(Chapter 6) Weitage and its calculation & PSR/ISR

Weightage: Meaning & Factors.

Weightage	:	Weightage means preference of one product in comparison to other product. On the other hand we can say weightage means giving the value of the specific or particular matter / subject higher or lesser than that of / in comparison to similar one.
Factors of Weightage	:

i)                     The more risk, the more weightage. (Customer’s point of view)

ii)                   The longer the period, more the risk. (Customer’s point of view)

iii)                  More the uses of Bank’s facility, less the weightage.

iv)                 Less the Uses of Bank’s facility, more the benefit weightage.

v)                   Moral Dimension / Ethical values

Weightage of Different Products

:

Weightage.

                                Types of A/C.

i)	AWCA	Tk.100	= 0
ii)	SND	Tk.1.00	= 0.55
III)	MSA	Tk.1.00	= 0.75
iv)	MTDR (36Month)	Tk.100	= 1.00
v)	Mudarabah Hajj deposit		= 1.30 (Up to 10 Years)
	Tk.100 above 10 years		= 1.35 (Above to 10 Years)
vi)	MSS	Tk.100	= 1.10 (5 years) = 1.30 (10 years)

Islamic Financial System:

	Distribution of Profit to Mudaraba Depositors:
	The Principles of calculation and distribution of profit to Mudaraba Depositors generally followed by different Islami Banks are as under:
	Mudaraba Depositors share income derived from investment of their fund.
.	Mudaraba Depositors do not share any income derived from miscellaneous banking services where use of their fund is not involved, such as commission, exchange, service charges and other fees realized by the Bank.
	Mudaraba Deposits get priority in the matters of investment over Bank’s equity and other cost free funds.
	The gross income derived from investments during the accounting year is, at first, allocated to Mudaraba Deposits and Equity & cost-free-funds according to their proportion in the total investment.

	Let us suppose that an Islami Bank applies the following weightages to Mudaraba Deposits.
	a) Mudaraba Hajj Savings Deposit                                            110%
	b) Mudaraba Term Deposits 36 Months                                     100%
	24     “	98%
	12 “	96%
	06 “	92%
	03 “	88%
	c) Mudaraba Savings	75%
	d) Mudaraba Short Notive	55%

 Commercial Banking under Islamic Framework

	On the basis of the above principles, let us work out the rates of profit using the information and figures given below:
	a) Total Investment	Tk. 1000
	b) Total Investment Income	Tk. 150
	c) Total fund employed
	i) Banks equity and Al-Wadeeah Deposits	Tk. 200
	ii) Mudaraba Deposit will be	Tk. 800 Tk. 1000
	Therefore the share of investment income of Mudaraba Deposit will be (150¸1000x800)	120.00
	Less:
	a) 20% Management Fee	Tk. 24.00
	b) 15% Loss Off-setting Reserve	Tk. 18.00 Tk. 42.00
Distributable Investment Income		Tk. 78.00

Sl.	Type of Mudaraba Deposit	Yearly Product	Weightage %	Weighted Product	Share of Distributable Profit	Rate of Profit
1	2	3	4	5	6	7
1	Mudaraba Hajj Savings	120	110	132.00	14.05	11.71%
2	Mudaraba Term Deposit
	36 Months	100	100	100.00	10.64	10.64%
	24 Months	110	98	107.80	11.48	10.44%
	12 Months	80	96	76.80	8.18	10.22%
	06 Months	125	92	115.00	12.24	9.79%
	03 Months	95	88	83.60	8.90	9.37%
3	Mudaraba Savings	120	75	90.00	9.58	7.98%
4	Mudaraba Short Notice	50	55	27.50	2.93	5.86%
TO                           Total		800		732.70	78.00

Which is Better for Mercantile Bank PLC (MBL-Taqwa)?

This is a strategic question. The truthful answer is that PSR and Weightage are not alternatives — they are complementary. PSR cannot be replaced by Weightage or vice versa. However, in terms of which system gives MBL-Taqwa more operational leverage and competitive advantage, the analysis is as follows

Factor	Weightage System	PSR
Flexibility	HIGH — bank can adjust per product without touching PSR	LOW — BB mandates 65% floor; changing PSR is broad
Deposit mix management	Strongest tool — raise weightage for 36M MTDR to attract long-term stable funds	Does not differentiate by product
Competition management	Can fine-tune returns per product to compete with other IBWs (IBBL, UCB Taqwa etc.)	Uniform adjustment; cannot target specific products
Asset-Liability Management	Incentivizes longer-tenor deposits = stable funding for longer investment cycles	Neutral across all tenors
Depositor trust	Moderate — depositor must trust the bank sets fair weightages	HIGH — ratio is transparent and pre-agreed
Regulatory compliance	Both comply with BB guidelines equally	Both comply with BB guidelines equally
Shariah acceptability	Accepted — widely used across IBBL, SIBL, MBL-Taqwa etc.	Core Mudaraba contract requirement
Income smoothing tool	Limited — more of a structural differentiator	PER works alongside PSR for income smoothing