Islamic Banking

Financial Institutions and Markets Final Project

Submitted to: Maam Mahira Rafiq Submitted by: Aysha Azfer Saira Razaq Humaira Kanwal

Contents
INTRODUCTION TO FAYSAL BANK................................................................................................................. 3 GROUP INFORMATION: ................................................................................................................................ 3 VISION, MISSION AND VALUES: .................................................................................................................... 4 BOARD OF DIRECTORS: ................................................................................................................................. 5 MANAGEMENT TEAM: .................................................................................................................................. 7 BARKAT ISLAMIC BANKING: .......................................................................................................................... 8 PRODUCTS:.................................................................................................................................................... 8 BARKAT CURRENT ACCOUNT: ....................................................................................................................... 9 BARKAT KAMIL BUSINESS ACCOUNT: ......................................................................................................... 10 BARKAT ISLAMIC - SAVING ACCOUNT: ....................................................................................................... 11 MUDARABA: ................................................................................................................................................ 12 BARKAT ISLAMIC AUTO FINANCE: ............................................................................................................ 13 BARKAT HOME FINANCE: ............................................................................................................................ 15 BARKAT ISLAMIC - INVESTMENT CERTIFICATE (BIIC): ................................................................................. 17 BARKAT ISLAMIC - FOREIGN CURRENCY ACCOUNT: ................................................................................... 18 MURABAHA:................................................................................................................................................ 19 TAKAFUL: ..................................................................................................................................................... 23 SWOT ANALYSIS .......................................................................................................................................... 26 References: .................................................................................................... Error! Bookmark not defined.

INTRODUCTION TO FAYSAL BANK

Faysal Bank Limited (FBL) was incorporated in Pakistan on October 3, 1994, as a public limited company under the Companies Ordinance, 1984. Faysal Bank started operations in Pakistan in 1987, first as a branch set-up of Faysal Islamic Bank of Bahrain and then in 1995 as a locally incorporated Pakistani bank under the present name of Faysal Bank Limited. On January 1, 2002, Al Faysal Investment Bank Limited, another group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger, stronger and much more versatile institution. Faysal Bank Limited is a full service banking institution offering consumer, corporate and investment banking facilities to its customers. The Bank's widespread and growing network of branches in the four provinces of the country and Azad Kashmir, together with its corporate offices in major cities, provides efficient services in an effective manner. The strength and stability of Faysal Bank Limited is evident through the Credit Rating assigned by JCR-VIS Credit Rating Company Limited of "AA" (Double A) for long to medium term and "A-1+" (A One Plus) for short term. The majority share holding of Faysal Bank Limited is held by Ithmaar Bank B.S.C an investment bank listed in Bahrain

GROUP INFORMATION:
Ithmaar Bank B.S.C. (stock code "ITHMR") is licensed by the Central Bank of Bahrain and listed on the Bahrain Stock Exchange and the Kuwait Stock Exchange. It has a paid-up capital of US$598 million, total equity of US$1.1 billion and is a full service investment bank with its direct business covering the Middle East and North Africa (MENA) region, as well as South Asia, Asia-Pacific and Europe. Besides holding significant investments in the banking and financial service sectors in different markets, the main direct activities of the Bank include underwriting (equity and other financings), private equity (structuring, participation and portfolio management), Islamic financing and advisory services covering project financing, investments, capital markets and mergers & acquisitions.

Ithmaar Bank's flagship subsidiaries and associates include Shamil Bank of Bahrain (headquartered in Bahrain), Ithmaar Development Company, Faysal Bank Limited (Pakistan), Faisal Private Bank (Switzerland), Sakana Holistic Housing Solutions, Solidarity (an Islamic

insurance company), BBK B.S.C., Bahrain based First Leasing Bank, and Ithraa Capital (Saudi Arabia).

VISION, MISSION AND VALUES:

OUR VISION: Excellence in all that we do

OUR MISSION: Achieve leadership in providing financial services in chosen markets through innovation.

OUR VALUES: Our daily code of conduct is exemplified by eight core values: Four threshold values values at the heart of our brand. Four differentiator values values that set our brand apart.

Threshold Values

Differentiator Values

We function as a team. Within functions, we cooperate. Between functions, we collaborate.

We bring zeal and enthusiasm for banking to work. We are excited to provide customers with the

Together, we aim for excellence and leadership best or the best-suited. in our chosen markets. We go the extra mile in legitimate, acceptable ways. Our Team: Our Asset. Our Passion: Our Worth.

We hold our customers, investors and regulators in high esteem.

Innovation We pioneer novel and more efficient ways to

We uphold our customers rights to demand efficient service.

deliver solutions. We are dedicated to a culture of improvement

We appreciate and respect our profession and, and modernization. above all, our bank. We stand for originality, in thought, in action and in belief. Our Respect: Our Duty. Our Innovation: Our Strength. I We are recognised by our reliability, credibility Responsiveness and character. We are receptive to the need for change and We are proactive and anticipate our customers needs and wants. We act quickly to modify, adjust or prepare for new realities. Our Integrity: Our Identity. Our Responsiveness: Our Distinguisher. Professionalism We are proficient and efficient in all that we do. We provide banking services knowledgeably and skillfully. We uphold regulatory obligations. Compassion Our concern for our colleagues, our customers, our communities, and our country sets us apart. To each other, we are a family. For each other, we are a meaningful source of shared humanity. Our Professionalism: Our Competence Our Compassion: Our Gift.

We believe in ethical, honorable, time-proven improvement. principles of uprightness. We stand for and abide by honesty, truth and transparency.

BOARD OF DIRECTORS:

Lt.Gen. Muhammad Maqbool (Retd) Director Hassan Mohammed Mahmood Hassan Director Graham Roderick Walker Director Syed Naseem Ahmad Chairman Naved A. Khan President & CEO Farooq Rahmatullah Director Mohamed A. R. Hussain Director Shahid Ahmad Director Company Secretary Faysal Bank Limited Faysal House, ST-02, Shahrah-e-Faisal, Karachi.

MANAGEMENT TEAM:
Naved A. Khan President & CEO

Nauman Ansari Head Corporate & Investment Banking

Aarij Ali Head Retail Banking

Salman Ahmed Usmani Head Treasury

Mehreen Amin Head Human Resources

Nasir Islam Head Compliance

Yousaf Hussain Head Special Asset Management

Syed Majid Ali Chief Financial Officer

Suhail Khan Chief Risk Officer

BARKAT ISLAMIC BANKING:

Faysal Bank introduces Barkat Islamic Banking, with branches dedicated to purely Shariah compliant banking transactions which offer Shariah compliant banking products and services for all segments of the market through 44 plus full-fledge Barkat Islamic branches situated in 20 major cities of Pakistan. Faysal Banks growing distribution network of more than 245 online branches and over 205 ATMs allow our Barkat Islamic Banking customers to Access their accounts with ease and convenience. All products and processes of Barkat Islamic Banking are developed and operated under strict supervision of our experienced Shariah Advisor Mufti Muhib-Ul-Haq who is a qualified Islamic Scholar having vast experience in Islamic Banking and a specialization degree in Iftaa & Fiqh from the esteemed Jamia Dar Ul Uloom Karachi and Shariah Consultant Mufti Mohammad AbuBakar. Barkat Islamic Banking offers a wide range of Shariah compliant products and services in order to meet customers demand of Shariah compliant banking. Some are mentioned below:

PRODUCTS:
Barkat Current Account Barkat Kamil Business Account Barkat Auto Finance Barkat Investment Certificate Barkat Murabaha Barkat Saving Account Barkat Foreign Currency Account

BARKAT CURRENT ACCOUNT:

Current Account is a value added product which enables the customerto derive maximum benefits from your deposits. It is a suitable solution for individuals as well as business entities looking for a checking account based on Islamic Financing principles. This flexible account is based upon Qard, (loan on demand). This makes it free of interest and the principle is guaranteed to you, the depositor. The customercan rest assured your funds will be utilized in strict adherence to Shariah principles, as all deposits are allocated in a specific pool of funds which are further invested in Islamic assets.

Product Features & Benefits: Nationwide access to your account through any Faysal Bank branch 24-hour access to your account through Faysal Banks Call Centre and ATM network, as well as all other 1-Link / MNET ATMs country-wide Online access to your account through any Faysal Bank branch A host of conveniences through the Faysal Bank ATM network:

Instant funds transfer Utility Bill Payment Cash deposit (at selected Faysal Bank ATMs) SMS Alert facility

BARKAT KAMIL BUSINESS ACCOUNT:

An account that not only provides return on your investments but offers the option to avail a wide variety of free of charge banking services to suit your banking needs. A suitable solution for business men as well as individuals that are looking for free banking services due to their business banking needs. Opened on the basis of Mudarabah, where Barkat Islamic Banking is the Mudarib (manager of the funds) and you, the customer are the Rabb-ul-Maal (owner of funds). These deposits are deployed in Shariah compliant modes such as Murabaha and Musharakah. Product Features & Benefits: Minimum balance of Rs. 100,000 required to avail free of charge services. A range of FREE services: Cheque books Payorders Duplicate account statements. Online banking services. Account balance and maintenance certificates. Online intercity clearing including same day clearing. Visa Debit card.

Unlimited transaction facility. Profit calculated on monthly average balance and paid monthly. Online access to your account through any Faysal Bank branch. 24-hour access to your account through Faysal Banks Call Centre, ATM network, and all other 1-Link / MNET ATMs country-wide.

A host of conveniences through the Faysal Bank ATM network: Instant funds transfer Utility Bill Payment Cash deposit (at selected Faysal Bank ATMs)

SMS Alert facility. Dedicated Relationship Manager to advise you, as per your needs.

BARKAT ISLAMIC - SAVING ACCOUNT:

An account that provides greater returns on your investments and is a suitable solution for individuals as well as business entities that are looking for competitive returns on their savings based on Islamic Financing principles.

Opened on the basis of Mudarabah, where Barkat Islamic Banking is the Mudarib (manager of the funds) and the customer is the Rabb-ul-Maal (owner of funds). In saving account we

make pool of funds, and then invest that money and earn profit. It may be 40% and 60%, 50% and 50% or others.

MUDARABA:
This is a kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called "Rabb-ulmaal" while the management and work is an exclusive responsibility of the other, who is called "Mudarib" and the profits generated are shared in a predetermined ratio. Mudaraba means a business in which a subscriber participates with his money and the manager participates with his knowledge and skill, and profits on investment made out of the Mudaraba funds are distributed among the subscribers. Thus, it is a concept of Islamic finance through which one partner or more participate with the funds and another with his skill and efforts in some trade, business and industry permitted by Islam. They who participate with their efforts assume the role of manager, while the provider of funds becomes the beneficial owner. These deposits are deployed in Shariah compliant modes such as Murabaha and Musharakah. The rate of profit on deposits will be determined through a Shariah approved mechanism for calculation of weightages which will be announced at the beginning of each calendar month and shall be applicable for that month only. Barkat Islamic Saving deposits will share in the profit earned by the Islamic Banking Branches of Faysal Bank. Losses, if any, will be shared in the proportion of investment by each depositor.

Product Features & Benefits:

Account can be opened with as low as Rs. 100. No average deposit balance required to earn profit. Unlimited transaction facility. Profit calculated on monthly average balance and paid monthly. Tiered profit structure: the higher the tenor and balance of your deposit, the higher your expected profit amount. Online access to your account through any Faysal Bank branch. 24-hour access to account through Faysal Bank's Call Centre, ATM network and all other 1Link / MNET ATMs country-wide.

A host of conveniences through the Faysal Bank ATM network. Instant funds transfer Utility Bill Payment Cash deposit (at selected Faysal Bank ATMs)

SMS Alert facility

How Savings Account works for customers benefit:

Dividend Rates: The bank is allowed to pay discretionary 'hibah' to Savings Account customer based on the performance of the return of investment. Shariah Compliant: Customers money will be invested in activities approved by the Shariah Consultant to ensure all investment activities are in accordance to Shariah principles. Monthly Statement: Every month, a statement is sent to customer, helping them keep track of all transactions. If customer have more than one account with bank, then bank send a consolidated statement to the customer for an all-in-one monthly report. Convenience access to funds: Customer can enjoy Phone Banking, Online Banking and SMS Banking 24 hours a day, 7 days a week. And also have access to over one million ATM outlets in more than 150 countries.

BARKAT ISLAMIC AUTO FINANCE:

Barkat Auto Finance based on Diminishing Musharkah

Under Islamic jurisprudence, Musharkah means a joint enterprise formed for conducting some business in which all partners contribute financially and share the profit as per pre agreed upon ratios, while the loss is shared according to the ratios of financial contribution of each partner. The Musharkah is an ideal alternate to replace interest based lending with far reaching effects on both production and distribution of capital. Profit sharing ratios in a Musharkah depend entirely on the estimated profit the business is able to generate. The Musharkah is a relationship established, by the parties, by mutual contract and therefore all necessary ingredients of a valid contract must be present. The risk of loss inherent in this mode of financing ensures that the Bank fully satisfies itself as to the profitability and feasibility of the business venture as well as to the integrity of its Musharakah partners. In Diminishing Musharakah, customer participates with Barkat Islamic Banking in joint ownership of vehicle, where the Bank will provide a certain amount of financing. Customer agrees to a monthly payment to the Bank of which one component is rent for use of the vehicle, and the other is for to increase the customers ownership in the vehicle. When customer have made the full payment, which had been agreed upon, customer become the sole owner with a free and clear title to the vehicle.

Product Features & Benefits:

Avail the financing of new, used and imported vehicle for personal use. Quick processing with minimum documentation

No Limit on financing amount, starts from as low as Rs. 100,000 and minimum equity requirement as low as 20% Multiple options for tenor with maximum of 5 years Installment repayment to start ONLY after delivery of the vehicle and no processing fee until approval of financing Built-in Takaful (Islamic Insurance) expense for the entire financing tenor. The bank will arrange Takaful for the vehicle from a reputable Takaful company and will facilitate customer in claim processing

Maximum safety of your vehicle ensured due to tracker installation

Faysal Bank Limited - Barkat Auto Finance EMI CALCULATION SHEET TOTAL COST OF VEHICLE CUSTOMER'S MUSHARKA SHARE (in RS) TENURE IN YEARS BANK'S MUSHARKA SHARE % CUSTOMER'S MUSHARKA SHARE % BANK'S MUSHARKA SHARE (in RS) Amount that will pay every year Ready Delivery/Booking Rs.1,800,000 Rs.630,000 5 65% 35% Rs.1,170,000 292500 BOOKING GREATER THEN 2 MONTHS

Payments:
(A) DOWN PAYMENT / CUSTOMER'S MUSHARKA SHARE (B) DOCUMENTATION CHARGES Rs.630,000 Rs. 5800 -------------PAYABLE IN FORM OF CROSS CHQ. OR PAY-ORDER Rs.635,800 ---------------

BARKAT HOME FINANCE:

It based upon Diminishing Musharkah, in which customer participate with Barkat Islamic Banking in the joint ownership of home, where the bank will provide a certain amount of financing. Customer agrees to a monthly payment to the bank of which one component is rent for the use of the home and the other is for the customerto increase ownership in the home. When customer has made the full payment, which had been agreed upon, customer becomes the sole owner with a free and clear title to the property.

Product Features & Benefits:

Various product options suit the customers need: Home Buyer Purchase a readymade home of your choice. Home Refinance Transfer an existing Mortgage to Barkat Islamic Banking. Home Renovation Give a new look to your existing home.

Maximum convenience with a range of tenures from 1 to 20 years. Easy to make partial prepayments. Minimal documentation & processing fee. Quick processing time. Property takaful coverage. Accidental death takaful coverage .

BARKAT HOME FINANCE CALCULATOR

Write

for

salaried

and

for 1 1965 80,000 13 2,068,705

businessmen / SEP Year of birth Net Income Applied Tenure in Years Required Financing Amount

Entitlement of Facility Applicant Age Max: Facility Tenor Entitlement Finance amount Entitlement Installment Amount Entitlement Monthly Approx Installment of Finance Amount 32,028 47 13 2,066,905 32,000 (Yrs) (Yrs)

BARKAT ISLAMIC - INVESTMENT CERTIFICATE (BIIC):

This is a suitable solution for investors who are looking for high returns on their investments, with absolute Shariah compliance. Whether customer is individual account holder or a business entity seeking to capitalize on opportunities, Barkat Islamic Banking Investment Certificates offers convenient and secure financial solutions under a hybrid arrangement of Musharakah and Mudarabah Islamic modes of financing. Customers deposit is allocated to a specific pool of

funds that are invested in Islamic assets that could be any government schools, hospitals bridges etc. The Barkat Islamic Investment Certificates (BIIC) is a Riba Free investment based on the principles of Mudaraba Mushtarika with the customers being the Rabb-ul-Maal (owner of funds) and Faysal Bank as the Mudarib(manager of funds).The BIIC holder shall be eligible for a share of profit which the Barkat Islamic Banking Branches of Faysal Bank will earn (after deduction of expenses) through investing funds in various modes of Islamic finance. Losses, if any, shall be shared strictly in proportion of Depositors and Faysal Banks capital contribution. Monthly weights for profits distribution shall be calculated and displayed at the Barkat Islamic..

Product Features & Benefits:

Minimum investment amount Rs. 25,000/-. A range of tenures: 1 month, 3 months, 6 months and 1 year. Monthly as well as maturity profit payment options available. Options for automatic renewal. Premature withdrawal option available with no penalty charge. Dedicated Relationship Manager to advise you, as per your needs. Zakat and withholding tax to be deducted as per applicable rules.

BARKAT ISLAMIC - FOREIGN CURRENCY ACCOUNT:

A value added product which enables the customer to derive maximum benefits from your foreign currency deposits. This flexible account is based upon Qard, (loan on demand). This makes it free of interest and the principle is guaranteed to you, the depositor. The customer can

rest assured your funds will be utilized in strict adherence to Shariah principles, as all deposits are allocated in a specific pool of funds which are further invested in Islamic assets.

Product Features & Benefits:

Choice of currency - US$, GBP and Euro Minimum Balance required US $ 500 or equivalent. Nationwide access to your account through any Faysal Bank branch. 24-hour access to your account through Faysal Banks Call Center. Service Charges are as per Faysal Banks Schedule of Charges

MURABAHA:
Murabaha is derived from the Arabic word Ribh that means profit. It is one of the most common modes used by Islamic banks. In this form of sale the seller is obligated to disclose the cost of the commodity and amount of profit to be charged therefore it is not a loan given on interest rather it is a sale of profit. It is also known as the Trust sale. The mechanism of Murabaha is that Faysal bank purchases the article of trade as per the customer`s requirement and sells him on cost-plus-profit. Under this arrangement, the bank is bound to disclose cost and the profit margin to its customer. All in all rather than advancing money to a borrower, the bank buys the goods and sells the goods to the customer on profit. A question may arise be raised that selling goods on profit (under Murabaha) and charging interest (as per the practice of conventional banks) appear to be one of the same thing and also produce the same results. The answer to this query is that there is a clear difference between the mechanisms/structure of the product. The basic difference lies in the contract being used. Murabaha is a sale contract whereas the conventional mechanism is an interest based lending agreement and transaction. In case of Murabaha, the bank sells an asset and charges profit which is a trade activity declared halal (valid) in the Islamic Shariah. Whereas giving loan and charging

is pure interest-based transaction declared haram (prohibited) by Islamic Shariah. The payment in the case of Murabaha may be on the spot or it may be deferred, as agreed upon by the parties.

Rules of Murabaha:
Since Murabaha is a kind of sale, the basic rules of sale are applicable to all Murabaha transactions (without which this transaction is not valid). These rules are: The subject matter of the sale must exist at the time of sale. Thus anything that may not exist at the time of sale cannot be sold and its non-existence makes the contract void. The subject matter should be in the ownership of the seller in the time of sale. If he sells something that he has not acquired himself then the sale becomes void. The subject matter should be in the possession of the owner (physically or constructively) at the time of sale. The sale must be instant and absolute. Thus a sale attributed to a future date or a contingent sale event is void. E.g. A tells on B 1st October 2009 that he will sell his car on 1st November 2009 to B, the sale is void because it is accredited to a future date. The subject matter should be an asset having value. The subject matter of sale should not be a thing used for an un-Islamic purpose. The subject matter of sale must be specifically known and identified to the buyer. E.g. A owner of an apartment says to B that he will sell an apartment to B. Now the sale is void because the apartment to be sold is not specifically mentioned or identified to the buyer in a contract. The delivery of the sold commodity to the buyer must be certain of the outcome and should not depend on chance. The certainty of price is a valid condition of the sale.

Steps of Murabaha:
A Murabaha transaction is to be completed in two steps. The first step is the customer or client goes to the bank and requests them to undertake a Murabaha transaction and promises to but the commodity specified by him if the bank acquires it. A point to note here is that the promise is not

a legal binding and the client can default at any time. If he/she does so then the bank does bear the risk of loss it has spent on acquiring the commodity. In the second stage, the client purchases the commodity and agrees to a payment schedule. Also another factor is that the two sale contracts, one through which the bank acquires the commodity and the other through which it sells to the client must be separate transactions.

What is Murabaha used for in Islamic banks:

Murabaha is commonly used to facilitate the short-term financing requirements of the customers. The uses of Murabaha are the following: Purchase of raw material, goods and merchandise of all kinds and description Purchase of equipments Import of goods and merchandise Export financing (pre-shipment) Other financing of working capital nature

Who can benefit from Barkat Murabaha and for what purposes?

Barkat Murabaha can be used by individuals, sole-proprietorships, partnerships and bodies corporate

Purchase of inventories, raw materials, semi-finished / finished goods, stores & spares and all kinds of consumables can be made through Barkat Murabaha

Barkat Murabaha is an ideal mode for short term credit (up to 12 months) as it offers flexible credit terms to match the Customers cash-flows

Document Required:
For Individuals:

Brief profile of business Copy of CNIC of the individual / proprietor (original must be shown) 06 month bank statement Bank certificate, if proprietorship concern Proof of income

Audited/Management accounts, if proprietorship concern Details of facilities availed from other Financial Institutions Copy of NTN certificate (original must be shown) Facility request letter duly signed & stamped Full details of proposed assets to be purchased

For Partnership / Corporate / Commercial:

Company Profile Facility request letter Audited financial statements with financial projections Banking details and facilities availed from other banks Net worth statement of all directors (not applicable For Public Limited Companies) Basic Customer Fact Sheet Copy of CNIC of all partners / directors (original must be shown) Copy of NTN certificate (original must be shown) Export Performance Certificate (for Exporters Only) Form 3 (for Public Limited Companies Only) Copy of Memorandum and Articles of Association Certificate of incorporation and commencement of Business Certified copy of partnership deed

Barkat Murahaba Documentation (For Local Purchases):

After the credit approval, the customer has to sign the following documents:

MMFA - Master Murabaha Facility Agreement Agency Agreement, if appointed as an agent Purchase requisition Declaration, including evidence of purchase Offer & Acceptance Payment Schedule, if price is deferred

Demand Promissory Note

Barkat Murahaba Documentation (For Imports):

After the credit approval, the customer has to sign the following documents:

MMFA - Master Murabaha Facility Agreement Agency Agreement Application for opening the letter of credit

TAKAFUL:
Takaful is considered to be an Islamic insurance. It is derived from an Arabic word meaning joint guarantee. The tabarru is the main core of the takaful mechanism. Tabarru means charity or donation.

History of takaful:
Islamic scholars have noted that the system of shared responsibility and brotherhood is the basis of takaful as practiced between the Muslims of Makkah and Madinah. In the days of the Prophet Muhammad (saw) travelers when on their travels used to get looted and would be left with nothing. For those unfortunate travelers a fund was made in which all of the community contributed. Therefore it was like a donation or charity.

Process of takaful:
Each participant that needs protection must be present with the intention to donate to others who are in difficulty. Therefore, Islamic insurance exists where each contributes into a fund that is used to support one another with each contributing a sufficient amount to cover expectant losses. The objective of takaful is to pay a defined loss from a defined fund.

Principles of takaful:
The principles of takaful are as follows:

Policyholders cooperate among themselves for their common good. Every policyholder pays his subscription to help those who need assistance. Losses are divided and liabilities spread according to the community pooling system. Uncertainty is eliminated concerning subscription and compensation. It does not derive advantage at the cost of others.

Theoretically, takaful is perceived as cooperative or mutual insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not profits, but to uphold the principle of "bear ye one another's burden".

Models of Takaful:
Mudaraba model: Mudaraba is defined as the contract between one party, known as the ras ul mal (capital provider), with another party known as the mudharib (entrepreneur) where the ras ul mal provides the capital, and the mudharib provides the skills in a business venture. When there is profit, it is shared between the ras ul mal and the mudharib in a pre-agreed manner. In this case, the takaful operator is the mudharib, and the participants are the capital providers. The pure mudaraba model conforms to this definition and is practiced mainly in the Asia-Pacific region. In this mudaraba model, the Shariah committee generally approves the sharing ratio for each year in advance. The sharing of such profit (surplus) may be in a ratio of 5:5, 6:4, 7:3, etc. Generally, these risk-sharing arrangements allow the takaful operator to share in the underwriting results from operations, as well as the favorable performance returns on invested premiums. In a pure mudaraba model, the takaful operator and the participant share direct investment income only, and the participant is entitled to a 100% share of the surplus. This model is applicable to family takaful as the fund is entirely distributed to the participants. It is important to note that under mudaraba, the takaful fund belongs to the participants and not the takaful operator. The takaful operator therefore has no right to a share of the surplus. Wakalah model:

The wakalah model, commonly used in the Middle East, distinguishes between the operating
company (wakeel) and the takaful fund. The operating company does not share in the underwriting result, but rather it is compensated by a fee deducted from contributions made by participants and/or investment profits generated by the takaful fund. The fee rate is fixed annually in advance in consultation with the Shariah committee of the company. In order to give incentive for good governance, the management fee is related to the level of performance. The surplus of the takaful fund belongs to the members; the operating company does not have a claim on it under any circumstances. If the takaful operator is to generate a profit from its efforts, it must manage the operations (including salaries, overhead, selling commissions, sales and marketing expenses, etc) entirely within the disclosed wakalah fees. Since there is no other benefit to the takaful operator other than the declared wakalah fees, the wakalah model demands that all other charges/ costs to the program be provided to the participants at the lowest possible cost level that can be negotiated by the operator on their behalf. The wakalah model can be viewed as transparent as fees are clearly related to the operators operational costs. Mudaraba practices are usually preferred for investment aspects of takaful, while wakalah practices are favored for risk sharing/underwriting aspects of the operation. Waqf model: Waqf Fund is established by the shareholders of Takaful Company through the contribution of Ceding amount (part of the Capital) to compensate the beneficiaries or participant of Takaful scheme. The waqf shall work towards financial assistance to its members in the event of losses. The Waqf Fund will lay down the rules for distribution of its funds to the beneficiaries and will decide how much compensation should be given to a subscriber/member. The Waqf will become owner of all contributions and has the right to act as a legal entity as per its terms for investment, compensations and dealing with the surplus amounts. The Takaful Company may distribute the surplus amounts on the following three bases: a. A portion of surplus should be kept as reserve to mitigate the future losses. b. A portion of surplus should be distributed among the participants to differentiate it from the conventional insurance procedures.

c. A portion of surplus should be utilized for the charitable purposes every year. The Takaful Company, while managing the waqf fund, will play two different roles simultaneously: a. Operator/Manager b. Mudarib Faysal bank is currently engaged with Pak Qatar Takaful Banking, a takaful company that provides takaful plans for family, individuals and corporate plans.

SWOT ANALYSIS
Strengths:
Expansion and diversification of customers Most progressive and well networked bank in Pakistan Heavy investment in Information Technology Employee retention,customer satisfaction and high profit generation Large network of foreign correspondants all over the world Good and friendly attitude of the workers Excellent trade facilities Good credit ratings

Weaknesses:
Lengthy processing time required for approval of trade related facilities Segmentation of credit approval process

Opportunities:
Faysal Bank is discovering new ways of providing services to its customers Establishment of strong relationship not only with the borrowers but with bank investors

Threats:
Economic conditions of Pakistan Competitors Declining trend in banking sector Moving of corporate customers to other banking