Unit 4 (pool management)
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This document discusses the concept of investment pools in Islamic banking at Summit Bank. It explains that remunerative customer deposits and financing assets are allocated to different investment pools based on their source of funds, including a general pool, treasury pool, equity pool, and special mudarabah pools. Rules for pool management include capping the bank's mudarib share at 50% of profits and maintaining at least 20% saleable assets. Weightages are used to distribute profits among depositors with different amounts and maturities. Special rate deposits can be accepted through special pools that invest in higher risk/return sectors.
Unit 4 (pool management)
- 1. 1 Committed to you Summit Bank- Islamic Banking Pool Management
- 2. 2 Committed to you Summit Bank- Islamic Banking Concept of Pool Governed by: State Bank of Pakistan- Islamic Banking Department guidelines dated November 19th 2012 on Profit & Loss Distribution and Pool Management Framework for Islamic Banking Institutions (IBIs)
- 3. 3 Committed to you Summit Bank- Islamic Banking Concept of Pool • Pools are created as virtual entity of deposits (Remunerative only) and their Investments (Investment Assets+ Financing Assets)by the Bank. • All related (direct) expenses and Incomes also considered part of the Pool. • Current Deposits (Non-Remunerative) taken on the basis of Qard are considered part of the Equity and receives same treatment • Pools are created in conformity with the Framework for specific objectives, investment strategy, tenor (if any), the risk and reward features, Profit Sharing Ratio (PSR), weightages and shall be created through a memorandum signed by the authorized senior executive.
- 4. 4 Committed to you Summit Bank- Islamic Banking Concept of Pool • In Summit Bank all the remunerative accounts including Savings and Term Deposit (ISCs) are based on Mudaraba Basis. It is an investment contract in which one party (Rab ul-Mal ربالمال- ), which is depositor contributes capital while the other party (Mudarib مضارب- ), which in our case is Summit Bank, manages these funds for profitable businesses. • The profit is shared in pre-agreed ratio and distributed as per weightages. Loss (if any), is borne by the depositor, unless caused by negligence or violation of terms of the contract by the Mudarib. • The financing assets of the bank are allocated in various Investment Pools based on requirement of different ‘Source of funds’.
- 5. 5 Committed to you Summit Bank- Islamic Banking Concept of Pool • At present following types of Investment pools are in operation: 1. General Pool (PKR & FCY) 2. Treasury / Financial Institutions (F.I.) Pool 3. Equity Pool 4. Special Mudarabah/ Musharkah/ Wakala Pools 5. Islamic Export Refinance Scheme (I.E.R.S.) Pool (Future usage)
- 6. 6 Committed to you Summit Bank- Islamic Banking Concept of Pool • General Pool (PKR): Deposit Pools are created based on Funds received from customers in remunerative schemes such as Saving Accounts, Saving Plus Account, Special Saving Account, E-Saving Account, Enhanced Saving Account, Business Account, Fixed Deposit, Premium fixed Account. • Export Refinance Scheme (ERS) Pool: The IERS Pool comprises Funds provided by SBP under its Islamic Export Refinance Scheme, and funds provided by the Bank (either from its own resources or on behalf of its depositors) under a Musharaka arrangement.
- 7. 7 Committed to you Summit Bank- Islamic Banking Concept of Pool • Treasury / Financial Institutions Pool: Funds from financial institution (FI) and SBP can be accepted in these pools under the mode of Wakalah/Musharakah/Mudaraba. At maturity, normally these F.I. Pools are dissolved and assets are transferred back to other investment pools. • Equity Pool: The Equity Pool consists of funds from the Bank’s equity. The funds are primarily invested in permissible equities & other permissible Islamic modes. The equity pool may also utilize the funds received from non-remunerative deposits (both PKR & FX), as these funds are taken under Qarz given to the Bank by depositors.
- 8. 8 Committed to you Summit Bank- Islamic Banking Concept of Pool • Special Mudaraba Pools (PKR) Special Mudaraba Pools are created based on Funds received from customers under some special arrangements i.e. for higher returns on their Investments, Investment in specific sectors/ Industry etc. and The funds from these pools are invested under Islamic modes of finance & Investments. Due to the nature of the Pool, peculiar Risks and Rewards are associated with these pools such as higher risk assets, Investments in Equity markets with higher expected yields etc.
- 9. 9 Committed to you Summit Bank- Islamic Banking Concept of Pool Rules for Pool Management
- 10. 10 Committed to you Summit Bank- Islamic Banking Rules for Pool Management • Capping on Mudarib Share i.e. Mudarib share cannot exceed 50% of Distributable profit. • To make the periodic redemption of investment and profit payment to pool participants possible, at any stage the assets of the pool shall constitute at least 20% saleable assets (like Ijarah or fixed asset Musharakah etc).
- 11. 11 Committed to you Summit Bank- Islamic Banking Rules for Pool Management • The Gross Profit will be shared between the bank (as Mudarib) and Depositors (Rabb – ul- Maal) in a predetermined ratio (%) of the accrued profit. • Disclosure of this Profit sharing ratio is mandatory on the Mudarib at inception of the contract and/ or at the beginning of the month • Summit Bank announces the PSR/Weightages before beginning of each month and is made available on our website as well as at each Islamic Branch Notice Board. • Verification : The distribution of profit and loss to the depositors on the basis of these instructions shall be subject to verification/approval by the Resident Shariah Board Member.
- 12. 12 Committed to you Summit Bank- Islamic Banking Weightages Weightage is the value of depositor’s money in the eye of Bank for the purpose of Profit Distribution only. • Weightages are assigned based on: • Investment tenure • Profit payment option • Amount tiers • Product Features • Market Conditions • Weightages are used for distributing profits among different types of depositors having different maturities and amounts. These weightages are available on the website and notice boards of the bank.
- 13. 13 Committed to you Summit Bank- Islamic Banking Weightages Exp. Avg Dep Desired Rates Required expenses Calculation Weighted Avergae Balance Weightages (A) (B) (C = A x B) (D) (E = D / A) Saving 1 10,000,000 5.00% 500,000 (10,000,000 x 500,000) / 7,275,000) 687,285 0.0687 Saving 2 20,000,000 7.00% 1,400,000 (20,000,000 x 1,400,000) / 7,725,000 3,848,797 0.1924 ISC 1 25,000,000 7.50% 1,875,000 (25,000,000 x 1,875,000) / 7,275,000 6,443,299 0.2577 ISC 2 10,000,000 8.00% 800,000 (10,000,000 x 800,000) / 7,275,000) 1,099,656 0.1100 ISC 3 30,000,000 9.00% 2,700,000 (30,000,000 x 2,700,000) / 7,275,000) 11,134,021 0.3711 Total 95,000,000 7,275,000 23,213,058
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- 15. 15 Net Income of Pool (NIP) Gross Income of Pool (GIP) Less Direct Expenses Loss on a/c of Write-offs & sale of Investments Mudarib Share Depositors’ Profit Bank’s Profit in proportion to comingled funds/equity Distributable Profit Depositors’ Profit after IRR Add Hiba if needed (Maximum upto 60% of Mudarib Share) Amount distributable amongst depositors Payment to depositors as per weightages Investment Risk Reserve (if any, upto 1% of depositor’s profit) Deduct/write back: PER
- 16. 16 Rs in 000 RATIO Net Equity A 790,651 94% B) RABULMAAL (DEPOSITORS) RABULMAAL(DEPOSITORS) - With CRR(Savings + less than 1 year term deposits 49,424 6% RABULMAAL(DEPOSITORS) - Without CRR(1 year above term deposits) - B 840,075 CRR C) CRR ALLOCATION ON CAPITAL C 6,128 5,768 C) CRR ALLOCATION ON DEPOSITS D 6,128 361 c) Funds Available For Distribution MUDARIB (BANK) 784,883 94% RABULMAAL (DEPOSITORS) - CRR 49,063 6% 833,946 D) DISTRIBUTABLE PROFIT MUDARIB (BANK) RABULMAAL (DEPOSITORS) - With CRR RABULMAAL (DEPOSITORS) - With out CRR Income from Financing & Investments 5,169 323 Less Staff Financing Less Direct Expenses (102) (6) Net Distributable Income 5,067 317 E MUDARIB SHARE Declare Mudarib Share E X Profit sharing ratio E 31% 98 F DISTRIBUTABLE PROFIT D - E F 219 G) GENERAL HIBA Geneal Hiba percentage of 56 58% H DISTRIBUTABLE PROFIT TO DEPOSITORS F + H 275 GENERALPOOL PROFIT DISTRIBUTION MECHANISM
- 17. 17 RS in Millions a b c= a x b d=total inome/total weighted deposit x weighted averge each categoty e= d/a Buinsess Account (BA) 0 - 9,999,999,999 - 0.00014 0 - 0.00% Bachat Savings Account (BSA) Rs 0 to 4,999,999 3,048 0.00699 21 13 5.02% Rs 5,000,000 to 9,999,999 0.00838 0 - Rs 10,000,000 to 24,999,999 0.00943 0 - Rs 25,000,000 to 49,999,999 33,871 0.01013 343 210 7.28% Rs 50,000,000 to 99,999,999 0.01048 0 - Rs 100,000,000 to 249,999,999 0.01153 0 - Rs 250,000,000 to 499,999,999 0.01153 0 - Rs 500,000,000 and above 0.01223 0 - Daily Savings Account (DSA) Rs 0 to 99,999 215 0.00594 1 0.780 4.27% Rs 100,000 to 999,999 1,839 0.00664 12 7.450 4.77% Rs 1,000,000 to 9,999,999 10,329 0.00699 72 44.060 5.02% 1 Month Investment Rs 0 to 4,999,999 121 0.00908 1 1 6.50% TOTAL 49,424 1.00000 451 275 AVERAGE DEPOSITS WEIGHTAGE WEIGHTED AVERAGE DEPOSITS ALLOCABLE INCOME TO DEPOSITORS TYPE OF DEPOSITS RATESTIERS PROFIT DISTRIBUTION AS PER WEIGHATGES
- 18. 18 POOL FUND UTILIZATION • The utilization of funds of each Pool created can be described as:
- 19. 19 Committed to you Summit Bank- Islamic Banking Mechanism for Special Rates Through Special Pool(s) 1. On 26/27th of every month, (before three days of month end) Pool Manager will allocate weightages for Special Pool Accounts in the same manner as being done currently for General Pool. 2. Projected profit rates based on these weightages will also be developed against all categories of special pool accounts. 3. Same will be approved by a committee comprising Head of Islamic Banking Division, Group Head Islamic Banking, Group Head Treasury, Chief Financial Officer and Chief Operating Officer (suggested shadow ALCO for Islamic Banking) and Resident Shariah Board Member.
- 20. 20 Committed to you Summit Bank- Islamic Banking Accepting Special-Rate deposits • All profit bearing accounts are kept in General Pool of assets and liabilities. • Need of Special Pool arises based on various customer’s desires and Bank’s option i.e. For the purpose of investment in specific sector or for want of higher profit. • Deposit in general pool are generally invested in low risk assets and avenues, hence carry a higher degree of certainty as compared to the Special Pool, where, investment is made in high return – medium risk assets. • Those depositors (investors) who seek high returns (commemorating to higher returns available in conventional banking) will be advised to place their deposits under special pool with clear disclosures on risks and reward probabilities etc
- 21. 21 Committed to you Summit Bank- Islamic Banking Mechanism for Special Rates Through Special Pool(s) 4. Special Rates will only be allowed as per projected rates in the Special Pool. Multiple rates within same slab of deposit cannot be entertained as this will not be catered through pool management and will result in regulatory violation and penal action from regulator. 5. Special Pool Rates will be entertained as per approved scale of Authority i.e. AM, RGM, Treasury Head/CEO. Each approval should be obtained on prescribed Shariah approved Special Pool rate approval format (already provided to branches). reached to pool management division on or before 27th of each month for next month (Roll over cases). i.e. Approval of April 2017 must be obtained/signed by RGM before 27th March 2017 month end. 6. After obtaining approval (signature) from respective RGMs, Branches shall be required to immediately send these approvals to Pool Management department (existing staff Khwaja Farhan Usman and Muhammad Saadan Sarwar) so that they can tag the same to special pool and will obtain acknowledgment from Pool Manager. 7. Pool Manager will mark deposit as ‘Special’ and transfer the deposit from General Pool to Special Pool.(Note: In case step 6 is not followed, only rack rate will be given to customer and no exception can be created here)
- 22. 22 Committed to you Summit Bank- Islamic Banking Mechanism for Special Rates Through Special Pool(s) 8. Special pool profit disbursement is now automated and disbursed the special profit through H-plus with rack rate (Only Daily Saving Accounts), the Islamic Saving Certificates (generally known as TDR in conventional) are still disbursed manually by Pool Management. 9. Please note that after automation of special profit distribution branches are not authorise to feed/enter any special rate in h-plus. They have just obtain approval and send it to Pool Manager on time. 10. Special Pool Rates offered to customer will be reviewed on monthly basis, therefore, Branches will obtain monthly approval of their existing special rates on 27th of each month and will follow steps 6 to onwards on monthly basis.
- 23. 23 Committed to you Summit Bank- Islamic Banking Mechanism for Special Rates Through Special Pool(s) Notes: • After Approval of Special rate and its intimation to Pool Manager, Branch will send letter to its Special rate customer. This letter is already approved by our Legal Council and Shariah Board. No other format for communication shall be used for Special Pool. • Though the above calculation method assures a substantial degree of confirmation but the Rates approved by the authorities will only remain indicative and are not guaranteed; it may change based on the actual performance of the respective pool, therefore, the same to be disclosed to customer properly as elaborated in the text of the advising letter.
- 24. 24 Committed to you JAZAK ALLAH KHAIR