Weightage system in Islamic Banking.

Say in 2011 a bank earned profit amounting Tk. 257,15.91 Lac against deposit of Tk. 3151,08.81 Lac. Calculation of the percentage may be defined as under:

Against Tk. 3151,08.81 Lac deposit, we earned profit of Tk. 257,15.91 Lac
   ”        100             ”   

If we distribute profit to all category depositors @ 8.16%, It will not:
a)    Logical
b)    Rational
c)    Justified
On the other hand it is not possible for the Bank to invest particular category of deposit to particular category of investment, like:
a)    Deposit of MSB A/C’s to Cement Industries.
b)    Deposit of MSTD A/C’s to Iron Industries.
c)    Deposit of MTDR A/C’s to Garments Industries.
d)    Etc.
To make logical, rational, justified Islami Bank management introduced weightage system:
It is known to us that we are obtaining deposit on Al-Wadia & Mudaraba Principle. In Al-Wadia deposit we are not giving any profit and in Mudaraba deposit we are giving profit at lest 65% amount of investment income.

Here three important points are lying/hidden:

a)    At least
b)    65%
c)    Investment Income

Distribution of Weightage

Sl. No.    Name of Deposit                         Weightage
01          Mudaraba Term Deposit   
               a)    01 month                                 0.83
               b)    03 months                                0.88
               c)    06 months                                0.92
               d)    12 months                                0.96
               e)    24 months                                0.96
               f)    36 months                                 0.96
02    Mudaraba Savings Deposit                         0.75
03    Mudaraba STD                                          0.62
04    Steady Money                                          1.15
05    Super Savings                                          1.17
06    Multiplus Savings                                      1.17
07    Money Grower   
         a)    05 years                                          1.16
         b)    08 years                                          1.17
         c)    10 years                                          1.18
         d)    12 years                                          1.19
08    Education Savings                                     1.14
09    Hajj Deposit                                             1.10
10    Smart Saver                                              1.17

Share of Mudaraba Depositors on Gross Investment Income, 2006

(Figure in thousand)
01)    % of cost bearing deposit to total deposit
% of cost free deposit to total deposit    Ratio of cost bearing deposit to cost free deposit   

02)    Gross Investment Income    392 95 46
03)    Share of Cost Free Fund (18%)    70 73 18
04)    Share on Mudaraba Deposits on Gross Investment Income (82%)
i.e. 82% of distributable income (82% of Sl. No. 2)     322 22 28
05)    Less: 35% Management Fee (35% of Sl. No. 4))    112 77 80
06)    65% of distributable profit for Mudaraba Depositors (4-5)    209 44 48


(Figure in thousand)
Sl. No.    Name of Deposit    Total yearly Average Balance     Weightage    Weighted balance    Share of distributable profit    Percentage
1    2    3    4    5 (3X4)    6    7
01    Mudaraba Term Deposit                   
    a)    01 month    34 86 46    0.83    289376    23889    6.85%
    b)    03 months    464 62 35    0.88    4088687    337540    7.26%
    c)    06 months    162 20 20    0.92    1492258    123193    7.60%
    d)    12 months    928 10 74    0.96    8909831    735549    7.93%
    e)    24 months    25 28 82    0.96    242767    20042    7.93%
    f)    36 months    54 62 55    0.96    524405    43292    7.93%
02    Mudaraba Savings Deposit    111 92 74    0.75    839456    69301    6.19%
03    Mudaraba STD    90 00 68    0.62    558042    46069    5.12%
04    Steady Money    194 23 05    1.15    2233651    184398    9.49%
05    Super Savings    273 43 57    1.17    3199198    264109    9.66%
06    Multiplus Savings    24 00 80    1.17    280894    23189    9.66%
07    Money Grower                   
    a)    05 years    36 90 49    1.16    428097    35341    9.58%
    b)    08 years    23 30 02    1.17    272612    22505    9.66%
    c)    10 years    47 16 11    1.18    556501    45942    9.74%
    d)    12 years    120 95 89    1.19    1439411    118830    9.82%
08    Education Savings    56 46    1.14    6436    531    9.41%
09    Hajj Deposit    4 35    1.10    479    40    9.09%
10    Smart Saver    71 06    1.17    8314    686    9.66%
    Total    9a) 25929634        9b) 25370415    9c) 2094448.02   

01)    Individual Weighted balance (col.5))    =    Individual yearly average balance X Weightage (col.3 X col.4)
02)    Individual Share of distribution (col.6)    =    Total distributable profit X Individual weighted balance (col.9c X col.5)
            Grand total weighted balance (col.9b)
03)    Percentage (col.7)    =    Individual share of distributable fund X 100 (col.6 X 100)
            Individual total yearly average balance (col.3)

2 comments:

  1. what i don't understand is the way the bank calculates the wheightage?
    I understood that the bank calculates the wheightage according to the deposits importance, risk etc, but my question is HOW does the bank calculate the weightage?
    Can you please give an example? How did the bank calculated the weightage 0.83 for the Mudaraba term deposit for 1 month???

    ReplyDelete
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