` Islamic Banking: Islamic banking has been defined as banking in consonance with the philosophy and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic Shariah. Interest free banking is a narrow concept denoting a number of banking instruments or operations, which avoid interest. Islamic banking, the more general term is expected not only to avoid interest-based transactions, prohibited in the Islamic Shariah, but also to avoid unethical practices and participate actively in achieving the goals and objectives of an Islamic economy. The Islamic Banking system employs the concept of participation in the enterprise, utilizing the funds at risk on a profit-and- loss-sharing basis. This by no means implies that investments with financial institutions are necessarily speculative. This can be excluded by careful investment policy, diversification of risk and prudent management by Islamic financial institutions. Islamic Shariah prohibits „interest‟ but it does not prohibit all gains on capital. It is only the increase stipulated or sought over the principal of a loan or debt that is prohibited. Islamic principles simply require that performance of capital should also be considered while rewarding the capital. The prohibition of a risk free return and permission of trading, as enshrined in the Verse 2:275 of the Holy Quran, makes the financial activities in an Islamic set-up real asset-backed with ability to cause „value addition‟. Islamic banking system is based on risk-sharing, owning and handling of physical goods, involvement in the process of trading, leasing and construction contracts using various Islamic modes of business and finance. As such, Islamic banks deal with asset management for the purpose of income generation. They will have to prudently handle the unique risks involved in management of assets by adherence to the best practices of corporate governance. Once the banks have stable stream of Halal income, depositors will also receive stable and Halal income. 1 M. Waqas Yousaf 073605092 The forms of businesses allowed by Islam at the time the Holy Quran was revealed included joint ventures based on sharing of risks & profits and provision of services through trading, both cash and credit, and leasing activities. In the Verse II:275, Allah the Almighty did not deny the apparent similarity between trade profit in credit sale and Riba in loaning, but resolutely informed that Allah has permitted trade and prohibited Riba. Profit has been recognized as „reward‟ for (use of) capital and Islam permits gainful deployment of surplus resources for enhancement of their value. However, along with the entitlement of profit, the liability of risk of loss on capital rests with the capital itself; no other factor can be made to bear the burden of the risk of loss. Therefore, financial transactions, in order to be permissible, should be associated with goods, services or benefits. While at micro level this feature of Islamic finance leads to generation of real economic activity and stable growth, at macro level it can be helpful in creating better discipline in conduct of fiscal and monetary policies. Besides trading, Islam allows leasing of assets and getting rentals against the usufruct taken by the lessee. All such things/assets corpuses of which are not consumed with their use can be leased out against fixed rentals. The ownership in leased assets remains with the lesser that assumes risks and gets rewards of his ownership. 2 M. Waqas Yousaf 073605092 Major Modes of Islamic Banking and Finance: MURABAHA Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. The parties negotiate on the margin or the rate of profit on the cost. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance. IJARAH Ijarah is a contract of a known and proposed usufruct against a specified and lawful return or consideration for the service or return for the benefit proposed to be taken, or for the effort or work proposed to be expended. In other words, Ijarah or leasing is the transfer of usufruct for a consideration which is rent in case of hiring of assets or things and wage in case of hiring of persons. ISTISNAA It is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. Istisna can be used for providing the facility of financing the manufacture or construction of houses, plants, projects and building of bridges, roads and highways. MUSHARKAH Musharkah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. 3 M. Waqas Yousaf 073605092 History & Introduction of Islamic Banking Services Islamic Banking was launched under the brand 'Askari Islamic Banking', by opening 6 dedicated Islamic Banking branches in major cities of the country. Further expansion is planned with improved capabilities for offering products conforming to the Shariah principles. Now it has fourteen branches in the big cities of Pakistan .Askari Islamic Banking opens the doors for Halal banking solutions. Objective of ABL-IBB “Is to put in place an efficient banking system supportive to economic justice and welfare of society in line with Shariah standards” A comprehensive range of Islamic Banking products and services is being offered, in order to meet customer's demand of Shariah Compliant Banking, in the following areas: Islamic Corporate Banking Islamic Investment Banking Islamic Trade Finance Islamic General Banking Islamic Consumer Banking Islamic Banking products have been approved by the Bank's Shariah Advisor. As per Shariah requirements, funds and products of Islamic Banking are managed separately from the Conventional Banking side. All funds obtained, invested and shared in Halal modes & investments, under supervision of the Shariah Advisor. 4 M. Waqas Yousaf 073605092 Askari Islamic Bank in Gujranwala Askari Islamic bank was established on December 28, 2007 in Gujranwala. As Gujranwala is popular because of Agriculture and Domestic Industry. The purpose of ABL –IBB is to provide more and more facilities of Islamic Banking. So that people of Gujranwala can perform their business matters according to Shariah, as trade has got special place in Islam. The staff in Gujranwala Branch is expert and highly educated. And they have special skills and awareness about the entire region. So ABL-IBB offer total security and protection to the people of Gujranwala. Shariah Advisor An eminent scholar and recipient of the president‟ medal for president of performance for the year 2004, Professor Dr. Muhammad Tahir Mansoori, has been appointed as the Shariah advisor of this bank. He is presently chairman of Islamic law department at the Islamic research institute of the international university, Islamabad He has taught and written on Fiqh and usool-e- Fiqh matters for over two decades. He has also responded to a large number of queries issued religious rulings I-e Fatwa‟s on various matters pertaining to Islamic law, especially in the field of commercial law. 5 M. Waqas Yousaf 073605092 Vision “Establish Islamic banking as banking of first to facilitate implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind”. Mission “To be An Islamic banking offering a one-stop for innovative value-added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders‟ value through an organizational cultural based on learning, fairness, respect for individual enterprises and performances”. 6 M. Waqas Yousaf 073605092 Goal of my internship: Increase knowledge of subject matter. Develop work skills and improving self confidence. Increase levels of intercultural proficiency and Personal Development. Evaluate academic experiences in a professional field setting. Explore possible career choices and establish relationships that may result in future employment. Opportunity to understand the structure and operation of a working organization. Causing interaction with a variety of individuals, systems, and organizations. Using a variety of learning styles and frequently challenging participants to use new ways of learning and thinking. 7 M. Waqas Yousaf 073605092 Branch Network 1. Rawalpindi Branch 2. Peshawar Branch 3. Queeta Branch 4. Multan Branch 5. Faisalabad Branch 6. Gujranwala Branch 7. Sailkot Branch 8. Islamabad Branch Lahore Branches 9. Cavalry Ground Branch 10. Gulberg Branch 11. DHA Branch Karachi Branches 12. Jodia Bazar Branch 13. DHA Branch 14. North Nazimabad Branch 8 M. Waqas Yousaf 073605092 Branch Hierarchy in Gujarnwala: Branch Manager Zahid Ibrahim Manager Incharge Foreign INCHARGE CAD Operation Department Trade (Mr. Bilal Humayun Butt) (Mr. Muhammad (M. Atif Khokhar) Awais) Officer Corporate Incharge General Banking (Muhammad Bilal (Salman Nawaz Warriach) Mehar) In charge Car Ijarah (Sheraz) Cash Officer (Zohaib & shaista Begum) Incharge Remittances Officer Car Ijarah (Mr. Shahzad) (Bilal Maher) 9 M. Waqas Yousaf 073605092 Products and services in ABL-IBB Gujranwala Askari Halal saving Account: It is an easy to open checking account having special features of no restriction of withdrawals or number of transactions. Current Account: A complete business account which provides instant access of funds at all branches without any restriction on withdrawals or number of transaction. Basic Banking Account: This account will be open for salaried person .every month client must do the two transactions .if the transition exceeded then RS 75 charged of this account. Term certificates: Askari Islamic Investment Certificates (AIIC) Askari khas Islamic deposit account (AKIDA) Askari Islamic term quality deposit (AITQD) Askari Halal certificate of Aasan monthly Mudarbah (AHCOAMM) Askari wakalah –tul- istimal All terms and conditions are same but difference in all terms of time period 10 M. Waqas Yousaf 073605092 Service Quality: Askari Islamic bank is committed to delivering its Products and Services within the highest service quality parameters. The Bank prides itself for the restless pursuit of excellence in all the spheres of its activities. The defining value in Islam itself to inculcates, in the essence the source of what Service Quality itself means. Honesty, Complete transparence, Effective delivery, Fair pricing, Respects and Recognition for the consumer are all clear aspects of our faith and belief. The Service Quality mission of Bank itself clear defines the parameters of this goal: “To delivered Service Cultural which ensures the consistent of our Products and Service, within the highest Service Quality service parameters, promoting Islamic values and ensuring recognition and quality banking experience to our customers”. 11 M. Waqas Yousaf 073605092 12 M. Waqas Yousaf 073605092 Hierarchy of Departments Operations Clearing Cash Accounts Accounts Opening Credit Admin Corporate Car Ijarah Trade Finance Import Export Foreign Exchange 13 M. Waqas Yousaf 073605092 Hierarchy of Operation Department Operation Department Customer service Remittances Accounting Accounts Cash Opening SUPERVISING 14 M. Waqas Yousaf 073605092 Account Opening, Closing and Clearing This section is also called Front office. It basically divided into four sub- departments. 1. Remittances & Clearing (Inward & Outward) 2. Account 3. Customer service/Account opening 4. Cash All these are separate departments but collectively known as Operation department. I worked first week for operation department. And different department in- charges guided me in the different working fields. The first section I started work in account opening and clearing section. Sir Safdar helped me and told me how to account open and also told me what types of documents are require for the account opening procedure. During this practice I filled the account opening forms and issuance the cheques book to the account holders. It is also called the Customer Service Section. In the Bank the first step is Account Opening. It is contractual agreement between bank and customer after which both concerned parties indulge in a mutually beneficial business relationship. And both are interact directly. If the any person who wants to transaction through the Bank firstly he opens the account than he can proceed further. Types of Accounts 1. Askari Halal saving Account 2. Current Account: 3. Basic Banking Account Documents Requires I practically saw all the necessary documents which are required for opening of Account. 15 M. Waqas Yousaf 073605092 Individual Account: Copy of CNIC/NICOP/POC Any job /business proof (if applicable) Students Account All the documents which are necessary for the Individual Account that are same for the students Account but a little bit documents are different that are: Student‟s ID card Copy of the B form And copy of the Guardian For Limited Company account Copy of Certificate of Incorporation Memorandum & Articles of Association Board Resolution Latest copy of Certified Form-29 List of Directors Copies of CNICs of all Directors Certificate of Commencement of Business (for Public Ltd co). Partnership account Partnership Deed (certified copy) Letter of Authority & Mandate Copies of CNICs of all partners Account Opening Request. Proprietorship account Copy of CNIC. Copy of NTN Certificate Account opening Request & Proprietorship Letter Club / Society / Association and Trust account Copy of Rules / By-laws Copy of Registration (if applicable) 16 M. Waqas Yousaf 073605092 List of Executive Members / Management committee/ Management Board etc. Certified copy of Resolution CNICs of all members of Management Body How to Close an Account The customer can close the account. The customer is required to submit an application for closing the account. Then the account is closed out and his balance is paid to him after deducting the Closing charges i.e. Rs.200 and the application is filed in Account closing file. Cheques book is returned back to bank and the officer cancel and the remaining cheques in cheques book. Procedure of account opening Account Opening Introduction SSC Cheques Book Form Application Bank Register entry Account Number Issuance of Cheques System Input ID card Verification Book Completion Account Cash Deposit or cheque 17 M. Waqas Yousaf 073605092 Remittance and Clearing After the account opening section I worked in the Remittance and Clearing section. I saw the representations of Cheques which come for clearing. Sir Shahzad helped me in this section and told me the basic steps of clearing and remittance. During the working of this department I filled vouchers of many account holders in this bank. There are two types of Clearing. Clearing OBC Inward Outward Intercity In intercity section the Cheques are drawn to other bank that is out of cities by ABL-IBB In intercity NIFT directly present Cheques in the concern bank if clearing then the bank clearance stamp on this Cheques and State Bank transfer amount to the other bank‟s account. NIFT charges on this RS. 150. Bank gets commission on it RS.250 per Cheques. Local Local clearing is free means that bank does not charge by its clients for clearing and pay for it by self. It can be said that it is free for customers. 18 M. Waqas Yousaf 073605092 Inward Inward Clearing means the Cheques drawn from ABL-IBB another banks. Where as clearing branch to branch is done through online. Outward In outward clearing I saw how the Cheques drawn on other banks with in city ABL-IBB. OBC (Outward Bank Collection) The OBC Cheques drawn by another banks outside city. ABL-IBB does not take NIFT services but send Cheques to other branch. And that branch does clearing locally. IBC (inward Bank Collection) IBC Cheques drawn on ABL-IBB from other city. Branch of that city confirm about that Cheques through fax which drawn on ABL-IBB Gujranwala. After clearing ABL-IBB Gujranwala transfer funds in the Nostro Account. Services Charges NIFT perform all clearing services Intercity and local both. It charges for return report and clearance report RS.150. Return report means if Cheques is not clear by other bank NIFT returns this to the particular bank. Clearance Report means if Cheques clear by other banks NIFT report to the particular bank to which that Cheques belong. Stamps Three types of stamps are pasted on Cheques at the time of clearing. Those two stamps are: 1. Crossing stamp 2. Clearance stamp 3. Pay account will be credited on realization 19 M. Waqas Yousaf 073605092 Crossing stamp used for ownership whereas Clearance stamp used for clearing that indicate that this Cheques complete in all aspects and fulfill all requirements. Procedure of Inward & Outward Clearing: Inward clearing: Receive instrument payable by us in inward clearing Time is the essence of clearing, if not returned unpaid then it is presumed to be paid Check the total number of instrument matches with the clearing schedule and get signature on it. Out ward clearing Procedure: Receive cheques on the counter and examine it on the following lines Cheques is drawn on a bank that is a member of clearing-house It is deposited in an account that is being maintained in the branch It is in order as to the name of payee, date, amount in words and figure and correctly endorsed where required. Check the pay-in slip and counter foils are correctly filled in. Put the banks special crossing stamp & clearing stamp of the next day Banker discharge Detach cheques from pay-in slip Sort out cheques bank wise and branch wise. Input in system for each bank Prepare clearing schedule Attach the cheques with clearing schedule Handover the instruments to NIFT Realization entries. Account Department: It deals with transfer entries, Bank statements (customer information about account), day to day expenses, postage expenses, taxes, Debit, credit, ledger accounts and received mail from courier and passed the entries in register for 20 M. Waqas Yousaf 073605092 record. This department also performs account verification means that when the account opening form come from the customer service department this particular department verify that whether this form is complete or not. If complete then send letter of thanks to accountholder‟ house if not then come back to the customer service department. It counts the total debit and credit in the whole working report of the bank. Practically I worked in this department passed the entries in recording register. Account department responsible to manage the following Transfer Entries: Local transfer: Local transfer is the transfer of funds from one account to another within branch. Day to day expenses include: Office stationary Repair and maintenance Office equipment Advertising expenses Electricity bills Gardener salary Telephone bills Postage expenses include: OSC TCS DHL When all these expenses are occurred account department present these through expense vouchers. 21 M. Waqas Yousaf 073605092 Supervising Sir Awais Chisti is responsible of the entire Operation department and supervises rechecks all the activities of the operation department. If he realizes any mistake in any activity, then he returned it to the concern section for remove the deficiency and after supervised this finally. At the end of the day the related person In-charge checks all the activities to the Operation Department Head (Sir Salman warrich) but in the day routine if any discrepancy exist then he solves it at that time. 22 M. Waqas Yousaf 073605092 Corporate: Corporate deals with funded and non funded facility. In other words it can be said that it covers with both long-term and short- term requirements.Murabaha meet working capital needs whereas Ijarah and Diminishing Musharkah fulfill long-term financing requirements for plant and machinery. Corporate is divided into the following Categories: Corporate Non-Funded Funded Funded Murabaha Ijarah Diminishing Musharkah Non- Funded Sight LC Usance LC LG 23 M. Waqas Yousaf 073605092 Murabaha: “The Murabaha transaction was prevalent in the day of Prophet .” Islamic banks therefore use a sale-based transaction (Murabaha) instead of loan-based transactions for financing purchase of assets by their clients. Over 70% of all advances made by Islamic banks comprises of Murabaha transactions. Murabaha is a particular kind of sale Islam prohibits charging interest on money, but permits charging profit on sale of goods 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 The distinguishing feature of Murabaha from ordinary sale is: the seller discloses the cost to the buyer and a known profit is added. Prohibition of: Major Uncertainty (Gharar) and Sale of debt Subject matter of sales must conform to Shariah rules: Be in existence, Possession by seller either physically or constructive. Valid Sale: A valid sale contract exhibits two features: Knowledge; i.e. parties‟ full knowledge of the object of sale. Existence; a concrete sale object. Absence of these features introduces Gharar in the transaction Murabaha: The profit may be added: On a lump sum basis & as a percentage of cost Payment of Murabaha price may be 1) At spot 2) In installments 3) In lump sum after a certain time 24 M. Waqas Yousaf 073605092 Hence, Murabaha does not necessarily imply the concept of deferred payment. Basic rules for Murabaha financing: 1. Asset to be sold must exist. 2. Sale price should be determined. 3. Sale must be unconditional. 4. Assets to be sold: should not be used for un-Islamic purpose, should be in ownership of the seller at the time of sale, and should be in physical or constructive possession of the seller. Quranic view on Gambling & Risk O believers! Intoxicants and gambling and Al Ansab (Animals sacrificed for idols) and Al Azlam (arrows for seeking luck or decision) are an abomination of Satan's handiwork. So avoid them in order that you may be successful. Satan wants only to excite enmity and hatred between you with intoxicants and gambling and hinder you from the remembrance of Allah and from prayer. So, will you not then abstain? (Al Maidah 90 – 91) Ahadith on Gambling & Risk “Whoever buys foodstuff let him not sell it until he has possession of them”. (Bukhari) “Do not buy fish in the sea, for it is Gharar”. (Bukhari) “He who purchases food shall not sell it until he weighs it”. (Muslim) 25 M. Waqas Yousaf 073605092 “The Prophet forbade the sale of grapes until they become black and the sale of grain until it is strong.” (Bukhari, Muslim, Abu Dawood, Tirmidhi) Procedure of Murabaha Financing in Askari Islamic bank: Step # 1 Client and bank sign an agreement to enter into Murabaha (MMFA). Bank Client Agreement to Murabaha Step # 2 Client appointed as agent to purchase goods on bank‟s behalf. Bank Client Agreement to Murabaha Agency Agreement 26 M. Waqas Yousaf 073605092 Step # 3 Bank gives money to agent/supplier for purchase of goods. Bank Client Agreement to Murabaha Agency Agreement Disbursement to the agent or supplier Supplie r Step # 4 The agent takes possession of goods on bank‟s behalf. Transfer of Risk Delivery Vendor of goods Bank Agent 27 M. Waqas Yousaf 073605092 Step # 5 Client makes an offer to purchase the goods from bank through a declaration. Bank Client Offer to Purchase Step # 6 Bank accepts the offer and sale is concluded. Murabaha Agreement + Transfer of Title Bank Client Step # 7 Client pays agreed price to bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal) Bank Client Payment of Price 28 M. Waqas Yousaf 073605092 Documentation: There are a number of documents involved in a Murabaha financing transaction. The most essential of these documents are: Master Murabaha/Istijrar Finance Agreement. Agency Agreement. Draw down notice. Description of assets. Summary Payment Schedule. Declaration. Master Murabaha: It‟s 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. This is an over all facility agreement under which various Sub-Murabaha may be executed from time to time. Hence it needs to be signed once at the time the facility is sanctioned. Agency Agreement: 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. The disbursement of funds is done under this agreement. Declaration: Declaration is to be signed by the customer immediately after it has purchased the goods. This document establishes the actual sale transaction, i.e. transfer of ownership of goods from the Bank to the customer. At this stage the specific details of the assets must be known i.e. quantity, quality etc. Proper timing of declaration is extremely important. 29 M. Waqas Yousaf 073605092 Import Murabaha: LCs opened and subsequently financed by ABL-IBB is an ideal example of a direct payment Murabaha. The customer opens the LC from ABL-IBB as an agent of the Bank (i.e. places order with the foreign supplier on behalf of ABL-IBB. Upon receipt of documents ABL-IBB makes payment to the foreign supplier. ABL-IBB sells the goods to the customer on Murabaha (i.e. cost plus profit basis) Credit Administration Department (CAD): The Credit Administration Department (CAD) is involved in security documentation monitoring and accounting for all banking products and services. Furthermore, CAD monitors the documentary compliance of Shariah related requirements on an ongoing basis. CAD also ensures that SBP regulations and/or legal requirements of the transaction are adhered to at all times. CAD also handles a large volume of back end operations for Corporate, Consumer and SME related businesses. This department is also responsible for the issuance / cancellation of guarantees and centralized SBP reporting for various activities. As per our Shariah requirements, the complete preparation and maintenance of pools for the liabilities products and the Islamic export refinance are also part of this department. Particularly I match all the documents of Murabah financing with check list. 30 M. Waqas Yousaf 073605092 For Corporate, Consumer and SME: Corporate Trade Car Ijarah Finance Credit Administration Department What is Credit? We do not dish out the money to everybody. For bankers it is a matter of Trust, faith, belief. Trust that money lent will come back. That the transaction booked will prove rewarding for the bank. This trust comes through Ability & integrity of credit officer. Good repute of the borrower. Honesty & intention to repay. Ability. Solvency. 31 M. Waqas Yousaf 073605092 Foreign Trade Department: The Trade finance department is: divided into three parts: Foreign Trade Import Export Remittances Export: There are following three basic modes of export: Export on Collection Basis Export on Advance Payment Export by Negotiation Collection: Exporter comes to the bank to issue E-FORM for shipment. Shipment goes first then foreign bank sends money to the exporter‟s bank. All the risk bear by exporter in collection base export. Two terms used in Collection base export C A D (cash against documents) D A (Documents against Acceptance 32 M. Waqas Yousaf 073605092 Procedure of Collection Base Export: Exporter comes to the Bank to issue E-FORM for shipment. Exporter fills E-FORM and returns it to the Bank for certification. Bank certifies E-FORM and gives it to the exporter for shipment. Exporter goes to the custom for shipment with shipping documents. Custom stamp on the E-FORM of shipping bill number. Custom keep original E-FORM copy. After that he goes to shipping company and after verification of the documents, shipping company issues Bill Of Lading. He keeps duplicate. E-FORM copy. Shipment goes After shipment, Exporter comes to the bank and returns the Bill Of Lading and copy of all other documents. Bank keep triplicate E-FORM copy and give the Quard –duplicate to the exporter. Advance Payment: Foreign bank sends money to the exporter on the account of export advance payment. Exporters bank receives the payment and asks the exporter to give the purpose of this payment. Get the “Advance Payment Voucher” signed by the exporter and finally realize the payment Procedure of Advance Payment in Export: When advance payment comes. Advance payment voucher sign by the exporter. Voucher report to the SBP. Exporter prepares shipment. When shipment ready. Exporter comes to the Bank to issue E-FORM for shipment. Exporter fills E-FORM and returns it to the Bank with other shipping documents. 33 M. Waqas Yousaf 073605092 Bank certified E-FORM and gives it to the exporter for shipment. Exporter goes to the custom for shipment with shipping documents. Custom stamp on the E-FORM of shipping bill number. Custom keep original E-FORM copy. After that he goes to shipping company and after verification of the documents, shipping company issues Bill Of Lading. He keeps duplicate E-FORM copy. Shipment goes. Exporter comes to the bank and returns the Bill Of Lading and copy of all other documents. Bank keep triplicate E-FORM copy and give the Quard –duplicate. Bank report to the SBP with triplicate E-FORM. Negotiation: Exporter comes to the bank and submits the shipping documents along with LC (letter Of Credit) exporter bank received the documents with LC. Checks the documents with LC, take indemnity or guarantee from the exporter and after approving from the branch manager and head office, gives value of the documents to the exporter. In other words negotiation means payment of documents in export by the bank to the beneficiary (exporter). When the exporter submits the shipping documents along with the export. 34 M. Waqas Yousaf 073605092 Difference between Collections, Advance Payment, And Negotiation Collection Advance Payment Negotiation Without LC. Without LC. With LC. Foreign bank Foreign bank Exporter‟s bank sends money. sends money. gives money. Payment comes Payment comes Payment comes after shipment. first. first. Shipment goes Shipment goes Shipment goes first. after. after. : Shipping Documents Shipping documents are the documents that must required for export/import. 1) Commercial invoice 2) Packing list 3) Shipping certificate 4) Certificate of origin 5) Bill of lading These are the documents that are required for all types of export. I.C.C Rules for Foreign Trade :( International Chamber of Commerce) URC 522 (uniform rules for collection). Foreign Trade done all over the world according to the rules and regulations of URC 522. UCP500 (uniform custom practices) whereas all the parties follow UCP500 rules and regulations in foreign trade. 35 M. Waqas Yousaf 073605092 Terms of contract/sale: In negotiating a contract, an exporter must determine who is to meet the various charges as they are incurred. The more common terms of contract are: 1. CIF 2. C & F 3. FOB CIF (cost, insurance, freight) It means that the price will include all the cost of goods, insurance and freight incurred until the goods are delivered at the port or airport of destination named in the contract. Essential documents are: Commercial invoice. Insurance policy or certificate. A full set of bills of lading marked “Freight Paid” evidencing that the goods have been shipped on board the carrying vessel, or alternative documents of title to the goods. C & F (cost and freight): It means that the price will include the cost of goods and freight paid in connection with the delivery of goods on board the carrying vessel for unloading at the port or airport of destination named in the contract. Documents needed are: Commercial invoice. A full set of bills of lading evidencing that the goods have been shipped on board the carrying vessel and stating that freight has been paid by the exporter. FOB (free on board): It means that the exporter has only arranged the space and shipped the goods without payment of freight. Thus the freight charges are to be paid by the consignee at the port or airport of destination. 36 M. Waqas Yousaf 073605092 Import: There are three types of import: 1. Letter of credit 2. Firm‟s contract 3. Advance payment LC: Letter of credit means guarantee to pay by the issuing Bank if either of the parties (importer or exporter) defaults/unable to pay at sight (immediately /arrival of documents) or at payment in due date in acceptance. Types of LC: 1. Sight LC 2. Usance LC (day acceptance) Differences between the Sight and day acceptance LCs: In Sight LC payment within 7 days whereas in Usance LC payment at maturity date. LC Process: Related field In-charge told me about the process of LCs and what types of steps are involve in it. Those steps are: 1. LC issuance 2. LC lodgment 3. Retirement LC Issuance: Issuance of LC the following steps are necessary: 1. The importer submits Performa invoice and signs LC application form on the basis of Performa invoice to the LC issuing bank. Issues the LC, one copy is send to the SWIFT department for advising Bank. One copy is given to the applicant (importer). 37 M. Waqas Yousaf 073605092 Recover LC opening charges as follows. Customer AC DR (As per Bank schedule of charges) LC commission C R SWIFT charges C 2. The issuing Bank books liability in his own favor on account of the applicant. The process of booking liability is as under: I. Convert the foreign currency amount mentioned in Performa invoice by applying TT Selling Rate. LCs Lodgment: LCs lodgment means the arrival of shipping documents against the LC in our Bank. If the documents are clean and have no any type of discrepancy. Then LC issuing Bank has 7 days to pay against the documents according to UCP 500. LC Retirement: The customer arranges the funds required by the bank to retire the documents along with retirement charges. The Bank after receiving the import documents have 7-working days Either to pay if the documents comply with LC. Otherwise send SWIFT to the negotiating bank that the documents are discrepant. If the Importer pays to the bank within these days then the bank charge no Profit otherwise the Profit will be charged and then return the documents to the Importer. Revalidation of LC (letter of credit): In case of you LC date is expired and till there is no shipment of the commodity, in this condition customers revalidate the LC or renew his “LC”. In revalidation of LC following expense incurred: 1. Change for LC. 2. SWIFT messages. 3. Liability Booking. 38 M. Waqas Yousaf 073605092 Amendments (Before expiry of LC): There are four types of amendments that we can do in our LC. 1. Validity Period: extend expiry and shipment date before the shipment date is expired. 2. Enhancement of Amount: you can increase the amount of money of the commodity but in this case book new liability 3. Change quality: quantity and price but not to change the commodity. 4. Beneficiary may change but on the acceptance of the applicant (Importer). 39 M. Waqas Yousaf 073605092 Export Import goods 40 M. Waqas Yousaf 073605092 Export Import Procedure 41 M. Waqas Yousaf 073605092 Remittances: Remittances are of two types 1. Inward Remittance. 2. Outward Remittance. Remittance Inward Outward Inward Remittance: The Bank receive inward message through SWIFT for credit to the beneficiary account being maintained either in Pak rupees or FC account. In case of Pak rupees account mentioned in the SWIFT Message. The receiving bank converts the FC account into Pak rupees by applying TT Buying Rate of the value date of that day. In case of FC received in FC account, we credit the same FC amount in the FC account. Conversion rate will not be applied. 42 M. Waqas Yousaf 073605092 Foreign Bank sends FC in Pakistan through SWIFT ABL-IBB Converted in Pak Rupees Applying TT buying rate Outward Remittance: Until or unless special approval an Remittances Remittances are of two types 3. Inward Remittance. 4. Outward Remittance. Remittance Inward Outward 43 M. Waqas Yousaf 073605092 Inward Remittance: The Bank receive inward message through SWIFT for credit to the beneficiary account being maintained either in Pak rupees or FC account. In case of Pak rupees account mentioned in the SWIFT Message. The receiving bank converts the FC account into Pak rupees by applying TT Buying Rate of the value date of that day. In case of FC received in FC account, we credit the same FC amount in the FC account. Conversion rate will not be applied. Foreign Bank sends FC in Pakistan through SWIFT ABL-IBB Converted in Pak Rupees Applying TT buying rate Outward Remittance: Until or unless special approval and permission have been granted by SBP. The FC amount can be duly remitted through FC account only by depositing FC cash. 44 M. Waqas Yousaf 073605092 NOTE: FC FC NO conversion rate will be applied FC Pak Rupees Conversion rate will be applied Foreign exchange means must be converted into Pak rupees. Reporting to SBP: 1. Import 2. Export 3. Remittance Import: I-Form will be prepared at the time of payment to foreign bank against the documents of Import. In the month of which we transferred the foreign currency to the foreign bank, at the end of the month, we will send I-Form, copies of bill of lading and commercial invoice. Export: When we receive the foreign currency from foreign bank, after getting this amount, we will send E-Form along with copies of bill of lading and commercial invoice to SBP. Remittance: All the inward remittance will be reported to SBP on IRV-Form (inward remittance voucher). Profit on FC account: Monthly profit paid to foreign currency accountholders will be reported to SBP on M-Form. 45 M. Waqas Yousaf 073605092 Forms: E-Form Export Inward I-Form Import Outward IRV (inward remittance voucher) Inward Remittance Permission has been granted by SBP. The FC amount can be duly remitted through FC account only by depositing FC cash. NOTE: FC FC NO conversion rate will be applied FC Pak Rupees Conversion rate will be applied Foreign exchange means must be converted into Pak rupees. Reporting to SBP 4. Import 5. Export 6. Remittance Import: I-Form will be prepared at the time of payment to foreign bank against the documents of Import. In the month of which we transferred the foreign currency to the foreign bank, at the end of the month, we will send I-Form, copies of bill of lading and commercial invoice. 46 M. Waqas Yousaf 073605092 Export: When we receive the foreign currency from foreign bank, after getting this amount, we will send E-Form along with copies of bill of lading and commercial invoice to SBP. Remittance: All the inward remittance will be reported to SBP on IRV-Form (inward remittance voucher). Profit on FC account: Monthly profit paid to foreign currency accountholders will be reported to SBP on M-Form. Forms: E-Form Export Inward I-Form Import Outward IRV (inward remittance voucher) Inward Remittance 47 M. Waqas Yousaf 073605092 Car Ijarah: Ijarah means “to give something on rent.” Mode of Financing: The chosen mode of financing would be the Ijarah agreement, where the Bank acquires an asset (vehicle) and the rents it to the client for an agreed period. Car Ijarah in ABL-IBB A rent arrangement is executed between the Askari Islamic Bank and applicant (customer), where the Bank will provide an asset (vehicle) after the mutual agreement to the term laid down the Ijarah contract. The customer agrees to a monthly payment (rent) to the Bank for use of the vehicle. At the completion of the agreed period, the Bank gives the customer an option to purchase the asset (vehicle). 48 M. Waqas Yousaf 073605092 The following table details some of the macro-features of the applicable mode of financing: Parameters Detail Role of ABL-IBB To purchase a vehicle and rent it to a customer under an Ijarah agreement. Ownership (Title) Ownership lays with ABL-IBB Periodicity Pre-determined monthly rentals. Period of facility 3 years to 5 years. Mode of payment Through post dated cheques or direct debit instructions. Purchase option to the At the end of the Ijarah agreement period, ABL- customer IBB will make an offer to the customer to purchase the asset at a pre-determined value. Basic documents which are require: 1. New I.D. card copy of the applicant. 2. One photograph of the applicant. 3. Latest Paid utility bills of residence. 4. Latest 6 months Bank Statement from any Bank (signed & stamped). 5. Specimen Signature form. 6. 2 References new I.D. cards copies 7. Driving license (optional). 8. Business Proof. After Approval: 9. Cheques. 10. Security Deposit. 49 M. Waqas Yousaf 073605092 Security: The vehicle will be registered and insured in favor of ABL-IBB before its physical possession is given to customer. In cases where the Approving authority feels the need, they may direct that additional security be taken from the applicant before execution of the transaction. Deposit Margin: For New Vehicles: Minimum 15% of cost of the vehicle. Maximum 50% of the cost of the vehicle. For New Vehicles: Under the ABL-IBB‟s Car Ijarah scheme the vehicle should not be more than 8 years old at the time of maturity of lease. This means that if a car id 5 years old, it should not be leased more than 3 years and its 4 years old, it can be leased fir a 3 or 4 year term. This scheme is valid for both vehicles manufactured in and outside the country. Insurance: Insurance premium will be paid by the bank and will be recovered through lease rentals charged from the customer. Repayment of Lease Rentals: Monthly rentals to be paid through post-dated cheques in favor of ABL-IBB or through Standing Instructions to debit account on due date if ABL-IBB account holder. Processing Charges: Non-refundable processing charges to be collected at the time of collection of legal documents. These include the cost of legal documents, address verification and CIB report & vehicle appraisal (in case of second hand vehicles 50 M. Waqas Yousaf 073605092 In case, where applicant wants to change his/her vehicle after approval has been given by credit approving authority, a non-refundable Rs. 1,000/- will be charged for the change/replacement of approved asset. Documentation Charges: To be charged at actual and will be recovered in rental. This amount includes registration charges, number plate related expenses, taxes and other government levies and cost of legal documents. Pre-mature Termination: In Case of pre-mature termination of the Ijarah contract, the client will pay the purchase price as mentioned in the Terminal-value schedule forming part of the lease documents. The purchase price takes into consideration the following amounts: Normal Vehicle: The principal outstanding as determined by the amortization schedule of the lease. For the first 6 months, a sum calculated at 10% of the cost of the vehicle (net of customer‟s Security Deposit). For the rest of the Ijarah period, a sum is calculated at 5% of the principal outstanding (net of customer‟s Security Deposit). The un-recovered portion of the insurance premium paid by ABL-IBB 51 M. Waqas Yousaf 073605092 Process of car Ijarah: Step#1 The customer approaches the Bank with the request for financing and enters into a promise to lease agreement. The Bank purchases the item required for leasing and receives title of ownership from the vendor. The Bank makes payment to the vendor. . . VENDO ISLAMIC BANK Agreement-1 CUSTOMER R Step#2 The Bank leases the asset to the customer after execution of lease agreement. The customer makes periodic payments as per the contract. Title transfers to the customer. . . ISLAMIC BANK Agreement-2 VENDOR CUSTOMER 52 M. Waqas Yousaf 073605092 Plus points of ABL-IBB Car Ijarah as compared to other Non-Islamic Banks No Advance Rental. No Advance Insurance. We get the vehicle registered before delivery and bear those expenses. We stop Rentals in case of vehicle gets stolen/snatched. No late Payment charges if the applicant has some genuine problem (he has proves that). We stop Rentals in case vehicle declared total loss. In case of booking the applicant do not have to pay Rentals until the vehicle appears from booking. Fix amount of Rentals throughout the period of Ijarah. In case if the applicant can not afford to pay Rentals he can return vehicle and get his security deposit back Most of all 100% Islamic Mode of facility. 53 M. Waqas Yousaf 073605092 54 M. Waqas Yousaf 073605092 Operation Department: Ist Week: Account opening: Fill Account opening form & Account closing form. Issuance of check book. Fill deposit slip. Remittances (Clearing) Check practically all the procedure of: Inward Clearing. Outward Clearing. Role of NIFT in Clearing. Check process of Inward Bill of Collection & Outward Bill of Collection. Pay order procedure. Stamp of Signature verified. Stamp of cash paid. Two signatures must be mention cashier. Paid cash to the customer 2nd week & 3rd week: Account: Procedure of Voucher stitching and checking. Procedure of branch expenses voucher. Deduction of all types of taxes and then credit to Government account. salaries procedure of all employees Car Ijarah: Security/ Property Documents. Ijarah Repayment & Schedule. 55 M. Waqas Yousaf 073605092 Fill post dated checks. Calculate the average Balance of Claims in Bank Statements. Monthly accruals of Car Ijarah. 4th, 5th & 6th week: Foreign trade: Practically check Shipping Documents. Check practically LC Process: LC Opening to LC Retirement. Check practically all the modes of Export except Negotiating. SBP Returns & Reporting. Corporate: Check practically of the process of Murabaha & its documentation e.g. Financials of the firm. Security Documents. Legal Opinion. Valuation. Approval/Sanction advice. Offer Letter. BBFS (Borrower Basic Fax Sheet) 56 M. Waqas Yousaf 073605092 57 M. Waqas Yousaf 073605092 Internal Analysis: Strength: Highly qualified and financial sector experienced members of the Shariah Board; they have their own Shariah Board. Skilled & professional employees committed to Islamic Banking. Excellent relationship with the regulators. Strong balance sheet and reserve base. Low processing charges of Car Ijarah as compare to other banks. All products are Riba-Free products. Trained staff Weaknesses: Limited scope of Islamic Banking products. Uncertainty about the Shariah compatible banking products. Small branch network and the high cost of building a network. Inability to fixed rates of return on deposits, due to Shariah constraint. Small capital base limits ability to deal with multi-nationals/large corporate. Limited marketing /Lack of advertisement. No facility traveler‟s cheques. No facility of ATM No credit card facility. Unable to capture market even after launching the highest number of products. Congested place of branch 58 M. Waqas Yousaf 073605092 External Factors: Opportunities: Still a largely un-tapped market for Shariah compatible products. High demand of consumer financing and SME business. Create awareness about market for Shariah compatible products. Training and development of business. Government of Pakistan‟s focus to promote Islamic banking. To capture the new market of interest conscious people. Extension of network and also branch place. Potential of investment in the Shariah compatible asset management business. Threats: Potential competition from the new entrants in the Islamic Banking Employees turn over in the face of new competition. Uncertainty about implementation of Islamic banking. Lack of awareness among people about Islamic Banking. Small Network. 59 M. Waqas Yousaf 073605092 Askari Islamic bank is new in Islamic banking systems. So it needs a lot of improvement in its sectors. Some of the recommendations & suggestion to the bank would be as follows: 60 M. Waqas Yousaf 073605092 There is immediate need, to reconstruct the personnel policies. Selection should be through newspaper advertisements. In this way more intelligent, efficient and qualified staff can be formulated. It is strongly recommended that ABL-IBB should go for computerization rather than manual work, which is very slow and time, consuming process. In this age ABL-IBB even does not have a partially computerized system where as other new competitor banks are now going towards on-line banking services. Govt. should take keen interest to promote Islamic Banking. Along with the officers, the training must also be given to the clerical staff. Present training program for its officers is need to be improved, as this program instead of improving the efficiency of officers is merely a burden for the bank in the form of heavy T.A. , D.A. and cost. Working conditions must be improved for the employees. Bank will definitely get more benefits after some expenditure on the working conditions as it improves efficiency and productivity of the employees. ABL-IBB should flourish certain marketing plans to attract the customers by giving them certain incentives and beneficial schemes to the customers as other competitor banks are doing so. There is also a need of proper recruitment and selection program. New young talent should be introduced to inject the new ideas. Deterioration in efficiency is mostly due to promotion without merit. So promotions must be awarded on merit and also when due. 61 M. Waqas Yousaf 073605092 Special attention should be given to the behavior of the employees towards the customers, as customer is the most important person for any bank. To motivate the employees of the bank, regular bonuses and incentives should be given to them. There must be a friendly environment among all the employees as it enhances the trust and sincerity. At the moment the bank is not providing ATM facility to its customers. Bank should start giving this facility in order to highlight the value added features offered along with the basic product. As the bank has the good image, they can use that image as a benefit in this regard. To stay in the competition the bank should introduce its ATM cards soon. The number of Fax machines and photocopying machine in the bank are also less than they are needed. For photocopying one has to go downstairs. So there should be more machines and also their placement should be at the right place. 62 M. Waqas Yousaf 073605092 During my internship in Askari Islamic Bank G.T. Road Gujarnwala, for one and half month I have worked as a member of the organization in different departments i.e. account , foreign trade , account opening department, CAD department etc . The behavior of the staff with clients and me was perfect. They want to capture the market by providing good services. They also try to provide more and more facilities like Business Loan, Car Ijarah facility to their valued clients. I have viewed the last six month performance of the bank. The bank‟s profit ratio is going higher day by day. It is all due to better management policies and good implementation and co-operation of the staff members. This branch is not only maximizing its profit every month but also controlling its expense ratio and it is a good sign for a branch‟s good reputation. . After drawing my conclusion I am feeling pleasure to announce that:- 63 M. Waqas Yousaf 073605092 Banks Ability as Going Concern There is no doubt about the bank‟s ability to continue as a going concern. This branch is not only competing with other banks but also making its reputation in the market as early up going concern. This is all due to ability and handwork of staff and branch manager. Employees Behavior: The employees are hard worker and keen to capture the clients on the basis of their fair dealing. The do not waste any single opportunity to get a good deposit from their valued clients. The staff also tries to provide full respect to every kind of customer, whether he is a young person or he is an elder person. This helps them to create not only good relations but also increase the overall deposits of the branch. Management towards the innovation: The bank‟s management is fully aware of the today‟s innovation in the banking industry and taking necessary measures to keep pace with the competitors in the market. The management always tries to offer new schemes for their valued clients. 64 M. Waqas Yousaf 073605092 65 M. Waqas Yousaf 073605092 66 M. Waqas Yousaf 073605092 Glossary [A] Accounts: A record of financial transactions for an asset or individual, such as at a bank, brokerage, credit card company or retail store. AOF: Account opening form (AOF) is used by the customers to complete the written requirements for the records to open an account in a bank. Automated teller machines – ATM: Short form for automated teller machine, a machine at a bank branch or other location which enables a customer to perform basic banking activities (checking one's balance, withdrawing or transferring funds) even when the bank is closed. [B] Balance: The amount of money in an account equal to the net of credits and debits at that point in time for that account. Also called account balance. Bank Rate: The discount rate set by a central bank. [C] CAD: (Cash against Documents).A transaction in which the buyer assumes the title for the goods being purchased upon paying the sale price in cash. CAD: Credit Administration Department CNIC: Computerized National Identity Card. Current account: The net flow of current transactions, including goods, services, and interest payments, between countries. [D] DD: Demand Drafts are the most economical way to make payments or transfer funds overseas. Customer can purchase demand drafts in just about any currency and they can be cashed worldwide. 67 M. Waqas Yousaf 073605092 [E] Exchange Rate: Rate at which one currency may be converted into another also called rate of exchange or foreign exchange rate or currency exchange rate. FC: Foreign Currency. [G] Growth Rate: Year-over-year change, expressed as a percentage. [I] Interest Rate: A rate which is charged or paid for the use of money. [J] Joint Account: Any account owned by two or more people. [L] Letter of Credit: (L C) a binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. [M] Maturity: The date on which a debt becomes due for payment also called maturity date. Mortgage: A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. [N] Nominal Interest Rate: Currant stated rates of interest paid or earned. [P] PLS: Profit and loss sharing [R] Remittances: Transfer of money is known as remittances. 68 M. Waqas Yousaf 073605092 [S] Savings Account: A deposit account at a bank or savings and loan which pays interest, but cannot be withdrawn by check writing. Trade Finance: This program improves market-based access to, and delivery of, SME finance, including the regulatory and credit information infrastructure. Term Finance Certificates: A certificate of deposit with a longer time to maturity is TFC. [V] Voucher: A document which acknowledges a liability or provides authorization to pay a debt. [W] Working Capital Loan: A short-term loan which provides money to buy earning assets. 69 M. Waqas Yousaf 073605092 Bibliography: All the information provided by making this Internship Report has been gathered during doing Internship in Askari Islamic Bank and from the following sources: Website of Askari Bank www.askaribank.com.pk Meezan bank From the Branch Manager Mr. Zahid Ibrahim Operation Manager Mr. Muhammad Ramzan Trade Finance Manager Mr. Atif Khokhar Incharge Car Ijarah Mr. sheraz Clearing Officer Mr. shahzad Accounting Opening Officer Mr. Safdar Chughtai CAD department officer Mr.Bilal Butt Account Officer Mr.Ijaz 70 M. Waqas Yousaf 073605092 71 M. Waqas Yousaf 073605092
"Islamic Banking Internship report"