You are on page 1of 104

INTERNSHIP REPORT ON

MEEZAN BANK LIMITED


Peoples Colony, Faisalabad

Submitted By,
Muhammad Amir
M.Com. (Finance) Roll # 209 Session 2006-2008 Registration # 2006-GCUF-1868-

Department Of Commerce Government College University Faisalabad.

PREFACE

DEPARTMENT OF Commerce is committed to produce real managers of 21st century. They are generating energetic and efficient managers. Internship program for.M.Com.student is another plus of DEPARTMENT OF COMMERCE. Through internship in growing organizations DEPARTMENT OF COMMERCE is equipping future managers with the practical and professional knowledge of current markets. I have critically observed the working environment of Meezan Bank Ltd. and tried my best to write down a neutral report. I have given many suggestions and recommendation. And I hope that true picture of Meezan bank is being presented in this report. May God accept my uphill struggle?

MUHAMMAD AMIR

ACKNOWLEDGEMENT

All the praise for Almighty Allah, who enabled me, to carry a successful effort, to prepare a report on Meezan Bank Ltd. (MBL) in the best possible way. Specially thanks to Mr.Sohaib umar Branch Manager who gave me substantial support in compiling my work .May this effort prove to be beneficial for all, who go though it and hope that it will meet the examiners approval.

MUHAMMAD AMIR M.COM (Finance).

TABLE OF CONTENTS
Sr # 01 02 03 Ltd. 04 05 06 07 08 09 10 11 12 13 Board Of Directors History of Riba Free Banking Customer Handling Products of the Bank Corporate Department Modes of Financing Car Ijara House Financing Import & export Financial statement 10 17 21 28 33 37 44 46 59 73 Topic Executive Summary Vision Statement & Mission Statement Introduction Of Meezan Bank Page 06 07 08

Executive Summary About Meezan Bank Ltd.


Mudaraba / Modaraba PLS no pain no gain Rubb-ul-mal - capital provider / investor Mudarib - entrepreneur / borrower Profits split between Rubb-ul-mal and Mudarib as agreed Losses only to financier. Looks like non-recourse project finance Looks like syndicated non-recourse project finance Musharaka / Mosharaka Equity investing Limited partnership Profits distributed according to pre-agreed formula Fair share of profits? 95% to investor? Looks like normal equity investments or fund management Sounds like shares Loss sharing? Limited liability to investment

Vision
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 stakeholders' value through an organizational culture based on learning, fairness, respect for individual enterprise and performance.

INTRODUCTION
(Formerly Al-Meezan Investment Bank Ltd.) is a publicly listed company incorporated on January 27, 1997. Meezan Bank was issued an investment banking license under SRO 585-(1)/87 in August 1997, and commenced business in September 1997. In January, 2002 Meezan Bank was granted a full-fledged commercial banking license dedicated to Islamic Banking. 7

Meezan Bank has recently acquired the banking operations of Societe Generale, Pakistan (SG). The deal has been approved by the Shariah Supervisory Board of the Bank and enables Meezan Bank to implement state of the art banking procedures and systems inherited from SG, the 16th largest bank in the world. As a part of this deal, SG has also invested Rs. 100 million in the share capital of Meezan Bank representing approximately 6.7% of the total paid-up capital. Meezan Bank operates strictly under the principles of Islamic Shariah. The Bank has an in-house Shariah advisor, a Ph.D. in Islamic Finance, who monitors all transactions to ensure conformity to Islamic Shariah. Meezan Bank has a paid-up capital and equity of Rs.1.3 billion. The Bank is publicly listed and its shares are traded on the Karachi Stock Exchange. Meezan bank is sponsored by leading financial institutions based in Pakistan, Kuwait, Bahrain and Saudi Arabia and offers innovative Shariah compatible products structured to meet customer needs. The Management team is comprised of highly qualified and experienced professionals sharing a strong commitment to Islamic finance The sponsor shareholders of Meezan Bank are all Leading Financial Institutions. The main sponsors are: Pakistan Kuwait Investment Company (Private) Limited. Shamil Bank of Bahrain E.C. (the commercial and investment banking arm of Dar Al Maal Islami Group, based in Geneva).

Other sponsors include:


Islamic Development Bank, Jeddah Kuwait Awqaf Public Foundation Saudi Pak Industrial and Agricultural Investment Company (Private) Limited The Bank strives to provide efficient commercial banking, services and products that can also be tailor-made to suit customer needs. With a highly professional team dedicated to the cause of Islamic finance, the Bank has established itself as one of the leading Islamic banks in the country. We believe in adding value to our customers' businesses and at the same time endeavoring to deliver competitive risk adjusted returns to our stakeholders.

Share Holding Structure


8

Pakistan Kuwait Investment Company (Pvt.) Ltd Shamil Bank of Bahrain E.C Islamic Development Bank Jeddah Noor Financial Investment Co. Others Total

790 527 190 134 396 2037

BOARD OF DIRECTORS
H. E. Sheikh Ebrahim Bin Khalifa Al-Khalifa (Chairman) (Undersecretary, Ministry of Finance & National Economy,State of Bahrain)

Abdulazim M. A. Al-Shamali 9

Ziad H. Rawashdeh Zaigham Mahmood Rizvi Mohammad Hussain Tarik Kivanc Mazen Khalid Al-Braikan Irfan Siddiqui (President & Chief Executive Officer) Ariful Islam (Chief Operating Officer) Mohammad Ali Qureshi

What Islam is saying


Those who devour usury will not stand except as stands one whom the evil one by his touch hath driven to madness. That is because they say: "trade is like usury but Allah hath permitted trade and forbidden usury.

10

THE KORAN: SURAH 2, VERSE 275

THE ISLAMIC SHARIAH BOARD


. Meezan Bank Limited is the first Scheduled Bank in Pakistan, which has been licensed by the State Bank of Pakistan to operate as an Islamic Commercial Bank. The bank operates strictly under the principles of Islamic Shariah. Our Shariah Advisor, Dr. Muhammad Imran Usmani, a PhD in Islamic Finance, monitors transactions on a day-to-day basis to ensure conformity to Islamic Shariah. Our independent Shariah Supervisory Board, comprising of internationally renowned Islamic scholars, regularly reviews the bank's activities and approves new products. The Shariah Board of the bank is as follows: Maulana Muhammad Taqi Usmani (Pakistan) Chairman Dr. Abdul Sattar Abu Ghuddah (Saudi Arabia) Sheikh Essam M. Ishaq (Bahrain) Dr. Muhammad Imran Usmani (Pakistan)

Maulana Muhammad Taqi Usmani Justice Muhammad Taqi Usmani is a renowned figure in the field of Shariah, particularly in Islamic Finance. Currently he holds advisory positions in a number of financial institutions practicing Islamic Banking and Finance. Justice Muhammad Taqi Usmani has vast experience in Islamic Shariah, he has been teaching various subjects on Islam for 39 years. He also holds the position of Judge in the Shariat Appellate Bench, Supreme Court of Pakistan 11

since 1982. He also edits the magazine Albalagh in English and Urdu, and contributes articles in leading Pakistani newspapers. Born in Pakistan, Justice Muhammad Taqi Usmani holds an LLB from Karachi University. He graduated from Punjab University in 1970. Prior to that, he completed Takhassus course i.e. the specialization course of Islamic Fiqh and Fatwa (Islamic Jurisprudence) from Jamia Darululoom Karachi.

Other positions currently held:


Vice President, Darul Uloom Karachi Deputy Chairman/Permanent Member of Islamic Fiqh Academy, Jeddah Chairman, Center for Islamic Economics Pakistan since 1991 Chairman, Shariah Council AAOIFI Chairman, IslamiQ.com's Shariah Board Chairman, Shariah Board Saudi American Bank, Jeddah Chairman, Shariah Board, HSBC plc, Global Islamic Finance, London Chairman, Shariah Board Robert Fleming Oasis Fund, Luxembourg Chairman, Shariah Board Citi Islamic Investment Bank, Bahrain Chairman, Shariah Board Amana Investments Ltd., Sri Lanka Vice Chairman, Shariah Board Abu Dhabi Islamic Bank, Abu Dhabi Member, Dow Jones Islamic Market Indexes Shariah Board

12

DR.ABDUL ABDUL SATTAR ABU GHUDDAH

Dr. Abdul Sattar Abu Ghuddah holds positions of Shariah Advisor and Director, Department of Financial Instruments at Al-Baraka Investment Co. of Saudi Arabia. He holds a PhD in Islamic Law from Al Azhar University Cairo, Egypt. He is an active member of Islamic Fiqh Academy and the Accounting & Auditing Standards Board of Islamic Financial Institutions. Dr. Abdul Sattar teaches Fiqh, Islamic studies and Arabic in Riyadh and has done a valuable task of researching and compiling information for the Fiqh Encyclopedia in the Ministry of Awqaf and Islamic Affairs in Kuwait. He was a member of the Fatwa Board in the Ministry from 1982 to 1990.

Other positions currently held:


Member Shariah Board, IslamiQ.com Member Shariah Board Dow Jones Islamic Market Indexes Member Shariah Board IslamicStocks.com Member Shariah Board, UBS AG (UBS Warburg) Switzerland Member Shariah Board Saudi American Bank Member Shariah Supervisory Board
SHEIKH ESSM M.ISHAQ

Born in Bahrain Sheikh Essam M. Ishaq graduated in Political Science from McGill University, Montreal, Canada. Currently he is teaching Fiqh and Aqeeda courses in UAE and Bahrain at Umm Al-DarDa' Islamic Center. He holds the position of Shariah Advisor at Discover Islam Bahrain. He holds position of Director in a number of Business and Educational institutions, which include: Al Iman Islamic School Muslim Educational Society Discover Islam Zawaya Property Development Middle East Traders

13

DR MUHAMMAD IMRAN ASHRAF USMANI-SHARIAH ADVISOR

Dr. Muhammad Imran Ashraf Usmani is a M. Phil, Ph. D. in Islamic Economics and graduated as scholar from Jamia Darul-Uloom, Karachi and did specialization course in Islamic Jurisprudence. He is also involved in conducting training sessions for Meezan Bank staff in Islamic finance and Shariah issues. Dr. Usmani has been teaching at several branches of Islamic learning since 1998 at Jamia Darul-Uloom, Karachi

Other positions currently held:


Member State Bank Commission for Transformation of Financial System Pakistan Shariah Editor and Advisor, IslamiQ.com London Shariah Advisor, UBS AG (UBS Warburg), Switzerland

As a step towards our mission of providing a one-stop shop for innovative value added products to our customers, Meezan Bank is pleased to offer Riba Free Investment Certificates, Car Ijarah, Current Account, Saving Account, 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. It is! Meezan Bank is an AA- rated public listed company that is quoted on the Karachi Stock Exchange. The State Bank of Pakistan governs the activities of the Bank and its shareholders are world-renowned financial institutions comprising " Pak Kuwait Investment Company (Pvt.) Ltd. " Shamil Bank of Bahrain E.C. " Islamic Development Bank, Jeddah " Kuwait Auqaf Public Foundation " Societe Generale, The French & International Bank " Saudi-Pak Industrial & Agricultural Company

14

Riba
Riba means any excess compensation over and above the principal which is without due consideration, its a premium paid to lender in return for his waiting as a condition for loan

Common Misconceptions
A fixed rate of return is not permitted under Islamic Shariah Fixed rate of return does not make a transaction Halal or Haram Fixed profit on trading Rent on property

RIBA IN THE QUR'AN


1. First Revelation (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." (30: 39) 2. Second Revelation (Surah al-Nisa', verse 161) "And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples' property. We have prepared for those among them who reject faith a grievous punishment (4: 161)" 3. Third Revelation (Surah Al 'Imran, verses 130-2) "O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy." "God deprives interest of all blessing but blesses charity; He loves not the ungrateful sinner." (276)

15

RIBA IN HADITH
A. General 1. From Jabir : The Prophet, , may cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: "They are all alike [in guilt]." 2. Jabir ibn 'Abdallah , giving a report on the Prophet's Farewell Pilgrimage, said: The Prophet, , addressed the people and said "All of the riba of Jahiliyyah is annulled. The first riba that I annul is our riba, that accruing to 'Abbas ibn 'Abd alMuttalib [the Prophet's uncle]; it is being cancelled completely." B. Riba an Nasiyah 1. From Usamah ibn Zayd : The Prophet, , said: "There is no riba except in Nasiyah [waiting]. "There is no riba in hand-to-hand [spot] transactions." ( 2. From Ibn Mas'ud : The Prophet, , said: "Even when interest is much, it is bound to end up into paltriness." C. Riba al-FadI 1) From 'Umar ibn al-Khattab : The last verse to be revealed was on riba and the Prophet, , was taken without explaining it to us; so give up not only riba but also raibah [whatever raises doubts in the mind about its rightful-ness]. (Ibn Majah,) 2) The Prophet, , said, "Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand (spot)." 3) From Abu Sa'id al-Khudri : The Prophet, , said: "Do not sell gold for gold except when it is like for like, and do not increase one over the other; do not sell silver for silver except when it is like for like, and do not increase one over the other; and do not sell what is away [from among these] for what is ready."

16

HISTORY OF RIBA FREE BANKING IN PAKISTAN

1947 The inception of Pakistan as the first Islamic republic created in the name of Islam. 19499 The first constituents assembly based on the ideology of a sovereign Islamic state adopted the objectives resolution. This was the first step in the conception towards Pakistans Constitution. 1956 The first constitution defined Islam as the start Religion and all laws to be according to the injunctions of the Quran and Sunnah. 1962 The establishment of the council of Islam ideology was followed by the conception of the second constitution of Pakistan. 1973 The third constitution of Pakistan was passed allowing comprehensive legislation on Islam principles and establishment of a federal shariat council. 1980 CII presents its report on the elimination of interest genuinely considered to be the first major work in the world undertaken on Islamic Banking and Finance. 1985 Commercial banks transformed their nomenclature-stating rupee serving accounts as interest free however foreign currency deposits in Pakistan and lending of foreign loans continued as before. 17

1991 Procedures adopted by banks in 1985 was declared un Islamic by the FSC. The government and some banks/DFIs made appeals to the shariat appellate bench of the Supreme court of Pakistan. 1997 Al Meezan investment Bank is established as the first Islamic bank of Pakistan. Dr. Muhammad Imran Usmani appointed as resident Shariah advisor. 1999 The shariat appellate bench of the supreme court of Pakistan rejects the appeals and directs all laws on interest banking to cease. The government sets a high level commission task forces and committees to institute and promote Islamic Banking on the parallel basis with the conventional system. 2001 The Shariah advisory board is established at Al Meezan Investment Bank, led by justice (Retd.) Muhammad Taqi Usmani as Chairman. The SBP sets Criteria for the establishment of Islamic Commercial Banks in Private Sector and Subsidiaries and stand-alone branches by existing commercial banks, to conduct Islamic Bank in the country. 2002 The first Islamic Banking license is issued to Meezan Bank by the State Bank of Pakistan.. Societe Generales,(a French commercial Bank) operation in Pakistan were amalgamated with Meezan bank. President General Pervaiz Musharraf inaugurates the first commercial banking branch of Meezan Bank at FTC building, Karachi. 2003 A Musharaka based Export Refinancing scheme is designed by the state bank in coordination of Meezan bank, in order to provide export finance to eligible exporters on the basis of Islamic Modes of Financing. Efforts are underway to develop Islamic money market instruments like Ijarah sukuk to facilitate banks in terms of liquidity and SLR management. Meezan Bank launches Pakistans first Shariah compliant mortgage facility under the supervision of Shariah. 2004 The SBP established a dedicated Islamic banking department by merging the economics division of research department with the Islamic division of the banking policy department. 18

Meezan banks assets management arm, Al- Meezan Investment Management Limited launches the Meezan balanced fund. The offering was oversubscribed 1.25 times.

The real nature of wealth and property


The other fundamental principle, which can help to solve the problem of the distribution of wealth, is the concept of "wealth" in Islam. According to the illustration of the Holy Quran "wealth" in all its possible forms is a thing created by Allah, and is, in principle His "property". Allah delegates the right of property over a thing, which accrues to man, to Him. The Holy Quran explicitly says: "Give to them from the property of Allah which He has bestowed upon you." (24:33). "Have you considered what you till? Is it you yourselves who make it grow, or is it We who make it grow?" And in another verse: "Have they not seen that, among the things made by our own hands. We have created cattle for them, and thus they acquired the right of property over them?" (36:71) All these verses throw ample light on the fundamental point that "wealth", no matter what its form, is in principle "the property of Allah", and it is He who has bestowed upon man the right to exploit it. So Allah has the right to demand that man should subordinate his exploitation of this wealth to the commandments of Allah. It has been clarified more explicitly in the following verse: "Seek the other world by means of what Allah has bestowed upon you, and do not be negligent about your share in this world. And do good as Allah has done good to you, and do not seek to spread disorder on the earth." (28:77) This verse fully explains the Islamic point of view on the question of property. It places the following guidelines before us: 1) Whatever wealth man does possess has been received from Allah. 2) Man has to use it in such a way that his ultimate purpose should be the other world 3) Since wealth has been received from Allah, its exploitation by man must necessarily be subject to the commandment of Allah. 4) Now, the Divine Commandment has taken two forms: a)

Allah may command man to convey a specified production of "Wealth" to another man. This Commandment must be obeyed, because Allah 19

has done good to you, so He may command you to do good to others "do good as Allah has done good to you". b) He may forbid you to use this "wealth" in a specified way. He has every right to do so because He cannot allow you to use "wealth" in a way, which is likely to produce collective ills or to spread disorder on the earth. This is what distinguishes the Islamic point of view on the question of property from the Capitalist and Socialist points of view both. Since the mental background of Capitalism is, theoretically or practically, materialistic, it gives man the unconditional and absolute right of property over his wealth, and allows him to employ it, as he likes. But the Holy Quran has adopted an attitude of disapprobation towards this theory of property, in quoting the words of the nation of Hazrat Shu'aib. They used to say: "Does your way of prayer command you that we should forsake what our forefathers worshipped, or leave off doing what we like with our own property?" (11:87)

Difference between Islam, Capitalism and Socialism


Now we are in a position to draw clear boundary lines that separate Islam, Capitalism and Socialism from one another: Capitalism affirms an absolute and unconditional right to private property. Socialism totally denies the right to private property. But the truth lies between these two extremes - that is Islam admits the right to private property but does not consider it to be an absolute and unconditional right that is bound to cause "disorder on the earth".

Customer Handling
Advertisement Meezan Bank is using following ways for advertisement: Cable TV channel News Papers Billboards Through FM 100 Brochures Electronic Media 20

HOW CAN CUSTOMERS CONTACT with Bank? E- mail Post Phone (UAN number for call center / call on the branchs board numbers) Walk-in

HOW DOES SALE NORMALLY TAKE PLACE? Customer contact through e-mail/post/telephone They reply with complete information package, i.e. brochures, historical rate sheet, fatwa. Customer comes to the branch Detail product information and account opening forms are given.

HOW TO MAKE SALE OVER THE PHONE? Customer call using telephone Brief product introduction Mail brochure and sales letter on request Customer comes to the branch Provision of detailed product information and account opening documents.

HOW TO SELL TO A WALK-IN CUSTOMER? Attend to the walk-in customer Provide brochure/ information packages Convince the customer completely and fill account-opening documents.

OTHER LITERATURE Brochures Historical rates sheet Copy of Fatwa (English & Urdu) Annual Reports

WHAT ARE THE DOCUMENTS PROVIDE TO THE CUSTOMER? Account opening documents 21

Customer relationship information form Investment form Signature card Signed general terms and conditions

DOCUMENTS REQUIRED Copy of NIC card (also see the original) Affidavit for non- deduction of zakat (original or notarized copy)

How many Types of Accounts Meezan Bank offer?


1. 2. 3. 4. 5. 6. 7. 8. Saving /Current Accounts (Individual/Joint) Sole Proprietorship Account Partnership Account Private and Public Ltd Account Minor Account Trust Account Govt. Account Illiterate Account

22

CURRENT ACCOUNT
Basic product features
Minimum amount required to open account= Rs. 10,000 Riba Free COII Holders may open accounts without any minimum balance requirements

What do you need to open an account?


Just fill in the Account Opening Form, bring in your original Identity Card, and get introduced by an existing banker. This is all that you need to open a Current Account with us and enjoy our personalized banking services.

RUPEE SAVING ACCOUNT

23

Basic features of Rupee Saving Account


We offer the following additional conveniences: Choice of Statement Frequency Call Center Facility Free Bank Balance Certificates Personal Financial Consultant Priority Desk for High Net Worth Clients

and

How the Rupee Saving Account is Riba-free? The rate of profit is not fixed Saving Account is based on profit and loss sharing We had a Shariah board which monitor each and every transaction It is based on musharka

How the Saving Account different form other banks saving account? In conventional banking the rate of profit is fixed i.e. Riba They dont share the loss

DOLLAR SAVING ACCOUNT

24

How do I invest in Dollar Saving Account? With a minimum of only $100 you can open a Dollar Saving Account with us under a (Mudaraba Arrangement) that is strictly in conformity with the principles of Islamic Shariah. The return earned on the Mudaraba 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. Is my saving with Meezan Bank secure? It is! Meezan Bank is a public listed company that is quoted on the Karachi Stock Exchange. The State Bank of Pakistan governs the activities of the Bank and its shareholders are world-renowned financial institutions as it is mentioned above: What do I need to open Dollar saving Account an account? Just fill in the Account Opening Form, bring in your original National Identity Card, and get introduced by an existing banker. This is all that you need to open a Riba Free Dollar Saving Account with us and enjoy our personalized banking services.

What additional features are available?

25

Apart from first class service and personalized attention that our customers get when they bank with us, we offer the following additional conveniences to our customers: Personalized cheque-books No restriction on withdrawals or number of transactions. Call center facilities Monthly profit payment Free bank balance certificates Taking stop payment instructions Taking hold mail instructions Issuance of duplicate statement of account Personal financial consultancy services Access to priority desk How the Dollar Saving Account is Riba-Free? The rate of profit is not fixed Saving Account is based on profit and loss sharing Bank had a Shariah board which monitor each and every transaction It is based on Musharakah Agreement

How the Dollar Saving Account different form other banks saving account? In conventional banking the rate of profit is fixed i.e. Riba They dont share the loss

How can you justify that Saving Account is pure Islamic? An important value of an Islamic society is mutual dealing. It also refers to deposits in banks. The operation of fixed deposits and Dollar Savings account in an Islamic banks like Meezan bank is different from conventional banks because the we are based on Musharakah (combination of Shirkah & Mudarabah) in which like conventional banks, people will invest in two ways 1. Participation in setting up the bank like any other company by joint investment and the participants will be called the "shareholders". They will have a partnership effected by a mutual contract since they have used their capital and deed on the bank; and 2. Participation by opening their account in fixed deposit and savings account and participants will be called the "account holders". These will not be the actual owner or 26

shareholders of the bank - rather partners in profit only, meaning that they will have a contract of Mudarabah The status of the bank or the shareholders will be that of a Mudarib and the account holders will be Rubb-ul-mal. The contract known as Musharakah will be a combination of Shirkah and Mudarabah. This is the reason why the profit ratio of depositors is less than the actual shareholders and the depositors will not have any voting power or the right of management because they are not involved in the deed but has only supplied the capital. This kind of dual relationship is not uncommon in Islamic Fiqh. Therefore if the Mudarib (Bank or the shareholders) wants to merge his assets with the assets of depositor, it is allowed in which case he will be regarded as owner of half the assets and Mudarib of the other half. Following facts have been established: 1. In conventional banking, the actual status of deposits is debt and not amanah (anything, which is in possession of a person who is not the owner of it for safekeeping. In case of unintended loss to the thing, he is not obliged to pay compensation). 2. In conventional banking, the excess paid on loan is interest, not profit. 3. If a bank is operating on Islamic principles, as Meezan Bank is, the bank and the depositor will have a partnership through a contract of Shirkah or Mudarabah in which case the depositor's capital will not be regarded as loan. 4. In Islamic banking, the shareholders will act as Rubb-ul-mal as well as Mudarib and the depositors will only act as Rubb-ul-mal. How the profit is distributed? Saving account is converted into Mudarabah account where the distribution of profit for each partner will be determined in proportion to the actual profit accrued to the business and not according to a fixed ratio or in proportion to the capital invested by him. Fixing lump sum amount is not allowed or any rate of profit tied up with any investment. The entire set up of the bank is on Musharakah basis where the relationship of the bank and shareholders is through partnership agreement (Shirkah) because they are participating in labor as well as investment and the relationship between the bank and depositors is only that of Mudarabah because they have only invested without participating in labor. Therefore this combination of Shirkah and Mudarabah is called Musharakah in modern terminology.

27

Products And Services

MONTHLY MUSHARIKA CERTIFICATES


28

Meezan Bank Limited is the first Scheduled Bank in Pakistan, which has been licensed by the State Bank of Pakistan to operate as an Islamic Commercial Bank. The bank operates strictly under the principles of Islamic Shariah. Our Shariah Advisor, Dr. Muhammad Imran Usmani, a PhD in Islamic Finance, monitors transactions on a dayto-day basis to ensure conformity to Islamic Shariah. Our independent Shariah Supervisory Board, comprising of internationally renowned Islamic scholars, regularly reviews the bank's activities and approves new products. The Shariah Board of the bank As a step towards our mission of providing a one-stop shop for innovative value added products to our customers, Meezan Bank is pleased to offer Riba-Free Monthly Musharika Certificates, a rupee based investment opportunity that is set up on the principles of Shariah and as a result is free from the element of interest.

What is Riba-Free Monthly Musharakah Certificates?


Riba-Free Monthly Musharika Certificates is a flexible investment product that has been designed to give you a monthly return, which is Halal. You participate as a partner with the Bank in a pool of investments, which is comprised of Murabaha and Ijarah transactions. The minimum investment required is only Rs. 100,000 and you receive profit for each complete month of investment with the Bank.

How is profit calculated and distributed?


The total earning of the Murabaha and Ijarah pool is calculated at the end of each month and shared between the investors and the Bank on the basis of a profit sharing ratio determined through weight age. The profit rate, so calculated, is applied to all investments, which mature between the periods starting from the 1st day of each month to the last day of the month. Profit to be distributed is net of proportionate administration cost at actual and administration fee up to 1/5th of the profit of the pool. Is my investment with Meezan Bank Secure? Meezan Bank is a public limited company that is listed on the Karachi Stock Exchange. State Bank of Pakistan's rules and regulations govern it and its shareholders comprises of strong world-renowned financial institutions. How is Riba-Free Monthly Musharakah Certificates different from similar accounts with other banks?

29

With your investment in Riba-Free Monthly Musharika Certificates you share in Meezan Bank's income that is derived from Halal transactions. The investor's money along with the Bank's own capital is used to provide financing to customers on the basis of Islamic Instruments only. You share the bank's profit or loss from the pool. However, our experience and expertise warrant that the possibilities of a loss will Inshallah be minimal Can I withdraw my investment at any time? Yes! This facility is available at any time during the course of your investment. However, profit shall be paid only after completion of one month of investment. How do I invest in Riba-Free Monthly Musharika Certificates? Just fill in the Account Opening Form, bring in your original National Identity Card, and get introduced by an existing banker. After opening of an account, you can get your certificates and enjoy our personalized banking services. During your relationship with us, you would be entitled to receiving the following additional benefits. Personalized cheque books No restriction on withdrawals Call center facilities Monthly profit payment to your current or saving account with us. Free bank balance certificates Personal financial consultancy services Access to priority desk

HOW IS PROFIT CALCULATED AND DISTRIBUTED?


Profit to be distributed is net of proportionate administration cost at actual and administration fee up to 1/5th of the profit of the pool Profits to be calculated on average monthly balance and disbursed every month for Saving Account The weight ages used for profit calculation are in the following tiers

1 - Rs. 10,000 up to Rs. 10 Million (there is big gap between 10000 &1000000 clearly shows that wealth circulation. Justice is their for those people that have less amount and falls in millionaires 2 - Rs. 10 Million up to Rs. 50 Million 3 - Rs. 50 Million up to Rs. 100 Million 4 - Rs. 100 Million and above 30

Profit rates and weight ages shall be derived and announced on a monthly basis Incase of Saving Account If during the month the average deposit falls below Rs. 10,000 no profit/loss shall be applicable

Note: All banking transactions at Meezan Bank Limited are in strict adherence to the Islamic Shariah and are monitored by our Shariah Advisor and the Shariah Board These are the following profit distribution rate, which is given by Meezan Bank to their customer, Last seven months. The basic formula for calculation is Principle *rate *days ___________________=Profit 36500 They also give the premium encouragement of their depositors for the

Amount 500k-999k 1M-2.99M 3M-4.99M 5M-9.99M 10m-&above

%P.a 0.20% 0.30% 0.50% 0.750% 100%

*No loss has been occurred yet detected because our bank thinks as every business s mind s thought, to maximized their profit& to eliminates the losses for this they hired processionals &and they are doing their job.

PROFIT DISTRIBUTION
HOW THE PROFIT IS DISTRIBUTED INCASE OF MUSHARAKAH?

Suppose 'A' and 'B' entered into a Musharakah to conduct a business of Rs. 100,000/they agreed that each one of them shall contribute Rs. 50,000/- and they will distribute the profits equally. 'A' did not yet invest his Rs. 50,000/- into the joint pool. 'B' found a profitable deal and purchased two air conditioners for the Musharakah for Rs. 50,000/contributed by him and sold them for Rs. 60,000/-, thus earning a profit of Rs. 10,000/-. 'A' contributed his share of Rs. 50,000/- after this deal. The partners purchased two refrigerators through this contribution which could not be sold at a greater price than Rs. 48000/- meaning thereby that this deal resulted in a loss of Rs. 2000/- Although the transaction effected by 'A's money brought loss of Rs. 2000/- while the profitable deal of air conditioners was financed entirely by 'B's money in which 'A' had no contribution, yet 'A' will be entitled to a share in the profit of the first deal. The loss of Rs. 2000/- in the second deal will be set off from the profit of the first deal reducing the aggregate profit to Rs. 8000/-. Both partners will share this profit of Rs. 8000/- equally. It means that 'A' will get Rs. 4000/-, even though the transaction effected by his money has suffered a loss. 31

The reason is that once the parties enter into a Musharakah contract, all the subsequent transactions effected for Musharakah belong to the joint pool, regardless of whose individual money is utilized in them. Each partner is a party to each transaction by virtue of his entering into the contract of Musharakah. A possible objection to the above explanation may be that in the above example, 'A' had undertaken to pay Rs. 50,000/- and it was known before hand that he would contribute a specified amount to the Musharakah. But in the proposed running account of Musharakah where the partners are coming in and going out every day, nobody has undertaken to contribute any specific amount. Therefore, the capital contributed by each partner is unknown at the time of entering into Musharakah, which should render the Musharakah invalid.

32

33

CORPORATE DEPRTMENT
CREDIT FILES (DOCUMENT REQUIRED FOR CREDIT) File Check lists /Notes 1. File check lists File review Dairy Follow- schedules/ important event date Telephone and address General notice Approvals 2. Credit Approvals Excess /interim Facility Revision Approvals Security Change Approvals Price Changing Approvals Other Approvals Presentation 3. Credit Packages Interim Facility Revisions/ Excess Requests Security Change Request Head Office Recommendation Letter Prudential Checklists Other Presentations Customer Profile 4. Barrowers Basic Fact Sheet (BBFS) Basic Information Report (BIR) Group Profile Company Profile/History Management Structure Long Term Plan/Mission Statement ISO 9000/14000 Certificates NTN /Sales Tax/Import/ Export Registration Certificates Certificate Of Incorporation/Commencement of Business Memorandum and Articles Of Association/Partnership Deed. Etc. Copy of National Id Cards of Directors /Sponsors/Mortgagors etc Copy of Latest Form 29 Other Information 34

Relation Plan 5. Relation Management Plan& Strategy Convent List/ Special Approval Conditions Relationship Monitoring Plan Profitability/ Business Reciprocity Reports Inter Office Memo 6. Inter Office Memorandum Facility Record Sheet Emails Customer Correspondences 7. Faxes and letter Feed back of Letters Two way Communication Third Party Correspondence 8. Guarantee & Warrantee Irregularities 9. Irregularity Report (Past Dues, Cheque Returns) Adverse Bank Opinion (Copy) Adverse CIB (Copy) Non Compliance of Prudential Regulation Other Compliance of Prudential Regulation Other Adverse Information Comments & Explanations Information Report 10. Business Call Reports Site Visit Report Inspection Report Press Clippings Bank/CIB/Market Search Report/Registrar Checking Credit Documents 11. Security Documentation Certificates Documentation Summary Facility Offer Letter Legal Opinion 35

Valuation Reports Net Worth Statements Financials 12. Spreads Quarterly /Half- Year/Annual Financial Reports Management Accounts Detail Facilities & Outstanding with Other Banks/DFIs Audit Documents /Miscellaneous Internal Audit Comments Shariah Audit Comments Branch Response And Rectifications

36

MODES OF FINANCING

37

MODES OF FINANCING
Following are the basic modes of financing, which Meezan Bank is currently using:

Bank Investments
Bank has more than 1.3 billion paid up capital Murabaha Ijarah

Bank Deposits
This is source of getting money Salam Istisna Musharaka Diminishing Musharaka Mudaraba

MURABAHA
Murabaha is a particular kind of sale Where the transaction is done on a cost plus profit basis i.e. the seller discloses the cost to the buyer and adds a certain profit to it to arrive at the final selling price o The distinguishing feature of Murabaha from ordinary sale is, the seller discloses the cost to the buyer and a known profit is added o o

The profit may be added o o On a lump sum basis As a percentage of cost 38

o Payment of Murabaha price may be 1) At spot 2) In installments 3) In lump sum after a certain time Hence, Murabaha does not necessarily imply the concept of deferred payment Basic Rules of Murabaha Islam prohibits charging interest on money, but permits charging profit on sale of goods Islamic banks therefore use a sale-based transaction (Murabaha) instead of loanbased transactions for financing purchase of assets by their clients Over 70% of all advances made by Islamic banks comprises of Murabaha transactions Basic Rules For Murabaha Financing: 1. 2. 3. 4. Asset to be sold must exist. Sale price should be determined. Sale must be unconditional. Assets to be sold i. Should not be used for un-Islamic purpose. ii. Should be in ownership of the seller at the time of sale. iii. Should be in physical or constructive possession of the seller

Step-by-Step Murabaha Financing 1. 2. 3. 4. 5. Client and bank sign an agreement to enter into Murabaha (MMFA). Client appointed as agent to purchase goods on banks behalf Bank gives money to agent/supplier for purchase of goods. The agent takes possession of goods on banks behalf. (a). Client makes an offer to purchase the goods from bank through a declaration. (b). Bank accepts the offer and sale is concluded 6. Client pays agreed price to bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal)

39

40

41

Murabaha Documentation
There are a number of documents involved in a Murabaha financing transaction. The most essential of these documents are: o o o o o o Master Murabaha/Istijrar Finance Agreement Agency Agreement Draw down notice Description of assets Summary Payment Schedule Declaration

Master Murabaha/Istijrar Finance Agreement o Its an agreement between the client and the Bank whereby the client agrees to purchase goods from the Bank from time to time as per the terms and conditions of this agreement. o This is an over all facility agreement under which various Sub-Murabahas may be executed from time to time. o Hence it needs to be signed once at the time the facility is sanctioned.

Agency Agreement
o The client is appointed by the Bank as its agent to purchase goods. This agreement needs to be signed once between the client and the bank. o The disbursement of funds is done under this agreement.

Summary Payment Schedule


o These documents are required for each disbursement/Sub-Murabaha transaction o Date and total cash payment is mentioned o Name with sign of both the parties Draw down notice o Draw down notice has mentioned 0n the amount rate and tenor of the Sub-Murabaha. Description of Assets o Description of assets may be kept general at this stage such as cotton bales worth Rs 50,000,000. Declaration

o Declaration is to be signed by the customer immediately after it has purchased the goods o This document establishes the actual sale transaction, i.e. transfer of ownership of goods from the Bank to the customer o At this stage the specific details of the assets must be known i.e. quantity, quality etc. o Proper timing of declaration is extremely important Issues in Murabaha o A Murabaha financing arrangement consists of a series of documents to be executed at various stages, the sequence and timing of which is extremely important. o Through declaration client and the bank execute an important step of a valid Murabaha sale i.e. Offer & Acceptance o Declaration is to be signed by the customer when it has purchased and taken possession of the goods as the Banks agent. Timing of Declaration o Declaration must be signed while the goods are still in existence and have not been used in the production process or sold to some other entity. o As a general rule of thumb declaration must be received within 1 month or 1/4th of the Murabaha tenor, which ever comes first? o The importance of proper timing of declaration can be understood better by the example of a Nikah contract. Subject Matter of Murabaha Murabaha cannot be done in all commodities, for example Murabaha cannot be done in currencies. As per general rules of sale subject matter must be: - In existence - Having intrinsic utility - Usable for a Halal purpose (buyer must intend to use it for the same purpose) - Capable of ownership/delivery - Specified and quantified at the time of sale - Must be in Banks ownership/possession at the time of sale Purchase Evidence o In order to ensure that the customer actually purchased the assets as claimed; the customer is required to submit asset purchase evidence along with declaration.

o The purchase evidence must confirm that the asset purchase took place after the agency agreement. o Asset purchase may be in the form of Invoices, delivery orders, truck receipts etc. o In some cases, however, it may be too burdensome for the client to submit all the invoices as the number of invoices may run into hundreds. o For e.g. cotton or sugar purchases are generally in small quantities from various sources and hence for each Sub-Murabaha there may be too many invoices to submit. o In such cases we may allow the customer to submit a summary sheet as follows: Direct Payment in Murabaha o Currently in almost all cases the disbursement is made to the customer as an agent. o In order to ensure transparency of the Murabaha it is better that we disburse the funds directly to the customer. o Our Shariah board has also instructed us to increase the percentage of direct payment Murabaha as a % of total Murabaha o However, there are certain practical issues because of which we cannot have direct payment Murabahas in all cases o We can however, try and make direct payments wherever possible. o Direct payment can be made in the following ways: o The bank can pay the supplier directly via cash, Cheque, pay-order etc. - The bank may credit the Murabaha funds in the customers account and only allow him to issue pay orders/demand drafts from his account favoring the asset suppliers. Import Murabahas LC opened and subsequently financed by Meezan Bank are an ideal example of a direct payment Murabaha. The customer opens the LC from Meezan Bank as an agent of the Bank (i.e. places order with the foreign supplier on behalf of Meezan Bank. Upon receipt of documents Meezan Bank makes payment to the foreign supplier. Meezan Bank sells the goods to the customer on Murabaha (i.e. cost plus profit basis)

Process Flow:
1st Step Meezan Bank and the customer will sign a Master Murabaha Finance Agreement for LCs and an agency agreement for the same.

As per the agency arrangement the customer would purchase goods from foreign suppliers on Meezan Banks behalf by opening LCs with Meezan Bank. 2nd Step The customer will negotiate a deal with some foreign supplier (exporter) for the purchase of goods. 3rd Step o Importer will request Meezan Bank to open L/C by submitting all relevant documents. o Insurance to be arranged by the importer and relevant policy to be forwarded along with the L/C application form. 4th Step o Meezan Bank will obtain LC opening and other charges from the customer and issue an LC in the favor of the beneficiary (exporter) 5th Step o On receipt of L/C exporter will ship the goods and deliver the related shipping documents to the negotiating bank for the payment of bill amount. o If the documents are found in order the negotiating bank will claim reimbursement from MBLs Nostro account and send documents to MBL 6th Step o On receipt of documents Meezan Bank will contact the customer and inform him of the availability of the documents. o The customer will negotiate the FX rate for the required foreign currency amount. o Meezan Bank will discuss the payment terms with the customer and settle the bill

Settlement:
a)Normal Payment: o MBL will discuss the payment date with customer and issue a SubMurabaha. o Issuance of Sub-Murabaha means signing of declaration by the customer and the acceptance of its offer to purchase by Meezan Bank. Profit will be charged from the day Meezan Bankwas debited to the Murabaha settlement date

o Meezan Bank will release the shipping documents to the customer and record a Murabaha receivable.

MUSHARAKA
Musharaka is form of partnership between two parties Where each party contributes to the capital of the partnership in equal or Varying proportions Either to establish a new venture Or share in existing one

Principles for distribution of profit Profit of each partner can be agreed as a % of return from the business. Profit should be identified as a% of actual return and not in absolute terms Share of active partners can be more than share of sleeping partners The share of the sleeping partner cannot be more than the share of the active partner.

Principle of loss
Scholars in Islam have a consensus on the principle that in case of a loss the share borne by each partner cannot exceed his share in investment .

1.

Car Ijara

In order to use leasing as a mode of financing changes need to be made to the lease agreement. Change of name from interest to profit will not suffice; some basic parameters of the agreement have to be changed to reflect the change in the nature of the transaction. Ijara is a rental agreement under which bank purchase a vehicle and give the same on rent to customer Scope of Facility Domestic Vehicle (Local made) Commercial Vehicle (Local+Imported) Used/Imported Vehicle (1st Transfer only) Rate (For New) (For used) 3 year 14% 15% 4 year 15% 15.50% 5 year 16.50% 18% Rate for Commercial+Imported+used vehicle 1% higher than Eligibility Pakistani National

Salaried individual, self-employed, professional or businessperson Minimum 3 years of work/business/professional experience 6 month working with present employer Net income exceeds three times of monthly rental RULES OF SHARIAH GOVERNING IJARAH Leasing is a contract where the owner of an asset transfers its use to another person against an agreed price However, ownership of the leased asset remains with the lessor. Since ownership of the leased asset remains with the lessor, all rights and liabilities relating to ownership are borne by the lessor. All rights and liabilities relation to use are borne by the lessee e.g. A gives his house to B on rent Property taxes are to be borne by the owner Water tax, electricity bill etc is to be borne by the lessee. o The period of lease must be determined in clear terms o The lessee is responsible for damages to the asset caused by fraud or negligence o Any damage to the asset not caused by the lessees neglect, is to be borne by the lessor o Normal maintenance is lessees responsibility. o The asset to be leased should be clearly identified o Lease rentals for the entire lease period must be fixed; Different amounts of rents can be fixed for different periods, but they must be known. The rent may be tied to a known benchmark, acceptable to both the parties. 1. The lessor cannot increase the rent unilaterally 2. The lessor may receive the rent in advance, but such payment should be recorded as and on account payment since rent can be received only for use of an asset 3. The lease period will start when the asset has been delivered to the lessee In a usable condition 4. Whether or not the lessee has started using it 5. If the leased asset is destroyed, the lease will terminate. If the lessee is at fault, he is liable to compensate the lessor for the loss.

DIMINISHING MUSHARKA
BASIC CONCEPT Financier and client participate in joint ownership of property or commercial enterprises. Client agrees to purchase financiers share periodically Client purchases financiers share over a period till ownership is completely transferred to client.

HOUSE FINANCING
Client wants to purchase a house Client invests 20% of cost Financier invests 80% of costs House is owned by both, but used by client Client pays rent to the financier for use of his property Client purchases financiers share periodically according to agreed schedule.

Each payment consists for two portions: 1. Price of financiers share being purchases 2. Rent on financiers share outstanding As the financiers proportion of ownership declines The tent payable by client decreases accordingly This process continues till the client purchases entire share of financier. The process allows financier to 1. Claim rent according to his proportion of ownership in the property 2. Earn a periodic return commensurate with his investment. House Finance is given in following categories 1. EASY BUYER 2. EASY BUILDER 3. EASY RENOVATION

4. EASY REPLACEMENT These are explained as under

EASY BUYER
It is purely HALAL choose it and be ready to move in. Meezan Bank finances up to 85% of the appraised value of your new home or up to value of Rs. 1,000,000with the financing tenor of 3 Years to 20-Years. Return is made through Rent and principal amount with the following formula. There is 1% difference between rent for Businessman and Salaried person, which is lower, then the businessman Suppose we have package for Businessman and Calculation sheet is as under

CALCULATION SHEET EASY BUYER BUSINESSMAN


Easy Home Home Buyer Input Fields House Cost Price Customer Share Bank Share Profit Rate * Tenure in Years 1,500,0 00 450,00030% 1,050,0 00 70% 13.00% 20 Result Fields

Total Units Unit Sale Price Monthly Rent/Unit

240 4,375 47.40

* The profit rate for Easy Home is a floating rate based on avg of '12-month KIBOR'. The rental are fixed for every 12 month period and may fluctuate to reflect the changes in KIBOR in the subsequent months. Tentative Calculation Schedule Months 0 1 2 3 11,375 11,328 11,280 4,375 4,375 4,375 15,750 15,703 15,655 Rent Unit Price Monthly Payment Balance Unit Price Balance Units 2 1,050,00040 2 1,045,62539 2 1,041,25038 1,036,875 2

37 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 11,233 11,185 11,138 11,091 11,043 10,996 10,948 10,901 10,854 10,806 10,759 10,711 10,664 10,617 10,569 10,522 10,474 10,427 10,380 10,332 10,285 10,238 10,190 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 15,608 15,560 15,513 15,466 15,418 15,371 15,323 15,276 15,229 15,181 15,134 15,086 15,039 14,992 14,944 14,897 14,849 14,802 14,755 14,707 14,660 14,613 14,565 1,032,50036 2 1,028,12535 2 1,023,75034 2 1,019,37533 2 1,015,00032 2 1,010,62531 2 1,006,25030 2 1,001,87529 2 997,50028 2 993,12527 2 988,75026 2 984,37525 2 980,00024 2 975,62523 2 971,25022 2 966,87521 2 962,50020 2 958,12519 2 953,75018 2 949,37517 2 945,00016 2 940,62515 936,250 2

14 2 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 10,143 10,095 10,048 10,001 9,953 9,906 9,858 9,811 9,764 9,716 9,669 9,621 9,574 9,527 9,479 9,432 9,384 9,337 9,290 9,242 9,195 9,147 9,100 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 14,518 14,470 14,423 14,376 14,328 14,281 14,233 14,186 14,139 14,091 14,044 13,996 13,949 13,902 13,854 13,807 13,759 13,712 13,665 13,617 13,570 13,522 13,475 931,87513 2 927,50012 2 923,12511 2 918,75010 2 914,37509 2 910,00008 2 905,62507 2 901,25006 2 896,87505 2 892,50004 2 888,12503 2 883,75002 2 879,37501 2 875,00000 1 870,62599 1 866,25098 1 861,87597 1 857,50096 1 853,12595 1 848,75094 1 844,37593 1 840,00092 835,625 1

91 1 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 9,053 9,005 8,958 8,910 8,863 8,816 8,768 8,721 8,673 8,626 8,579 8,531 8,484 8,436 8,389 8,342 8,294 8,247 8,199 8,152 8,105 8,057 8,010 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 13,428 13,380 13,333 13,285 13,238 13,191 13,143 13,096 13,048 13,001 12,954 12,906 12,859 12,811 12,764 12,717 12,669 12,622 12,574 12,527 12,480 12,432 12,385 831,25090 1 826,87589 1 822,50088 1 818,12587 1 813,75086 1 809,37585 1 805,00084 1 800,62583 1 796,25082 1 791,87581 1 787,50080 1 783,12579 1 778,75078 1 774,37577 1 770,00076 1 765,62575 1 761,25074 1 756,87573 1 752,50072 1 748,12571 1 743,75070 1 739,37569 735,000 1

68 1 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 7,963 7,915 7,868 7,820 7,773 7,726 7,678 7,631 7,583 7,536 7,489 7,441 7,394 7,346 7,299 7,252 7,204 7,157 7,109 7,062 7,015 6,967 6,920 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 12,338 12,290 12,243 12,195 12,148 12,101 12,053 12,006 11,958 11,911 11,864 11,816 11,769 11,721 11,674 11,627 11,579 11,532 11,484 11,437 11,390 11,342 11,295 730,62567 1 726,25066 1 721,87565 1 717,50064 1 713,12563 1 708,75062 1 704,37561 1 700,00060 1 695,62559 1 691,25058 1 686,87557 1 682,50056 1 678,12555 1 673,75054 1 669,37553 1 665,00052 1 660,62551 1 656,25050 1 651,87549 1 647,50048 1 643,12547 1 638,75046 634,375 1

45 1 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 6,872 6,825 6,778 6,730 6,683 6,635 6,588 6,541 6,493 6,446 6,398 6,351 6,304 6,256 6,209 6,161 6,114 6,067 6,019 5,972 5,924 5,877 5,830 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 11,247 11,200 11,153 11,105 11,058 11,010 10,963 10,916 10,868 10,821 10,773 10,726 10,679 10,631 10,584 10,536 10,489 10,442 10,394 10,347 10,299 10,252 10,205 630,00044 1 625,62543 1 621,25042 1 616,87541 1 612,50040 1 608,12539 1 603,75038 1 599,37537 1 595,00036 1 590,62535 1 586,25034 1 581,87533 1 577,50032 1 573,12531 1 568,75030 1 564,37529 1 560,00028 1 555,62527 1 551,25026 1 546,87525 1 542,50024 1 538,12523 533,750 1

22 1 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 5,782 5,735 5,688 5,640 5,593 5,545 5,498 5,451 5,403 5,356 5,308 5,261 5,214 5,166 5,119 5,071 5,024 4,977 4,929 4,882 4,834 4,787 4,740 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 10,157 10,110 10,063 10,015 9,968 9,920 9,873 9,826 9,778 9,731 9,683 9,636 9,589 9,541 9,494 9,446 9,399 9,352 9,304 9,257 9,209 9,162 9,115 529,37521 1 525,00020 1 520,62519 1 516,25018 1 511,87517 1 507,50016 1 503,12515 1 498,75014 1 494,37513 1 490,00012 1 485,62511 1 481,25010 1 476,87509 1 472,50008 1 468,12507 1 463,75006 1 459,37505 1 455,00004 1 450,62503 1 446,25002 1 441,87501 1 437,50000 433,125

99 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 4,692 4,645 4,597 4,550 4,503 4,455 4,408 4,360 4,313 4,266 4,218 4,171 4,123 4,076 4,029 3,981 3,934 3,886 3,839 3,792 3,744 3,697 3,649 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 9,067 9,020 8,972 8,925 8,878 8,830 8,783 8,735 8,688 8,641 8,593 8,546 8,498 8,451 8,404 8,356 8,309 8,261 8,214 8,167 8,119 8,072 8,024 428,75098 424,37597 420,00096 415,62595 411,25094 406,87593 402,50092 398,12591 393,75090 389,37589 385,00088 380,62587 376,25086 371,87585 367,50084 363,12583 358,75082 354,37581 350,00080 345,62579 341,25078 336,87577 332,500

76 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 3,602 3,555 3,507 3,460 3,413 3,365 3,318 3,270 3,223 3,176 3,128 3,081 3,033 2,986 2,939 2,891 2,844 2,796 2,749 2,702 2,654 2,607 2,559 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 7,977 7,930 7,882 7,835 7,788 7,740 7,693 7,645 7,598 7,551 7,503 7,456 7,408 7,361 7,314 7,266 7,219 7,171 7,124 7,077 7,029 6,982 6,934 328,12575 323,75074 319,37573 315,00072 310,62571 306,25070 301,87569 297,50068 293,12567 288,75066 284,37565 280,00064 275,62563 271,25062 266,87561 262,50060 258,12559 253,75058 249,37557 245,00056 240,62555 236,25054 231,875

53 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 2,512 2,465 2,417 2,370 2,322 2,275 2,228 2,180 2,133 2,085 2,038 1,991 1,943 1,896 1,848 1,801 1,754 1,706 1,659 1,611 1,564 1,517 1,469 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 6,887 6,840 6,792 6,745 6,697 6,650 6,603 6,555 6,508 6,460 6,413 6,366 6,318 6,271 6,223 6,176 6,129 6,081 6,034 5,986 5,939 5,892 5,844 227,50052 223,12551 218,75050 214,37549 210,00048 205,62547 201,25046 196,87545 192,50044 188,12543 183,75042 179,37541 175,00040 170,62539 166,25038 161,87537 157,50036 153,12535 148,75034 144,37533 140,00032 135,62531 131,250

30 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 1,422 1,374 1,327 1,280 1,232 1,185 1,138 1,090 1,043 995 948 901 853 806 758 711 664 616 569 521 474 427 379 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 4,375 5,797 5,749 5,702 5,655 5,607 5,560 5,513 5,465 5,418 5,370 5,323 5,276 5,228 5,181 5,133 5,086 5,039 4,991 4,944 4,896 4,849 4,802 4,754 126,87529 122,50028 118,12527 113,75026 109,37525 105,00024 100,62523 96,25022 91,87521 87,50020 83,12519 78,75018 74,37517 70,00016 65,62515 61,25014 56,87513 52,50012 48,12511 43,75010 39,3759 35,0008 30,625

7 234 235 236 237 238 239 240 332 284 237 190 142 95 47 1,370,688 4,375 4,375 4,375 4,375 4,375 4,375 4,375 1,050,000 4,707 4,659 4,612 4,565 4,517 4,470 4,422 2,420,688 26,2506 21,8755 17,5004 13,1253 8,7502 4,3751 0-

Above table includes Rent and Principal. Let us see the formula to calculate it. Principal Amount per month= Amount of Bank Share / No of Months in the period Rent Per Month = Principal per month * 13% *1/12 * No of units remaining Total Installment= Principal per month + Rent Keeping the above transaction in view and also formula we have the 1st installment is as we saw above Principal per month= 1,050,000 /240 = 4,375 Rent per month = 4,375 * 13% * 1/12 * 240 = 11,375 Total Installment of 1st month = 4,375 + 11,375 = 15,750

Import & export

IMPORTS

IMPORT REGULATION

Imports into Pakistan are governed by: Import policy as laid down by the GOP in a Special Notification issued by the Ministry of Commerce Exchange Control Manual Uniform Codes and Practices (UCP) 500 effective from Jan. 1, 1994 The Import Department performs four major functions L/C opening Processing of documents against L/Cs Controlling of Bills Retirement of Documents Registration of Import Contracts PRESENTATION STRUCTURE Each of the four functions of the Import Department are discussed with reference to Import Policy SBP regulations UCP 500 regulations

ABN AMROs internal requirements and procedures L/C OPENING: IMPORT POLICY Imports are divided into two categories: FREELY IMPORTABLE GOODS: any registered importer may import any item that is not specifically listed as a banned item in various GOP notifications BANNED ITEMS: subject to Health and Safety, and Procedural requirements and require specific import authorization from the Ministry of Commerce No L/C can be established for goods which have either been shipped or have arrived in Pakistan except with special permission All importers while applying for establishment of L/C shall produce a valid certificate of membership of at least one of the trade organizations licensed and recognized by the Federal Government If shipment is made before the date of the opening of the L/C the importer must deposit surcharge equivalent to 1% of the C&F value of goods Valid original/copy of category pass book is required Valid import registration certificate is required All imports shall be made at the most competitive prices Import of items valued up to USD 10,000 or equivalent amount shall be allowed against Fcy demand draft instead of L/C For import of machinery against cash by commercial importers all banks shall open direct L/C as per provisions of import policy The designated pre-shipment inspection agencies are: COTECNA for European and Middle Eastern countries SGS for Asian, Australasian and American countries Pre-shipment inspection is not required for imported goods that are less than $3,000 or equivalent amount in total value SBP H.S. code provided to make sure that the goods are not on banned list Proforma invoice reference and date match L/C application L/C OPENING: E.C.M CH.13 As per State Bank regulations, all importers are required to register themselves with the Export Promotion Bureau [E.P.B.] This registration has to be renewed every five years. Registration with the E.P.B. requires (also required in Import Policy): Memorandum and Articles of Association Membership Certificate with Chamber of Commerce / Association Original and photocopies of N.T.N certificate

Attested photocopies of Directors passports Certificate of Incorporation Certificate confirming the names of directors Form-29 if there is an amendment in information relating to directors Paid Challan The bank should not establish any L/C covering imports into Pakistan which could involve remittance into Pakistan except in accordance with the regulations laid down in the E.C.M. All L/Cs should be documentary L/Cs and should provide for payment to be made against full set of clean on board (shipped) Bill of Lading / Airway Bill Imports can be made on FOB basis, C&F liner terms basis or C&F free out basis The bank may open L/Cs on a usance basis providing that there is no stipulation for payment of any amount by way of interest separately (para 30A) L/Cs opened on usance basis cannot be converted to sight basis (para 30A) It is not permissible to open clean, revolving or transferable L/Cs unless SBP gives specific approval It is not permissible to open L/Cs for imports in favor of beneficiaries in Israel or for goods originating from Israel Difference between shipment and negotiation date should not exceed 30 days If L/C exceeds PKR 500,000 the bank must obtain a confidential report through its branches or correspondents about the beneficiarys creditworthiness L/Cs may be established for shipment of goods with more than one origin or for a beneficiary in a third country provided the beneficiary does not change and there are no extra expenses Documentary evidence has to be obtained to establish that a firm order exists for the L/C [pro forma invoice duly signed by importer and exporter] Validity not to exceed 12 months; in case of machinery validity not more than 24 months [also required in Import Policy] L/C OPENING: UCP 500 All parties deal with documents and not goods If L/C does not indicate type of credit then it is assumed to be irrevocable Banks are not liable for the consequences arising out of delay or loss in transit of any communications or for errors in translation and interpretation of technical terms

The bank is not liable if the instructions they transmit are not carried out, even if they have taken the initiative in the choice of other banks as they do this for the account of, and at the risk of, the applicant L/C OPENING: INTERNAL REQUIREMENTS L/C application should have a date and time stamp from customer service Signature to be verified on L/C application Revenue stamp for appropriate amount affixed on L/C application L/C application with proforma invoice amount Valid Marine insurance policy/cover note Valid / original copy of category pass book If above requirements are completed then L/C amount is sent for credit approval If credit is authorized by Credit Department then L/C information inputted into TASK Credit issued for specified amount If any cutting / alteration is made on the L/C application it has to be authenticated by the applicant L/C application properly filled by applicant Terms and conditions are clearly mentioned Verification of beneficiary credit worthiness PROCESSING OF DOCUMENTS AGAINST L/CS: IMPORT POLICY If the shipment is made within twelve months after the expire of the initial twelve months then the importer shall deposit surcharge some % of the unutilised L/C amount for each quarter Change of items in L/C can be made without charge provided the items are importable, the change is made prior to the shipment of goods and in validity of L/C PROCESSING OF DOCUMENTS AGAINST L/CS: E.C.M. CH.13 SBP may consider applications for advance remittance up to USD 10,000 against imports where the goods are of a specialized or capital nature In the event of total or partial loss of goods it is the importers responsibility to recover claim from insurance/shipping/ supplier company as the case may be The bank may allow remittance where value of documents exceeds amount on L/C if Amount does not exceed 5% of L/C or USD 500, whichever is less Bill of entry/certified invoice for goods covers increased amount

The bank may approve remittances against imports provided covering documents are in order and received through us; a form I should be submitted when reporting the sale to SBP It is possible for the bank to effect remittance in case of a premature payment on usance bills after it deducts mark-up of 1.5% p.a. over LIBOR for the number of days between date of remittance and date of maturity of bill PROCESSING OF DOCUMENTS AGAINST L/CS: UCP 500 Description of goods on commercial invoice must exactly correspond with description of goods in the L/C In other documents goods may be described in general terms consistent with description of goods in the L/C Refer discrepancies to the negotiating bank within five working days otherwise the documents are assumed to be clean In case there is no difference between the shipping and negotiation date, it is assumed to be 21 days A tolerance of 10% is allowed if words such as approximate, circa or about are used with the amount, quantity or unit price All documents must be presented on or before L/C expire date. Expire date can however be extended if it falls on a holiday PROCESSING OF DOCUMENTS AGAINST L/C: INTERNAL PROCEDURES Check the received documents against the terms and conditions of the credit registering any discrepancies on an intimation to be forwarded to the applicant and negotiating bank Fill out an I-Form and M-Form (for foreign bank charges) for SBP reporting purposes Importers acceptance for discrepant documents can only be received in writing, signature(s) on acceptance letter are verified and original documents, endorsed in importers favor, are released For usance bills the maturity date has to be intimated to the importer and the negotiating bank Entry is lodged in acceptance book so that sufficient funds are available for debit on applicant account and for making payment upon maturity of usance bill Advise the negotiating bank on acceptance of documents so that they can obtain payment from reimbursing bank

EXPORTS This part is divided into 4 sections: Basic requirement State Bank regulations U.C.P and exports Checking of documents. Bank requirements BASIC REQUIREMENTS FOR EXPORTS FROM PAKISTAN As per State Bank regulations, all exporters are required to register themselves with the Export Promotion Bureau (E.P.B). This registration has to be renewed every five years REGISTRATION WITH E.P.B Documents required for registration include:

(a) Original and photocopies of National Identity Cards, Memorandum and Articles of Associations of along with incorporation certificate. Original and photocopies of Partnership Deed, (c) (d) Original and photocopy of N.T.N. number Membership certificate from Chamber/Association

(e) Registration certificate from Registrar of firms Documents required for renewal of registration include (a) Valid Chamber of Commerce certificate (b) Treasury Challan (c) Forwarding letter from the bank. EXPORTS: STATE BANK REGULATIONS (EXPORT CONTROL MANUAL CHAP X11) State Bank Exchange Control regulation covers exports of all goods and applies to four key areas. Furnishing of declaration to the Customs in the shape of Form E Scrutinizing of export documents against E-Form Title of transport document. Realization of export payment 1) DECLARATION TO CUSTOMS (FORM-E) State Bank requires that any good exported from Pakistan be reported to Customs in Form-E (5) Before Form-E is submitted to Customs all four copies have to be certified by an Authorized Dealer (7). Before an Authorized Dealer certifies Form-E, it has to insure (7):

(a) Exporter is registered with E.P.B (b) Particulars of Form-E comply with L/C, Sales contract (c) Adequate arrangements have been made for realization of proceeds. Special care has to be exercised if documents are on D/A basis. (d) The export form has been signed by exporter or his authorized agent. (The signatory has to disclose his status / capacity in the firm) After Form-E has been certified by an Authorized Dealer it has to be submitted to Customs authority at the time of shipment along with the shipping documents (12) The Custom authority than fills out portions relating to them, affixes their seal at the bottom of Form-E, detaches original copy and returns the other three copies to customer Exporter keeps the quadruplicate copy and has to submit the duplicate and triplicate copy to Authorized Dealer along with shipping documents. 2) SCRUTINIZING OF EXPORT DOCUMENTS AGAINST FORM-E All shipping documents along with duplicate and triplicate Form-E bearing the seal of Customs must be submitted to an authorized dealer within 14 days from the date of shipment and within 21 days from certification date by authorized dealer (12) On receipt of these documents the authorized dealer has to compare bills and documents with relative export form (13). 2) SCRUTINIZING OF EXPORT DOCUMENTS AGAINST FORM-E If there is a difference in the E-Form and relative documents such as invoice, such differences must be reported to State Bank If this difference is on the account of short weight or actual weight or other items of similar nature than adjustments can be made on the relative E-Form itself after authentication from authorized dealer When a consignment is short shipped and the invoice quantity is less than that declared on the E-form, then the exporter must give a short shipment notice in the prescribed form in duplicate to the Customs. A copy of this form signed by Customs must be given by exporter to the authorized dealer (20)

If shipment is made by vessel other than that listed on E-form, permission must be taken from Customs for change of vessel on EForm (21) 3) TITLE OF SHIPPING DOCUMENT State Bank regulations require that transport document (Bill of Lading, Airway Bill etc) be issued to the order of an Authorized Dealer in Pakistan (10 (i)) However if the transport document is being issued against advance payment or an irrevocable L/C then transport document can be issued blank, or to the order of opening bank or consignee 4) REALIZATION OF EXPORT PROCEEDS State Bank requires that full export value of goods exported from Pakistan should be received within a period of four months from the date of shipment (6(a)). If the tenor of document is 120 days from shipment date then repatriation of funds can be extended to 135 days. Prior approval must be obtained from State Bank if the tenor of document is more than 120 days from shipment date. If payment is not realized within the prescribed time or short payment is realized, then Authorized Dealer have to obtain an explanation letter of exporter and furnish this to the State Bank (7(aii)). Non realization or delay in realization of the export proceeds without the prior approval of State Bank constitutes a serious offense and renders the exporter liable to action under this act (18(a)) All overdue cases are reported to S.B.P on a monthly basis (18(b)) No approval is required from State Bank if the original buyer is unable to pay for shipment and another buyer pays for the shipment. However the amount remitted must be equal to original invoice amount minus total demurrage charges (21(ii)) State Bank regulations permit exporters to remit from 1% upto 33 % of realized amount as agency commission depending on commodity exported (29 (i), (ii)) In cases where no commission is paid, State Bank regulations permit Authorized Dealer to credit upto 5% of F.O.B value from proceeds to exporters foreign currency account. These funds have to be used for special purpose such as promotional publicity etc (29 (iii)). EXPORT DOCUMENTS AND UCP 500: SOME KEY ISSUES

All parties deal with documents and not goods (Article 4) The issuing bank has seven days to take up documents or advise refusal to the negotiating bank after the receipt of documents at the opening banks counter (Article 13b) If the issuing bank decides to refuse an export document it must inform to the exporters bank, all discrepancies for which documents were refused (Article 14) SCRUTINIZING OF EXPORT DOCUMENTS AND U.C.P Description of goods on commercial invoice must exactly correspond with description of goods in the credit (Article 37c) In other documents goods may be described in general terms consistent with description of goods in the L/C (Article 38) A tolerance of ten percent is allowed if words such as approximate or about is used with amount or quantity (Article 39a) All documents must be presented to negotiating bank on or before L/C expiry date. Expiry date can however be extended if it falls on a holiday (Article 44) CHECKING OF EXPORT DOCUMENTS BANK REQUIREMENTS All export documents are scrutinized against L/C and each other Important documents include: (1) Customers covering letter (2) Letter of Credit (3) Bill of Exchange (4) Commercial Invoice (5) Bill of Lading (6) Certificate of Origin (7) Packing List CHECKING OF CUSTOMERS COVERING LETTER Covering Letter Date and time Stamp Signature verified on the Letter

Contents of the Letter Checked Documents presented as per L/C requirement Is Original L/C available Signature verified Is L/C NOT restricted Is NOC available Valid for shipment Valid for negotiations Is L/C amended If amended, are original Presentation of documents as per L/C Is L/C negotiable Amount in words and figures correct Amount matches Invoice Is issuance date mentioned Signed and stamped by customer L/C No. Mentioned Correctly Tenor as per L/C CHECKING OF L/C

CHECKING OF BILL OF EXCHANGE Drawing Bank as per L/C Adhesive Stamp available Correction Authenticated Date within Expiry of L/C CHECKING OF INVOICE L/C reference and date correctly mentioned Is invoice duly signed Description of goods as per L/C Quantity as per L/C Unit Price as per L/C Marks & Numbers match with B/L Amount in Words and figure agree Gross/Net weight matches B/L Correction Authenticated Applicant Address as per L/C Gross/Net weight mentioned on invoice Buyer's name is as per L/C Invoice within L/C Amount E-Form no. And Date mentioned

CHECKING OF BILL OF LADING B/L signed by the agent or the shipping company Shipping marks as per L/C Issued to the order as per L/C Endorsed as per L/C Correction Authenticated Port of shipment as per L/C Port of discharge as per L/C Terms of Freight as per L/C Shipment as per L/C schedule No additional Clauses on B/L Consignee name as per L/C Party to be notified as per L/C Transshipments made when prohibited in L/C Transshipment made and B/L does cover entire route Transshipment made and B/L does cover entire route Merchandise description inconsistent w/ L/C and Invoice "On Board" notation mentioned "On Board" notation signed on/before latest ship. Date Full set of B/L provided CHECKING OF CERTIFICATE OF ORIGIN Is Certificate of Origin available Is authentication required Chamber of Commerce Embossed Stamp available Signed and stamped by customer Description as per L/C Certified by respective consulate CHECKING OF PACKING LIST Is Packing List available P/L weight/quantity matches with B/L Description as per L/C Invoice no. Mentioned L/C no. Mentioned and matches with L/C P/L signed and stamped by customer EXPORT DOCUMENTS: INTERNAL PROCEDURES After all documents are checked customer is informed of discrepancy if any

After discrepancies are removed, transaction is handled as per customers instruction If documents are to be dispatched with discrepancies, customers instruction is taken in writing

Financial statement

PROFIT & LOSS Account


Year ended Dec 31,2004 (Rupees 000) 534,400 250,393 Year ended Dec 31,2005 (Rupees 000) 1,459,229 690,418 Year ended Dec 31,2006 (Rupees 000) 2,704,280 1,464,173

Profit/return on financings and placements Return on deposits and other dues expensed

Net spread earned Provision against non-performing financings (net) Provision / (reversal)for diminution in the value of investments Bad debts written off directly

284,007 16,991 1,750 18,741

768,811 68,811 (29,831) 38,980 729,831

1,240,107 121,581 1,297 122,878 1,117,229

Net spread after provisions OTHER INCOME Fee, commission and brokerage income Capital gain on sale of securities Dividend income Unrealized Gain/(loss)on revaluation of investment classified as held for trading Income from dealing in foreign currencies Other income Total other income

265,266

100,739 81,223 108,592 42,081 26,830 5,628 365,093 630,359

174,750 209,402 92,569 57,792 77,961 9,677 622,151 1,351,982 718,384 482 718,866 633,116 4,671 39,002 169,288 419,455 191,559 611,014 1.46

216,216 116,993 165,228 (32,455) 201,519 23,060 690,561 1,807,790 1,022,991 4,776 1,027,767 780,023 8,314 (60,572) 228,030 604,251 527,123 1,131,374 1.88

OTHER EXPENSES Administrative expenses Other provisions/write offs Other charges Total other expenses Extraordinary/ unusual items PROFIT/(LOSS) BEFORE TAXATION Taxation current - for the year - prior years - deferred PROFIT / (LOSS) AFTER TAXATION Profit brought forward Profit Before Appropriations Basic Earnings Per Share (Rupees)

409,296 185 409,481 220,878 5,470 (8,950) (3,480) 224,358 12,073 236,431 1.67

BALANCE SHEET
Year ended Dec 31,2004 (Rupees 000) Year ended Dec 31,2005 (Rupees 000) Year ended Dec 31,2006 (Rupees 000)

ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions Investments Financings Other assets Operating fixed assets LIABILITIES Bills payable Due to financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred Taxation

2,623,588 1,751,083 1,429,053 12,339,745 1,349,184 204,737 19,697,390 196,145 2,862,139 13,769,807 770,631 286 17,599,008 2,098,382 1,346,017 256,578 258,325 1,860,920 192,312 45,150 2,098,382

3,956,938 2,855,823 1,606,490 19,740,886 2,210,100 305,585 30,675,822 260,732 2,981,714 22,769,262 1,469,258 170,274 27,651,240 3,024,582 2,036,582 666,322 268,036 2,970,940 53,642 3,024,582

5,897,394 4,134,875 37,00,000 2,877,554 27,031,016 2,266,522 531,262 46,438,623 563,228 4,285,212 34,449,441 398,304 1,979,079 41,675,264 4,763,359 3,779,897 528,085 448,427 4,756,409 6,950 4,763,359

NET ASSETS REPRESENTED BY Share capital Capital Reserves Revenue Reserves Advances against issue of right shares Surplus on revaluation of investments

CASH FLOW STATEMENT

Year ended Dec 31,2004 (Rupees 000) CASH FLOW FROM OPERATING ACTIVITIES Profit / (loss) before taxation Less: Dividend income Net (gain) / loss on foreign currency deposits under arrangements with the SBP 220,878 (108,592) 112,286

Year ended Dec 31,2005 (Rupees 000) 633,116 (92,569) 540,547

Year ended Dec 31,2006 (Rupees 000) 780,023 (165,228) 614,795

Adjustments for non-cash charges Depreciation Amortization Provision against non-performing financings Provision / (reversal) for diminution in value of investments Gain on sale of shares in a subsidiary Co. Gain on Sale of fixed assets Unrealized loss/ (gain) on held for trading investments

43,707 1,093 16,991 1,750 (450) (704) (42,081) 20,306 132,592

67,410 3,331 68,811 (29,831) (163) (57,792) 51,766 592,313 (77,551) (7,438,993) (901,393) (8,417,937)

103,024 5,534 121,581 1,297 (1,823) 32,455 262,068 876,863 (37,00,000) (72,264) (7,411,711) 13,827 1,117,0148

(Increase) / decrease in operating assets Due from financial institutions Held for trading securities Financings Other assets

244,474 (4,959,658) (656,842) (5,372,026)

Increase in operating liabilities Bills payable Due to financial institutions Deposit and other accounts Other liabilities

27,083 1,873,175 6,012,945 393,288 8,306,491 3,067,057 (7,112) 3,059,945

64,587 119,575 8,999,455 698,634 9,882,251 2,056,627 (6,147) 2,050,480

302,496 1,303,498 11,680,179 509,821 13,795,994 3,502,709 (17,478) 3,485,231

Income tax paid Net Cash Flow From Operating Activities CASH FLOW FROM INVESTING ACTIVITIES Net investments in held to maturity securities Net investments in available for sale securities

(120,893) (90,329)

(852) 54,262

(1,141,406) (66,376)

Net investments in listed associated undertakings Net investments inunlisted associated undertakings Sale proceeds on disposal of shares in an unlisted subsidiary Co. Dividends received Investments in operating fixed assets Sale proceeds of property and equipment disposed-off Net Cash Flow From Investing Activities CASH FLOW FROM FINANCING ACTIVITIES Amount received against issue of right shares Dividend paid Net Cash Flow From Financing Activities Net increase in cash and cash equivalents Cash and cash equivalents as at January 1 Cash and cash equivalents as at December 31st

4,080 (286,000) 5,300 107,118 (172,613) 2,317 551,020

6,640 (94,780) 95,520 (173,395) 1,969 (110,636)

200,038 (271,500) 164,715 (337,248) 4,836 (1,446,941)

192,312 (52,447) 139,865 2,648,790 1,725,881 4,374,671

498,253 (7) 498,246 2,438,090 4,374,671 6,812,761

1,181,218 1,181,218 3,219,508 6,812,761 10,032,269

Statement of Changes in Equity


(For the year ended December 31, 2006)

FINANCIAL STATEMENT ANALYSIS

SWOT Analysis

Common Size Analysis

Index Analysis

Trend Analysis

Graphical Presentation

Conclusions

SWOT ANALYSIS OF THE BANK

An overview of the banks strengths, weaknesses, opportunities and threats are as under:

STRENGTHS

Islamic bank. Riba-free products. Committed and competent staff. Efficient management. Strong goodwill. High quality services.

WEAKNESSES

Lack of resources. Limited branches. Lack of new technologies. Limited departments. Lack of on job training.

OPPORTUNITIES

SWOT ANALYSIS OF THE BANK


An overview of the banks strengths, weaknesses, opportunities and threats are as under:

STRENGTHS

Islamic bank. Riba-free products. Committed and competent staff. Efficient management. Strong goodwill. High quality services.

WEAKNESSES

Lack of resources. Limited branches. Lack of new technologies. Limited departments. Lack of on job training.

OPPORTUNITIES

Potential of Islamic bank is increasing in market. World wide coverage. Chances to increase the product offerings.

THREATS

New entrants may increase in future due to the increasing trend of Islamic banking.

Growing intense competition.

COMMEN SIZE ANALYSIS


BALANCE SHEET 2004
%age ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions Investments Financings Other assets Operating fixed assets LIABILITIES Bills payable Due to financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred Taxation 13.31 8.88 7.25 62.64 6.84 1.03 100 0.99 14.53 69.90 3.91 0.0014 89.34 10.65 6.83 1.30 1.31 9.44 Advances against issue of right shares Surplus on revaluation of investments 0.97 0.22 10.65

2005
%age 12.89 5.70 4.65 64.35 7.20 0.99 100 0.84 9.72 74.22 4.78 0.55 90.14 9.85 6.63 2.17 0.87 9.68 0.17 9.85

2006
%age 12.69 8.91 7.97 6.19 58.21 4.88 1.144 100 1.21 9.23 74.18 0.87 4.26 89.75 10.25 8.14 1.14 0.97 10.24 0.015 10.25

NET ASSETS REPRESENTED BY Share capital Capital Reserves Revenue Reserves

Profit & loss account 2004


Profit/return on financings and placements Return on deposits and other dues expensed Net spread earned Provision against non-performing financings (net) Provision / (reversal)for diminution in the value of investments Bad debts written off directly %age 188.16 88.16 100 5.98 0.61 6.59 Net spread after provisions OTHER INCOME Fee, commission and brokerage income Capital gain on sale of securities Dividend income Unrealized Gain/(loss)on revaluation of investment classified as held for trading Income from dealing in foreign currencies Other income Total other income 35.47 28.59 38.23 14.81 9.44 1.98 128.55 221.95 OTHER EXPENSES Administrative expenses Other provisions/write offs Other charges Total other expenses 144.11 0.065 144.17 77.77 22.72 27.23 12.04 7.51 10.14 1.25 80.92 175.85 93.44 0.06 93.50 82.35 17.43 9.43 13.32 (2.62) 16.25 1.86 55.70 145.77 82.50 0.385 82.88 62.90 93.40

2005
%age 189.80 98.80 100 8.95 (3.88) 5.07 94.92

2006
%age 218.07 118.07 100 9.80 0.10 9.91 90.10

Extraordinary/ unusual items PROFIT/(LOSS) BEFORE TAXATION Taxation current - for the year - prior years - deferred PROFIT / (LOSS) AFTER TAXATION Profit brought forward Profit Before Appropriations

77.77 1.92 3.15 78.99 4.25 83.24

82.35 0.61 5.07 22.11 54.55 24.91 79.47

62.90 0.67 (4.88) 18.38 48.72 42.51 91.23

Index Analysis
BALANCE SHEET 2004
ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions Investments Financings Other assets Operating fixed assets LIABILITIES Bills payable Due to financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred Taxation 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Advances against issue of right shares Surplus on revaluation of investments 100 100 100

2005
151 163 112 160 164 149 156 133 104 165 191 59,536 157 144 151 260 104 160 119 144

2006
224 236 201 219 167 259 235 287 149 250 51 691985 236 227 280 205 173 255 15 227

NET ASSETS REPRESENTED BY Share capital Capital Reserves Revenue Reserves

Profit & loss account 2004


Profit/return on financings and placements Return on deposits and other dues expensed Net spread earned Provision against non-performing financings (net) Provision / (reversal)for diminution in the value of investments Bad debts written off directly
100 100 100

2005
273.06 275.73 270.7

2006
506.04 584.75 436.65

100 100 100

404.98 1704.63 207.99 275.13

715.56 74.11 655.66 421.17

Net spread after provisions OTHER INCOME Fee, commission and brokerage income Capital gain on sale of securities Dividend income Unrealized Gain/(loss)on revaluation of investment classified as held for trading Income from dealing in foreign currencies Other income Total other income

100

100 100 100 100 100 100 100 100

173.47 257.81 85.24 137.34 290.57 171.94 170.41 0 214.48 175.52 -

214.63 144.04 152.15 77.13 751.1 409.74 189.15 0 286.79 249.94 -

OTHER EXPENSES Administrative expenses Other provisions/write offs

100 -

Other charges Total other expenses Extraordinary/ unusual items PROFIT/(LOSS) BEFORE TAXATION Taxation current - for the year - prior years - deferred

100 100 100 100 100 100 100 100 100

260.54 175.56 286.64 85.39 435.78 4864.6 1586.67 258.43 87.43

2581.62 250.99 353.15 151.99 676.78 6552.59

100 PROFIT / (LOSS) AFTER TAXATION Assets/Current Liabilities 186.96 Current Ratio Current

Ratio

Formula

2004 2005 2006


269.32 1.49 1.84 4366.13 478.52 112.57 2.21

Profit brought forward

Profit Before Appropriations Basic Earnings Per Share (Rupees)

LIQUIDITY RATIOS Current Ratio.

Graphical Presentation.

2.5 2 1.5
Current Ratio

1 0.5 0 2004 2005 2006

Analysis.
The higher the Current Ratio, the more liquid the company appears to be. Many bankers and other short-term creditors traditionally have believed that a retailer should have a current ratio of at least 2 to 1 to qualify as a good credit risk. By this

standard, MBL comes up a little short in 2004-5 but it rose to the standard in 2006. As shown in the figure above, the Companys Current Ratio is continuously increasing throughout the years, which shows that the company is able to pay its liabilities and

Ratio

Formula

2004 2005 2006


89% 86% 78%

Loan to Deposits Ratio [Total Loans/ Total Deposits] x 100 at good credit standings among its creditors.

Loan to Deposits Ratio.

Graphical Presentation.

90% 88% 86% 84% 82% 80% 78% 76% 74% 72% 2004 2005 2006

Loan to Deposits Ratio

Analysis

This ratio shows a relationship between loans and advances and reveals how much productively the deposits are used. Analysis shows a decrease in loan to deposit

Ratio

Formula

2004 2005 2006


58%

Loan to Assts Ratio [Total Loans/Total Assets] x 100 62% 64% ratio, this is because of Govt. has increased the lending rate that is why borrowing is less and less throughout the years. On the other hand, banks deposits are also increasing sharply if deposits increase by higher rate than an increase in loan then bank has to face difficulty to pay its borrowing cost to the lender.

Loan to Assets Ratio.

Graphical Presentation.

65% 64% 63% 62% 61% 60% 59% 58% 57% 56% 55% 2004 2005 2006

Loan to Assets Ratio

Analysis.

Total assets of the bank increased from Rs.1969 (million) in 2004 to Rs.4643 (million) in 2006 and advances/loans net of provision have increased from Rs.1233 (million) in 2004 to Rs.2703 (million) in 2006. A slight increase of 2% in ratio is due to the fact that the loans and assets are increased, in 2004-5, in the same ratio. On

Ratio

Formula

2004 2005 2006


22%

Net Profit Ratio [Net Profit/Return on Financings] x 100 42% 29% the other hand the sharp decrease of 6% in 2006 is the result of the more sharp increase in total assets as compare to the total loans at that time.

PROFITABILITY RATIOS Net Profit Ratio. Graphical Presentation.


45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2004 2005 2006

N.P Ratio

Analysis.
The Net Profitability of the company is declining from 2004-2006. As clear from above, the N.P Ratio is 42% in the first year, then it declines to 29%, in the second year, and in 2006 it declined further to 22%. The decreasing Net Profit trend shows the managements inefficiencies to control the operating costs and maximize the profit. Most established banks prefer to have N.P ratio 20% or more.

Ratio
Operating Ratio

Formula
[Operating Costs /Interest Earned] x100

2004 2005 2006


77% 49% 38%

Operating Ratio.

Graphical Presentation.
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006

Operating Ratio

Analysis.
As the graph shows the operating costs are decreasing year by year. In year 2004 it was 77 % of the interest earned and it decreased in year 2005 to 49% in the next year it again decreased to 38% of the interest earned. The decreasing trend of the operating costs shows the efficiency of the management to control the operating costs. But the Operating costs itself as a percentage of the interest earned is very heavy although the management is trying to control these costs; these are still a very huge percentage of interest earned.

Rate of Return at Loans.


Ratio
Rate of Return at Loans

Formula
[Interest Income/Total Loans ] x 100

2004 2005 2006


4.33% 7.39% 10%

Graphical Presentation.
12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2004 2005 2006 Rate of Return at Loans

Analysis.
The Rate of Return at Loans of the company is continuously increasing from 4.33% to 10% from 2004-2006. This shows that the company is in good position when we compare the interest income of the company with its Loans. The rate of return is increasing with the amount of total loans thus shows that company is earning favorable interests on its loans.

Return on Assets (ROA).


Ratio
Return On Assets

Formula
[Net Income after Tax/Total Assets] x 100

2004 2005 2006


1.14% 1.37% 1.30%

Graphical Presentation.

1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2004 2005 2006
ROA

Analysis.
In ROA we evaluated whether the banks management has earned a reasonable return with the assets under its control. Mostly well established banks earn a return on total assets of, perhaps 3% or more. In the first year the ROA is 1.14%, in 2005 it becomes slightly up to 1.37% and then a slight downfall in 2006 to 1.30%. But when we compare these results with the standard of ROA, it becomes clear that the bank is not earning good return on its assets.

Return on Equity Capital.

Ratio
Return On Equity Capital

Formula
[Net Income/Equity Capital] x 100

2004 2005 2006


16.67% 20.60% 16%

Graphical Presentation.
25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2004 2005 2006
Return On Equity Capital

Analysis.
The equity capital of the bank is increased every year. But in 2005 the return on equity capital is more sharply increased as compared to the remaining two years and is due to the fact that in 2005 the equity capital is increased more sharply as compared to the net income after tax that year. This slow increase is the result of the banks heavy current taxes and less other incomes. We can not set any standard for the banks return on capital because different capitals have variable capacity.

Return on Equity (ROE).

Ratio
Return on Equity

Formula
[Net Income/Shareholder's Equity] x 100

2004 2005 2006


10.70% 13.90% 12.70%

Graphical Presentation.
16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2004 2005 2006
ROE

Analysis.
Traditionally, stockholders have expected to earn on average annual return of 12% or more from equity investment in large, financially strong companies. In this case, as you can see that the banks ROE in the first year is not up to the status and insufficient for the stockholders of the bank. But the bank goes in the favorable outline in the following two years i.e. 2005-2006. The banks ROE becomes up to the standard of the ROE and the stockholders received a favorable return now. A slight decline in 2006 is due to the fact that a heavy amount is now due from other financial institutions that affect the Shareholders equity.

Earning Per Share (E.P.S).

Ratio
Earning Per Share

Formula
Net Income/Total No. of Shares

2004 2005 2006


1.67 1.46 1.88

Graphical Presentation.
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004 2005 2006

EPS

Analysis.
The Earning per Share is increased from the previous some years due to increasing net income of the bank. As we can see, it is Rs.1.67 in 2004 then it slightly declines to Rs.1.46 and in 2006 it again increased to 1.88. The decrease in EPS in 2005 is due to the fact that the banks share capital is more sharply increased as compared to that years net income. But if viewed as a whole, the banks EPS has a positive trend, which is a good sign for the banks future. This ratio has a great importance for the shareholders point of view. The shareholders want a higher return on their investment.

LEVERAGE RATIOS

Debt to Equity Ratio.

Graphical Presentation.
Ratio
Debt To Equity Ratio

Formula
Total Debt /Shareholders Equity

2004 2005 2006


1.36 0.98 0.90

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004 2005 2006
Debt To Equity Ratio

Analysis.
This ratio depicts the relation between equity and debt financing and the standard for this type of ratio is 1 to 1. It is clear that outsiders funds are 1.36 times the shareholders funds, which is higher than the standard 1 to 1. But in the following next two years it becomes low to 0.90, which shows that the company is on the right path now. Lesser is the equity financing lesser will be the soundness of the bank.

Proprietary Ratio.

Ratio
Proprietary Ratio

Formula
[Shareholders Funds/Total Assets]

2004 2005 2006


10.65% 9.85% 10.26%

Graphical Presentation.
10.80% 10.60% 10.40% 10.20% 10.00% 9.80% 9.60% 9.40% 2004 2005 2006
Proprietary Ratio

Analysis.
This ratio explains that participation in the assets by the shareholders funds is limited by outsiders fund but when we take year under review (2006) we see ratio is increased in 2006 as compared to the year 2005. But when we compare the last two years ratio with the first year, we see that there is a considerable decline in the proprietary ratio of the bank. Reason behind this is that increase in assets in financed by outsiders fund rather than the fund provided by the shareholders because there is lesser increase in shareholders fund as compared to increase in total assets.

Conclusion

Under all these circumstances it will not be unexpected that interest-based financial policies would be in some cases, successful in savings mobilization. However many of the above mentioned factors are bound to change once 'efficient' Islamic interest-free financial institutions are established. Not only petite savings will be mobilised by these Islamic institutions but also the savings of all those who say that they have no alternative to commercial banks at present. In fact, a revival of Islamic Shariah and ethics would settle the matter decisively against the interest-based system and its ability to mobilise Muslims, savings. But before realising this precious target, it is very important that the ability of any new Islamic financial institution to effectively mobilise saving resources would mainly depend on efficient practice of interest-free financing methods, success in achieving highest possible "Halal" returns and thus gaining the confidence of the savers to invest their funds through them. It is now time that Islamic banks and financial institutions resolve to gradually enhance their share of financing on PLS basis and reduce the share of financing on the basis of Murabaha, Bai Mu'ajjal and the like modes of financing. If Islamic banks succeed in demonstrating a practical example of socio-economic justice by gradually enhancing their financing on PLS basis and also achieve further satisfactory operational results, there is no reason why more cooperation would not be extended to them by the European, American and other interestbased banks. Some of these conventional banks may even be tempted to adopt PLS system of financing in their subsidiaries & affiliates operating under the banner of Islamic banking.