUSION
The mission is to support and provide resources for low-income communities which are traditionally financially underserved. Unlike ordinary banks with one (financial) bottom-line, community development banks also consider the social impact of the loans they make, and measure their success based on a double bottom-line (supporting people and communities, and operating profitably) or a triple bottom-line (which also includes environmental impact CDBs are aimed at a public characterized by a high degree of social vulnerability. In particular, because of its condition as a citizens initiative focused on the development of the area. Such experiences should also involve other types of publics in some specific market segments, for instance: women, the youth, merchants, new entrepreneurs, etc The community development banks assure financial and banking services to different communities. It helps in the process of Community Organization. The CDBs gives visibility and credibility to the neighborhood/municipality and the Community Local Organization. It opens the door for new financing opportunities & boosts the Territorial Capacities with in the Legal Framework One of the best known community development banks was ShoreBank, founded in Chicago in 1973. Another first Community Development Bank was founded in January of 1998 in the neighborhood of Conjunto Palmeira, Fortaleza, and Cear. The major difference between CDBs and Islamic banking is that: No concept of profit and loss sharing & Prohibition of Riba (Interest) in CDBs. The concept of area restriction is not prohibited in Islam. In the distribution of Zakat, the first priority is given to the poor family members and the neighborhood. So this concept is similar to the Area restriction of CDBs i.e. the first priority is given to community in case of employment opportunity of bank or any other financial facilities. CDBs arent working as a commercial bank who gives financial assistance to middle class and high class people at higher interest rates. They are working for in low-income communities and gives financial assistance at lower interest rate for their development. CDBs lend the amount which is collected through funds and donation of the Government & the members of the community

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