deposit prducts full & final (edited)

8/8/2019 Deposit Prducts FULL & FINAL (Edited)

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How Depository ProductsHow Depository Productsfunctions in a Islamic Bankfunctions in a Islamic Bank

yPresented by:

yAtif Irshad

ySyed Rass Masood

yYasir Ahmed

y

Imran Sheikh


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DepositsDeposits

Basic Concepts

The concept of Mudarbah.

Deposit Management in Islamic Bank

An Example

Q & A


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Deposits : Basic ConceptDeposits : Basic Concept

A deposit accountis a current account,savings account

, or other type ofbank

account, at a banking institution that allowsmoney to be deposited and withdrawn by the

account holder.

Some banks charge a fee for this service,while others may pay the customer interest onthe funds deposited.


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Depository Products: TypesDepository Products: Types

Checking Accounts or Current Accounts

Saving Accounts

Time Accounts / Term Accounts


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MudarbahMudarbah

Mudarbah is a partnership agreementinwhich one partyinvests while the other

manages the business.

The one who provides the capital is Rab-ul-Mal .

While the person who manages thebusiness is called Mudarib.


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MudarbahMudarbah

Itis necessary for the validity of Mudarbahthat the parties agree, right at the beginning,on a definite proportion of the actual profit to

which each one of them is entitled.

They can share profit at any ratio they agreeupon.

Some incentives may be given to Mudarib as

a bonus. Loss is borne by the Rab-ul-Mal .


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Types ofMudarbahTypes ofMudarbah

There are two types of Mudarbah

Restricted Mudarbah

(Mudarbah-al-Muqayyadah)

Un-Restricted Mudarbah

(Mudarbah-al-Mutlaqa)


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Restricted MudarbahRestricted Mudarbah(Mudarbah(Mudarbah--alal--Muqayyadah)Muqayyadah)

Rab-ul-Mal may specify a particularbusiness for the Mudarib.

Mudarib can invest that money only tothat particular Business.


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Unrestricted MudarbahUnrestricted Mudarbah(Mudarbah(Mudarbah--alal--Mutlaqa)Mutlaqa)

Rab-ul-Mal gives full freedom to Mudaribto undertake whatever business he

deems fit.

Mudarib is authorize to do anything

normally done any thing in the business.


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Restricted Mudarbah vsRestricted Mudarbah vsUnrestricted MudarbahUnrestricted Mudarbah

Based on the same concept Islamic Banks canhave restricted and unrestricted investmentaccounts.

In restricted accounts the investment holderimposes certain restrictions as to where, how,and for what purposes his funds are to beinvested.

In unrestricted accounts the investment holderimposes can not restrict as to where, how, andfor what purposes his funds are to be invested.


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Restricted Mudarbah vsRestricted Mudarbah vsUnrestricted MudarbahUnrestricted Mudarbah

Most bank have unrestricted Mudarbahagreement with their depositors.

Whereas, the profit sharing is based on amodel known as MUDARBAH MODEL


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Mudarbah ModelMudarbah Model

1)Creation of Investment Pool.

2)Pool's relationship with the bank.

3)Profit Sharing between the Bank and thepool.

4)Profit sharing amongst the Depositors.

5)Loss Sharing amongst the Bank and the

pool.6)Sharing ofLoss amongst the Depositors.


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Creation of Investment Pool.Creation of Investment Pool.

The bank will create an investment pool.

The pool is invested in different productsand businesses which are in compliance

with Shariah.Suppose there are three categories in tenure

namely:

Three Months

Six Months

One Year


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1) Creation of Investment Pool.1) Creation of Investment Pool.

Each depositor of the bank will deposit itsfunds in a specific category of funds ineach of the tenures

Three Months Rs. 4,000/-

Six Months Rs. 3,500/-

One Year Rs. 2,500/-

Total Rs. 10,000/-


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Upon investment, the customer will beassigned a specific weightage based oninvestment category. Continuing with our

previous e.g. lets assume that followingweightages are assigned to each investmentcategory.

Three Months 0.60

Six Months 0.70

One Year 1.00


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All the investment in the investment poolare partners in the pool with the abovementioned profit sharing weightages.

Weightage is a ratio for distribution ofProfits.

Weightages can only be amended at thebeginning of the month while the profit isdistributed at the end of Month.


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2) Pool's relationship with the2) Pool's relationship with thebank.bank.

Now the bank will enter into MudarbahAgreement with the Pool.

Under this agreement the pool will be theinvestor or Rab-ul-Mal and the bank will actas a Mudarib. Bank will undertake businesswith the funds provided by the pool and profit

earned would beshared between the part

ies

in an agreed ratio. Assume that the profitisequallyshared between the parties.


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3) Profit Sharing between the3) Profit Sharing between theBank and the pool.Bank and the pool.

The bank will conduct a business with thefund provided by the pool. Continuing withthe same e.g. the bank deploys that Rs.10,000/- for a period of One year and earns aprofit of Rs. 1,000/- at the end of1st Month.

The profit would be shared as follows:

Bank Rs. 500/-

Pool Rs. 500/-


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4) Profit sharing amongst the4) Profit sharing amongst theDepositors.Depositors.

Rs. 500/- earned by the pool would bedistributed as per the weightage assigned atthe beginning of the month, as mentioned

above.

Tenures Deposit(Rs.)

Weightage WeightedAverage

Profit* Rate**

a b a*b=c

Three Rs. 4,000/- 0.60 Rs. 2,400/- Rs. 163/- 4.075%

Six Months Rs. 3,500/- 0.70 Rs. 2,450/- Rs. 167/- 4.76%

One Year Rs. 2,500/- 1.00 Rs. 2,500 Rs. 170/- 6.80%

Total Rs. 10,000/- Rs. 7,350/- Rs. 500/-


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5) Loss Sharing amongst the Bank5) Loss Sharing amongst the Bankand the pool.and the pool.

According to the rules of Mudarbah, allfinancial losses are borne by the pool asRab-ul-Mal.

However in such cases, the bank will earnnothing and make a loss due to non-recovery of expenses incurred in thebusiness.


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6)Sharing of Loss amongst the6)Sharing of Loss amongst theDepositors.Depositors.

Loss attributable to the pool would bedistributed amongst the pool members

according to their investment ratio.


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Thank You............

deposit prducts full & final (edited)

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