Annual Report 2008 Deriving Strength from Stability Foreword By the grace of Almighty Allah, 2008 marks yet another year of achievements for Meezan Bank. Our outstanding performance has continued, with 2008 seeing the establishment of our 166th branch (including 35 sub-branches) across Pakistan. It is fitting that this year’s annual report is a tribute to nature- where, like Meezan Bank, change is omni-present. In both cases, the change is derived from development and growth and those who derive their strength from the basic elements of nature succeed in the long-run. In nature, the passing of seasons brings changes of colors, hues and scents; admiration of and adaptability to this change enables one to gain the most out of the treasures nature has to offer. At Meezan Bank, the passing seasons have seen us grow and develop from being the first Islamic Bank in Pakistan to being the largest. However, as we continue to grow, our ideals and beliefs remain the same: the purity that we see in nature forms the basis of our core banking values and we remain committed to ensuring pure Islamic Banking as we continue our journey towards the realization of our Vision and Mission. As you peruse our annual report, join us in our tribute to nature - a celebration of strength that comes from absolute purity. 01 Deriving Strength from Stability 02 Finding Purity in Nature 03 04 Contents Vision 06 Mission 07 Key Corporate Values 08 Core Values 10 Shariah Strength 12 Comprehensive Business Solutions 13 Largest Branch Network 14 Financial Backing 15 Service Quality 16 Quaid’s Concept of Islamic Banking 17 Riba-free Banking Objectives 18 Key Figures at a Glance 22 Corporate Information 24 Meezan Team 26 History of Riba-Free Banking Pakistan 28 Chairman’s Review 30 Business & Operations Review 32 Directors’ Report to the Members 46 Annexure to the Directors’ Report 52 Statement of Value Added and Distributed 53 Allocation of Income and Expenses to Depositors’ Pool 54 Shariah Advisor’s Report 56 Shariah Advisor’s Report (Urdu) 63 Statement of Compliance with the Code of Corporate Governance 64 Review Report to the Members 66 Statement of Internal Controls 67 Notice of Annual General Meeting 68 Auditors’ Report to the Members 72 Balance Sheet 73 Profit & Loss Account 74 Cash Flow Statement 75 Statement of Changes in Equity 76 Notes to and Forming Part of the Financial Statements 77 Consolidated Financial Statements 133 Pattern of Shareholding 197 Categories of Shareholders 198 Correspondent Banking Network 199 Branch Network 206 Proxy Form 05 Our Vision Establish Islamic banking as banking of first choice to facilitate implementation of an equitable economic system, providing a strong foundation for establishing a fair and just society for mankind. 06 Our Mission To be a premier Islamic bank offering a one-stop shop for innovative value-added products and services to our customers within the bounds of Shariah, while optimizing the stakeholders’ value through an organizational culture based on learning, fairness, respect for individual enterprises and performances. 07 Key Corporate Values Core Values -Shariah Compliance, Integrity, Professionalism, Service Excellence, Social Responsibility Brand Personality -A sober and established, strong, empathic, professional person; who is an extremely loyal and dependable friend and business partner, and is committed to offering comprehensive value-based Shariah compliant financial solutions. 08 Staff - Committed, motivated and professionally trained employees who are empathic to their customer’s needs. Relationships -Are long term with Meezan Bank. We recognize and value our customers’ needs and strive to ensure their fulfillment. All customers are treated professionally and in a friendly manner. It is our endeavour to ensure that they receive efficient and timely service. The Meezan Bank experience is a unique one. 09 Core Values 10 Shariah Strength Comprehensive Business Solutions Largest Branch Network Financial Backing Service Quality 11 Shariah Strength The members of the Shariah Board of Meezan Bank are internationally renowned scholars serving on the Boards of many Islamic banks operating in different countries. The members of the Shariah Board are: 1. Justice (Retd.) Muhammad Taqi Usmani (Chairman) 2. Dr. Abdul Sattar Abu Ghuddah 3. Sheikh Essam M. Ishaq 4. Dr. Muhammad Imran Usmani Justice (Retd.) Muhammad Taqi Usmani is a renowned figure in the field of Shariah, particularly Islamic Finance. He holds the position of Deputy Chairman at the Islamic Fiqh Academy, Jeddah and Chairman of the Accounting and Auditing Organization for Islamic Financial Institutions. He is the Deputy President of Jamia Darul-Uloom, Karachi. He is also a member of Shariah advisory boards of a number of financial institutions practicing Islamic Banking and Finance including Abu Dhabi Islamic Bank, Dubai Bank, European Islamic Investment Bank and Dow Jones Islamic Index. He has been teaching various subjects on Islam for 39 years. He also served as a Judge in the Shariat Appellate Bench, Supreme Court of Pakistan. Justice (Retd.) Muhammad Taqi Usmani holds an LLB from Karachi University. He completed his M.A. in Islamic Studies from Punjab University in 1970. Prior to that, he completed Alimiyyah & Takhassus course i.e. the specialization course of Islamic Fiqh and Fatwa (Islamic Jurisprudence) from Jamia Darul-Uloom, Karachi. He is also editor-in-chief of monthly Al-Balagh magazine and the author of more than 100 books in different subjects of Islam, particularly on Tafseer, Hadith, Fiqh and Islamic Finance. Dr. Abdul Sattar Abu Ghuddah holds positions of Shariah Advisor and Director, Department of Financial Instruments at Al-Baraka Investment Co. of Saudi Arabia. He holds a Ph. D in Islamic Law from Al Azhar University Cairo, Egypt. He is an active member of Islamic Financial Institutions. Dr. Abdul Sattar teaches Fiqh, Islamic Studies and Arabic in Riyadh and has done a valuable task of researching and compiling information for the Fiqh Encyclopedia in the Ministry of Awqaf and Islamic Affairs in Kuwait. He was member of the Fatwa Board in the Ministry from 1982 to 1990. Sheikh Essam M. Ishaq graduated in Political Science from McGill University, Montreal, Canada. Currently he is teaching Fiqh and Aqeeda courses in UAE and Bahrain at Umm Al-DarDa’ Islamic Centre. He holds the position of Shariah Advisor at Discover Islam, Bahrain. He also serves as an advisor/ member of Shariah Boards in a number of Islamic banks and Islamic financial institutions. Muhammed Imran Usmani, son of Justice (Retd.) Mufti Muhammad Taqi Usmani, holds LLB, M.Phil, and PhD in Islamic Finance and graduated as a scholar (Alimiyyah Degree) and Takhassus (Specialization) in Islamic Fiqah and Fatwa from Jamia Darul-Uloom, Karachi. Since the inception of Meezan Bank he is the in-house Shariah Advisor and Head of Product Development and Shariah Compliance Department of Meezan Bank, where he supervises in-house training for the different Courses, Audit and Compliance, R&D and advisory for Shariah based banking. Dr. Usmani has been serving as lecturer/teacher of different subjects of Shariah and as an administrator of some divisions of Jamia Darul-Uloom, Karachi since 1990 and is a visiting Faculty member of MBA/PhD students of Karachi University and IBA. He has also been leading Friday Khutbah and prayer at a Jamia Mosque for 19 years. Dr. Usmani serves as an advisor/member of Shariah Boards of the State Bank of Pakistan, HSBC Amanah Finance, Guidance Financial Group USA, Lloyds TSB Bank UK, Japan Bank for International Cooperation (JABIC), Credit Suisse Switzerland, RBS Global, Future Growth Albarakah Equity Fund South Africa, AIG Takaful, ACR Retakaful Malaysia, Capitas Group USA, Bank of London and Middle East Kuwait, BMI Bank Bahrain, Al Khaliji Bank Qatar, Sarasin Bank Switzerland, DCD Group Dubai, other Mutual and Property funds and International Sukuk. He is also an advisor of International Islamic Financial Market (IIFM) Bahrain and International Centre for Education in Islamic Finance (INCEIF) Malaysia. Dr. Usmani is also an author of many books related to Islamic Finance and other subjects of Shariah. He has been presenting papers in many national and international seminars and has also delivered lectures in various academic institutions namely Harvard, LSE, IBA, LUMS etc. 12 Comprehensive Business Solutions Meezan Bank has one of the largest offering of Shariah driven products and services under one roof. The Bank has developed an extraordinary research and development capability by combining investment bankers, commercial bankers, Shariah scholars, legal experts and product users that has led to the introduction of many products which satisfy business needs and meet world class service standards. Some of the products and services are: Corporate and Commercial Banking Murabaha Import & Export Facilities Musharakah Guarantees Diminishing Musharakah Islamic Export Refinance Ijarah Bai Salam Mudarabah Usance Bill Murabaha Istijrar Import Financing Istisna Tijarah Investment Banking and Shariah Advisory Services Syndications and Sukuk Structuring Mergers & Acquisitions Project Financing Conventional Bank Conversion Advisory Service Private Equity and Financial Advisory Islamic Banking Training Retail Banking Rupee Saving Account Certificate of Islamic Investment Current Account Monthly Mudarabah Certificate Dollar Saving Account Dollar Mudarabah Certificate Karobari Munafa Account Meezan Aamdan Certificate Meezan Islamic Institution Deposit Account