Income Sharing Ratio (ISR) is a unique module for income distribution among the Mudarabah Depositors. In order to ensure Shari’ah compliance, MTB Yaqeen does not declare any fixed or provisional rate of return for the ‘Rab-Ul-Maal’ (Depositors). Rather, we offer Income Sharing Ratio (ISR). Based on ISR & MTB Yaqeen investment income, profit rate for the ‘Rab-Ul-Maal’ is determined at the end of each month. For example, the ISR of ‘Depositor/ Client: Bank = 80:20’ means that 80% of distributable investment income is to be received by the concerned depositor and the rest 20% to be received by the Bank.
Distinguishing Features of ISR:
- The weightage-based framework provides uniform management fee for an Islamic Bank against various groups of depositors whereas each group of depositors is assigned separate weightage. Increase in the weightage of one group automatically adversely affects the interest of all other groups and the bank's share remains unaffected. This is not fare. It also involves a two- tier calculation, which the clients don't understand.
- The revised ISR framework is free from these defects. It is fair to the depositors. It involves one-tire calculation. Under this framework, if the bank decides to offer special benefit to any group it has to do it at bank's cost, not at the cost of other clients of the bank.
- This framework offers a very simple process of calculation. The calculation can be done on month-by-month basis. The annual rate can of course, be calculated from the monthly rates.
- The rates can easily be updated throughout the year on a continuing basis. Since the actual rate is available round the year, no provisional rate is used. Needless to mention, provisional rates need frequent adjustments.
- The framework ensures transparency. The up-to-date month-by-month rate is displayed in electronic board placed at the lobby of Islamic branches for information of the clients. Bank's clients appreciate this arrangement. They can see through the calculation and need not wait till the close of the financial year to know the result of their investment.
- Since the updated rates of various types of accounts are within the knowledge of both the bankers and the clients, they can enter into meaningful negotiation with each other.
Principles of ISR:
- Mudarabah depositors of the bank will share income derived from investment activities deploying the Mudarabah funds. Income under this category will mean and include profit, Dividend, Capital Gains, Rent, Exchange Gain and any other income derived from the deployment of fund investments.
- Investment Income Sharing Ratio (IISR) for each type of Mudarabah depositors and the Bank must be declared before the starting of the accounting year/at the time Mudarabah contract (Account Opening) and to be duly disclosed to the Mudarabah depositors.
- The bank may reduce or raise the IISR before the start of any accounting year/at the time to Mudarabah contract (Account Opening) but cannot be reduced after the declaration is done for any accounting Year/entering into Mudarabah Contract.
- Mudarabah fund accepted by an Islamic bank shall be utilized in all sorts of investment activities (i.e. general investment, investment in share & securities, placement with other banks and financial institutions, etc.) approved by the bank’s Shari’ah Council as well as Board of Directors.
- Income from Exchange Gain derived from buying and selling of foreign currency by utilization Mudarabah Funds to be added to the funded income for the purpose of distribution.Profit may be calculated on different types of Mudarabah deposit accounts as per their respective rules for period/time and manner of deposit and withdrawal restrictions.
- Doubtful Income and unearned Income, if there is any, and Provision for Depositors’ Profit Equalization Fund may be deducted from the Funded Income before distribution.
- Mudarabah depositors shall not share any non-funded income. Non-funded income means and includes commission and different fees realized by the bank in connection with collection of utility bills, sale & purchase of DD, TT, Issue, amendment and cancellation of L/C, issue of T.C, Bank-Guarantee, rent of Lockers, Postage/Phone/Fax and SWIFT charges recovered etc.