A Identification & determination of pools of assets Initially from the general pool and subsequently from

already created specific pools A-1 What is the basis of pool management’s

mode(s) i.e. Mudaraba, Musharakah, Mudaraba – Musharakah, Wakala or any hybrid mode?

Basically Musharakah based on a structure designed in such a manner that the Bank being “Mudarib” represents itself as “Shareek/partner” on behalf of its “Rabb-ul-Maal” while dealing with other financial Institutions. On the other hand Bank’s equity (including current account deposits) used to finance assets represent bank’s contribution in the Musharakah with the deposits of corporate customers/high net worth individuals ,

A-2 What type(s) of Pools is being maintained i.e. whether there is a single pool or multiple pools?

There are multiple pools specially to avoid Bai inah (buy back) to fulfill customers and FIs demand for specific returns

A-3 Do you have separate / same policy for local & foreign currency deposits.

Since there are less avenues for creation of assets funded by foreign currencies thus foreign currency deposits based specific pools are normally created through FE 25 Murabahas and FCY deposits monetary value converted into PKR is used to fulfill Shari’ah requirement of at least 20% illiquid assets in the specific pool through pooling PKR Ijarah/DM

A-4 What are the maturities / tenors of different pools? What is the treatment of profit accrued on ‘payment-on-maturity” against a deposit and periodical payment of profits against a deposit?

The maturities of pools may depended upon the maturities of the deposits/inter-bank deals for which specific pools are created or may be more than the maturities of the deposits/inter-bank deals. Earning assets are selected with the higher than expected returns to make profit payments to the deposits. Accordingly, assets having periodical profits payments are used for making profits payments to deposits which require matching periodical profits payments

A-5 Does bank treat current A/cs and other A/cs e.g. margin A/cs as part of its own investment/ equity in the pool. If not what treatment in the pool.

Yes. Current accounts deposits are treated as bank’s equity, while creating specific pools.

A Identification & determination of pools of assets Initially from the general pool and subsequently from

already created specific pools A-6 What is the policy for giving priority to Bank’s

funds /investment over depositor’s fundsIt is tried to maintain return on bank’s equity similar to general pool. However, probability exists to bear non-performing assets loss and abnormal expenses by the bank’s equity (without disclosing this fact as contractual obligation) to maintain liability side customers confidence upon bank performance

A-7 In case of multiple pools, what is the criteria for developing a new pool and what are the authorization controls and approval processes for developing a new pool.

The assets are selected for any new pool on the basis of tenor of transaction and the profit rates desired by the depositor/FI. Back Office Treasury/Transactional Operations Department approves the new pool which is developed with the help of Financing Control and Products Development teams.

A-8 How it is ensured that a new pool is created before accepting a deposit and before allocating the assets?

Back Office Treasury/Transactional Operations Department is informed by the liability sales team/Treasury Division regarding the fresh deposits deals to quickly create the desired pool

B Pool composition & allocation of assets

B-1 Briefly elaborate avenues of Assets deployment / uses of funds for each pool

Mainly FIs, corporate customers and high net worth individuals.

B-2 What is Ratio of illiquid assets prescribed for each pool. Pls. give brief description, as to how it is ensured that the ratio of illiquid assets is maintained..

At least 20% illiquid assets.

B-3 What controls are in place for Tagging of assets to different pools( in case of multiple pools)

Pool management is system based. Each asset of different pools is given a separate distinctive number, based on the date of asset creation and its maturity. There are flags of different colors to identify different pools along with their date of creation and date of maturity. Each pool is given a separate distinctive number.

B-4 What is the mechanism of movement of allocated/tagged assets from general pool to specific pool & vice versa?

General pool assets are sold/transferred to different pools based on profit yield of each asset to make profit payments based on return desired by respective Rabb ul Maal

B-5 What is the treatment of any expenses and losses related to assets of a specific pool, particularly in case of non-performing assets?

In each pool bank’s Equity (including current accounts deposits) is mixed in such a manner that with out contractual obligation it could absorb the loss of non-performing assets on behalf of other Shareek of the specific pool and to bear abnormal expenses like destruction of asset subject to Ijarah, based on “Tabarru”. However, if equity becomes unable to bear such kinds of losses/expenses then the remaining loss/expanse are distributed among the Shareek based on ratio of investment

B-6 How the bank ensures the there is no buy-back of assets between / amongst pools?

There is a lock in system, should be introduced in the system. Since there are many pools, therefore one asset once sold by general pool to a specific pool is not sold back to general pool unless one year is lapsed. The system does not allow buy back of an asset by the general pool before one year is lapsed for the first sale of asset by general pool

C Identification & determination of pool’s related income

C-1 On what basis the income streams (funded & non funded) are shared and not shared with Depositors?

Only fund based income is shared as the earning assets are the main source to develop specific pools.

C-2 How sources of income are identified and what is the method of its allocation?

Income of earning assets having similar or more than the maturity date of TDRs/FI deal maturity date are selected to create specific pool

C-3 What are the dates of profit calculation & distribution? When the computations are finalized and when the returns are credited to respective depositors’ accounts?

Income stream attached with the earning assets are examined while creating a specific pool to give profits payments to the depositors/FIs taking care that the promised frequency of profit payments to TDRS/FIs deal should match with the income stream of earning assets .

C-4 What is the basis of profit calculation i.e. either minimum balance / weighted average balance for different types of saving deposits?

The basis of profit calculation on liability side is examined in monetary value to match with the income stream of earning assets

D Policy for Charging of Expenses to the pool

D-1 Brief description of policy for allocation of expenses to different pools.

Expenses of earning assets are allocated to the relevant pool, based on risk and reward principle.

D-2 What type of expenses are charged (in detail) for determination and appropriation of profit or loss?

Cost of goods, depreciation of tangible assets and provisioning for bad debts related to the earning assets are charged to the relevant pool

E Profit sharing ratio & Weightages

E-1 What is the mechanism of Profit sharing Ratios between Mudarib & Depositor, for general / specific pool

Profit sharing ration for specific pool is based on profit yield desired by depositor/FI followed by assignment of weightages

E-2 How weightages worked out for distribution of profit? Provide the methodology of computation of the same.

Based on the profit yield of each earning asset of a specific pool, the weightages are assigned to make sure that the weightage average return of all earning assets of a specific pool fulfill the requirements of profit yield desired by depositor/FI