Meezan Bank Internship Report (Sep 2016)_Mansoor Ali Seelro

2016

Internship Report

MEEZAN BANK LIMITED SHARIAH AUDIT & ADVISORY Submission: 19-Sep-2016

Mansoor Ali Seelro MBA (RE) 2Y │ 20153-18419 Institute of Business Management

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TABLE OF CONTENTS Internship Particulars at a Glance ........................................................................................................... 2 About the Bank ..................................................................................................................................... 3 Vision...................................................................................................................................................... 3 Mission ................................................................................................................................................... 4 Values ..................................................................................................................................................... 4 Meezan Bank Shareholding Structure ................................................................................................ 4 Shariah Audit & Advisory Department .............................................................................................. 4 Key Projects........................................................................................................................................... 5 Analysis of Untapped African IBF Market ................................................................................ 5 Analysis of Russian, Chinese and Australian IBF Markets ....................................................... 6 Review of AAOIFI Shariah Standards....................................................................................... 6 Shariah Audit of RUBA Digital ................................................................................................. 7 Observations, Learning and Exposure................................................................................................ 7 Alignment of Practice with Theory............................................................................................ 7 Fundamentals of Islamic Banking & Finance ............................................................................ 8 Knowledge about Islamic Banks operating in Pakistan and Abroad ......................................... 8 Miscellaneous Learning (Professional & Personal) ................................................................... 9 Concluding Remarks ............................................................................................................................ 9 Appendix .............................................................................................................................................. 10 Annexure-A “Islamic Banking & Finance in Africa” .............................................................. 10 Annexure-B “Islamic Banking & Finance in Russia, China & Australia” .............................. 12 Annexure-C “AAOIFI Shariah Standards Summary” ............................................................. 14 Annexure-D “RUBA Digital Audit Report” ............................................................................ 15

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Internship Particulars at a Glance

Duration

Eight weeks (July 18 – September 9, 2016)

Purpose

Evaluation

Status

Paid

Location

MBL Head Office, S.I.T.E – Karachi

Department

Shariah Audit and Advisory

Supervisor

Muddasir Ali Soomro

Designation

Assistant Manager

Team Lead

Shaikh Muhammad Asif

Designation

Vice President

Dept. Head

Muhammad Farhan Ul Haq Usmani

Designation

Senior Vice President

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About the Bank Meezan Bank, Pakistan’s first and largest Islamic bank, is a publicly listed company with a paid-up capital of Rs. 10 billion. It is one of the fastest growing financial institutions in the banking sector of the country. With its Vision of establishing ‘Islamic banking as banking of first choice’ – the Bank commenced operations in 2002, after being issued the first-ever Islamic commercial banking license by the State Bank of Pakistan. The Bank provides a comprehensive range of Islamic banking products and services through a retail banking network of more than 550 branches in 143 cities of the country. Backed by a state-of-the art T-24 core banking system, the branch network is supported by 24/7 banking services that include over 500 ATMs, VISA and MasterCard Debit cards, a Call Center, Internet Banking, Mobile Application and SMS Banking facility. To cater the unbanked population, the Bank also offers Branchless Banking services through Meezan UPaisa World’s first Islamic Branchless Banking. The Bank operates strictly under the principles of Islamic Shariah and is well-recognized for its product development capability and Islamic banking research and advisory services. In order to ensure strict Shariah-compliance in all its products and services, the Bank has established a dedicated Product Development and Shariah Compliance department that operates under the supervision of the Bank’s in-house Resident Shariah Board Member and a Shariah Supervisory Board comprising of internationally renowned Shariah scholars. Meezan Bank stands amongst the top Islamic Banks globally. Islamic Finance News – Malaysia has awarded the Bank with two global awards for the year 2015 - ‘Best Islamic Retail Bank’ and a third position in the Overall Islamic Bank’s category. The Bank has also been rated as the ‘Best Islamic Bank of the Region’ according to South Asian Disclosure Index.

Vision Establish Islamic banking as banking of first choice to facilitate the implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind.

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Mission To be a premier Islamic bank, offering a one-stop shop for innovative value-added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders’ value through an organizational culture based on learning, fairness, respect for individual enterprise and performance.

Values 

Shariah-compliance

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Integrity

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Professionalism

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Innovation

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Service excellence

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Social Responsibility

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Motivated and professionally trained employees who are empathic to customer needs

Meezan Bank Shareholding Structure Meezan Bank is divided in terms of its ownership of its total paid up capital of Rs. 10,027 million. Four major shareholding heads are: 1. Noor Financial Investment Company (49.11%) – Kuwait 2. Pak Kuwait Investment Company (30%) – Pakistan 3. Islamic Development Bank (9.32%) – KSA 4. Other shareholders (11.57%) – General public

Shariah Audit & Advisory Department The department I was attached to was Shariah Audit and Advisory. Shariah Audit and Advisory department provides a centralized hub for Shariah-compliant solutions for customer needs, Islamic banking training and Shariah audit and compliance. This function works under the guidance and direct supervision of the Bank's Shariah Audit Committee, and performs the following functions: 

Providing input to the bank on Shariah matters in order to comply with Shariah rules.

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

Endorsing Shariah policies and procedures prepared by the bank and to ensure that the contents do not contain any elements which are not in line with Shariah.

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Assisting parties such as legal, auditors or consultants on Shariah matters.

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Providing Islamic banking advisory services to both local and foreign institutions.

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Conducting regular Shariah audit and reviews of branches and departments.

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Coordinating with bank’s Shariah Audit Committee.

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Facilitating external learning of Islamic banking at universities and business schools

The Bank has achieved such success and recognition in its research and product development activities that the practices and procedures adopted by Meezan Bank are largely accepted as the benchmarks of Islamic banking industry, not only locally but also internationally. Alhamdulillah in the year 2013, in recognition of the Bank's contribution to research and development in Islamic banking, the Bank received the 'Best Research and Development 2013' by Global Islamic Finance Awards, London.

Key Projects1 Four major projects that I was assigned during this internship course, among others, included research on African market, research on Russian, Chinese and Australian markets, review of Shariah Standards, and Audit of RUBA Digital. They are discussed here:

Analysis of Untapped African IBF Market The Islamic Banking and Finance (IBF) market in majority of the African countries is still untapped, yet lucrative. Islamic finance can act as the catalyst in mobilizing funding into Africa, thereby resulting in economic growth and sustainable development. This is driven by increased domestic demand, developments in the private sector and strong trade relations with developed economies. Although the Islamic financial services industry in Africa is currently dominated by the banking and Sukuk segments, growth potential remains in the asset management and Takaful spheres. Key growth drivers for Islamic Banking & Finance in Africa are as follows which pose this market more attractive for entry.

1

Besides the projects discussed in this section, many other day-to-day tasks were performed which were part of routine; hence, not being discussed here.

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

A continent with more than 1.2 billion population.

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A continent with more than 50% Muslim population.

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Continent’s growth is expected to progress to more than 6% in the upcoming years as per the African Economic Outlook.

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Takaful and Asset Management sectors having more growth potential.

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People getting more aware of Islamic banking needs as Islamic banking is booming worldwide.

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Legislation and Infrastructure developments in Africa are also paid attention by the local governments.

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Some big Banking groups already have presence in Africa, Al Baraka, among others.

Refer to Annexure-A for parts of report detailing on African market research.

Analysis of Russian, Chinese and Australian IBF Markets Refer to Annexure-B for parts of report containing details about research on Russian, Chinese and Australian IBF markets.

Review of AAOIFI Shariah Standards The third major project was to review and summarize the Shariah Standards by Accounting and Auditing Organization for Islamic Financial Institutions. AAOIFI is a Bahrain-based organization responsible for the development of international standards applicable for Islamic financial institutions. Out of 54 number of standards, I worked on 10 standards which added a lot to my current knowledge repository. In fact, working on standards is a springboard for those who have just kicked off their career in Islamic Banking and Finance since they give them the basic knowledge of how these standards apply to Islamic Financial Institutions including the banks. PowerPoint slides can be viewed in which the standards have been paraphrased and summarized. Here is a quick list of standards I reviewed: 

Guarantees

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Hawalah

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Ijarah

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Mudarabah

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

Murabahah

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Financial Papers (shares & bonds)

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Islamic Insurance (Takaful)

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Investment Sukuk

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Salam

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Istisna’a

Refer to Annexure-C where some PowerPoint slides have been reproduced.

Shariah Audit of RUBA Digital The fourth and the last key project was to conduct telephonic audit interviews of RUBA Digital branches across Pakistan. RUBA Digital is one of Meezan Bank’s clients. It was wonderful experience being on telephone with the BMs, ASMs, ZSMs, DSMs, etc. The action item of this audit was an Audit Report containing the ratings of randomly selected officials of RUBA Digital. Refer to Annexure-D to view the audit report.

Observations, Learning and Exposure Being part of Pakistan’s largest and fastest-growing Islamic Bank is a great prestige indeed. The work environment that the company provides is really genial and conducive to learning. I have exposed to different organizations within Pakistan, but the system of work at Meezan Bank is really what eases their employees. I can summarize my overall learning and practical observations during this brief span of time in the following four sections.

Alignment of Practice with Theory It was observed that, within the capacity that I worked in and the time span that I worked for, practice did not differ from theory. For example, before a company goes for product development, market development or diversification, the company always conducts research to have insights into the market mechanism. Likewise, the research I performed on African market, was a step towards market development that Meezan Bank intends to enter in future.

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Hence, the point of learning is that it is prudent as well as essential to engage in a well-designed research before originally launching the product and entering the market. Without such research, every effort will come to nothing.

Fundamentals of Islamic Banking & Finance While working on different projects and routine tasks during the internship, knowledge of fundamentals of Islamic Finance really increased. For example, Islamic equivalent for conventional bonds are Sukuk, for conventional leasing it is Ijarah, for conventional insurance it is Takaful, etc. Other fundamental concepts studied are: 

Musharakah – a form of partnership in which all the partners share the profit or loss of the joint venture.

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Mudarabah – a form of partnership where one partner gives money to another for investment. The investment comes from “Rab-ul-Mal”, and the other partner who is responsible for its management is called “Mudarib”. All losses are borne by Rab-ulMal. However, if the investment is profitable, Mudarib and Rab-ul-Mal both have right to share profits.

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Murabahah – a type of sale/trade contract that involves the sale of an item on a spot/deferred payment basis. The cost price of and profit on the item must be known to both parties (the buyer & the seller) at the time of contract sign.

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Salam – a contract whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot.

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Istisna’a – a contract whereby a commodity is transacted before it comes into existence. This means, the customer orders manufacturer to manufacture a commodity for him. The payment could be on spot or in instalments according to the stages of production.

Knowledge about Islamic Banks operating in Pakistan and Abroad Previously the knowledge about Islamic banks operating in Pakistan and abroad was limited, but now I know much more about banks which are operating as full-fledged Islamic banks here and abroad.

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Miscellaneous Learning (Professional & Personal) I learnt hosts of professional and personal things which can be summarized as follows: 

Strong follow-ups are crucial, especially in a service industry.

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Go-getter attitude is a must to excel in one’s career.

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Things should be probed, not taken for granted.

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More focused career planning after joining Meezan Bank.

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Professional social circles expanded during brief span of time.

Concluding Remarks The way a person learns during course of studies is different from the the way a person learns during course of work. I believe that during work, a person develops in addition to learning, but during course of studies, a person learns only (not develops). The internship I completed with Meezan Bank was a great source of development for me. It was, in fact, quite conducive to learning and open to rapid career growth because of my repeated exposure and interaction with top management vis-à-vis multiple and miscellaneous projects. At Meezan Bank, human capital is the most valuable equity. More to the point, the internship provided me the opportunity of working with a team of highly qualified professionals who remained a great source of motivation and professional grooming for me. In addition, the environment of the bank was ideal for me since it was genial and quite conducive to work briskly without being reserved. Meezan Bank provides the tools needed for its people to develop world-class analytical, leadership, management and relationship-building skills. The bank ensures the proper development of its employees to cope with the current market trends and business needs. Besides, the bank fosters teamwork and encourages innovation at all levels of career.

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Appendix

Annexure-A “Islamic Banking & Finance in Africa”

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Annexure-B “Islamic Banking & Finance in Russia, China & Australia”

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Annexure-C “AAOIFI Shariah Standards Summary”

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Annexure-D “RUBA Digital Audit Report”

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