Alternative To Conventional Banking And Jordan Islamic Bank Finance Essay - Free Essay Example

Islamic Banking Is a bank that is governed on the principles of Islamic law (also known Shariah) and guided by Islamic economics. Two main conditions must be fulfilled in order to be an Islamic Bank Sharing of profit and loss and, The prohibition of the collection and payment of interest In order to further explore the Islamic banking I have selected the Jordan Islamic Bank for my research report. Jordan Islamic Bank (Introduction) Mission Statement Commitment to apply the latest innovative products in the banking technology to meet the expectations and needs of customers and to maintain a competitive edge. Background Jordan Islamic came into being in 1978 as public shareholding limited company. It started its operation as core Islamic institution right now its operating in all kinds of banking, financing and investment business operations in compliance with the glorious Islamic Shariah. Its headquartered is in Amman, Jordan. It has now 56 branches and 12 cash offices, as well as 74 ATMs. Governing Rule and Risk Management Strategies It has started its operations under and in accordance with the provisions of Jordan Islamic Banks Special Law, which was superceded by one chapter on Islamic banks in the Banks Law which was in effect as of 2nd August, 2000. The Board of Directors report included the banks Corporate Governance Guide which was affected on 31/12/2007. This Guide has been prepared in accordance with the Guiding Principles of Corporate Management issued by the Islamic Financial Services Board (IFSB), the instructions of the Central Bank of Jordan and the best related international practices. The top management of the Jordan Islamic Bank is applying effective management policies against to hedge the Credit Risk, Country Risk, Operational Risk, Human Operation Risk, and Market Risk. The JIB is appropriate evaluate, appraisal and monitor the credit risk of the customer in order to fulfilled the collateral securities and cash margin of his institution. The JIB is used CAMEL Rating and SWOT Analysi s in order to reduce the bank credit and equity risk. Recent Rating The Banks rating has increased from (BB+STABLE) to (BBB-STABLE) according to the rating of Capital Intelligence. Main Body of Jordan Islamic Bank Merit of the Jordan Islamic Bank Product and Services Promoting Islamic Banking The bank continued to bear its social and cultural responsibilities which exceed strengthening Islamic values in the normal banking transactions or doing social or cultural activities, to the positive interaction with these activities through: The bank participated in a number of conferences and seminars pertaining to the Islamic Development Bank (IDB), Al Baraka Banking Group (ABG), General Council for Islamic Banks and Financial Institutions (CIBAFI), Islamic Financial Services Board (IFSB), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), or the Al Baraka Annual Fiqh Seminar and other conferences and boards which work to improve the operations of Islamic banks. Producing Scientific Research The banks interest in scientific research and professional training activities continued. The expenses of the banks training institute, the internal costs of teaching and training employees, Banking Studies of the Central Bank Institute, as well as the expenses of donations and sponsorship of scientific conferences and educational institutions reached about JD (281) thousand. Donations The bank continued supporting a lot of social and cultural events and presenting donations to its activities since the total donations reached about JD (340.9) thousand to support the Hashmite Jordanian Fund for Human Development, King Abdullah II Fund Poverty Pockets, Safety Fund for Orphans Future, Charitable Hashmite Association, Quran Preservation Associations, the donations presented to the mosques building committees and Zakat committees, in addition to other charitable associations inside the kingdom . Al-Qard Al-Hassan The bank continued presenting Al-Qard Al-Hassan for justified social purposes such as education, medicine and marriage. Al-Qard Al-Hassan granted by the bank in 2008 reached about JD (21.8) million from which (19.3) thousand citizens benefited against about JD (8.7) million from which (19.1) thousand citizens benefited in 2007. Financing professionals and craftsmen The bank continued applying the program which was established in 1994 and dedicated to finance the craftsmens businesses and projects by Al-Musharaka method whose number reached (77) projects till the end of 2008, while the total financing granted to them reached about JD (1.7) million in addition to financing the bank offers to this category of citizens by Al-Murabaha method. Mutual Insurance Fund The bank continued managing the Mutual Insurance Fund for the banks debtors which was established in 1994. During 2008, the number of cases compensated from this fund reached (98) and the compensations paid from it reached about JD (320) thousand. The total indemnity cases since the funds establishment till the end of 2008 reached (975) and the compensations paid form it reached about JD (2.48) million. The funds balance at the end of 2008 reached about JD (22.36) million, and the outstanding number of participants in this fund reached about (100) thousand while the outstanding balance of their debts reached about JD (321) million. The Bank has raised the insurance limit as of 1/8/2007 to include people with debts reaching JD (40) thousand or less, instead of JD (25) thousand or less in the past years. Economic Contribution The Bank also continued investing in the capitals of national companies whose main activities comply with the rules of Islamic Sharia and which produce goods and services of public interest for the national community and economy. The number of companies that the Bank invested in their capitals reached (32) companies whereas the investment volume reached about JD (46.5) million. Major JIB Products Services: The Bank carries out, for its own account as well as for the accounts of others, all kinds of banking and financing activities on a non-usurious basis. Jordan Islamic Bank provides banking, financing, and investment services to individuals and institutions in compliance with the Islamic Sharia in Jordan. It accepts various deposit products, including trust deposits; and joint investment accounts, such as savings, specified investment, notice, and term accounts. The company also offers: Money transfer, Letters of credit, , Letters of guarantee Safe boxes, Travelers checks, commercial papers, and e-banking services. Interest-free loans (Al-Qird Al-Hassan) to meet certain social obligations; Swift and Money Gram services. Further, the company conducts feasibility studies on behalf of its clients, as well as on behalf of other parties and provides various advisory services. Jordan Islamic Bank offers its services through 56 branches and 12 cash offices, as well as 74 ATMs. Detailed Review of Products Services Accepting of deposits in JD and in foreign currencies in the following accounts: Current and demand accounts. Joint investment accounts: saving, notice, fixed accounts as well as Mudaraba, Restricted investment accounts and Investment by proxy accounts. Investing in Islamic investment modes such as Mudaraba, Musharaka, Murabaha, Direct investments, Istisna and leasing ending in the transfer of ownership. Issuing and printing of banking cards issued In-House including Visa card, (Smart Card) (Chip Pin), Visa Electron and Master Card. Issuing of ATM cards (24 hour service). Accepting of cheques and collection of financial papers. Using the S.W.I.F.T system for issuing LCs and for money transfers. Speed cash services through Westerns Union. Opening of LCs. Speed cash payments Western Union. Buying and selling of foreign currencies on spot value basis only. Issuing of cheques in foreign currencies. Renting of safe boxes. Management of manag eable properties on behalf of owners. Participating in the capitals of companies. Acting as agent at Amman bourse for buying and selling shares and investment certificates issued on a non-usurious basis In this regard, the Bank has established Sanabel Al-khair Company for Financial Investments in 2006 to take the place of the Financial Brokerage Office that belongs to the Bank. Giving AL-Qard AL-Hassan (interest free loan) to needy citizens to enable them meet certain obligations such as marriage, education and medication expenses. E-banking. Providing SMS Service by mobile phones. Providing secure shopping via the internet (VBV). Table about Financial highlights of JIB FY 2007-2008 Explanation of detailed analysis of Jordan Islamic Bank Financial Statement FY 2008 Jordan Islamic Bank has continued its course in deepening the experience of the Islamic Banking Industry, strengthening conviction in the ability of the Glorious Islamic Sharia in dealing effectively with every new developments in conformity with all rules, regulations, instructions and monitoring methods that govern all banks in Jordan, with the commitment to its mission, and the confirmation of its place in the Jordanian banking market, exceeding all obstacles and achieving more growth in its different activities. The following is the summery of the 30 the annual report and the final financial statements for 2008 which were discussed and approved by the banks General Assembly in its meeting which was held on Monday 29 the April 2009 in the Head Office Building: In 2008, JIB achieved an increase in pre-tax profits reached about JD (50.1) million with an increase of (45.7%) compared to 2007 and an average return on shareholders equities reached about (34%) while the after-tax pr ofits reached about JD (35.1) million with an increase of about (52.9%) compared to 2007 and an average return on shareholders equities reached about (23.87%). The profits of the Joint Investment Accounts before distribution grew by (34.8%) as it reached about JD (101.75) million against about JD (75.5) million in 2007. The total balance sheet reached about JD (1.848) billion with a growth of about (15.7%), when including Managed Accounts (Specified Investment Accounts, Muqarada Bonds and Investment by Proxy) which are off the balance sheet, the total balance sheet increases to reach about JD (2.170) billion against JD (1.93) billion at the end of 2007. The increase in financing and investment reached about JD (196.1) million with a growth of (21.3%) since the investment banks activities in (Musharaka, Murabaha and other investments) reached about JD (1114.6) billion against JD (917.9) million in 2007. At the and of 2008, the total financing and investment balances including I nvestment Portfolios, Specified Investment and Investment by Proxy reached about JD (1.391) million distributed on (108.3) thousand transactions against about JD (1.192) million at the end of 2007 distributed on (96.6) thousand transactions. The total Savings Schemes at the end of 2008 reached about JD (1.882) million distributed to JD (702.3) thousand performing accounts against JD (1.677) million at the end of 2007 distributed to (632.9) thousand performing accounts. The balance of Investment Portfolios Accounts / Muqarada Bonds reached about JD (194.5) million, the Specified Investments balance reached about JD (88) million, and the Investment by Proxy Account balance reached about JD (9.5) million. According to these figures, the banks total assets to the total assets of the performing banks in Jordan reached (7.3%). The banks total Savings Schemes to the total clients deposits in the performing banks in Jordan reached (10.3%) and the total balances of financing and invest ment to the total direct credit facilities for the performing banks in Jordan reached about (10.9%). The financing operations carried out by the bank included different activities, social and economic utilities; healthy utilities such as hospitals, clinics, medicine companies, educational utilities such as universities, schools, educational institutions, different real estate and industrial projects, means of transportation services in addition to financing the commercial sector. With respect to financing citizens necessary needs, the report showed that at the end of 2008, the number of beneficiaries from the banks financings for construction materials, houses, transportation, construction trucks and furniture reached (32574), and the financing balance they got reached about JD (262.5) million, while the outstanding balance for financing lands, houses, construction materials, means of transportation, construction trucks and furniture reached about JD (523.9) million from which (8 3203) citizens benefited. Shareholders equities as on 31/12/2008 reached about JD (161) million against about JD (133.5) million at the end of 2007 with a growth of (20.6%), while the Capital Adequacy Ratio according to the standards set by the Central Bank of Jordan reached (13.73%) exceeding the limit approved which is (12%), and also exceeds the limit approved by Basel Committee which is (8%). The indicator reached (31.01%) according to the standards approved by the Auditing and Accounting Organization for Islamic Financial Institutions (AAOIFI). At the beginning of 2008, the bank started full application of the accrual basis in recording the Murabaha Profits financed by JD from the Joint Investments funds after applying this principle gradually during the last four years, in conformity with the plan agreed upon with the Central Bank of Jordan. During 2008, the bank has achieved more developing operations in the field of banking technologies: Completing preparations t o apply the new banking system (ICBS) including setting a connection system to link it with the financial banking system JIB. Installing new (6) ATMs to be (69), all of them are linked to the clients accounts and the national network (JONET) which consists of about (630) ATMs and the International Visa Network outside Jordan. The bank continued applying the concept of (Investment Portfolios / Muqarada Bonds), and spreading its use as a Saving Scheme which leads to perform an organized secondary market where these bonds can be circulated and liquidated any time which leads to an increase in the people willing to deal with this financial instrument whose balance reached about JD (224.5) million. During 2008, the number of the banks employees reached (1656), and the bank delegated two employees to get the Doctorates Degree, five to the Masters and six to the Bachelors. The banks training institute during 2008 witnessed more activities, since (3021) employees participated in co urses and seminars organized by the institute and other specialized centers inside and outside Jordan against (1817) employees participated in 2007. These courses covered different activities and banking, financial, administrative and legitimate works which the employees need to improve their skills. The bank also continued creating training opportunities to new students from the educational institutions to be familiar with the banks works since the number of the banks training students during 2008 reached (525). With respect to the banks plan for 2009, the bank continued varying and developing its banking services, expanding in issuing Muqarada Bonds and strengthening dealing with it, expanding in Lease Ending-in-Ownership method, expanding in the programs of financing professionals, craftsmen and small businesses to contribute in creating new job opportunities. In addition, The Bank completed the preparations to open two branches in Khalda/Amman and Al-Shounah Al-Shamalia/Irbid . The bank also intends to make both Al-Qasr offices in Al-Karak and Al-Dholeil to become a branch, and open a new office in Sama Al-Rousan / Irbid. In addition, the bank will install new ATMs and replace the old ones with updating and developing the communication systems and networks to convoy to the new technologies and development in the Banks operations including applying a new banking system (ICBS) instead of the existing one (JIB) which will be more able to meet the Banks accelerating operations and to conform with the banking technological developments, and to adopt new banking technologies and deepen and develop the Corporate Governance Principles in the Bank, as well as applying Basel II requirements. Conclusion The Jordan Islamic Bank is offering different versatile and research oriented product in this banking operation. They are lot of merit of JIB which we explain above in our report. The JIB Financial statement very much improves as compare the last FY 2007.