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miknamgal · 6 years ago

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Submitted by AISHA & UJALA

Introduction:

A business having not more than 50 employees and annual sales are up to Rs. 150 million is termed as small enterprise whereas, a business with 51-250. employees and.productive assets.worth Rs30-100.million, a.service provider.with 51-250.workers and.productive assets.of Rs20-50.million and.a trader.with 21-50. employees and.productive assets. of Rs20-50.million is. called medium.enterprise.

“An Islamic. bank is. a financial.institution whose.status, rules.and procedures. expressly state. commitment to.the principle of.Islamic Shariah. and to.the banning. of the.receipt and.payment of.interest on.any of its.operations.”

(General secretarial OIC)

The objective of Islamic banking is to promote and follow the laws of Quran and Sunnah. As Islamic banks are working along with conventional banks that’s why some of their services are similar to conventional banks but they are providing better and more reliable services as compared to conventional banks

SME’s provided by the Islamic banks are might be considered similar to the conventional banks but the services provided by the Islamic banks are more reliable and according to the rules of the Islam and that’s why people are more inclined towards Islamic banks and their services.

Islamic Banking is also the part of the financial sector and they also try to get profit but they are more concerned to use the funds for the legal purposes only. That is why most of the people invest their money in Islamic financial sector because the risk of misuse of the funds is very less. It also increase the economic activity and close the door for paying the

Non- performing loans by using fresh incoming finance. SME is a financial sector where Islamic banking can work very efficiently and can help to create employment by increasing the assets and hence directly helps to alleviate poverty from the society. SME sector is the one that help to increase the GDP of the country by the direct or indirect ways and the economy of many countries highly depend on SME’s but in Pakistan it has only a minor share.

Out of Pakistan’s 3.2 million enterprises 95% are those who possess 99 employees in private industrial sector and employ about 78% of non agriculture labor force. SME contributes 25% export of manufacturing goods and 30% to 40% of GDP is the outcome of business efforts of SMEs.

The goals of Islamic banks are different but they are always ethical, moral and business oriented.

Increase in the services of he islamic banks can help us to prompt and flourish the SME sector more in Pakistan.

Problem statement:

According to economic survey 2014-15 contribution of industrial sector in GDP is 20.3%. The contribution of manufacturing sector in industrial sector is 65.4% and 13.3% in GDP. The large scale registered manufacturing units show 10.62% growth. But for the prosperity of the masses we need to flourish the SME sector by improving the banking services in Pakistan.

Objective:

The objective of our study is to find out that if the Islamic SME’s provided by Islamic banks are improved and increased then there would be seen a clear change in the poverty alleviation and by direct or indirect ways we will also see a positive trend in the GDP of the country.

Methodology

A majority of banks are not well equipped to deal with the requirements and potential of the SME sector, and that cause unemployment and increase poverty. In order to meet this demand, banks, including Islamic banks would have to build capacity in different areas. We have taken the financial statements of all Islamic banks that provide Islamic SME’s and the share of their total finance in providing Islamic SME’s. Thus, we find out that if there would be an increase in the Islamic SME’s services and finance than it will help to provide employment and will directly or indirectly help to improve the economy and GDP of the country.

Sr. no

Banks

Products

Number of branches

Balance sheet

Islamic financing and related assets – net

Faysal bank

Diminishing Musharakh, Murabaha, Salam, Ijrah

276 branches including 62 Islamic branches

Assets= 450,549,803

Liabilities= 422,352,081

Net assets= 28,197,722

16,921,221

AL Meezan bank

Salam, Tijarah, Musharakah, Murabaha, Musawarmah, diminishing Musharakh, ijarah

Near about 500 branches

Assets= 531,849,934

Liabilities= 505,502,824

Net assets= 26,347,110

207,568,823

Al Baraka bank

Diminishing musharka, ijarah, purchase plan for machinery and vehicles, istisnah, salam, murabaha

Near about 166 branches working in Pakistan

Assets=86,932,510

Liabilities=80,659,273

Net assets=6,273,237

47,644,690

Dubai Islamic bank

Murabaha, import marabaha, istisna cum wakala, shirkat ul melk cum ijarah, diminishing musharka

125 branches are working in Pakistan

Assets=157,093,185

Liabilities=149,117,515

Net assets=7,975,667

104,953,637

Bank Islami

Ijarah, diminishing musharka, karobar finance, istisnah finance, murabaha finance, islamic export refinance, export bill purchase, discounting under salam arrangements.

317 branches are working in Pakistan

Assets=177,029,911

Liabilities=165,891,384

Net assets=11,138,527

57,598,654

Standard Chartered

Saadiq letter of credit (LC), Saadiq import finance, saadiq shipping grantee, saadiq letter of credit confirmation, saadiq export bill for collection, saadiq export bill finance, saadiq guarantees, saadiq short term finance, saadiq term finance, saadiq foreign exchange spot and forward.

101 branches in Pakistan

Assets=447,347,791

Liabilities=385,397,336

Net assets=61,950,455

Askari bank

Mudarabah,wakala, qard, ijrah, istisna, salam, musharqa.

424 branches and 78 Islamic banks branches

Assets=535,867

Liabilities=509,014

Net assets=26,853

29,168,564

UBL amin

UBL sahulat, UBL karobar loan, UBL cotton ginning loan, UBL rice husking loan

69 branches

Assets=1,400,651

Liabilities=1,258,516

Net assets=142,135

56,299

HBL Islamic bank

HBL mudarbah, Diminishing musharka, HBL ijrah, HBL istisna, Bai salam

423 branches

Assets=640,023,814

Liabilities=601,832,280

Net assets=38,191,534

11,980,951

MCB Islamic bank

Musharka, diminishing musharka, ijrah, Murabaha

1200+ branches

Assets=1,016,630

Liabilities=878,829

Net assets=137,800

10,124,699

11.

Bank of Khyber

Ijarah,murabaha, iajrah wal iqtina

130 branches

Assets= 155,158,733

Liabilities= 139,241,157

Net assets= 15,917,576

10,392,364

12.

Soneri bank

Ijrah, mudarabah, diminishing musharka,salam

226 branches

Assets= 253,342

Liabilities= 235,150

Net assets= 18,192

3,644,898

13.

Bank Al Falah

Business loan, al falah merchant loan, alfalah karobar, mudarabah, wadiha, musharka, murabah,ijarah

653 branches and 120 Islamic branches

Assets= 902,607

Liabilities= 849,254

Net assets= 53,353

42,056,149

14.

Dawood Islamic bank

Diminishing musharka, murabaha, ijrah-tul-ashkhas, ijarah, export mudarabah- cum- istisna and mudarabah, export murabaha-cum- mudarbh

A total of 50 branches

Assets= 11102110

Liabilities= 5,753,416

Net assets=5348694

15.

Burj Bank

Mudarah for local and imported goods, equipment ijrah financing, diminishing musharka financing, Islamic export refinancing scheme

16 Islamic branches

74 total branches

Assets= 32,736,074

Liabilities= 28,347,144

Net assets= 4,388,930

18,079,208

16.

NBP

Diminishing musharka, ijarah, murabaha

1403 braches all over Pakistan

Assets= 1 3,792,851

Liabilities= 1 3,089,399

Net assets= 7 03,452

1 ,029,202

Main observations and findings:

There are total 34 banks working in Pakistan. We took a sample of seventeen banks. All these banks provide Islamic SMEs but the amount of Islamic SME’s varying from bank to bank. In this table we also mention assets, liabilities and net assets due to limited balance sheet we only mention overall assets and liabilities instead of explaining contribution of each Islamic product in Islamic SME’s. Standard Chartered, Faysal bank and Meezan bank have ‘fairly good’ Islamic SME’s penetration, because these banks are providing most of the products.

There is considerable potential for Islamic banking products in the SME sector, as many of these companies, especially due to religious trends of people working in rural areas.

Solution and recommendation

1. Strategy and Segmentation

There should be proper segmentation in the Islamic banks. Goals should be given to each segment and such type of strategy should be made that helps each segment to understand the market, business opportunity, and targeted area and then make optimal operating model and provide services according to the needs and requirements of the people in the targeted area. There should be a awareness institution in the banks also that guide their customers and also help them to chose the best option for their SME’s.

2. Products and Services Borrowing solutions:

Islamic banks may increase the amount of product and service by offering non-borrowing services such as cash management, payroll management, payments, collections, and trade finance solutions. Internet banking, mobile banking and services of debt and credit should also be included in the Islamic SME’s

3. Sales and Delivery Introduction of new Islamic SME banking models:

Islamic banks should use new SME banking models to target SMEs. The use of mobile banking (such as United Bank’s Omni facility) will help to increase the financial enclosure on less cost.

4. Advisory services:

All Islamic banks should focus on providing the advisory services to their customers. As SME’s is a bit new financial sector in Pakistan therefore people are not well aware of it. Thus all banks should focus on providing the advisory services regarding finance, management, business skills, future skills, financial modeling, and forecasting. This knowledge will help the customer to chose the best SME for him and these advisory services will also help to grow the business and earn profit from it.

5. Organization and Systems Better training for SME professionals:

There is always a shortage of knowledgeable about Shariah-compliant products. The reason is less investment of time and money on the training of the staff. To reduce the problem the management should focus on the training of the employee according to the demand of the market so the penetration in market would become easier for them

6. Streamline loan application processes for SMEs:

SMEs face difficulty for loans due to large amount of documents required for the approval process. Sometimes these processes exceed a time period of one month. Therefore, to minimize this hurdle banks should seek technical assistance.

7. Institute a tailored Research Agenda:

Banks should focus on a tailored research agenda to support and assist SME support.

The best and qualified researchers will help to analysis the policy and agenda in multiple ways and dimensions hence, providing a better understanding for the other employees and also the best and most feasible solution and procedure for improving the services and increasing customer’s satisfactions. Their deeper knowledge will help to improve the process and also to reduce the poverty by increasing the chances of employments of the people in the society.

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