Module 5- Banking (1) PDF

5 MODULE:___ MODULE G ALS BFBANFIX To be able to describe, understand and explain the products and services being offered by a Government Banking GOVERNMENT BANKING Institutions To differentiate produ...

5 MODULE:___ MODULE G ALS BFBANFIX To be able to describe, understand and explain the products and services being offered by a Government Banking GOVERNMENT BANKING Institutions To differentiate products and services of different INSTITUTIONS types of Government Banking Institutions PREPARED BY: MR. DAN JEWARD C. RUBIS, MBA  PHILIPPINE FINANCIAL STRUCTURE BANK Banks are the traditional institution for handling deposits and extending credit, but they aren't the only place that performs these functions. NON-BANK Non-banking finance companies don't have a full banking license, don't provide all of the services that an individual bank provides and aren't subject to the same regulation THE BANKING STRUCTURE RURAL BANKS COOPERATIVE SAVINGS AND MORTGAGE BANKS BANKS THRIFT BANKS PRIVATE DEVELOPMENT BANKS COMMERCIAL BANKS STOCK AND SAVINGS LOAN ASSOCIATIONS UNIVERSAL BANKS  RURAL BANKS COOPERATIVE SAVINGS AND MORTGAGE BANKS BANKS GOVERNMENT THRIFT BANKS PRIVATE BANKS DEVELOPMENT BANKS COMMERCIAL BANKS STOCK AND SAVINGS LOAN ASSOCIATIONS UNIVERSAL BANKS LANDBANK or also known by its initials, LBP, is a universal bank in the Philippines owned by the Philippine government with a special focus on serving the needs of farmers and fishermen. While it provides the services of a universal bank, it is officially classified as a "specialized government bank" with a universal banking license. ABOUT LANDBANK The Land Bank of the Philippines is a government financial institution that strikes a balance in fulfilling its social mandate of promoting countryside development while remaining financially viable. This dual function makes LANDBANK unique. The profits derived from its commercial banking operations are used to finance the Bank's developmental programs and initiatives. LANDBANK is by far the largest formal credit institution in the rural areas. It also ranks among the top five banks in the country in terms of deposits, assets and loans. Source: https://www.bsp.gov.ph/Statistics/Financial%20Statements/Commercial/assets.aspx  VISION LANDBANK will be the top universal bank that promotes inclusive growth and improves the quality of life especially in the countryside through the delivery of innovative financial and other services in all provinces, cities and municipalities.. MISSION To Our Clients and Publics: We will use the best technology solutions to deliver responsive financial and support services to our clients, while promoting sustainable development, and environmental protection. To Our Employees: We will develop and nurture talents that will exemplify the highest standards of ethics and excellence consistent with the best in the world.  MAJOR ROLES An implementing agency of CARP involved in land evaluation, compensation to owners of private agricultural lands, and collection of amortizations from CARP farmer-beneficiaries. Provision of credit assistance to small farmers and fisherfolk An official depository of government funds. A government bank with a social mandate to spur countryside development.  MAJOR ROLES An implementing agency of CARP involved in land evaluation, compensation to owners of private agricultural lands, and collection of amortizations from CARP farmer-beneficiaries. Provision of credit assistance to small farmers and fisherfolk An official depository of government funds. A government bank with a social mandate to spur countryside development. PRODUCTS AND SERVICES HIGHLIGHTS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS Development Bank of the Philippines (DBP) is classified as a development bank. It is primarily tasked to provide banking services to cater to the needs of agricultural and industrial enterprises. It focuses on four major areas of financing — infrastructure and logistics, social services, small and medium enterprises, and the environment The DBP, under its new charter, is classified as a development bank and may perform all other functions of a thrift bank. Its primary objective is to provide banking services principally to cater to the medium and long- term needs of agricultural and industrial enterprises with emphasis on small and medium-scale industries.  In the Philippines, development financing institutions play a pivotal role in the quest for sustainable growth and development. And at the helm of the country’s march toward progress is the Development Bank of the Philippines. As the country’s pre-eminent development financial institution, DBP has taken upon itself the strategic task of influencing and accelerating sustainable economic growth, through the provision of resources, for the continued well-being of the Filipino people. DBP’s history can be traced back during the Commonwealth when the early infrastructure for development financing was laid by the National Government. 1935 – The National Loan and Investment Board (NLIB) was created to coordinate and manage government trust funds such as the Postal Savings Fund and the Teacher’s Retirement Fund. 1939 – The Agricultural and Industrial Bank (AIB), which absorbed the functions of the NLIB, was created and started to harness government resources until the outbreak of war. 1946 – The government created the Rehabilitation Finance Corporation (RFC) under R.A. No. 85 which absorbed the assets and took over the functions of the AIB. The RFC provided credit facilities for the development of agriculture, commerce and industry and the reconstruction of properties damaged by the war. 1958 – The RFC was reorganized into the Development Bank of the Philippines. The change in corporate name marked the shift from rehabilitation to broader activities. With an initial capital of P500 million subscribed by the government, the DBP expanded its facilities and operations to accelerate national development efforts. This forward thrust saw the establishment of a network of branches throughout the country. The DBP tapped both foreign and local fund sources to complement its capital resources. Credits were obtained directly from international financial institutions. MISSION To support infrastructure development, responsible entrepreneurship, efficient social services, and the protection of the environment. To work for raising the level of competitiveness of the economy for sustainable growth. To promote and maintain the highest standards of good governance.  VISION Vision 2022 By 2022, a one-trillion Bank capable of supporting and spearheading development in half of the Philippine countryside. Vision 2040 By 2040, DBP will be a world-class infrastructure and development financial institution, and proven catalyst for a progressive and prosperous Philippines. PRODUCTS AND SERVICES HIGHLIGHTS Infrastructure and Logistics As an archipelago of over 7,000 islands, the Philippines requires efficient and modern transport infrastructures, logistics facilities and power infrastructures to accelerate and sustain its socio- economic growth, improve its global competitiveness, and promote physical integration. INFRASTRUCTURE AND LOGISTICS CONNECTING RURAL URBAN INTERMODAL SYSTEMS EFFICIENTLY (CRUISE) The DBP CRUISE (Connecting Rural Urban Intermodal Systems Efficiently) Program was created in consonance with DBP’s strategic thrust for connectivity infrastructure in the transportation and logistics sector. This Program is aligned with DBP’s objective of contributing to the United Nations’ Sustainable Development Goal No. 11 – Sustainable Cities and Communities, the Philippine Development Plan and the National Economic and Development Authority’s National Transport Policy of providing safe, secure, reliable, efficient, integrate, intermodal, environmentally sustainable and people-oriented transport system. INFRASTRUCTURE AND LOGISTICS INFRASTRUCTURE AND LOGISTICS Financing Utilities for Sustainable Energy Development (FUSED) The FUSED Program aims to contribute in the increase access to electricity services through financing in order to help achieve inclusive growth and poverty reduction. At the end of the FUSED Program by 2030, it is expected to have at least funded Php 40 Billion of the estimated investment requirement for power generation and distribution in the Philippine Energy Plan 2012-2030. Micro, Small and Medium Enterprises DBP fosters progress by championing Filipino entrepreneurs through its Sustainable Enterprises for Economic Development (SEED) Program. DBP also supports the food security and competitiveness of the agriculture through its Sustainable Agribusiness Financing Program (SAFP). Through these programs, DBP also helps communities flourish through employment generation and support for local products.  Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) is a universal bank authorized to perform and provide Islamic banking, financing and investment services  Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) is a universal bank authorized to perform and provide Islamic banking, financing and investment services pursuant to R.A. 6848, otherwise known as the Charter of the Al-Amanah Islamic Bank of the Philippines of 1990. In 2008, AAIIBP became a subsidiary of Development Bank of the Philippines, owning 99.9% of its capital stock, which introduced its current logo and tag name. “Amanah Islamic Bank”. MISSION To become a full Islamic Bank and afford Filipinos of the blessings and benefits of Islamic banking, financing and investment. To be competitive and significant in the banking industry. To become a key-player in the global Islamic banking and investment market. Participate in all phases of development especially in the ARMM and Mindanao. To serve as arm of the Government in addressing poverty alleviation especially in Muslim Filipino communities across the country by delivering them the goodwill and simplistic Islamic banking and financing that are responsive, sensitive and suitable to their way of life. To equip Muslim Filipinos with Islamic banking and financial education that can help them improve their economic condition and make them a significant economic force of the nation.  VISION To be the leading and choice Islamic financial institution providing alternative banking services in response to the emerging global Islamic markets and to promote and accelerate the socio-economic developments of the Islamic communities in the Philippines by 2022. CURRENT ACCOUNT UNDER "WADIAH” represent deposits which are repayable on demand and without notice of intended withdrawal through issuance of checks. This account is otherwise known as demand or checking account. SAVINGS ACCOUNT UNDER "WADIAH” represent deposits which are evidenced by a passbook and can be withdrawn upon presentation of a properly accomplished withdrawal slip together with the corresponding passbook. PILGRIMAGE SAVINGS PLAN (PSP) PSP is a type of savings deposit account under the “Wadiah Yad Dhamanah” (guaranteed safe- custody) principle available to customers to build up their savings to finance future Muslim pilgrimages As an Islamic investment Bank, the Bank may also engaged in issuance or assist the government in Islamic investment participation by issuance of investment participation certificates, muquaradah or sukuk (Islamic bonds), debentures, collaterals and/or the renewal or refinancing of the same, with the approval of the Monetary Board of the Central Bank of the Philippines, to be used in its financing operations for projects that will promote the economic development primarily of the Autonomous Region. As a Universal Bank, the Bank also offers developmental and car loans to private and public sector and other Islamic investment assistance. Islamic Finance A form of finance that is based on Shariah, or the body of Islamic Law -(Abdulla and Chee 2010) *Shariah – code of living that Muslims adhere to, covering all facets of life; based in the Holy text, Qur’an, the Traditions of Prophet Muhammad (pbuh), and legal interpretations based on these primary sources. covers belief, responsibilities and rights of man towards God and his fellow mankind. 78 Islamic Finance The term SHARIAH refers to a set of Islamic religious law that governs aspects of day-to-day life for Muslims in addition to religious rituals. Sharia law also provides religious followers with a set of principles and guidelines to help them make important decisions in their lives, such as finances and investments 79  Shari’ah Advisory Councils Islamic Banks shall constitute a Shari’ah advisory council composed of persons who are qualified in Shari’ah or who have knowledge or experience in Shari’ah and in banking, finance, law or such other related disciplines. The council shall render advice and review applications of Shari’ah principles, but it shall not involve itself directly in the operations of the Islamic bank or engage in any activity which may give rise to conflict of interest. 80 KEY PRINCIPLES IN ISLAMIC FINANCE Islamic Finance 1. Belief in Divine Guidance To remove harm/ease burden; fairness and justice Concept of reward and punishment; Hereafter 2. Explicit prohibition on Interest/Usury (Riba) 3. No haram (prohibited) investments or activities 4. Risk sharing is encouraged 5. Asset-backed financing 6. NOT for Muslims only EXPLICIT PROHIBITION ON INTEREST/USURY (RIBA) Riba (Interest): any increment on a loan due to delay of payment (rent on money); any excess without countervalue in exchanges (“ Exchange is like usury’, but Allah has permitted exchange and forbidden usury.” – Quran 2:275)  HOW DOES ISLAMIC BANKING EARN PROFIT? IF INTEREST/USURY IS NOT ALLOWED, HOW DO IFIS EARN PROFIT? Islamic Finance Operates contracts Contracts are based on purpose/necessary requirement (purchase of asset, construction, profit generation, etc.)  HOW DO IFIS EARN PROFIT? Islamic banks make a profit through equity participation, which requires a borrower to give the bank a share in their profits rather than paying interest MURABAHA OR COST PLUS SELLING: This is the most common product in asset portfolios and applies only to commodity purchase. Instead of taking out an interest loan to buy something, the customer asks the bank to purchase an item and sell to him or her at a higher price on installment. 87  Ijara or leasing Instead of issuing a loan for a customer to buy a product like car, the bank buys the product and then leases it to the customer. The customer acquires the item at the end of the lease contract. 88  Mudarabah or profit share An investment in which the bank provides 100% of the capital intended for the creation of a business. The bank owns the commercial entity and the customer provides management and labor. They then share the profits according to a pre- established ratio that is usually close to 50/50. If the business fails, the bank bears all the financial losses unless it is proven that it was the customer’s fault. 89  MUSHARAKAH OR JOINT VENTURE An investment involving two or more partners in which each partner brings in capital and management in exchange for a proportional share of the profits. 90 Wakala Wakala refers to a contract of agency or delegated authority in which the bank is appointed much like an individual agent to carry out a specific task on the customer’s behalf. The bank lends its expertise for a set duration for an agreed upon profit. 91 Wakala Wakala refers to a contract where a principal (or muwakkil) authorizes or appoints an agent (or wakeel) to do a well-defined legal action on his or her behalf. Wakala meaning in English is referred as “Contract of an Agency”. The wakalah in Islamic banking is about the provision of service, and main features of wakalah are service, representation and power to affect the legal position of the principal. 92 SALAM Salam could be considered forward- financing, or as a kind of debt – the institution pays for specified assets in advance, which the seller will then supply to a quality, quantity, and time the parties have pre-agreed. 93 Common Islamic Financial Transactions: Islamic Financial Services Industry  ISLAMIC BANKING Biggest component of the IF System Indirect financing mechanism/intermediation Offers deposit accounts: a) in lieu of interest, banks act as co-investor/manager of funds under profit-sharing scheme b) banks offer safekeeping service, and charge customers a fee  ISLAMIC BANKING Has financing portfolio: a) Banks offer financing contracts not based on money required b) In lieu of interest, banks earn mark-up profit on contracts of sale, rental income on lease, and profit shares in joint ventures Abides by same supervisory/regulatory authorities; liquidity and prudential standards Governance structure involves both BOD and a Shariah Board/Council  ISLAMIC AND CONVENTIONAL (INTEREST- BASED) FINANCIAL INSTITUTIONS SIMILARITIES DIFFERENCES *Purpose: intermediation, raising *Shariah compliance and capital, investment opportunities oversight *Objective: profit; investment; growth (RA 11439, Section 5) *Halal ecosystem *Requirements: governance and transparency; general public acceptance TAKAFUL OR INSURANCE Sharia-compliant insurance companies offer products comparable to conventional insurance companies and functions like a mutual fund. Instead of paying premiums, participants pool money together and agree to redistribute it to members in need according to pre-established contracts. The common pool of money is run by a fund manager. The fund can be run in different ways when it comes to the surplus distribution and the fund manager’s compensation. THANK YOU