Treasury

MCB Islamic Bank offers the following liquidity management / treasury products.

Mudarabah-based Acceptance / Placement

Under Mudarabah based acceptance and placement, special pool is created on the basis of Mudarabah in which the partner (placement) will invest. Based on the expected return, a profit sharing ratio will be agreed beforehand for distribution of profit. The risk and rewards are shared as per the rules of Mudarabah.

Financial Institution(s) / investor(s) / customers will invest (place funds) in the Musharakah based as sleeping partner(s) whereas MCB Islamic Bank (which accept investment) will act as a working partner (and vice versa).

Musharakah-based Acceptance / Placement

Under Musharakah based acceptance and placement, special pool is created on the basis of Musharakah in which both the partners will invest. Based on the expected return, a profit sharing ratio will be agreed beforehand for distribution of profit. The risk and rewards are shared as per the rules of Musharakah.

Wakalah-based Acceptance / Placement

Under Wakalah based acceptance and placement, special pool is created on the basis of Wakalah in which the Principal (placement) will invest, whereas the Agent (acceptance) will invest / manage the funds and is entitled to Agency Fee as per terms of Wakalah Agreement. The risk and rewards will be borne by the Principal.

Foreign Currency Transaction – Ready & Forward

Islamic Banks are also involved in foreign currency transactions whereby they either buy foreign currency in exchange of local currency or vice versa. These transactions are necessary to both accommodate the exporters’ and importers’ businesses as well as to secure the risk of the bank against foreign exchange (FX) rate fluctuations.

There are two type of foreign currency transaction:

Ready Transaction – Deal Date and Maturity Date are same.

Forward Transaction – based on Wa’ad (unilateral Promise)

If the Deal Date & Maturity Date are different, then the transaction will be considered as forward as per the rules of Shari’ah.

Wa’ad is an alternative to conventional banking forward cover transactions. Under the arrangement of Wa’ad, one party gives an undertaking or promises to purchase foreign currency at an agreed rate at a specified date.

As per Shari’ah guidelines, this has to be a unilateral promise from one party instead of bilateral promise from both the counterparties.

Bai Muajjal

In case, Bank may not be able to place funds with any Islamic Financial Institutions (IFI) and in such cases Bai Muajjal of Sukuk can be used to enter into a transaction with conventional banks in a Shari’ah compliant manner for placement of excess funds.

MCB Islamic Bank purchases Sukuk (if not already held) from market on spot and sell to conventional bank on deferred basis. The conventional bank sells those Sukuk in market on spot to get the required liquidity.

Islamic Banks are also offering this transaction to customers other than financial institutions.