Investment Mechanism of Islami Bank Bangladesh
Investment Mechanism of Islami Bank Bangladesh
Investment Mechanism of Islami Bank Bangladesh
BANGLADESH
Submitted By
Md. Sagor Ahmed
Rumana Pervin
Fatema Mary
Nabila Binta Ahmed
Rajia Sultana
Nimai Chandro
Jannat Ara Sharmin
All- Mamun
Acknowledgement
Firstly, we would like to express my grateful thanks to the Almighty ALLAH for enabling us to
complete this report successfully.
It is our great privilege to express my gratitude to the almighty to give me the great opportunity
to complete the internship program and to conduct this study under the supervision of Nazneen
Fatema Assistant Professor & Internship supervisor, Department of Business Administration,
International Islamic University Chittagong, Dhaka Campus
I also have to put my heartfelt gratitude for his kindness and guideline during the period of
internship to complete my assigned report as on the topic Investment mechanism of IBBL.
In preparing the proposed report we have taken great assistance support and guidance from the
persons of Islami Bank Training and Research Academy (IBTRA) and Dhanmondi branch of
IBBL.
We express my heart full thanks to all the faculty members of Islami Bank Training and Research
Academy (IBTRA), especially thanks to Sikder Md.Shehabudin,( senior vice presendent ),
Mahmuda Sultana,CDCS(Assistant vice presedent& Manager Operations) ,Md. Abu Taher
Talukder (Offcer) , Dhali Sajjad Ahmed, Officer, Md.Sazzad Hossain,
Dhanmondi branch and other faculty members as well as all the employees from top to bottom of
IBTRA, who gave me necessary information and excellent guidance to prepare this internship
report.
Finally, there is the most important acknowledgement of all we feelings for & gratitude to our
parents, who are the foundation of my life.
Executive Summary
Islami Bank Bangladesh Ltd. (IBBL) started commercial operation on March 30, 1983 under the
ambit of Banking Companys Ordinance 1962 later on the Banking Companies Act, 1991 as the
first interest free Shariah based commercial bank with an objective of catering Islamic
Shariah based financial products. At present IBBL is operating with286 Branch different areas of
the country. In conventional bank the investor is assured of a predetermined rate of interest
whereas, IBBL promotes risk sharing between providers of capital (investor) and the user of
funds (entrepreneur).
This internship report is prepared as a partial fulfillment for the BBA program of the Faculty of
Business under International Islamic University Chittagong Dhaka Campus.
The report is prepared on Investment mechanism of IBBL. Title Investment mechanism of
IBBL.
This report focuses three months theoretical & practical working experiences in investment
mechanism of IBBL. This report will give a clear idea about investment mechanism of Islami
Bank Bangladesh Limited.
The main focus of this report is to show in which sector they invest and the way/ mode of their
investment. This report contains seven main parts. First part is introductory part.
Second part is Islami Banking Industry of Bangladesh. In the parts of this report a detail
description of IBBL of their history, distingue of conventional banking & Islamic banking.
Third part is overview of Islami Bank Bangladesh of Limited of their mission , vision, paid up
capital, product & service , principal activities, and Achievement.
Fourth part is modes of investment mechanism of IBBL. It contains most important part of this
report, here I tried to input overall performance of the whole sector they invest and also the way/
of their investment mode.
IBBL has their own modes and schems and they have enough capital for investing. But, because
of their rules and regulation they are failed to invest in all the banking sectorless than the
conventional bank.
Investment process should be make easier than conventional banks and they have to make their
investment schemes more attractive for availing high return.
So, overall investment performance of IBBL is increasing day by day. Because most of the
people in our country are religious minded and they want to invest their money according to
Islamic Shariah. Moreover people of all walks of life can easily transact with IBBL comparing to
other commercial private banks in the country.
Table of content
Chapte
r
Particulars
Letter of Transmittal
Acknowledgement
Executive Summary
Acronyms
One
Introduction
1.1 Origin of the report
1.2 Objectives of the study
1.3 Scope of the report
1.4 Methodology
1.5 Limitations of the study
Two
Three
Four
Bai Mudarabah
33
4.6.2
Bai- Muajjal
37
4.6.3
Bai- Salam
39
4.6.4
Bai Murabaha
42
4.6.5
Bai- Musharakah
Five
46
52
SWOT analysis
5.1 SWOT analysis
5.2 Strength
5.3 Weakness
5.4 Opportunities
5.6 Threats
Six
Seven
Findings
Findings
Conclusion & Recommendations
Conclusion
Recommendations
Reference
Bibliography
Elaboration
Authorized Dealer
ATM
BB
BEFTN
CD
C&F
CSR
CIB
CRR
EIBS
FDI
FBP
HBIS
IBBL
IBP
IBTRA
IDB
L/C
MPI
MICR
OBC
PAD
RDS
SWIFT
TD
Introduction
1.1 Origin of the Report
Todays business world is continuously changing. The operation of business is getting complex
in every moment. That is why, today, the management of any business activity requires so much
expertise from the part of its employees. The business graduates are the core part of
investment scheme, rural development scheme, etc. This report is confined to only this bank
other than conventional bank.
1.4 Methodology
Mainly we have collected data from two sources. These two sources are Primary sources &
Secondary source.
Direct observation.
Investment outlook.
Other manual information from Islamic Bank Training and Research Academy
(IBTRA).
Islamic Banking
Industry of
Bangladesh
2.1 Concept of Islamic Banking
In the Islamic banking system the bank receives no interest. In this case Islamic Bank receives its
entire deposits from the investment of the clients on the basis of profit-sharing places it to the
actual entrepreneurs on the basis of the profit sharing. So, it is clear that in case of the traditional
banking systems, a fixed percentage of interest, irrespective of income earned is paid to the
depositors. The depositors of Islamic Banking are never deprived of excess income, which the
bank may make at the end of year. Not only has this traditional bank given fixed interest rate
even when they incur operational loss. The critics of Islamic banking system are of the opinion
that both are found same in terms of deposits mobilization and advances investment.
The Organization of Islamic conference (OIC) defined an Islamic Bank as a financial institution
whose statutes, rules and procedures expressly state its commitment to the principles of Islamic
Shariah and to the banning of the receipt and payment of interest on any of its operations.
Ziauddin Ahmed says, Islamic bank is essentially a normative concept and could be defined as
conduct of banking in consonance with the ethos of the value system of Islam.
It appears from the above definitions that Islamic bank is systems of financial intermediation that
avoids receipt and payment of interest in its transactions and conducts its operations in a way that
it helps achieve the objectives of an Islamic economy. Alternatively, this is banking system
whose operation is based on Islamic principles of transactions of which profit and loss haring
(PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic bank is
often known as PLS-banks.
Islamic bank is essentially a normative concept & could be defined as conduct of banking in
consonance with the ethos of the value system of Islam. The period 1930 to 1940 is considered
as the period of Philosophical foundation of Islamic Banking.
Islamic banking
The functions and operating modes of Islamic
banks are based on the principles of the Islamic
shariah.
In contrast, it provides risk sharing between
the provider of the capitol (investor) and the
users of the fund (entrepreneur)
The scholar of the recent past in early fifties started writing for Islamic Banking in place of
Interest Free Banking. In the next two decades Islamic Banking attracted more attention.
Early seventies saw the institutional involvement. Conference of the Finance Ministers of the
Islamic Countries was held. The involvement of institutions and Government led to the
application of theory to practice and resulted in the establishment of the Islamic Banks. In this
process the Islamic Development Bank (IDB) was established in 1975.
The coming into being of Islamic Banks:
The first private Islamic Bank, the Dubai Islamic Bank was also set up in 1975 by a group of
Muslim businessmen from several countries. Two more private banks were founded in 1977
under the name of Faisal Islamic Bank in Egypt and Sudan. In the same year the Kuwaiti
Government set up the Kuwait Finance House.
In the ten years since the establishment of the first private commercial bank in Dubai, more than
50 Islamic Banks have come into being. Though nearly all of them are in Muslim countries, there
are some in Western Europe as well: in Denmark, Luxembourg, Switzerland and the UK.
In most countries the establishment of Islamic banking had been by private initiative and was
confined to that bank. In Iran and Pakistan, however, it was by government initiative and covered
all banks in the country. The Governments in both these counties took steps in 1981 to introduce
Islamic Banking.
The world most famous Islamic Banks are:
Al Rajhi Co.
banks & 2 foreign commercial banks started Islamic Banking operations in our country. Also 4
conventional banks have started window based Islamic banking operations here.
Now in our country total 48 banks are giving banking service and among them 7 Islamic banks
with their market share of 14.58% are operating successfully. Their amount of deposits covers
17.27% of total amount of all banks & investment covers 18.89% of total investment of all
banks. There are 3 institutions which set rules & guides Islamic banking operations in
Bangladesh. Those are as follows;
Legal form
Date of incorporation
13thMarch, 1983
Inauguration of 1stbranch
Formal inauguration
12thAugust, 1983
Share of Capital
Local Shareholders
42.12%
Foreign Shareholders
58.03%
Authorized Capital
Tk.20,000.0Million
Paid-up Capital
Tk.
14636.28 Million
Deposits
Tk.
(Provisional)
Investments (including Investment in Shares)
417,844.17
Million
Export
Remittance
Tk.300,915
Million (Provisional)
286
Number of Branches
Number of SME Service Centers
Total Branches
30
316
Number of AD Branches
43
Number of Shareholders
63,001
Manpower
11,465
In the late seventies and early eighties, Muslim countries were awoken by the emergence of
Islami Bank which provided interest free banking facilities. There are currently more than 300
interest free institutions all over the world. Islamic Bank now a days not only operate in almost
all Muslim countries but have extended their wings to the western world to serve both Muslim
and non Muslim customers. In case of Islami Banking, the establishment of Mitghamar Local
Savings Bank in 1963 is said to be a milestone for modern Islami Banking. The history of Islami
Banking can nevertheless be traced back to the birth of Islam.
In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to
reorganize its economic and financial system as per Islamic Shariah (legal framework of Islamic
Ideology).
In 1978, Bangladesh recommended in Islamic Foreign Minister Conference in Senegal towards
systematic efforts to Islamic Banking.
In 1980, Foreign Minister Conference in Pakistan where Bangladesh Foreign Minister Prof.
Shamsul Hoq, proposed for taking steps for Islamic Banking.
Further, Bangladesh Bank sent representation abroad to study Islamic Banking System.
Also, International Seminar held in Dhaka inaugurated by Bangladesh Bank Governor for early
introduction of Islamic Banking.
In 1981, President of the Peoples Republic of Bangladesh addressed the 3rd Islamic Summit
Conference held at Makkah and Taif suggested, ''The Islamic countries should develop a separate
banking system of their own in order to facilitate their trade and commerce.'
In 1982, IDB visited Bangladesh for study. They found contributions done by Islamic Economics
Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA); they mobilized
the seminars, public opinion through symposia & workshop. Professional activities reinforced by
Muslim Businessman Society (now reorganized as Industrialists and Businessman Association).
The body mobilized mainly equity capital for emerging Islamic Bank. Finally, in 1983 Islami
Bank Bangladesh Limited (IBBL) came out to take the challenge of doing banking business.
Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in
Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability
under the companies Act 1913. The bank began operations on March 30, 1983, with major share
by the foreign entrepreneurs.
3.3 Mission
To establish Islamic Banking through the introduction of a welfare oriented banking system and
also ensure equity and justice in the field of all economic activities, achieve balanced growth and
equitable development in through diversified investment operations particularly in the priority
sectors and less developed areas of the country. To encourage socio-economic upliftment and
financial services to the loss-income community particularly in the rural area.
3.4 Vision
Our vision is to always strive to achieve superior financial performance, be considered a leading
Islamic Bank by reputation and performance.
Our goal is to establish and maintain the modern banking techniques, to ensure soundness
and development of the financial system based on Islamic principles and to become the
strong and efficient organization with highly motivated professional, working for the
benefit of people, based upon accountability, transparency and integrity in order to ensure
stability of financial systems.
We will also try to encourage investment particularly in projects which are more likely to
lead to higher employment
To emerge as a healthier & stronger bank at the top of the banking sector and continue
stable positions in ratings, based on the volume of quality assets.
To strive hard to become a employer of choice and nurturing & developing talent in a
performance-driven culture.
To ensure lucrative career path, attractive facilities and excellent working environment.
To train & develop human resources continuously & provide adequate logistics to
satisfy customers need.
To promote using solar energy and green banking culture and ecological balancing.
Investment based on profit: After departing from interest, the alternate ways of income for
Islamic bank is investment and profit. Thus IBBL gives up any transaction of interest and makes
investments based on profit. Bank distributes its profit to its depositors and shareholders.
Abolition of interest (Riba): Since Riba is prohibited in the Quran and interest in all its forms is
akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first
distinguishing feature of an Islamic bank must be that it is interest-free.
Adherence to public interest: Activity of commercial banks being primarily based on the use of
public funds, public interest rather than individual or group interest will be served by Islamic
commercial banks. The Islamic banks should use all deposits, which come from the public for
serving public interest and realizing the relevant socio-economic goals of Islam. They should
play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves to
the different needs of the Islamic economy.
Multi-purpose bank: Another substantial distinguishing feature is that Islamic banks will be
universal or multi-purpose banks and not purely commercial banks. These banks are conceived
to be a crossbreed of commercial and investment banks, investment trusts and investment
-management institutions, and would offer a variety of services to their customers. A substantial
part of their financing would be for specific projects or ventures. Their equity-oriented
investments would not permit them to borrow short-term funds and lend to long-term
investments. This should make them less crisis-prone compared to their capitalist counterparts,
since they would have to make a greater effort to match the maturity of their liabilities with the
maturity of their assets.
More careful evaluation of investment demand: Another very important feature of an Islamic
bank is its very careful attitude towards evaluation of applications for equity oriented financing.
It is customary that conventional banks evaluate applications, consider collateral and avoid risk
as much as possible. Their main concern does not go beyond ensuring the security of their
principal and interest receipts. Since the Islamic bank has a built in mechanism of risk sharing, it
would need to be more careful in how it evaluates financing requests. It adds a healthy
dimension in the whole lending business and eliminates a whole range of undesirable lending
practices.
renowned lawyers and eminent economists. The Shariah Supervisory Committee of IBBL gives
opinions and guidelines to implement and comply of Shariah principles in all activities of the
Bank particularly in the modes of investment. The Committee is governed by a bye-laws
approved by the Board of Directors.
As part of major responsibilities of the Committee Shariah, inspections is also conducted in all
the branches under its direct supervision to ensure Shari`ah compliance in all activities of the
Bank.
Serial no.
No. of branches
Dhaka Division
86
01
15
02
21
03
26
04
Corporate Branches
04
05
Mymensingh Zone
20
Chittagong
Division
80
06
18
07
22
08
Comilla Zone
21
No. of
SME/Agriculture
branches
08
09
09
Noakhali Zone
19
Khulna Division
10
Khulna Zone
03
26
Sylhet Division
11
Sylhet Zone
02
20
Rangpur Division
12
01
Rangpur Zone
17
Rajshahi Division
34
13
Rajshahi Zone
17
14
Bogra Zone
17
06
Barisal Division
15
Barisal Zone
Total
01
23
286
30
67.50 million in 1983. The Reserve Fund of the Bank has been increasing steadily. on 31st
December 1983, it was Taka 0.36 million and stood at:
Date
31-12-2012
Amount
12,509.64 million
31-12-2011
10,007.71 million
31-12-2010
7,413.12 million
31-12-2009
6,177.60 million
31-12-2008
4,752.00 million
31-12-2007
3,801.60 million
31-12-2006
3,456.00 million
31-12-2005
2,764.80 million
31-12-2004
2,304.00 million
31-12-2003
1,920.00 million
31-12-2002
640.00 million
31-12-2001
640.00 million
31-12-2000
320.00 million
Current account is operated on Al-Wadeah Principle and all other deposit accounts on Mudaraba
principle of Islamic Shari'ah. The bank distributes minimum of 65% of its investment-income
earned through deployment of the Mudaraba deposits among the Mudaraba depositors.
Investment modes: The special feature of the Investment Policy of the Bank is to
invest on the basis of profit-loss sharing system in accordance with the tenets and
principles of Islamic Shari'ah. Earning of profit is not the only motive and objective of
the Bank's Investment Policy rather emphasis is given in attaining social goal and
objective in creating employment opportunities.
Bai-Murabaha
Bai-Muajjal
Mudaraba
Musharaka
Bai Salam
Under consumer financing, the Bank finances to the individuals for meeting their personal family
and household needs. The Bank has taken up various welfare oriented investment Schemes
Investment Scheme
Remittance Card
Rural Development Scheme: Islami Bank Bangladesh Limited launched its Rural
Development Scheme (RDS) in 1995. In the mean time, 197 Branches of the Bank have
been operating the activities of the Scheme in their respective areas. These Branches are
working among the poor in 15,370 villages covering 1251 unions under 392 Thanas of
61 districts of the country. Present number of members is 5, 01,941 since beginning the
scheme. The members are provided investment facilities an amount of BDT 28,100.10
million ($ 407.25m) up to 30-06-2012 against which the outstanding was BDT 4,320.41
million ($ 62.61m). Rate of recovery of the Scheme is more than 99%.
Locker Service: IBBL safe deposit locker service offered from select branches gives
you a completely secured facility for safekeeping of precious items, confidential
documents and other valuables.
Services:
Personalized service
Parcel handling
Charges:
The rent may be conveniently paid from your deposit account with us.
Direct debits for locker rentals from your account rid you of the hassles
in writing out cheques.
Others Services:
SMS banking
VISA card
As per guidelines given by Bangladesh Bank, the bank has by this time
manuals on:
South Asian Federation of Accountants (SAFA) awarded IBBL as joint Winner in the
Corporate Governance Disclosure Award-2010.
South Asian Federation of Accountants (SAFA) also awarded IBBL with Certificate of
Merit in Banking Sector in the Annual Report for the year 2010.
The Institute of Chartered Accountants of Bangladesh (ICAB) awarded IBBL with 3rd
position under the catergory-1, banking in the best published accounts and reports for the
year 2010, the Certificate of Appreciation for the year 2001 & 2010 and Certificate of
Merit for the year 2008.
The Global Finance, a reputed U.S.A. based quarterly Financial Magazine, awarded
IBBL as the best Islamic Financial Institution of the country for the years 2008, 2009,
2010 & 2011. The Global Finance also awarded IBBL as the best bank of the country for
the year 1999, 2000, 2004 and 2005.
ICICI Bank, Hong Kong, awarded IBBL as The Quality Recognition Award-2009 for
U.S. Dollar Clearing (2009).
Bankers Forum awarded IBBL as the Best Bank for Corporate Social Responsibility for
2008 and 2009.
The Bank-Bima Patrika, a Fortnightly Magazine, awarded IBBL as the Best Islami
Banking Award 2007.
Exclusive economic weekly The Industry awarded IBBL as the Best Rated Bank
Award-2010.
The Citi Bank NA awarded IBBL as the Largest Contributor in Foreign Trade
Operations in Europe- Bangladesh corridor in 2009.
The UAE Exchange awarded IBBL for mobilizing around 30% of total foreign
remittance of the country.
Investment Mechanism of
IBBL
4.1 Investment
Investment is the action of deploying funds with the intention and expectation that they will earn
a positive return for the owner. Funds may be invested in either real assets or financial assets.
When resources are used for purchasing fixed and current assets in a production processor for a
trading purpose, then it can be termed as real investment. Specific examples of financial
investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds
or stock in a company. Since Islam condemns hoarding savings and a 2.5 percent annual tax
(Zakat) is imposed on savings, the owner of excess savings, if he is unable to invest in real
assets, has no option but to invest his savings in financial assets.
The special feature of the Investment Policy of the Bank is to invest on the basis of profit-loss
sharing system in accordance with the tenets and principles of Islamic Shari'ah. Earning of profit
is not the only motive and objective of the Bank's Investment Policy rather emphasis is given in
attaining social goal and objective in creating employment opportunities.
Modes of finance followed by Islami bank are exercised under three principles.
To invest in the form of goods and commodities rather than give out cash money to the
investment clients
To extend co-operation to the poor, the helpless and low income group for their economic
uplift.
Liquidity of investments.
is not the only motive and objective of the Bank's Investment Policy rather emphasis is given in
attaining social goal and objective in creating employment opportunities.
As investment policy the banks top priority has been given toward the industrial development of
the country. The banks investment portfolio is gradually being increased towards industrial
finances along with commercial investment.
Definition:
Bai-Murabaha may be defined as a contract between a Buyer and a seller under which the seller
sells certain specific goods p0ermissible under Islamic Shariah and the Law of the land to the
Buyer at a cost plus agreed profit payable on cash or on any fixed future date in lump- sum or by
installments. The profit marked-up may be fixed on lump sum or in percentage of the cost price
of the goods. There are different types of Murabaha as given bellow:
Types of Murabaha:
In respect of dealing parties Bai-Murabaha may be of two types.
1. Ordinary Bai-Murabaha: Ordinary Bai-Murabaha happens between the two parties, i.e., the
buyer and the seller, where the seller as an ordinary trader purchases the goods from the market
without depending on any order and promises to buy the same from him and sells those to a
buyer for cost plus profit, then the sale is called ordinary Bai-Murabaha. In this case the seller
undertakes full risks of his capital invested on the business with a view to earn profit out of
selling the goods purchased for.
2. Bai-Murabaha on order and promise: It occurs between the three parties- the buyer, the
seller and the Bank - as an intermediary trader between the buyer and the seller, where the Bank
upon receipt of order from the buyer with specification and a prior outstanding promise to buy
the goods from the bank, purchases the ordered goods and sells those to the ordering buyer at a
cost plus agreed profit, the sale is called 'Bai- Murabaha on order or promise', generally known
as Murabaha. In this case, capital with profit is almost secured by promise.
This Murabaha upon order and promise is generally used by the Islami Banks, which undertakes
the purchase of commodities according to the specification requested by the clients and sale on
Bai- Murabaha to the one who order for the goods and promised to buy those for its cost price
plus a marked-up profit agreed upon previously by the two parties, the Bank and the client.
Therefore, it is a sale of goods on profit by which ownership of the goods is transferred by the
Bank to the client but the payment of the sale price (cost plus profit) by the client is deferred for
a fixed period.
To make it more clear, it may be noted here that Islamic Bank is financier to the client not in the
sense that the bank finances the purchase of goods by the clients as conventional Bank does,
rather it is a financier by deferring the receipt of sale price of the goods sold by the Bank to the
client. There is a chance for happening of a loan and earning of interest under the wrong practice
of Bai-Murabaha.
If the bank does not purchase the goods or does not make any purchase agreement with seller
under this Agreement of Bai-Murabaha that will be a remittance of the amount on behalf of the
client, which shall be nothing but a loan to him and any profit on this amount shall be nothing
but Interest (Riba that are practiced in the traditional Banking system).
Therefore, to make a true practice of Bai-Murabaha, purchase of goods by the Bank should be
for and on behalf of the Bank and the payment of price of goods by the Bank must be made for
and on behalf of the Bank. But on any way, the payment of price of goods is turned into a
payment for and on behalf of the client or it is paid to the client any profit on it will be Reba
(Interest that is allowed in traditional banking system but not allowed in the Islami Banking
system because Islam prohibits all kind of interest.
Important Features:
It is permissible for the client to offer an order to purchase particular goods by the Bank dealing
its specification and committing himself to buy the same from their bank on Murabaha. I.e. Costplus agreed upon profit.
It is permissible to make the promise binding upon the client to purchase from the Bank that is he
is to either satisfy the promise or to indemnify the damages caused by breaking the promise
without excuse.
It is permissible to take cash/collateral security to guarantee the implementation of the promise
or to indemnify the damages.
It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor or a
mortgage or both like any other debt is permission. Mortgage/ Cash Security may be obtained
prior to the signing of the Agreement or at the time of signing the Agreement.
Stock and availability of goods is a basic condition for signing a Bai-Murabaha agreement.
Therefore, the Bank must purchase the goods as per specification of the client to acquire
ownership of the same before signing the Bai-Murabaha agreement with the client.
After purchase of goods the Bank must bear the risk of goods until those are actually sold and
delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those
on Bai-Murabaha to the client buyer, the bank shall bear the consequences of any damages or
defects, unless there is an agreement with the client releasing the Bank of the defects that means,
if the goods are damaged, bank is liable, of the goods are defective (defect that id nor included in
the release) the bank bears the responsibility. The bank must deliver the specified goods to the
Client on specified date and at specified place of delivery as per Contract.
The Bank shall sell the goods at a higher price (Cost +Profit) to earn profit. The cost of goods
sold and profit mark-up therewith shall separately and clearly be mentioned on the BaiMurabaha agreement. The profit mark-up may be mentioned in lump sum or in percentage of the
purchase/cost price of the goods. But under no circumstances, the percentage of the
purchase/cost price of goods. But under no circumstances, the percentage of the profit shall have
any relation with time or expressed in relation with time, such as per month, per annum, etc.
The price once fixed as per agreement and deferred cannot be further increased.
It is permissible for the bank to authorize any third party to buy and receive the goods on Bank's
behalf the authorization must be in a separate contract. These features make Bai-Murabaha
identical from all other modes of Islamic Investment. There are certain steps to accomplish a deal
of Bai- Murabaha as shown below.
Second step:
Signing a promise to purchase: The client promises to buy the commodity from the bank on
Bai-Murabaha basis (for the cost of the commodity plus the agreed upon profit).The Bank
studies the request and determines the securities with terms and conditions for approval.
Third step:
The first sale contract: The bank informs the client of its approval of purchasing the
commodity. The bank may pay the price immediately pr as per the agreement.
The seller expresses its approval to the sale and sends the invoice.
Fourth step:
Signing of a Murabaha Sale Contract: Two parties (the bank and clients) sign the BaiMurabaha sale contract according to the agreement of the promise to purchase.
Fifth Step:
Delivery and Receipt of the commodity:
The Bank authorizes the client or his nominee to receive the commodity the seller sends the
commodity to the place of delivery agreed upon. The client undertakes the receipt of the
commodity in its capacity as legal representative and notifies the bank of the execution of the
proxy.
Definition:
The Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the
seller sells certain specific goods (permissible under Shariah and law of the country), to the
Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a
fixed period by fixed installments. The seller may also sell the goods purchased by him as per
order and specification of the buyer.
Bai-Muajjal is treated as a contract between the bank and the client under which the bank sells to
the client certain specific goods, purchased as per order and specification of the client at an
agreed price payable with in a fixed future date in lump sum or by fixed installments.
Thus it is a credit sale of goods by which ownership of the goods is transferred by the bank to the
client but the payment of sale price by the client is deferred for a fixed period.
It may be noted here that in case of Bai- Muajjal and Bai-Murabaha, the Islamic bank is a
financier to the client not in the sense that the bank finances the purchase of goods by the client,
rather it is a financier by deferring the receipt of the sale price of goods, it sells to the client. If
the bank does not purchase the goods or does not make any purchase agreement with seller but
only makes payment of any goods directly purchased and received by the client from the seller
under Bai-Muajjal / Bai-Murabaha agreement, that will be a remittance/ payment of the amount
on behalf of the client, which shall be nothing but a loan to the client and any profit on this
amount shall be nothing but interest.
There for, purchase of goods by the bank should be for and on behalf of the bank and the
payment of price of goods by the bank must be made for and on behalf of the bank. If in any way
the payment of price of goods is turned in to a payment for and on behalf of the client, or it is
paid to the client any profit on it will be Riba.
There are some important features of Bai- Muajjal as given bellow:
Important Features:
It is permissible for the Client to offer an order to purchase by the bank particular goods deciding
its specification and committing himself to by the same from the bank on Bai-Muajjal I.e.
deferred payment sale at fixed price.
It is permissible to make the promise binding upon the Client to purchase from the bank, i.e. he
is to either satisfy the promise or to indemnify the damages caused by breaking the promise
without excuses.
It is permissible to take cash/collateral security to guarantee the implementation of the promise
or to indemnify the damages.
It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a
mortgage or both like any other debt. Mortgage/ Guarantee/ Cash security may be obtained prior
to the signing of the Agreement or at the time of signing the Agreement.
Stock and availability of goods is a basic condition for signing a Bai- Muajjal Agreement.
Therefore, the Bank must purchase the goods as per specification of the client to acquire
ownership of the same before signing the Bai-Muajjal Agreement with the Client.
After purchase of goods the bank must bear the risk of goods until those are actually delivered to
the Client.
The Bank must deliver the specified goods to the Client on specified date and at specified place
of delivery as per contract.
The Bank may sell the goods at a higher price than the purchase price to earn profit.
The price once fixed as per agreement and deferred cannot be further increased.
The Bank may sell the goods at one agreed price, which will include both the cost price and the
profit. Unlike Bai- Murabaha, the bank may not disclose the cost price and the profit mark- up
separately to the Client.
Definition:
It is a sale in which an advance payment is made by the buyer, but the delivery is delayed to an
agreed date. In the Bai-Salam, a financial transaction happens in advance in cash as a price of
commodity whose delivery will be in a future date. It means deferred is the commodity sold
(debt in kind) and price of the commodity described is to be aid immediately in advance.
Important feature:
Bai-Salam is a mode of finance allowed by Islamic Shariah in which commodity or product can
be sold without having the said commodity or product either in existence or physical possession
of the seller. If the commodity is ready for sale Bai-Salam is not allowed in Shariah. Then the
sale may be done either in Bai-Murabaha or Bai-Muajjal mode of finance.
product(s)
can
be
sold
without
having
the
said
Generally, industrial and agricultural products are purchased/sold in advance under BaiSalam mode of investment to infuse finance so that product is not hankered due to
shortage fund/cash.
It is permissible to obtain collateral security from the seller client to secure the
investment
from
any
hazards
via
non-supply/partial
supply
of
commodity
It is also permissible to obtain Mortgage and /or Personal Guarantee from a third party as
security before the signing of the Agreement or at the time to signing the Agreement
The seller (manufacturer) client may be made agent of the Bank to sell the goods
delivered to the Bank by her provided a separate agency agreement is executed between
the bank and the client (agent).
a) The bank receives the commodity on the specific due date, and either for cash or on credit.
b) The bank can authorize the seller to sell the commodity on its behalf as against fees (or
without fees).
c) Direct the seller to deliver the commodity to a third part (the Buyer) according to pervious
promise of purchase that is at an emphatic demand of purchase.
3. The sale Contract: The bank agrees to sell the commodity for cash or a deferred price higher
than the Salam purchase price. The buyer agrees to purchase and to pay the price according to
the agreement.
Rules of Bai-Salam:
1. Commodity Should be Known: It is a condition that the commodity should be known
Ignorance about the commodity leads to dispute which invalidates the contract.
2. Monitoring By Specification: It is a condition that the commodity can be monitored by
specification to the maximum possible degree, only negligible variation is tolerated If the
commodity cannot Be monitored by specification salam is impermissible, because of ignorance
that leads to dispute.
3. Availability of Goods for Delivery: It is a condition that the commodity is possible to deliver
when it is due. That is the probability of its existence at the time of delivery is deemed to be
high, if the contrary is the case, Salam, is impermissible.
4. Salam n the Whole to be possessed partly: It is permissible to draw a Salam sale contract on
one whole thing but to be possessed at different times in specific parts.
5. Commodity a Liability Debt on the Seller: It is a condition that the commodity is a liability
debt, The seller is obliged to deliver the commodity when it is due, according to the specification
stipulated in the contract without abiding as to whether it is the product of his factory or the
produce of his private firm or from others.
6. Salam on Existing Goods: Salam sale is impermissible on existing commodities because
damage and deterioration cannot be assured before delivery on the due date. Delivery may
become impossible, anything which is risky and elevator.
7. Salam on Land and Real Estates Salam: Is impermissible on Land lots and real estates
because the description or the real estate entails the location. If the location is determined then it
is specified, which contradicts what the jurists agreed upon, that Salam is a liability debt.
8. Salam on Special Item: Salam is permissible on a commodity of a specific locality if it is
assured that it is almost always available in that locality and it rarely becomes unavailable.
9. Advance Payment: It is a condition that the purchase price in Salam is specified and
advanced to the seller at the contract meeting.
10. Date of Delivery Known: It is a condition in Salam sale that the due date is known to avoid
ignorance which leads to dispute.
11. Delivery mechanism Specified: It is a condition that the place of delivery is started in the
contract if the commodity needs loading or transportation expenses.
12. Provision for Mortgage: It is permissible to take mortgage and guarantor on Salam debt to
guarantee that the seller satisfies his obligation by delivering the commodity sold, which is a
liability on the due date.
13. Parallel Salam Contract: It is impermissible for the buyer of a Salam commodity to sell it
before receiving it .It is known that the Salam commodity is a liability debt of the seller and not
an existing commodity. Instead of that, it is permissible for the buyer to draw a parallel salam
contract without connecting it to the first salam contract.
Bai- Istishna
Meaning and Definition:
Istishna has been derived from Arabic word which means Industry.
Istishna is a contract whereby a part undertakes to produce specific goods and services, and
made according to certain agreed upon specification at a determined price and for a fixed date of
delivery. The production of goods includes any process of manufacturing, construction,
assembling or packaging.
Features of Istishna
ready for sale.Istishna is not allowed is Shariah. Then the sale may be done either in BaiMurabaha or Bai- Majjal mode of investmentin this mode, deliveries of goods are
deferred and payment of price may also be deferred.
It facilitates the manufacturer sometimes to get the price of the goods in advance, which
he may use as capitalfor producing the goods.
It gives the buyer opportunity to pay the price in some future dates or by installment.
It is a binding contract and no party or is allowed to cancel the Istishna contract after the
piece is paid and received in full or in part or the manufacturer starts the work.
4.6.4 Mudarabah
Definition:
It refers to a contact between two parties in which one party supplies capital to the other party for
the carrying on of some trade on the condition that the resulting profits are distributed in a
mutually agreed proportion while all loss is borne by the provider of the capital. Mudarabah is
also known as Qirad and Muqaradah.
Mudaraba is a contract of those who have capital with those who have expertise where the first
party provides capital and the other party provides the expertise with the purpose of earring
"halal" (Lawful) profit which will be devised between them in ration agreed upon. This mode
serves the business interest of the capital owner and the mudharib (agent).
The capital owner may not have the opportunity or the experience to make turn over capital and
trade with it. On the other hand, the agent (the Mubarib) may not have the adequate capital to put
to materialize his experience; such lacking of both parties bring them into a contract of
Mudarabah. It had certain steps to be followed. The following is the steps of the Mudarabah
contract.
Steps of Mudarabah:
1. Establishing a Mudharabah Project: The bank- the bank provides the capital as a capital
owner.
The Mudharib- provides the effort and expertise for the investment of capital in exchange of a
share in profit agreed upon.
2. The Results of Mudharabah: The two parties calculate the earrings and divide the profits at
the end of Mudharabah; this can be done periodically in accordance with the agreement along
with observance to legal rules.
3.Payment of Mudharabah Capital: The banks recovers the Mudharabah capital it contributed
before dividing the profits between the two parties because profit is protection to capital in case
of agreement to distribute profits periodically before the final settlement it must be on account
until the security of capital is assured.
4. Distribution of wealth resulting from Mudharabah: In case of loss, the capital owner (the
bank) bears the loss. In the event of profits, they are divided between the two parties in
accordance with the agreement between them with observance to the principle "profit is
protection to capital".
There are some legal rules for Mudharabah Mode of Finance, which are as follows.
Rules of Mudharabah:
1. Capital Must be Specific: It is a condition in Mudharabah that capital must be specific or its
return to owner, so its amount must be known at the contract, and because the uncertainty about
the amount of capital necessarily leads to uncertainty about the amount of profit, which
represents an increment to capital.
The contributions of the partners under this mode may be equal or unequal ratios of capital to
establish a new income-generating project or to participate in an established one, whereby each
participant owns a share in the capital structure permanently and deserves his share of the profit
income. Such a partnership originally is intended to continue up to the dissolution of the
company. But one can sell his share in the capital to withdraw from the project.
The Islamic Banks can use the mode of Permanent Musharakah in many income-generating
projects. They can finance their customers, for an intended projects, with pare of the capital
required for the project in exchange of a share of the output as they may agree upon. They can
also mostly leave the responsibility of management of the customer- partner and retain the right
of super vision and follow up.
It follows from the above discussion that there are three steps of permanent Musharakah which
are given below.
One- partnership in Capital
The bank tenders part of the capital required in its capacity as a partner and authorizes the
customer partner to manage the project.
The partner tenders part of the capital required for the project and be a trustee on what he holds
from the bank funds.
Two-Results of the projects
The work in the project is for the growth of capital. The project may achieve positive or negative
results.
Three-The Distribution of wealth accrued from the project.
In case of loss, each partner bears part of the loss proportionate to its share in capital. In case of
earning profits, they are divided between the two parties (the bank and the partner) in accordance
with the agreement.
1. Capital should be Specific: It is a condition that the capital of the company is specific,
existent and under disposal. It is invalid to establish a company on non-existent fund of debt, for
the purpose of profit,
2. Share of Equity: It is not a condition that partners have equal shares in capital, though
variation in shares is permissible. It is subject to agreement.
3. Nature of Capital: It is a condition that the capital of the company is money and valuables.
Some of the jurists permit participating with merchandise on condition it is evaluated in the
contract and the value agreed upon becomes the capital of the company.
4. Active Participation of Partners: It is impermissible to impose conditions forbidding one of
the partners from work, because the company is build on and each partner implicitly permits and
gives power of attorney to the other partner to dispose of and work wit capital but it is
permissible for one partner to singly work in the company by mandate of other partners.
5. No Security for Profit: A partner is a trustee on the funds in his hand from the company and
he guarantees only in case of trespass or negligence and it is permissible to take a mortgage or a
guarantee against trespass and negligence but it is impermissible to take security or profit or
capital.
6. Ratio of Profit Prefixed: It is a condition that profit for each partner must be known to avoid
uncertainty and it must be a prorate ratio to all partners and must not be a lump sum, because this
contravene the requirement of partnership.
7. Variation in Share of Profit Permissible: In Principe, profit must be divided among partners
in ratios proportionate to their shares in capital but some of the jurists permit variation in profit
shares whereupon it is determined by agreement for one of the partners may be more dexterous
and more diligent and may not agree to parity, so variation in profit becomes necessary.
8. Not a binding contract: In principle, partnership is a permissible and not a binding contract,
so it is admissible for any partner to rescind the contract whenever it wishes provided that this
occurs with the knowledge of the other partner or partners, because rescinding the contract
without the knowledge of other partners prejudices their interests. Some of the jurists are of the
view that the partnership contract is binding up to the liquidation of capital or the
accomplishment of the job accepted at the contract.
Permanent Musharakah is helpful for large amount of investment in modern economic activities
the Islamic banks can use Musharakah to a new or established firm by using permanent
Musharakah as a mode of investment. The Islamic banks can make sufficient fund available to
the customer for the long term. The Islamic banks may become active partners in determining the
methods of production cost control, marketing etc. and to achieve the objectives of the
establishment. They can also supervise and follow up the overall activities of the firm. The
Islamic banks can share profit or loss with the (partners) clients in all situations of the firm.
are detonated between the two partners (the bank and the customer) in accordance with the
agreement. The shares the sale must be concluded as a separate deal with no connection to the
contract of the company.
4. The Bank sells its Share In Capital: The Bank- expresses its readiness, its readiness, in
accordance with the agreement, to sell a specific percentage of its share in capital.
The partner- pays the price of that percentage of capital to the bank and the ownership is
transferred to the partner.
This process continues up to the end of the partnership of the bank in the project and that's by
gradually transferring the ownership of the project customer/partner. In this way the bank has its
principal returned plus the profit earned during the partnership advice versa.
In the first Conference of the Islamic Banks in Dubai, the conferees studied the topic of
partnership ending with ownership (decreasing partnership) and they decided that this mode can
be applied in one of the following (ways) forms.
The First Form: The Bank agrees with the customer on the share of capital and the conditions
of partnership. The Conference has decided that the bank should sell its shares to the customer
after the completion of the partnership and in an independent contract where the customer has
the same provision.
The Second Form The band agrees with the customer in participating in the total or partial
capital of a firm of prospective earnings on the basis of the agreement with the right to relating
the remainder of the income for the purpose of paying the principal of what the bank has
contributed.
The Third Form The shares of each partner (the bank and the partner) in the company are
determined as stocks co comprising the total value of the asset (real estate) Each partner, (the
bank and the customer) gets its share of the earnings accrued from the real property, If the
partner so wishes it can each year purchase a cretin number of the shares owned by the Bank,
The shares possessed by the bank shall be decreasing until the partner becomes the sole owner of
the real property.
In addition to all the legal rules that apply to the permanent partnership which also apply to the
decreasing partnership, the following matters must the observed.
1. Participation and Sharing profit and Loss: It is a condition in the decreasing partnership
that it shall not be a mere loan financing operation, but there must be real determination to
participate and all the parties shall share profit or loss during the period of the partnership.
2. Banks Ownership and Right to Management: It is a condition that the bank must
completely own it, share in the partnership and must have its complete right in management and
disposal. In case the bank authorizes its partner to perform the work, the bank shall have the right
of supervision and follow up.
3. Redeeming Bank's Share of Capital: It is impermissible to including the contract of
decreasing partnership a condition that adjudges the partner to return to the bank the total of its
shares in capital in assertions in addition to profits accruing from that share, because of
resemblance to RIBA (usury).
4. Banks Promise to Sell It Share to the Partner: It is permissible for the bank to offer a
promise to sell its shares in the company to the partner if the partner pays the value of the shares.
The sale must be concluded as a separate deal with no connection to the contract of the company.
Shirkat
Ijarah and
Sale
Shirkatul Melk:
Shirkatul means partnership Shirkatul Melk means share in ownership. When two or more
persons supply equity, purchase an asset, own the same jointly, and share the benefit as per
agreement and bear the loss in proportion to their respective equity, the contract is called
Shirkatul Melk contract.
Ijarah:
The term Ijarah has been derived from the Arabic words Air and Uirat which means
consideration, return, wages or rent. This is really the exchange value or consideration, return,
wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the
Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified
consideration or rent from the asset owned by the Hiree, it is a hire agreement under which a
certain assert is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified
period.
Element of Ijarah:
a. According to the majority of Fuqaha, there are three general and six detailed elements of
Ijarah.
Contracting parties: this includes a Hiree, the owner of the property, and a Hirer, the party
that benefits from the use of the property.
Subject matter of the contract: this includes the rent and the benefit.
b. The Hiree: the individual or organization hires/rents out the property of service is called the
Hiree.
c. The Hirer: the individual of organization hires / takes the hire of the property or service against
the consideration, rent/ wages/ remuneration is called the Hirer.
d. The benefit / asset: the benefit, which is hired/, rented out is called the benefit.
e. The rent: the consideration either in monetary terms or in kinds fixing quantity of
goods/money to be paid against the benefit of the asset or service of the asset is called the rent.
Sale:
This is a sale contract between a buyer and a seller under which the ownership of certain goods
or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the
buyer.
Thus, in Hire Purchase under Shirkatul Melk made both the bank and the client supply equity in
equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc.
Purchase the asset with that equity money, own the same jointly; share the benefit as per
agreement and bear the loss in proportion to their respective equity. The share part or portion of
the asset owned by the bank is hired out to the client partner for a fixed rent per unit of time for a
fixed period. Lastly the bank sells and transfers the ownership of its share/ part/ portion to the
client against payment of price fixed for that
within the hire period or after the expiring of the hire agreement.
Thus Hire Purchase under Shirkatul Melk agreement has got three stages:
Hire and
Important features:
1. In case of HPSM transaction the asset/ property involved is jointly purchased by the Hiree
(Bank) and the Hirer (Client) the Hiree and the Hirer become co-owner of the asset under
transaction in proportion to their respective equity participation.
2. In HSPM agreement, the exact ownership of both the Hiree and Hirer must be recognized.
3. Under this agreement, the Hirer becomes the owner of the benefit of the asset but not of the
asset itself, in accordance with the specific provisions of the contract, which entitles the Hiree, is
entitled for the rentals.
4. As the ownership of hired portion of the asset lies with the Hiree and rent is paid by the Hirer
against the specific benefit, the rent is not considered as price or part of price of the asset.
5. In the HPSM agreement the Hiree does not sell or the Hirer does not purchase the asset but the
Hiree promise to sell the asset to the Hirer part by part only.
6. The promise to transfer legal title by the Hiree and undertakings given by the Hirer to
purchase ownership of the hired asset upon payment part by part as per stipulations are affected
only when it is actually done by a separate sale contract.
7. As soon as any part of Hirees ownership of the asset is transferred to the Hirer that becomes
the property of the Hirer and hire contract for that share/part and entitlement for rent there of
lapses.
8. In HPSM, the shirkatul melk contract is effected from the day the equity of both partied
deposited and the asset is purchased and continues up to the day on which the full title of Hiree is
transferred to the Hirer.
9. Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the
asset by the Hiree to the Hirer.
10. Under this agreement the bank acts as a partner, as a Hiree and at last as a seller; on the other
hand the client acts as a partner, as a Hirer and lastly as a purchaser.
11. Ownership risk is borne by both the Hiree and Hirer in proportion to their retained ownership
or equity.
12. The Hirer cannot, without obtaining prior written permission of the Hiree make any changes
in the exact item of the hiree, or remove it from its place of installation and transfer into another
location.
13. HPSM transaction facilitates the client to get benefit from the hired asset in exchange of
rental and also to become full owner of the asset by purchasing it part by part.
14. The Hirer to secure the Bank (the Hiree) will pledges hypothecate or mortgage his portion or
share in the asset and or any other asset of his own or third party guarantor to the Bank to fulfill
his all liabilities/commitments including the accrued rental, if any.
Rules:
1. It is a condition that the subject of the contract and the asset should be known
comprehensively.
2. It is a condition that the asset to be hired must not be a fungible one which cannot be used
more than once or in other words the asset must be a non-fungible one which can be utilized
more than once or the service of which can be separated from the asset itself.
It is a condition that the subject of the contract must actually and legally be attainable.
3. It is a condition that the Hirer shall ensure that he will make use of the asset as per provisions
of the Agreement.
4. It is a condition that the Hirer shall ensure that he will make use of the asset as per provision
of the agreement.
5. The hire contract is permissible only when the asset and the benefit derived from it is with in
the category as per Islamic Shariah.
6. In a hire contract, the period of hire and the rental to be paid per unit of time be clearly stated.
7. Everything that is suitable to be considered a price, in a sale, can be suitable to be
considered as rental in a hire contract.
8. It is permissible to advance, defer or install the rental in accordance with the agreement.
9. It is permissible to make the Hirer to bear the cost of ordinary routine maintenance, because
this cost is normally known and can be considered as part of the rental.
10. If the hired asset is damaged or destructed by the act of Allah and if the Hiree offers a
substitute with the same specifications agreed upon in the hire contract the contract does not
terminate.
11. Under HPSM agreement, both the Hiree and the Hirer must pay their respective equity as
agreed upon to purchase the demised asset under joint ownership.
12. Ownership of the asset of both the Hiree and the Hirer should be recognized as per law of the
land.
Investment of the bank increased to tk. 372,920 Billion as on 31 st Dec, 2012 from tk. 341,853
billion as on 31st Dec, 2011 showing an increase of tk. 26.23 billion I.e. 21.90% growth against
28.27% growth of investment in the bank sector. This increased investment growth of the bank in
2011 is due to the trust given to promote investment, for effective utilization of depositors fund.
The percentage of increase of investment of IBBL in 2010 was 24.24%
The market share of IBBL both in deposit & investment shows increasing trend which are given
below: (Amount in Billion)
Particulars 31.12.2012
31.12.2011
% growth as on 31.12.12
over 31.12.11
Deposit
Islami
banks total
417,844.
Market
share (%)
7.86%
Islami
banks total
341853
Market
share (%)
7.59%
Investment
372,920
9.10%
305,840
8.16%
It is observed that the investment is in increasein trend. As the deposited amount increases year
by year the bank gets more funds to invest and creates more employment opportunities.
Mode
2012
2011
Amount
Bai-Murabaha
117,180
% to total
investment
54.60%
HPSM
73,871
34.42%
63,159
Bai-Muajjal
7,318
3.41%
6,550
Purchase
&Negotiation
Quard
11,289
5.26%
10,223
2,833
1.32%
2,151
Bai-Salam
2,082
0.97%
1,719
Musharaka
43
0.02%
35
214,616
100%
180,054
Total
Amount
96,217
SL. No.
Sector
31.12.2012
Amount
31.12.2011
01
Industrial
191,409
% to Total
Investment
5.79%
02
Commercial
113,021
49.38%
105,404
03
Real Estate
23,231
29.16%
18,015
04
Agriculture
22,427
05
Transport
6,887
1.8%
6856
06
RDS
10,393
2.68%
7072
07
Other
10,393
4.00%
7072
100%
312438
Total 372462
5.99%
Amount
142,164
30,278
28,100.10 million ($ 407.25m) up to 30-06-2012 against which the outstanding was BDT
4,320.41 million ($ 62.61m). Rate of recovery of the Scheme is more than 99%.
Besides the regular investment program, we have provided with hand tube-well and sanitary
latrine to the successful RDS members on Quard from the fund given by Islami Bank
Foundation. A total of 7,946 tube-wells & 4,322 sanitary latrines have so far been distributed at
a cost of BDT 15.84 million ($ 0.23m) & BDT 4.76 million ($ 0.07m) respectively up to the said
date.
SWOT Analysis
By doing the SWOT analysis it is possible to find out the strengths, Weaknesses, opportunities,
and threats of IBBL. From the SWOT analysis we can figure out the ongoing scenario of the
Bank. In the competitive area of marketing; SWOT analysis is based on product, price, place and
promotion of a financial institution like a private bank.
5.2 strength
Adequate finance: Islami Bank Bangladesh Ltd. has adequate finance. That is why; they need
not to borrow money from Bangladesh Bang or any other.
More funds for investment: For adequate financial ability, they can provide more investment
facility to their rather than other Banks.
Honest and reliable employees: All of the employees of Islami Bank are honest and reliable.
They are always devoted themselves to the clients for better customer.
Religious felling of the people: Most of the people of Bangladesh are Muslims and they are
trusted the superior performance of IBBL as Sariah based Islami Bank.
5.3 Weakness
Lake of up-to-date equipment: IBBL has lack of modern technologies and equipments like
adequate on line facilities as well as cash card and credit card system.
Deficiency of expertise: Many of the employees are unskilled and from them, superior
performance is unexpected to super vive in the national economy as well as the world economy.
Lack of advertisement: IBBL has lack of aggressive advertising like other banks. They dont
telecast any attractive advertise in the media.
Centralized Decision making: The decision making of the bank is too many centralized. No
decision is made without the authorization of the head office.
5.4 Opportunity
Innovative and modern customer service: This bank can introduce more innovative and
modern customer services to its customers to survive better in the competition market.
Poverty alleviation: IBBL has a great opportunity to save the countys poor people from being
taking loan from different NGOs or few banks with higher interest rate.
Special Image: IBBL has created special image to the people as a more reliable bank. People
believe that if they keep their money in Islami bank it will be more secured than other banks.
Retaining vast customer: IBBL has a vast opportunity to hold most of the customer by
extending his banking operations all over the country as most of the people other country are
religious minded.
5.5 Threats
Rules and regulations: Rules and regulation of Bangladesh Bank defers with Islamic Banking.
So they have to face various problems to operate their activities according to Islamic Shariah.
Lower salary structure: Now many of the bank hiring young talent and expertise employees
with higher remuneration where IBBL could not hire skilled manpower because of lower salary
structure compared to other banks.
Islamic banking system introduced by conventional banking: Few others conventional banks
have opened their Islamic banking branch.
Findings
6.1 Findings
Major findings are given below:
There are three modes of investment such as Bai mode (sales & buy basis), Share mode,
and Ijarah mode (rental).
Part of the investment income i.e. 66% (app) is distributed to the depositors accounts as
profit paid on deposit.
Most of the people in our country have a bad impression of IBBL, operations regarding
indirect generation of interest which meaning no difference between investment of IBBL
& loan / advance of conventional banks. For this reason, they are not too much interested
to make investment with IBBL.
This bank cant invest in all economic sectors, which are prohibited by the law of Islam.
IBBL has no strong promotional activities to increase motivate its present and potential
investment client. But in 2011 it has advertised its services by sponsoring in the
decoration of Bangladesh for ICC World Cup 2011 ceremony and school football
tournament.
In rural area for low income community, IBBL grants investment to a group not
individual.
A large portion of the banks income from investment is given to the depositors.
IBBL has its own Risk Management Committee which guides the bank to calculate Risk
Weighted Assets properly.
Conclusion
& Recommendations
7.1 Conclusion
Islam is a complete way of life and Allahs guidance extents into all areas of our lives. Islam has
given detail regulations for our economic life. Therefore, Islami Bank Bangladesh Limited
(IBBL) is trying to establish the maximum welfare of the society by maintaining the principles
of Islamic Shariah which is based on Quran and Sunnah. Since 1983, IBBL is the pioneer in
welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its
depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on
the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shariah.
Profit earning is not the only motive and objective of the banks investment policy
rather emphasis is given in attaining social good and in creation employment opportunities.
IBBL is not secular in its orientation. IBBL does not finance any project which conflicts with the
moral value system of Islam. IBBL does not strictly consider the credit worthiness of the
entrepreneur. IBBL receives a return only if the project succeeds and produces a profit. IBBL
considers the soundness of the project and business acumen and managerial competency of the
entrepreneur. Therefore, the rate of return of investment of IBBL is greater comparing to that
of conventional banks.
Finally, Islami Bank Bangladesh Limited (IBBL) has been established with a view to conduct
interest free banking to establish participatory banking instead of debtor-creditor relationship and
finally to establish welfare oriented banking through its investment operations that would lead to
a just society.
7.2 Recommendations
Though Islami Bank Bangladesh Ltd. (IBBL) is performing well but it has some crucial areas to
improve which are prescribed below:
IBBL can diffuse its scope of investment through focusing shariah concept regarding
investment among the bank officers; employer and the clients by strong training,
workshops.
IBBL should make its investment schemes more attractive for availing highreturn projects.
IBBLs investment processing should become easier than other conventional banks.
It is a modern banking era. Each and every commercial bank is properly utilizing
technological innovations. So, IBBL needs to utilize these modern technologies to
keep pace with the modern time.
IBBL needs to recruit skilled human resources which can turn the bank ahead.
IBBL should consider utilization of rural potentials from both efficiency and equity
grounds in the context of the present-day socio-economic conditions of Bangladesh.
Strong commitments and stepping up through experiment and implementation
of innovative ideas are the appropriate ways to do that.
IBBL should deserve immediate attention in the promotion of the image of Shariah based
banks as PLS (profit-loss-sharing) banks.
IBBL should initiate different investment modes according to changing /diverse needs of
clients by conducting huge research and study.
Bibliography
Websites
www.islamibankbd.com
www.ibtra.com
www.bangladesh-bank.org
www.scribd.com
www.wikipedia.com