iMAL*IslamicTreasury

for The Islamic Banking Industry

Banks Investments & Treasury operations
 Table of contents
Overview ............................................................................................................................ 3
Islamic economy............................................................................................................. 3
Islamic financial services............................................................................................... 4
How does an Islamic bank differ from a non-Islamic bank? ...................................... 5
Path modules are: .......................................................................................................... 5
Islamic and Conventional Systems .................................................................................. 6
Islamic vs. Conventional Systems: ................................................................................. 7
Distinguishing Path........................................................................................................... 7
Summary............................................................................................................................ 9

Purpose
This white paper highlights the experience and competency of Path in providing a solid
integrated IT Solution, iMAL*IslamicTreasury, for the management and processing of
the Islamic investment and financing products throughout their entire life cycle.

Written by Path Solutions.

Ref: WP-IslaTreas2006-001

Path Solutions 2 June 2007

 Overview
The world of business is continuously changing. The banking sector, in particular has undergone
enormous modifications. The movement towards globalization, new competitive environment,
dramatic acceleration of electronic communication, bank mergers and acquisitions has created
new realities for the banking industry.
Todays banking competition is no longer just an attractive rate, but more important is how
convenient are the banks products and offered investment opportunities and the quality of the
services provided by the banks officers.
In many countries the banking industry has already moved or is in the process of moving towards
the Islamic banking paradigm.
Islamic Banks avoid the receipt and payment of interest in their transactions and conduct
operations in a way that helps achieve the objectives of an Islamic economy. Alternatively, this is
a banking system whose operations are based on Islamic principles of transactions of which profit
and loss sharing is a major feature, ensuring justice and equality in the economy.

Islamic economy
Islamic economy is based on completely different considerations than Western economy.
It is based on Shariah, the Islamic law, which governs secular as well as religious activities. The
basic objective of Shariah is to ensure general human well-being and socio-economic justice.
It teaches that all wealth belongs to Allah and that humans are merely trustees of this
wealth-entrusted with it to realize the above-mentioned objectives. Individuals do not have
absolute right over their wealth. They must not wastefully consume their wealth, and they must
give to others their due.
One of the main aims of Islamic economy is that wealth, instead of becoming concentrated in the
hands of a few, should be allowed to circulate in society as widely as possible, so that the gap
between the rich and the poor is narrowed as far as naturally practicable.
In the Western economy, the individual has unconditional and absolute rights over wealth and is
allowed to use it as he or she pleases.

Path Solutions 3 June 2007

Islamic financial services
Evaluating the banks performance is important especially in competitive financial markets since
it gives signals to depositors-investors on whether to invest or withdraw funds from the bank.
Similarly, it provides direction to banks managers on whether to improve their deposit service or
finance it or even both in order to improve the banks position. The regulator body in the related
country is also interested to know all this information for its regulation purposes.
All transactions in conventional banks are based on interest or riba which is prohibited by
Islam.
With the increase in the Muslim population and the awareness of Islamic values, there is greater
demand for Islamic banks and interest-free finance by Muslim consumers, traders, investors, and
businessmen.
Unlike conventional banks where interest is an integral part of the banks business, Islamic banks
were established to avoid interest in all banking transactions. Interest is avoided because riba is
prohibited in Islam.
Islamic banking is making its way in to the society; the volume of the two truly Islamic financial
modes of lending (Mudharabah and Musharakah) is expected to grow in the coming years.
Trust profit sharing (called Murabahah) and joint venture profit (called Musharaka) are two
distinguished and unique products of an Islamic bank. The most basic feature of those financing
tools (Mudarabah and Musharaka) is that they are interest-free. There are no elements of interest
involved in this transaction rather the bank / the contributors of funds share the risks with the
borrower.
In the Muslim society, there is a great demand of these investment products.

Path Solutions 4 June 2007

How does an Islamic bank differ from a non-Islamic bank?

Because Islam is the basic concept on which Islamic banking is built, moral principles
and objectives play a more important role in the operations of an Islamic bank than in a
non-Islamic bank.
An Islamic bank offers non interest-bearing products or services, and is more oriented
towards risk-sharing.
In their organizational structure and corporate governance, Islamic banks have an Islamic
Sharia board, to ensure that the banks practices are in line with the Sharia regulations.
Because of these elements, Islamic banks have the characteristics of investment banks,
commercial banks and development banks.

Path modules are:

Geared and built specially for Islamic Banking Operations
Built to provide full management of all aspects of Islamic Banking products
Designed for on the- counter speed of service
Transaction driven; Process driven and client centric allowing efficiency of
transactions
Flexible modules allowing processing and full management of new products
Open modules that can basically be integrated with other vendors modules

Path Solutions 5 June 2007

 Islamic and Conventional
Systems

Islamic Finance is inherently different than conventional finance.

The importance of the differences between Islamic finance and conventional finance lies in the
fact that in Islamic finance a trade is involved (and hence the bank is a trader/merchant). Also a
financing transaction is processed whereby the bank is a provider of equity financing; hence the
bank is a partner/shareholder and is exposed to the risks and rewards and movements in the
market and at the same time it plays a role and directly contributes to the economic cycle/growth.
In addition, Islamic investments must be in ethical sectors i.e. they must comply with the Sharia
guidelines. Whereas in conventional finance, the bank is merely a lender and hence a
conventional bank is not directly exposed to the market risks and movements.
The above roles of a bank (merchant/financer) and contributor in the economic sector make the
basis of the distinguishing character of the Islamic financing being:
Trade related: profit based on mark-up
Equity related: pure form of equity financing; profit and loss sharing
Interest free no usury avoids exploitation
Only related to Ethical investments and has to comply with the regulatory environment
governed by the Sharia boards
An efficient manager of pools of funds (clients and banks funds) and applies more
complex profit calculation procedures.
Islamic Investment services are designed to provide you with the opportunity to invest
your funds and earn profits, whilst comply with the Sharia regulations.

Path Solutions 6 June 2007

Islamic vs. Conventional Systems:

Islamic modules are especially designed and geared towards Islamic Principles
application.
Islamic systems should allow full management of Islamic products from inception to
closure of the deals, i.e.:
Efficiency in processing transactions coupled with internal controls and limits
monitoring
Effectiveness in assessing, controlling and managing credit and liquidity risks
Speed in on the counter service (Time To Market)
Flexibility for management of new and innovative products
Off balance sheet accounting:
- In conventional banks off balance sheet accounting is limited to L/Cs and L/Gs
- A bank applying Islamic products needs control procedures and positions
monitoring of the bank and the clients funds
Catering for the more complex profit calculation methods.

Distinguishing Path
It is a fact that many aspects of the Islamic economy differ greatly from those of the Western
economy.
Path has explored the typical risks undertaken by Islamic banks and has supported all the aspects
of Islamic banking. As wee, Path has great expertise in Islamic Banking & Funds Management,
and has gained extensive business Know-How; so No learning curve.
Path has introduced iMAL*IslamicTreasury a Software System which handles all forms of
Islamic Financing, Treasury and Investment transactions for the banks own account .

Path Solutions 7 June 2007

The Islamic Financing and Investment transactions that iMAL*IslamicTreasury module handles
are the Murabaha, , Reverse Murabaha, Murabaha Financing, Ijara, Foreign Exchange deals,
Exchange of Deposit, Placements and Borrowings, Salam, Istisnah, and, whereby the bank is
either obtaining or investing only its own funds.
The module facilitates the deal ticket management, preparation of payment and receipt
instructions, maturity instructions, repayment plans, settlement procedures, LIBOR rates
uploading from external systems, transactions tracking, profit declarations, foreign exchange
revaluation as well as having extensive reporting and analysis capabilities such as profit
statements, investment deals, repayment plans, deposits maturities and management fees. The
module can interface with spreadsheets (e.g. export to excel). Only authorized users can setup,
modify, approve, suspend, reinstate and or close any account or deal. Extensive audit trails of the
users, machine reference, date, time, old and new value of any changes are logged and maintained
at all times for future follow- up.
Some of the features in iMAL*IslamicTreasury are:
The administration of both treasury investment & financing transactions for the bank.
The ability to setup and classify new products that are governed by Islamic investment
instruments providing its owner with the flexibility of adapting to a continually evolving
market.
A solid workflow concept that enables different users to carry out processes as per their
assigned tasks. Thus ensuring a higher level of accuracy and security.
Deal ticket management, where details pertaining to the execution of a transaction are
maintained and approved by the authorized persons.
Both straight line and diminishing returns profit calculation methods providing the user
with an additional level of flexibility in tailoring transactions to the specific needs of the
bank.
Repayment Plan management with the ability to setup and administer repayment plans
for financing transactions.
Facilities to process cross currency transactions
Options to issue payment instructions for deal tickets with the appropriate authorization
controls.
Settlement procedures for maturity date instructions and repayments.
Extensive reporting facilities and an interface to spreadsheets to provide the necessary
tools for improved decision-making.

Path Solutions 8 June 2007

 Summary
Islamic banking certainly faces many challenges today due to the fact that we live in an economy
driven and manipulated by interest.
Path gives support to Islamic Banking by providing efficient and Sharia compliant solutions for
the proper management and processing of the banks transactions.

In the preparation of this document, every effort has been made to offer the most current, correct, and clearly expressed
information possible. Nonetheless, inadvertent errors can occur, and business conditions often change.
Further, the information in the text is intended to afford general guidelines on matters of interest to readers. The
application and impact of the information can vary widely, however, from case to case, based upon the specific or
unique facts involved. Accordingly, the information in this document is not intended to serve as professional advice.
Path Solutions has no obligation to tell you when information in this document changes or when the document is
updated.

Path Solutions 9 June 2007

 Kuwait: P.O.Box 592 Safat 13006 Tel: +965 4824600 Fax: +965 4824500

Bahrain: P.O.Box 2568 Manama Tel: +973 17214072 Fax: +973 17214073

Lebanon: P.O.Box 15-5195 Beirut Tel: +961 1 697444 Fax: +961 1 696744

United Kingdom: 211 Piccadilly W1J 9HF Tel: +44 20 79171736

Malaysia: Level 40, Tower 2, Petronas Twin Towers Kuala Lumpur City Centre
50088 Kuala Lumpur Tel: +603 2168 4261 Fax: +603 2168 4607

Website: www.path-solutions.com
Email: info@path-solutions.com

Path Solutions 10 June 2007

Path Solutions 11 June 2007