BURJ

BANK
LIMITED.
ISLAMIC THEORY
AND FINANCE
FINAL PROJECT REPORT
SUBMITTED TO: SIR KHALID
HUSSIAN
SUBMITTED BY: GROUP 3
MBA- 3E
GROUP MEMBERS:

INTRODUCTION:
Burj Bank Limited formally known as Dawood Islamic bank limited, is a unique Islamic bank which offers
the service level of an international conventional bank while presenting a diverse portfolio of Islamic
products. It is completely operating on the principles of Islamic Shariat and does not operate on the
principles of conventional banking. It received its license from State Bank of Pakistan in 2006 and started
operating in 2007 in Pakistan. Professor Mufti Munib Ur- Rehman is heading the Shariah Department as
Banks Shariah advisor.
Burj Bank has a rich Middle Eastern background, with the financial and technical support. The bank was a
result of initiative of First Dawood group, with the Islamic Corporation for the Development of the Private
Sector in Jeddah, Bahrian, Kuwait, Dubai, Sinagapore and Saudi Arab. In 2011 the bank was renamed Burj
Bank Limited. Burj Bank has a diversified range of Shariah Compliant funded and non-funded products
and services aimed at both individual and corporate customers. The bank also offers investment and
corporate advisory services. It has 75 online branches operating at the moment.
Burj Bank is the first double AA rated Bank for Shariah Quality in Pakistan. This rating has been assigned
by Islamic International Rating Agency, Bahrain and endorses the highest levels of Shariah compliance at
the Bank. It is a unique Islamic Bank that provides the service standards of an international bank while
leading customers to the blessed path of success. Operating under the supervision of eminent Islamic
jurisprudents, the Bank believes that only Shariah is the true path to prosperity.
Burj Bank works on basic values of purity, integrity, passion and devotion. Purity encompasses essential
business values for Islamic banking such as purity of return and truthfulness of character / actions. Integrity
is the essential value of banking, particularly Islamic Banking; it reflects honesty and clarity within our
communication, processes and our business dealings. Passion reflects a winning attitude, an obsession with
our profession; delivery of highest levels of customer services and an overwhelming strive towards
excellence. Devotion indicates the need for hard work, consistency, perseverance & a commitment towards
the organization, its customers and all its stakeholders.
Burj Bank is catering to different market segments. Following are the lists of products and services that are
Burj Bank offers in each segment.

1.

Retail:
Depositor Products
Takaful Products
Financing Products

2.

Corporate:
Fund based products
Non Fund based products
Trade Finance
Cash Management

3.

Small and Medium Enterprises:

Burj Tractor Financing
Fund Based Products
Non Fund based products
Trade Finance

4.

Treasury
Amongst all the above mentioned products we have chosen three major Fund Based products i.e.
Diminishing Musharakh financing, Ijarah financing and Murabaha financing as a focus of our study to check
if the bank is Shariah complaint in its operations.

1.

Diminishing Musharakah Financing: Diminishing Musharakah is a partnership based transaction

through which Burj Bank and its customers contribute their equity at an agreed ratio for the purchase

2.

of equipment/machinery and other tangible assets.

Ijarah Financing: Ijarah is an Islamic mode of leasing and can be used for assets that are not
consumed while they are in use, for instance, it can be a house car or any tangible asset. During the
tenure of Ijarah financing the asset given by the bank remans in Burj Banks ownership and all risks

are borne by the bank.

3. Murabaha Financing: A sale contract in which Burj Bank first purchases the asset on customers
demand and then sells on an agreed profit to the customer.
Two types of Murabaha Financing are offered by Burj bank:
i.
Spot Payment Murabahah - Immediate repayment in cash against Letters of Credit
(Sight).
ii.
Deferred Payment Murabahah - Repayment on mutually agreed future date

LITERATURE REVIEW:

Islamic banking attributes to a banking system or enterprise that is persistent with Islamic laws and principles
(Sharia). The practical applications of these principles must conform to Islamic laws and help develop Islamic
economies. Islamic law prohibits the earning of interest on lending money, therefore, Islamic banks must not
accept or pay interest during their daily business. (Kakakhel)
Islamic banks are striving to capture the maximum number of customers to compete with conventional banks
by providing a large number of products as an alternative for interest based products. In Pakistan, banks are
providing a wide range of products and services and facing intensive competition to attract potential
customers.
According to Nawi et al (2013), Islamic Banking was originally developed to cater to the needs of a
significant market segment that is, Muslims customers. Apart from just the Muslims however, non Muslim
consumers and non muslim business capitalists are also found to be adopting the services and the ideas of
Islamic Banking. The question then that the author raised was what the factors that have affected the growth
and adoption of Islamic Banking are, with special focus on Malaysia. According to the findings of the
research, the compliance with the Shariah, the quality and attractiveness off the offer and the preferences
towards potentials of Islamic banking were the factors that positively affected the adoption of Islamic Finance
and Banking by customers.
In Pakistan, Meezan Bank was the first Islamic commercial bank established in 2002. Since then, Bank Islami,
Dubai Islamic Bank, First Dawood Islamic Bank, Bank Al-Barakah and Emirates Global Islamic Bank have
started their operations as completely Islamic banks. The branch network of 6 full-fledged Islamic banks and
12 conventional banks (with dedicated Islamic banking branches-IBBs) increased to 528 branches by June
2009. It is estimated that Islamic banking will achieve a market share of 12 percent by 2012 in Pakistan.
(Source: SBP Strategic Plan for Islamic Banking 2009).
With a vision to be the Islamic bank of choice, Burj Bank is the fastest growing Islamic Bank in Pakistan. It
pursues an ambition of reaching new heights and achieving distinction in Islamic Banking by becoming a
symbol of prosperity, progress and success. This ambition is also reflected in the name Burj which itself
connotes heights (http://www.burjbankltd.com/).

METHODOLOGY

We have conducted a qualitative research to evaluate the operations of Burj Bank according to the
Shariah. The primary source of information for our research is interview with the Branch Manager of
Burj Bank Mr. Muhammad Talha Kalim. We used open ended questionnaire to collect information for our
study. Secondary source of information is internet especially Burj Banks website and the past research
papers. We used interview answers as data to critically analyze the working of Burj bank as Shariah
compliant or not.
To analyze the working of Burj Bank we have evaluated the collected information by comparing it to our text
books i.e. of Islamic theory and Finance taught in the course.

CRITICAL ANALYSIS
Burj Bank uses depositors investment as funds for specific projects and then gives profits in return. Bank first
checks the viability and risk of the projects and seeks steps to mitigate risks before investing in them. Bank
first makes sure to evaluate the projects before using depositors funds. Bank keeps in account all projections
through asset to deposit ratio. Bank does not tell depositors which project we r investing in usually only if
they inquire. At the end of the projects the Bank shares profits and loss with the depositors. The percentage of
loss is according to the investment and the percentage of profit is calculated on monthly basis based on the
previous months performance. Bank gives an indicative rate to the customer which is not more than that
stated by the State Bank.

We have chosen three modes of financing i.e. Diminishing Musharakah, Murabaha and Ijarah to evaluate if
Burj bank is Shariah compliant and how it operates according to the Islamic principles of banking. Following
is an overview of how bank works in each mode of financing and how it differs from our understanding of
Shariah compliance.

1. Diminishing Musharakah Financing:

Diminishing Musharakah is a partnership based transaction through which Burj Bank and its customers
contribute their equity at an agreed ratio for the purchase of equipment/machinery and other tangible
assets. A request from the customer is made to Burj Bank for the purchase of specific asset. Burj Bank and
the customer jointly contribute their share of equity at an agreed ratio to purchase the asset by executing a
Diminishing Musharakah Agreement. Burj Bank's share is divided into monetary units subject to purchase
by its customer periodically until such time that the sole ownership of asset is transferred in the name of
the customer. Besides purchase of Burj Bank's equity periodically, the customer utilizes the
usufructs/benefits of the asset and pays agreed consideration i.e. monthly rentals and principal monthly
payments to Burj Bank.
The following documents shall be executed between Burj Bank and the customer:As continuing security
for the obligations of the customer,

Diminishing Musharakah Agreement.

Agreement for Periodical Payment (Monthly/Quarterly/Semi-Annually).

Undertaking to Purchase the Musharakah Units.

Authority letter to be executed by customer in favor of Burj Bank to make an offer by the client to
sell the ownership in property subject to Sale & Purchase Back Diminishing Musharakah.

All agreements/documents are approved by Burj Bank's Shari'ah Advisor.

Risks and Mitigation Measures:

Mostly the risks of payment default from the customers. Also investing into different projects is risky as
well. Dispute is primarily on the documentation. Bank offers Musharakah financing in pre approved loans
such as Housing loans in CDA authorized areas rather than to Banigalla so that the bank controls risks.

2.

Murabaha Financing:

It is a sale contract in which Burj Bank first purchases the asset on customers demand and then sells on an
agreed profit to the customer. Following are the transactions made between bank and the customer.

1. A request is made from the customer to Burj Bank for the purchases of specific local / imported goods.
2. Appointment of customer as agent of Burj Bank to acquire the desired asset.
3. Bank purchases the goods upon request of the customer and takes ownership,
4.

After purchase of goods the risk of the goods is borne by Burj Bank until the ownership of the goods is
transferred to the customer by way of offer and acceptance.

5. At the same time specification of the goods, delivery,place and other terms of the contract are ensured.
Risks and Mitigation Measures:
Mostly the risk is of customer default and fraud that the customer does not take the asset after the bank has
bought it or take the asset and run away without paying. For that Burj bank takes following measures to

mitigate risk:
First keep provision of bad debt so that if the client cannot pay due to any crisis it goes to bad debt.
Second Burj Bank has its own collection team and recovery team to get the asset back from the possession

of customer if he does not pay.

Third they have installed Tackers on cars so they can easily monitor where their asset is.
Burj Bank has never faced any difficulty till now as they operate on the basis of state of the art. They
conduct Income assessment of the customer, check his debt burden ratio, repayment history, credit rating
history is checked for past 6 months.

3.

Ijarah Financing:

Ijarah is an Islamic mode of leasing and can be used for assets that are not consumed while they are in use, for
instance, a house, car or any other tangible asset. During the tenure of Ijarah financing the asste given by the
bank remains in Burj Banks ownership and all risks are borne by the Bank. According to Shariah compliant
Car Ijarah financing, Burj Bank gives its car on rental basis to the customer against agreed payment and period.
After the determined period of Ijarah, customer may purchase the car at an agreed price or may return it back to
Burj Bank. Some salient features of Ijarah financing are:

 Free from Riba.

Fully Shari'ah compliant.
No up-front insurance payment.
No up-front registration fees and related expenses.
Minimum Tenor 3 years; Maximum Tenor 5 years.
Payment period: Monthly/Quarterly/Semi-annually.

Risks and Mitigation Measures:

Mostly the risk is of customer default and fraud that the customer runs away without paying. For that Burj
bank takes following measures to mitigate risk:
First keep provision of bad debt so that if the client cannot pay due to any crisis it goes to bad debt.
Second Burj Bank has its own collection team and recovery team to get the asset back from the possession

of customer if he does not pay.

Third they have installed Trackers on cars so they can easily monitor where their asset is.
Burj Bank has never faced any difficulty till now as they operate on the basis of state of the art. They
conduct Income assessment of the customer, check his debt burden ratio, repayment history, credit rating

history is checked for past 6 months.

Burj Bank also uses Takaful to mitigate risk during all its financing especially Ijarah Financing.

RECOMMENDATIONS:

Burj Bank is completely Shariah complaint and is free from all the taboos of commercial
banking which is its core competency in the Muslim world but it should market itself in the non-

Muslim societies as well so that every society can benefit from their efforts.
Secondly in Pakistan where every second commercial bank has opened a window for Islamic
banking which confuses people Burj bank should create awareness on a larger scale so that the
masses know what they are doing is authentic and right according to the shariah to clear the

ambiguity in peoples minds.

Competitors should be closed closely.

A research cell should continuously try to gather information about the present action so its
competitors and expected future actions. So in this way more effective strategies can be

formulated.
The performance reward linkage should be making strong as it is said A happy employee
delivers more than he receives from the organization". Bank should also try to make its

employees happier.
The management should develop in workers the operator ownership to encourage them and make

them responsible for their work.

The worker should be given sense of teamwork and the managers should be trained to manage

the team as a good leader.

Maximum automated machines should be used.
New schemes should be introduced and maximum privileges should be given to customer, so that

to win money market.

Working hours should be increased for customers convenience; night banking service may be

used to increase the business.

New marketing strategies should be developed to attract new customers
Burj Bank Limited should continue to expand its business, by increasing its deposit portfolio

through aggressive market penetration strategies.

The Bank Limited needs to improve its website. More information relating to financial
performance of the bank should be available on the website.

CONCLUSION:
Through our research we have come to conclude that Burj Bank limited is completely Shariah
compliant and is one of the best Islamic banks working in Pakistan. They are offering a wide range of
services which are catering to different market needs such as retail, corporate and SME. Their major
customer flow is towards Ijarah Leasing and they suggest different modes of financing according to
the customers needs.
They make sure that the depositors funds are utilized in the best possible projects to get maximum
profits and to avoid risks.

The Bank ensures safety and security of depositors funds and has been certified by AAOIFI for
banking solutions which gives a competitive advantage to the Bank as well.
Bank has installed a lot of risk mitigation devices and used Taqaful as a guarantee instead of
insurance.
All in the entire bank is Shariah compliant in its true meaning and is purely Islamic without any
doubt.

Bibliography
http://www.burjbankltd.com/.
Kakakhel, R. &. (n.d.). A Study of Performance Comparison between Conventional .
http://www.pakreviews.com/bank-legal-services/burj-bank-limited-pakistan
http://www.pakistanbanks.org/members/profiles/burjbank_profile.html
http://savedwebhistory.org/k/burj-bank-pakistan
http://www.brandigg.de/unternehmen/BURJ-LTD
http://www.brandigg.de/unternehmen/ATM-TRUSTEES-LIMITED

http://www.pakreviews.com/banks-pakistan
http://sbp.org.pk/stats/Balance/2011/Burj%20Bank.pdf
http://www.linkedin.com/pub/farrukh-ahmed/42/367/645
http://www.linkedin.com/company/the-islamic-corporation-for-the-development-of-theprivate-sector-icdhttp://www.cbb.gov.bh/assets/Consultations/Second%20Consultation%20PaperLiquidity%20Risk%20Management.pdf
http://www.sbp.org.pk/departments/ibd/Lecture_9_Systemic_Level.pdf
http://ibtra.com/pdf/journal/v7_n4_article4.pdf
http://www.irti.org/irj/go/km/docs/documents/IDBDevelopments/Internet/English/IRTI/C
M/downloads/Working%20Paper%20Series/WP-1434-03.pdf
http://www.academicjournals.org/article/article1379494994_Yatim.pd

QUESTIONAIRE

1. The utilization of modes of financing in Al Burj bank? Which mode is used the most by the
customers?
Ijarah Leasing.
2. How do you design special fund to cater to the needs of specific projects and sectors?
We are not Fund managers; we do not do investment banking. Bank uses depositors
investment as funds for specific projects and then gives profits in return. Bank first
checks the viability and risk of the projects and seeks steps to mitigate risks before
investing in them. We make sure to evaluate the projects before using depositors
funds. We keep in account our projections through asset to deposit ratio. We maintain
the equilibrium. We do not tell depositors which project we r investing in usually only
if they inquire.
3. How do you share the profit percentages if they are more than that stated by the State bank
of Pakistan?
Calculated on monthly basis based on the previous months performance. We give an
indicative rate to the customers which is not more than that stated by the State Bank.
4. What modes are the most recommended by Al Burj bank and why?
It depends on the customers requirements, we use purpose specific landing.
5. In Musharakah what different types of Musharakah do you use and which type is used the
most?
6.
7. In Musharakah financing does the bank lease its share to the client?
8. Does the bank have an option to either fix the rental rate or set it as a variable rate?
Rental rate is always fixed but with a very slight variation to comply with shariah we
do not fix anything especially the variable price.
9. Does the bank share the risks with the customer as partner in the property?
Yes absolutely.
10. Would you prefer the floating rental rate in Musharakah?
Ideally yes.
11. What disputes do you majorly have to face during musharakah contract? How do you solve
them?
Bank offers musharakah in pre approved loans such as CDA not banigalah so bank
controls risks. Dispute is primarily on the documentation and nothing more.
12. What steps are taken to mitigate risks faced during Musharakah?
Third party evaluation of the customer, customers are profiled, income assessment of
the customer, before building any asset and giving it to the contract.
13. In international trade contracts which mode is used mostly?
We are not doing any international trade.

14. What difficulties do you face in international trade with conventional banks?
Difficulty in bank guaranteepenalty on late installments that contradicts with
shariah. Fixed penalties charged on those who break rules
15. In Murabaha contract what difficulties do you face mostly?
First keep provision of bad debt, collection team and recovery team to get the asset
back. Never faced any difficulty till now operates on the basis of state of the art.
16. What measures do you take to mitigate risks in a Murabaha contract?
Tackers on cars. Income assessment , debt burden ratio, repayment history, credit
rating history is checked. ECIB for past 6 months.
17. How effective is Ijarah leasing in Burj Bank?
Very.
18. Do you use takaful during Ijarah contract? yes
19. What are the major risks duing Ijarah and how do you mitigate them?
20. Is Burj bank AAOIFI certified? Use AAOIFI certified core banking solutions
21. Why dont general public believe in Islamic banking?
Window Islamic banks are not Islamic bank because the summary is one for all the
financial statements. People get confused that how can a conventional bank can be
working along with Islamic banking.