ISLAMIC FINANCE


TERM REPORT


CAR IJARA
































MBA 3 (DPO)





DATE: 16TH DECEMBER 2002














BUSINESS ADMINISTRATION






ACKNOWLEDGEMENTS


At the completion of this report, we are very thankful to Mr. Ahmed Ali of Meezan bank for his sharing of valuable information, time and providing us with useful insight into the subject of Islamic car financing.. We are thankful to Mr. Farid Khan, of Meezan Bank for sharing his knowledge of car financing with us. We are also thankful to Mr. Mansoor Ali of Citibank for providing us with information on conventional car financing. Without their co-operation, the completion of this report would have been a difficult task.


We are also thankful to our course instructors Dr. Muhammad Imran Usmani and Mr. Imran for their valuable guidance. They were able to direct us throughout the course of this report. Apart from this, the text available on this subject by Dr. Muhammad Imran Usmani was also very helpful.


This report was a real experience towards becoming Business Executives. We hope that all those who refer to this report find it as beneficial as we intended it to be.




















TABLE OF CONTENTS
ACKNOWLEDGEMENTSNEED FOR CAR FINANCING
CONVENTIONAL CAR FINANCING SCENARIO IN PAKISTAN


CITIBANK-THE PIONEER IN CONVENTIONAL CAR FINANCING


BACKGROUND AND OPERATIONS


CITIBANK’S CAR FINANCING


FEATURES OF CITICAR FINANCING


BENEFITS


ELGIIBILITY


CITICAR FINANCING SCHEMES


NEW CAR PROGRAM (10TH ANNIVERSARY SPECIAL OFFER)


0% PROGRAM


USED CAR PROGRAM


THE PREVALENCE OF RIBA IN CONVENTIONAL BANKING


WHAT IS RIBA?


CONVENTIONAL FINANCING FORBIDDEN IN ISLAM


ISLAMIC BANKING


ALTERNATIVES TO CONVENTIONAL CAR FINANCING


ISLAMIC CAR FINANCING: THE ULTIMATE SOLUTION


FAYSAL BANK


MEEZAN BANK: THE PREMIER ISLAMIC BANK


MEEZAN BANK’S CAR IJARAH SCHEME


CAR IJARAH’S UNIQUE FEATURES


BENEFITS OF CAR IJARAH


COMPLIANCE WITH SHARIAH

MAIN FEATURES OF MEEZAN BANKS’S CAR IJARAH
FINANCING


PAYMENT


INSURANCE ARRANGEMENT


LEASE PROCESSING TIME


RENTAL CALCULATIONS


ELIGIBILITY CRITERIA


DOCUMENTATION REQUIRED FOR CAR IJARAH

ENTRY INTO THE CONSUMER BANKING SEGMENT
PROBLEMS FACED IN DEVELOPING AND IMPLEMENTING CAR IJARAH


CONSUMER ATTITUDE


PROBLEMS DURING DESIGNING OF THE PRODUCT


LACK OF EXPEREINCE


UNPREDICTABILITY REGARDING CONSUMER REACTION


CAR INSURANCE (TAKAFUL)


FIERCE COMPETITION IN THE MARKET


CHANGES IN THE DOCUMENTATION REQUIREMENTS

THE PROCEDURE
ELIGIBILITY


ENTERANCE OF FORM IN THE SYSTEM.


GENERATION OF PROPOSAL.


PROMISE TO LEASE AGREEMENT.


PAYMENT COLLECTION.


PLACING OF ORDER AND PAYMENT TO DEALER.


DIFFERNCE BETWEEN CONVENTIONAL AND ISLAMIC CAR FINANCING

BASIC DIFFERENCES
LEASING V/S FINANCING


RENTALS V/S INSTALLMENTS

DIFFERNCES IN SCHEME
OWNERSHIP


RISK/LOSS


DOWN PAYMENT V/S SECURITY DEPOSIT


RETURN


TERMINATION

DOCUMENTATION
SEQUENCE/PROCESS

MARKET PRESENCE
INFRASTRUCTURE

ISSUE OF ISLAMIC INSURANCE (TAKAFUL) FOR CAR FINANCINGPROBLEMS IN DEVELOPING TAKUFUL
INSURANCE ACT 1938


INVESTMENTS
Re INSURANCE

CONCLUSION





NEED FOR CAR FINANCING


With the increasing demands of everyday life, vehicle ownership has shifted from a mere luxury to a vital necessity. Purchasing a car is often the second most expensive yet important purchase, after buying a home. While doing so, an individual has two options available: either to make a hand on hand (cash) purchase or to go for car financing. However, due to the exorbitant car prices and lack of the funds available, many individuals prefer the latter option and approach the various financial institutions, which provide this facility at different rates.





























CONVENTIONAL CAR FINANCING SCENARIO IN PAKISTAN
In Pakistan, the following banks and leasing companies are providing conventional car-financing facility at the following rates:


Company


Claimed rate


3 years IRR


5 year IRR


Avg. IRR


Tenor (years)


Down pmt.


Commercial banks


Soneri bank


15%


14%


13.5%


14%


3-5


15%


MCB


16%


16%


16%


14-16%


1-5


20%


Bank Al Falah


14%


14%


14%


14%


1-5


20%


Union bank


15%


17.7%


17.7%


18%


1-5


20%


SCB (no docs)


21.3%


20.8%


1-5


20%


Citicar (pre approved/docs)


21.8%


21.9%


22%


1-7


10%


Citicar (no docs)


22.4%


21.9%


1-7


15%


Habib bank


13%


19.9%


18.6%


19%


3-5


10%


Leasing companies


Orix


16-21%


3-5


20%


Paramount


17%


17%


17%


3-4


10%


Cres lease


19%


20%


3-5


10%


Askari lease


22%


21%


21%


3-5


10%


















CITIBANK-THE PIONEER IN CONVENTIONAL CAR FINANCING


BACKGROUND AND OPERATIONS[1][1]


Citibank is at present the largest and most important multinational bank in Pakistan. The bank is currently the market leader in the banking industry and is constantly working to improve its position by introducing newer, better and more consumer-oriented products.


The nineties were a decade of domination and leadership for Citibank in the Pakistani marketplace and the trend continues into the new millennium. Some of the major milestones in the bank’s history showing not only the bank’s aim to develop customer tailored products specifically for the convenience of its corporate and individual customers but also its commitment to social responsibility in the form of grants and aids include:


1990


Consumer Bank was established.


1992


Consumer Asset Business is launched.


Auto Financing is introduced.


Citigold Priority Banking is established.


Citiphone Banking launched.


1994


Citibank Visa Card (Gold and Silver) is launched.


1995


Self-Service Banking launched.


1996


Citibank, N.A. launches its Intranet System in April.


First bank to launch a Photo Credit Card.


1997


Citibank wins over 35 awards under the Euromoney Excellence Awards. These awards included "Best Bank" and "Best Emerging Market Bank" for two successive years.


Citibank Credit Cards acquire 100,000 members in less than 3