Q. What is Faysal Islamic Banking?

A. Faysal Islamic Banking is a division of Faysal Bank Limited which is offering Islamic banking solution through dedicated branches under the State Bank of Pakistan’s Policies for the promotion of Islamic Banking.

Q. What is the philosophy of Islamic banking and finance?

A. Islamic Shariah prohibits ‘interest’ but it does not prohibit all type of gains on capital. It is only the increase stipulated or sought over the principal of a loan or debt that is prohibited. Islamic principles simply require that performance of capital should also be considered while rewarding the capital. The prohibition of a risk-free return and permission of trading, as enshrined in the Verse 2:275 of the Holy Quran, makes the financial activities in an Islamic set-up real asset-backed with ability to cause ‘value addition’.

Islamic banking system is based on risk-sharing, owning and handling of physical goods, involvement in the process of trading, leasing and construction contracts using various Islamic modes of finance. As such, Islamic banks trade and / or invest in assets / business deals for the purpose of income generation.

Profit has been recognized as ‘reward’ for (use of) capital and Islam permits gainful deployment of surplus resources for enhancement of their value. However, along with the entitlement of profit, the liability of risk of loss on capital rests with the capital itself; no other factor can be made to bear the burden of the risk of loss. Financial transactions, in order to be permissible, should be associated with goods, services or benefits. At macro level, this feature of Islamic finance can be helpful in creating better discipline in conduct of fiscal and monetary policies.

Q. What is the difference between Islamic and Conventional banking?

Q. Was Faysal Bank Limited always an Islamic Bank?

A. Faysal Bank Limited started its operations in Pakistan in 1987, first as a branch set-up of Faysal Islamic Bank of Bahrain and then on October 03,1994 it became a locally incorporated Pakistani Conventional bank, under the present name of Faysal Bank Limited. In August 2009, Faysal Bank Limited launched its first dedicated Islamic branch again, in accordance with State Bank of Pakistan’s regulation. Early in 2014, transformation of Faysal Bank Limited to an Islamic Bank was announced.

Q. Are the staff of Faysal Islamic Bank fully equipped with the required knowledge on Islamic Finance?

A. Faysal Islamic Banking staff is well experienced and committed to promoting the cause of Shariah banking. Faysal Bank’s Shariah Board comprises of well-known and qualified Shariah Scholars who considers, decides and supervises all Shariah related matters of the Bank.

Q. What Deposit products are available is Faysal Islamic Banking?

Faysal Islamic Banking has one of the most comprehensive Islamic deposit product menus in the market, both in local and foreign currencies. Our Islamic deposit products are based on Shariah Compliant modes of Qard, Mudarabah and Musharakah.

In order to view our complete Islamic deposit product menu and their details, please click here

Q. What kinds of Islamic Schemes / Asset financing products does Faysal Islamic Bank invest their depositor’s funds in?

A. Faysal Islamic Bank invests their depositors’ funds (net of CRR / SLR requirements specified by SBP from time to time) in Shariah compliant modes of financing such as:

• Sale based e.g. Murabaha, Musawamah, Istisna, Salam & Tijarah
• Investment based e.g. Musharahah (including Running Musharakah)
• Lease e.g. Ijarah,
• Sukuk (Islamic Bonds – issued or guaranteed by GoP as well as by private sector companies with a good credit rating), Etc

In order to view our complete Islamic Schemes/ Financing menu and their details, please click here

Q. How is the bank going to ensure that the profits being shared with Faysal Islamic Banking customers are free from Riba (interest free) ?

A. All deposits mobilized through Faysal Islamic Banking Branches are used for providing financing / investment under Islamic modes (as mentioned above). Profits earned from these financing/investments are shared with the depositors.

Hence, the deposits do not include with interest in any way,

Q. How are profits shared between Faysal Islamic Bank and its customers?

A. Profit Sharing between Faysal Islamic Bank & the Customer is executed through an Islamic Banking model known as Profit & Loss Sharing (PLS) mechanism.

This is how it works…

• Customers (Rabb ul Maal), provides their funds (deposit) to the Bank.
• The Bank acts as the working partner (Mudarib) and invests these funds in its portfolio of Islamic Assets / Financing.
• Gross Income is generated from these Islamic Assets / Financing, at every end of the month.
• The Bank keeps its *Mudarib Share and distributes the remaining income as per *Weightages announced.

* Announced before the start of the month.

Note: The above example is of a Profit Distribution scenario, where the Bank’s own equity is not involved

Q. Will profit rates on deposits be known in advance by customers?

A. No. Islamic banks operates on Profit & Loss mechanism (as explained in detail above). Profits earned from investment in Islamic Financing is distributed amongst depositors as per weightages (announced 3 working days prior to the start of every month) applicable for the concerned month.

However, the customers’ respective branch can be consulted for an expected rate of return (which may be different than the actual rate announced after the end of the month and execution of PLS mechanism, depending on the income generated.)

Customers can also view the historical declared rate sheets (which are displayed in all Faysal Islamic Banking Branches and uploaded on the Banks website) in order to gauge the Banks Business performance and what kinds of returns to expect.

New Questions

Q. What are Weightages?

• Weightages are not Rate of returns percentages or amounts.
• It is just an absolute number and will not signify anything until compared with other Weightages.
• They are assigned to different categories of deposits in a pool, based on a set of parameters/criteria such as tenure, investment amount, profit payment frequency, etc.
• These are used for distribution of profit among depositors and not necessarily a confirmation for guaranteed profit.
• Customers get returns earned from relevant Islamic financing / assets and distributed according to the weightage assigned to their respective
• Weightages are announced at least 3 working days before the beginning of period concerned and shall not be changed during the period.

Q. In case of Loss, how will it be shared?

If loss is occurred without any gross negligence and willful misconduct on part of the Bank, then Loss will be shared amongst depositors as per their share of investment.

Q. What are the Major modes of Islamic banking and finance?

A. Following are the main modes of Islamic banking and finance

MURABAHA

Murabaha is one of the most common modes used by Islamic Banks. It refers to a sale where the seller discloses the cost of the commodity and amount of profit charged. Therefore, Murabaha is not a loan given on interest rather it is a sale of a commodity at profit.

The mechanism of Murabaha is that the bank purchases the commodity as per requisition of the client and sells him on cost-plus-profit basis. Under this arrangement, the bank is bound to disclose cost and profit margin to the client. Therefore, the bank, rather than advancing money to a borrower, buys the goods from a third party and sells those goods to the customer on profit.

MUSAWAMAH

Musawamah is a general and regular kind of sale in which price of the commodity to be traded is agreed between the seller and the buyer through the normal process of bargaining, without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, the seller in Musawamah is not obliged to reveal his cost. All other conditions relevant to Murabaha are valid for Musawamah as well. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of commodities that he is offering to sell. Like Murabaha, Musawamah can be on the basis of spot payment of Price or it can be a credit sale.

IJARAH

Ijarah refers to transferring the usufruct of an asset but not its ownership. Under Islamic banking, the bank transfers the usufruct to another person for an agreed period at an agreed consideration. The asset under Ijarah should be valuable, non-perishable, non-consumable, identified and quantified. All those things which do not maintain their corpus during their use cannot become the subject matter of Ijarah, for instance money, wheet etc.

ISTISNAA

it is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. Istisna’a can be used for providing the facility of financing the construction of houses, projects, bridges, roads and highways or fabrication / manufacture of plants & machinery.

BAI SALAM

Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange for an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale may be any kind of goods but cannot be gold, silver or currencies. Barring this, Bai Salam covers almost everything, which is capable of being definitely described as to quantity, quality and workmanship.

MUDARABAH

A form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits earned are shared between the two parties in a pre-agreed ratio, while loss is borne only by the provider of the capital.

MUSHARAKAH

Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by the partners strictly in proportion of their respective capital contributions.

For more information, please call our Contact Centre at 111 06 06 06 or visit your nearest Faysal Islamic Banking branch.