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| Sunday, 19 March 2006 |
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Business |  |
| News Business Features Editorial
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Islamic banking products launched by Elmo Leonard Union Bank (Incorporated in Pakistan) Ltd (UBPL) Colombo, last week, launched `Islamic banking products' with claims that it had a multitude of products, suited for Muslims and the public. Also, that there is great merit for the financier and the borrower, from banking the Islamic way. A panel of eminent Muslims speakers, however, admitted that the system of Islamic banking, as outlined by Prophet Mohammed and "contained in the Old Testament" had gone out of use in some countries for 700 years due to colonial rule, and would take time to redefine. UBPL's country manager, Goharulayn Afzal, said that Islamic banking began over two decades ago in Egypt, amidst teething problems. Today, there are over 260 Islamic banking institutions in 60 countries with representations in the USA and UK. These Islamic financial institutions, under Islamic Sharia law manage funds over $250 billion. UBPL is a fully accredited scheduled bank with a rating of A+ by the International Rating agency JCR/VIS. The bank has a balance sheet size of over $1.1 billion. Fifty-four-percent of the bank's shares are held by a Middle Eastern group. The bank acquired the Pakistan operations of Bank of America in 2000. The American Express franchises in Pakistan was acquired in July 2001, followed by the Pakistan operations of Emirates Bank International in July 2002. The latest acquisition of the bank was the Mashreqbank psc operations in Sri Lanka. Mashreqbank psc, which was formerly Bank of Oman was one of the first banks in the country when it set up its operations in Sri Lanka in 1980. One of the bank's products, the Madarabada product is a partnership form of transaction, where money is accepted from the depositors and invested on Sharia compliant projects generating profits which are distributed periodically in accordance with the depositors. The ratio of UBPL's profit distribution is 75 percent to the investor's (distributors) 25 percent to the bank. The Sharia compliant investment and banking products are considered as one of the fastest growing segments in the world financial markets, today. Another product is Musharaka, which means sharing the business in joint ventures/enterprises, where two or more parties participate and provide finance. All partners are entitled for sharing the profit, on the total profits of the project according to the mutual agreed ratios. Losses are also to be shared equally in proportion to the respective contributions. This is almost similar to equity investments. Another product is Murabaha, meaning sales. It is a widely used mechanism in the area of trade finance where a sale is made to clients at a price which includes a profit margin agreed to between the parties concerned. Under this trade finance, the bank/financial institution purchases in its own name the goods that an importer or buyer wants and then sells them at a pre-arranged price which includes a mark-up. Another product is Islamic Lease Finance, under which a bank buys and leases out for a rental fee goods or equipment required by a client. The bank makes available the use of assets, such as motor vehicles,
equipment, plant and machinery and such other, for a fixed period at an
agreed lease rental. |
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