Introduction to Pool Management

By
Mujeeb Beig
The specific pools are created for the following purposes
1. Treasury / Financial Institutions (F.I.) Pool
2. Islamic Export Refinance Pool (IERS) Pool
3 Equity Pool
4. Specific Customers’ Pools
5. FCY pool
Asset Allocation

At the time of disbursement, each asset must be properly

assigned to a specific pool at General Ledger or Sub-GL
level.

This should be done through an internal entry.

The proper allocation of earning assets should be based

on related risks and rewards of the relevant eraning
assets
Pool Composition

A pool will composed of earning assets which to be

booked/already booked.

To abide by Shari’ah rulings at any stage the assets of the

pool shall constitute at least 20% fixed assets (like Ijarah
or DM).
Specific pools for depositors
Specific deposits pools are created with the funds
received from customers in remunerative accounts such
as

• Saving Accounts,
• Term Deposit Accounts
Specific pools for Financial Institutions

Funds from financial institution (FI) can be accepted by

creating specific pools under Musharakah arrangements.

Specific pool for equity

The Equity Pool may be created with the bank’s equity.

The equity funds may be used specifically for the
investment in equity market & other permissible Islamic
modes having risk of loss greater than money market.
The current accounts deposits are also mixed with the
bank’s equity.
Purpose for specific Customers’ Pools (PKR & FCY)

Specific Customers’ Pools are created primarily to give

higher return than the general pool return to corporate
customers and high net worth individuals, based on
Musharakah arrangements. The high earning assets are
financed with these funds, either by specifically disclosing
the financing avenues to the depositors or not. Already
booked assets may also be used for such purpose, by
selling the assets from general pool to specific pool
 Utilization

Ijarah/Car 2700 MN
Sources Murabaha 2000 MN
Saving and TDRs Deposits: DM Equipment/HF 500 MN
PKR 4700 MN Ijarah Equip 100 MN
Murabaha 200 MN
Saving FX 300 MN
Ijarah 200 MN
F.I.: PKR 500 MN FE 25 Murabaha 300 MN FCY

Ijarah 100 MN
SBP: PKR 1500 MN
Murabaha 600 MN

Ijarah 100 MN
Equity: PKR1000 MN Murabaha 200 MN

Ijarah 200 MN
Total PKR 8000 MN Murabaha 400 MN
Equity market 400 MN

Total 8000 MN
 Fund Utilization

• The bank allocates the funds received from the

customers to a specific pool having earning assets of
profit yield more than the profit yield expected by the
Rabb-ul-Maal owners of the specific pool .

• The earning assets may have existence in the books of

the bank at the time of creation of specific pool or the
earning assets can also be created with the Raas-ul-Maal
of Rabb-ul-Maal of specific pool. In case earning assets
already exist then the general pool will sell these assets to
specific pool through a Memorandum Entry. Bank’s
equity/current accounts deposits are also be used to
finance earning assets. For this purpose, bank plays the
role of “Shareek” in the specific pool having two roles,
Rabb-ul-Maal and the working partner(i.e bank’s role for
other Rabb-ul-Maal and for its own equity/current
accounts funds)
 Sources Pool Investments/Financing

Depositors
Funds Murabaha
Mixed pool of Funds Ijarah
Diminishing Musharakah

Bank’s
equity plus
current
Profits Profit
accounts
deposits
- The bank calculates the profit of the deposit pool every
month.

- Gross Income (Return) of the pool will be calculated by

taking all the assets booked up to the beginning of the
month as well as assets booked/investments made during
the month by utilizing the funds from the Investment
Pool.

-The Gross Income of the pool will be announced on a

monthly basis.

-The profit will be calculated by 5th of each subsequent

month for the previous month.
The Gross Income will be shared between the bank (as
Rabbul-Maal and working partner) and Depositors (Rabb
–ul- Maal) in a predetermined ratio (%) of the accrued
profit and the same is fixed by the bank being working
partner.

This ratio of profit for bank & depositors is announced

• at the beginning of the month and

• is available at each branch and at the website of the
bank or
• can be obtained from the bank upon request by the
specific pool holders .
 Illustration 1
Profit Sharing Ratio

Example

Bank (as Rabbul-Maal and Up to “X” Say 50 %

working partner) %
Investment Pool (For (1 – “X”) 100- 50%
Investors) % =50%
 Illustration 2

Bank’s share = Gross Income x (X%) say 50%

Investment Pool’s share = Gross Income x (1-X)%
say 100-50% =50%

At the time of profit sharing, bank (as Rabbul-Maal

and working partner) on its sole discretion can reduce its
share of Income with out being a contractual obligation in
order to equalize the profit yield expected by other Rabb-
ul-Maal of the specific pool (depositors). However, after
revision, this revised profit sharing ratio is again disclosed
at the branch notice board or at the web site of the bank
or is available for the specific pool Rabb-ul-Maal upon
request. This provision should be made part of account
opening form for saving & TDRs holders
The profit is distributed among different Rabb-ul-Maal of
the specific pool on the basis of predetermined
weightages, announced at the beginning of the month,
by the bank. The weighatges are assigned based on
each Rabb-ul-Maal desire to earn some specific return.

Loss Sharing

In case of any loss, it will be shared by all Rabb-ul-Maal

in the ratio of their investment in the specific pool.
For all practical purposes, bank by its own will with out being
a contractual obligation may bear all the loss to specific pool
based on “Tabarru”
The specific pool operates on Musharakah basis.

Different categories of depositors in the specific pools

are assigned different profit sharing weightages based
on:

-Investment tenure
-Profit payment options (monthly/quarterly/semi
annually/at maturity)
-Amount tiers(different amounts)

These profit weightages are announced at the

beginning of the month/beginning of creating specific
pool.
 Profit sharing - Weightages

Illustration 3

Investors Categories Weightages

Saving Account Tier 1 ( up to 100,000) 0.23

Saving Account Tier 2 (above 100,000) 0.42

TDRs– 1 year maturity 1.36

TDRs– 3 years maturity 1.69

TDRs– 5 years maturity 1.83

 Bank’s Participation in Investment Pool

The bank can also participate in the Investment Pool

(as an investor) in any proportion,

However the weightage assigned to the bank should

not be greater than the highest weightage assigned to
any of the depositors in the specific Pool, based on
principle of fairness.
Illustration 4

Investors Categories Weightages

Saving Account Tier 1 ( upto 100,000) 0.23

Saving Account Tier 2 (above 100,000) 0.42

TDRs– 1 year maturity 1.36

TDRs– 3 years maturity 1.69

TDRs– 5 years maturity 1.83

Equity (bank) 1.83

Working for Weightages
 Weightages Mechanism

Following factors complicate the profit sharing

mechanism of Musharakah Pool:

-Large number of partners (Account holders)

-Account holders continually join and leave the
Musharakah pool
-Investment of Account holders also fluctuates

Simple profit sharing mechanism with this continual

fluctuation of investment and profit ratios is impractical
F.I. Pool size : 100 M
Tenor : 28 days
Expected Return on Asset from the Pool: 10 % p.a.

Pool No/PIN code No. ASKARI 01.007.2007

Share of XYZ Bank (INVESTOR) PKR 50 M profit

share 40%
Share of ABC Bank (ACCEPTOR) PKR 50 M profit share 60%
Profit Distribution (at Maturity – after 28 days)
income of the Pool: 767,000
XYZ Bank’s share 306800/360*28(767000x 40%)= 306800
or 6.14% p.a.
ABC Bank’s share 460200/360*28(767000 x 60%) =
460200 or 9.20% p.a.
Deal Confirmation Agreement for FIs

• Acceptance of funds from any F.I. are

acknowledged by a Deal Confirmation agreement
(which suffice the purpose of Musharakah
agreement)

• The Deal Confirmation also contains the unique

PIN of the F.I. Pool that defines the underlying
assets for that arrangement.
• By recognizing the PIN code the assets after the
maturity of specific pool are transferred back to
general pool.