Sources of Funds in Islamic Banking

Types of Deposits in Islamic Banks are:
1. Deposits
2. Bank’s Equity.
3. Deposits from Other Islamic Banks
4. Placement From Bank’s Treasury (In case of dedicated Islamic Banking Branches)
5. Islamic Investment Funds

Acceptance of Deposits

OPENING OF ACCOUNTS
1. Compliance of SBP / Statutory Regulations
2. Shariah Compliance
3. Observance of Bank’s Procedure & Rules For Type of Account
4. Completion off Documents

BASIS OF ACCEPTANCE OF DEPOSITS ON PROFIT & LOSS SHARING BASIS EITHER ON THE BASIS OF: Modarabah OR Musharakah

APPLICATION OF MUDARABAH

Conditions in Deposit Schemes
Islamic Banking Resource Mobilization is mostly done on Mudarbah Basis which needs us to understand the application of features of this type of PARTNERSHIP in deposit schemes.
Investor of Funds /Depositor is called Rabbul Maal. The Manager of Funds / Islamic bank is called Mudarib.
Current Account Depositors and Bank have separate relationship of reditors/Debtor (Means on the basis of Qarad).

Applicable – Basic Rules
1. Remunerative Deposits: neither principal nor profit is guaranteed.
2. In case of loss the same is to be borne in proportion to the contribution in the deposit pool
3. Bank as Mudarib has not to share loss but to sacrifice services
4. Negligence on the part of the Bank as Fund managers/Mudarib makes responsible to Compensate the loss.
5. Current Deposits are guaranteed.
6. Rate of Profit is not tied up with the amount of Deposit.

       Pools Mechanism for Deposits in Islamic Banking

Deposit Pools are mainly divided into two major categories:
1. Restricted Pool (Al Mudarabah Al Muqayyadah)
2. Unrestricted Pool (Al Mudarabah Al Mutlaqah)

Restricted Pool
(Al Mudarabah Al Muqayyadah)
1. Islamic Bank may offer a Deposit Scheme specifying investment in a particular business, Project or in a particular Mode Of Finance.
2. Pooling of Deposits’ Funds in such a manner shall restrict the investment channel and risk/ return profile
3. Islamic Investment Funds are generally raised under Restricted Pool.

Type Of Deposits.
1. Deposits are accepted in various categories of Demand & Time Liability
2. The deposits raised in Islamic Banking are categorized as:
    - Operative Accounts & Investment Accounts
    - Current Accounts (Operative Accounts)
    - Savings Accounts (Operative Accounts)
    - Term Deposits (Investment Account)

Unrestricted Pool
(Mudarabah Al Mutlaqa)
1. The pool of Deposits without any specific condition of investment in a particular business activity is termed as Unrestricted Pool ( Al- Mudarabah Al-Mutlaqah)
2. In case of unrestricted pool Islamic Bank has full freedom of decision making for investment of pooled Funds in any trade or Mode Of Financing for mix income profile
3. Islamic Banks raise deposits in common (un-restricted) pool.

Steps for Calculating Share of Profit
1. Islamic Bank Calculates the gross revenue of the Pool (gross revenue less all direct costs but not the operating expenses)
2. Apportions Bank’s Share of Profit as Mudarib at pre-determined ratio
3. Total amount of Profit is forecasted on the basis of a forecasted share Share of Rabbul Mall-Depositors & Funds Providers.

Mechanism of Distribution of Profit
The Balance Of Monthly Profit after apportioning Share of Islamic Bank is available for distribution monthly average Balances in Deposits, Equity and Funds raised, are calculated