Sources and uses of funds

1. A Comparison of Islamic and
Conventional Banking system
Asset liability management
Sources and uses of funds
Similarities & dissimilarities

2. Outlines:
• Introduction of this Project
• Objective of the Project
• Companies selected for study
• Faysal Bank
• MEEZAN BANK LTD
• Conceptual Framework for Islamic Asset
• Liability Management Deposits
• Uses of funds
• Similarities & dissimilarities

3. Holy Quran:
•“We have created the
night as covering and we
have created the day for
the economic activities.”

4. Introduction of this
Project
• In this Project our main focus on
three main things regarding
Islamic Banking system.
• We will discuss the “Comparison
of Conventional& Islamic
Banking Systems“
• According to these things:
• Asset Liability Management,
• Sources & Uses of Funds,
• Similarities & Dissimilarities

5. Objective of the Project
• The main objective of our project is to
clear the basic differences between
Islamic and conventional system
• We will try to discuss the real face of both
systems in depth.
• That’s why our discussion will around
these things:
– How Islamic Banks manage their assets and
liabilities
– what is the main sources and uses of funds
– what are the main and core similarities &
dissimilarities between Islamic bank and
conventional bank.

6. Companies selected for study:
• We selected two banks first is Faysal
banks taken as the conventional
banks representative and
• Second one is Meezan bank as
representative of Islamic banks,

7. Faysal Bank
• Faysal Bank Limited was
Incorporated in Pakistan on
October 3, 1994, as a public limited
company under the Companies
Ordinance, 1984.
• Currently, the Bank's shares are
listed on the Karachi, Lahore and
Islamabad Stock Exchanges
• Faysal Bank is engaged in
Commercial, Consumer, Corporate
and Islamic Banking activities

8. Faysal Bank cont…
• The bank is principally engaged
in providing consumer, corporate
and investment banking services
to its customers.
• The bank offers a wide range of
consumer bankingproducts and
services which include deposit
accounts,car loans, home loans
and other consumer loans.

9. Faysal Bank cont…
• It also provides treasury and
capital market services and cash
management services to its
customers.
• Balance Sheet of Bank

10. MEEZAN BANK LTD
• MEEZAN was established as an Islamic
Investment Bank in 1997 as “AL
MEEZAN INVESTMENTBANK LTD”.
• First Islamic Commercial Bank’s license
was awarded to Al Meezan Investment
Bank in year 2002,
• They bought the local operations of
“Socite General” (French Bank) 03
branches.
MEEZAN BANK LTD cont…

11. • In 2009, Branch network of six dedicated
Islamic banks increases to 480 branches
(including sub-branches)
• Meezan Bank having a 42% share of the
Islamic Banking branch network in the
country .
• 201branches in 54 cities across the
country.
 Over 5.5% of the total Banking
industry.

12. PRINCIPLES
BASIS OF ISLAMIC FINANCE
• Prohibition of RIBA
• Alkharaj-o-bildhaman (entitlement to profit
is associated with corresponding risk)-Risk
Sharing, i.e. No Risk, No Gain.
• Prohibition of sale of goods before acquiring
ownership
• Prohibition of sale of food stuff before
possession
• Prohibition of debt for debt
• Avoidance of Gharar (uncertainty)
• Time value measured only through Price or
Rent.
• Debt contracts can be made / traded but
without discount.
• Risk can be distributed through forward
Trading / Contracts by way of Salam &
Istisn’a.

13. Asset Liability Management
• Assets liability management is very
important phenomena in banks earning
strategy even in Islamic banking system, all
the investments contributions to this effects
to be used even on and off-balance sheet
componentsin ALM. The risk taking is the
key determinant for the banks either
conventional or Islamic to portfolio or ALM.

14. BALANCESHEETSTRUCTUREOF ISLAMIC BANK.

15. Objectives of ALM
 To manage the portfolio in a manner
consistent with the banks investment
policy.
 To obtain the desired earning while
holding risk at acceptable levels.
 To maintain adequate liquidity at a cost
consistent with earnings goals.
 On and Off-balance sheet investments
are considered in ALM.

16. Techniques of ALM.
• Matching Techniques.
• Swap Techniques.
• Futures as a Hedging Technique.
• Options as Hedging Techniques.
• Effective Portfolio Management.

17. ALM – Pillars
• ALM Information Systems.
– MIS
– Information availability
– Accuracy
– Adequacy
– Expediency
• ALM Organization.
– Structure and responsibilities
– Level of top management involvement
• ALM Process.
– Risk Parameters
– Risk Identification
– Risk Measurement
– Risk Management

18. Current Ratio:
• The current ratio highlights the firm ability to
cover short term liabilities with its current assets.
• Current Ratio = Current Assets / Current Liabilities
• Interpretation:
• The current ratio of Faysal bank & Meezan Bank for
the year 2007, 2008 & 2009 is, 2.36, 2.06 & 1.64,
1.79, 1.61 & 1.56 respectively, compared to standard
ratio 2:1 this of Meezan Bank ratio is then Faysal
Bank

19. Sales to WorkingCapital = Sales/
Working Capital
• In this ratio we compare the working capital or net
current assets with sales which are part of the
revenue.
• Interpretation:
• The average turnover in working capital of Faysal
Bank is 19% & Meezan Bank have 20% this shows
the profitability of working capital of Meezan Bank
is slightly high then Faysal Bank.

20. Working Capital = Current Assets – Current
Liabilities
• Arithmetically it is the difference of Current
Assets and Current Liabilities.
• Interpretation:
• The working capital ratio of Faysal Bank limited
is higher which indicates that Faysal bank has
have sufficient resources to meets its current
obligations as compare to Meezan Bank
Limited.

21. Balance Sheet Meezan Bank Limited

22. Balance Sheet Faysal Bank Limited

23. Conclusion/Findings
• Liquidity position of Faysal Bank Limited is
higher then Meezan Bank Limited this
indicates that Meezan Bank Limited has
higher leverage. Both financial institutes
should improve their current ratio & working
capital position in financial year 2011. The
analysis showsthat its lower down gradually.
• Net profit margin of Meezan Bank Limited is
higher then Faysal Bank Limited.
• Gross profit margin of Meezan Bank Limited
is higher then Faysal Bank Limited so we
would like to suggest Faysal Bank should
improve its Gross Profit margin to meet the
expenses efficiently and set a sight profit for
shares holders.

24. Conclusion/Findings
 The Operating income margin of Faysal Bank Limited
is higher then Meezan Bank Limited which indicates
that Faysal Bank Limited generates higher income by
its own operation as compare to Meezan Bank
Limited.
 The Long Term debt to long term liabilities ratio of
Meezan Bank Limited is higher then Faysal Bank
Limited because Faysal bank limited employed its
funds in short term activities more then Meezan Bank
Limited
 Meezan Bank Limited has a good market perception
due to continuous declaration of dividends but on the
other hand Faysal Bank limited did not declared
dividend in financial year 2009.
 The three years average price / earning ratio of
Meezan Bank Limited 13.97 while the Faysal Bank
Limited has 7.78 % this indicates the Meezan Bank
Limited has much potential in stock as compare to
Faysal Bank Limited.
 The operating cash flow to total debt ratio of Meezan
Bank Limited is little higher then Faysal Bank Limited

25. Recommendations
With the assistanceanalyses of financial reports we would
like to recommendboth financial institutesshould over
come their pit falls, flaws and deficiencies. Meezan
Bank limited should improve its current ratio. The
Meezan Bank Limited Net Profit Margin is higher then
Faysal Bank Limited. The Faysal Bank Limited should
improve its profitability ratio by efficiently use its
resources. Similarly the price earning ratio & dividend
payout ratio of Meezan Bank Limited is higher then
Faysal Bank this highlights good return on investment
as well good market perception. Faysal should also pay
dividend consistently through generate the profit by
improving its operation. We would also like to
recommend that financial institute should much
promote the business activities and provide financial
assistance to industry which will be reduce the un
employment, inflation and increase productivity of
Pakistan.

26. SIMILARITIES & DISSIMILARITIES
• There are two major difference between
Islamic Banking and Conventional Banking:
• Conventional banking practices are
concerned with "elimination of risk" where
as Islamic banks "bear the risk" when involve
in any transaction.
• When Conventional banks involve in
transaction with consumer they do not
take the liability only get the benefit from
consumer in form of interest whereas
Islamic banks bear all the liability when
involve in transaction with consumer.
Getting out any benefit without bearing
its liability is declared Haram in Islam.

27. Differences betweenIslamic and
Banking System

29. A Comparison of Islamic and
Conventional Banking system
Submitted To:
Sir. Mohammad WaqasSafdar
Submitted By:
Zeeshan Arshad 9403
BBA (Hons)
Session: (2013-2017)
Department of Business Administration
Govt. College University Faisalabad