MEEZAN BANK THE PREMIER ISLAMIC BANK

Meezan Bank launches Liquidity Management Product for the IFIs

BY MUHAMMAD RAZA
MANAGER- LIABILITY PRODUCTS & SERVICE QUALITY
Oct 17 - 23, 2005

The Islamic Banking in Pakistan is doing well and is witnessing robust expansion and development. It has emerged as a practical alternative for providing financial services to both individuals and corporates. In the last 3 years, Islamic commercial banks have grown more rapidly than their conventional counterparts and as a result we have seen that during the past 18 months, prominent local and foreign banks have increased the number of branches offering Islamic banking services. The total branch network of Islamic banking industry (IBI) has risen to 66 (26 branches of Meezan Bank) from 48 in 2004 and 17 in 2003. Total deposit of the IBI has also increased to 37 billion from 30 billion in 2004 and 8 billion in 2003. The network as well as the deposit size of IBI is expected to expand at a much faster pace with the advent of Bank Islami, Dubai Islamic Bank, First Dawood Islamic Bank and Emirates Global Islamic Bank in near future.

Although the Islamic Banking in the country is still in its nascent stage but with the support from the Government of Pakistan and sincere efforts of Governor State Bank Dr. Ishrat Hussain and his team at State Bank of Pakistan, critical measures have been taken to promote Islamic banking in Pakistan. This has of course positively resulted in enabling Islamic Banks to come up with the alternatives of' majority of conventional banking products. One of the obstacles which remain is an Asset / Liabilities Gap Management problem for Islamic banks since there is a dearth of instruments in which IFI's can invest their short-term liquidity. There is a need for the State Bank of Pakistan to urgently address this issue so as to ensure that IFI's are able to grow and provide Islamic banking services to the public.

Meezan Bank being the largest dedicated Islamic Bank in Pakistan and first scheduled bank in the country to have received an Islamic Banking licence from State Bank of Pakistan has taken a lead in developing and introducing a wide range of products and services for its customers. Accordingly, it worked with the State Bank of Pakistan in providing a structure for an Islamic Bond or Sukuk which will go a long way in providing an equivalent to the Government 'Treasury Bills and PIB's in which the conventional banks invest their surplus liquidity. We believe that this instrument is currently with the Ministry of Finance pending approval.

After three years of operations MBL has demonstrated that Islamic banking is a real, stable and dynamic banking system which provides a Shariah compliant alternative to customers to conduct their financial affairs. In its continuing endeavor to provide innovative and comprehensive financial products and services in adherence to Shariah and in order to play its key role as the largest dedicated Islamic bank in Pakistan, Meezan Bank has once again brought a new and distinctive facility to the Islamic Banking Industry (IBI).

Meezan Bank has now launched the Meezan Islamic Institution Deposit Account (MIIDA), a unique product tailored exclusively for Islamic Financial Institutions (IFIs). 'The facility is the first of its kind in Pakistan, whereby IFIs, including dedicated Islamic banks as well as conventional Islamic windows, now have the opportunity to manage excess liquidity by maintaining a checking account with Meezan Bank specifically designed for this purpose. This provides an immediate and profitable solution to a common present limitation where any excess funds with an IFI essentially remain unutilized.

All recognized IFIs availing MIIDA would enter into a Mudarabah relationship with Meezan Bank. Under this relationship, these Islamic banks are the Investor (Rab ul Maal), and Meezan Bank is the Manager (Mudualib) of' the funds deposited. Meezan Bank allocates the funds received from the Islamic banks to a deposit pool consisting of' financing under Islamic modes that includes, but is not restricted to Murabaha and Ijarah.

The profit is shared among account holders (IFIs) on the basis of predetermined weightages, announced at the beginning of every month, based on their respective category/tiers. These weightages are available on the website of the Bank or can be obtained upon request. The Bank at the time of profit declaration, and at its sole discretion, may give additional profit to depositors from its own profit share. In the case of a loss, and as per the rules of Mudarabah, the deposit pool shall bear the loss on a prorata basis.

With the Islamic Banking market in Pakistan growing at a rapid pace, and in view of the positive regulatory environment, Meezan Bank is leading the continuing efforts of all Islamic institutions in this market in enhancing this alternative financial paradigm and ensuring its profitable growth and market penetration.

'The objective of the launch of' MIIDA is to enable Islamic financial institutions to manage an asset-liability mismatch, to create a pool of quality assets for IFIs, to enhance Shariah credibility and finally to support the Islamic banking industry in Pakistan. Meezan Bank's mission is to provide its customers dedicated and pure Islamic Banking facilities with the greatest of convenience and personalized service in all major cities of' the country. These include Karachi, Islamabad, Lahore, Sialkot, Faisalabad, Multan Gujranwala, Kasur, Rawalpindi and Peshawar. In addition, the bank will very soon open its doors in Quetta and Hyderabad.