This report will give a clear idea about activities and operational strategies of IBBL
1.1 Origin of report This report is based on an internship program. My University arranges internship program in attachment with students after the completion of theoretical courses of program of BBA. Each intern must carry out a specific project, which is assigned by the concerned organization and approved by the Internship and placement committee of my university, consequently a report based on the project is to be submitted to the committee and IBTRA. In this particular report, the author is an intern of the previously mentioned program and the concerned organization is IBBL which are a prominent private and the first Bank of Bangladesh that based on Islamic law? In way of delegation, responsibility of carrying out the study has conferred upon the concerned intern. 1.2 Background of the study: Banking is one of the most important sectors for a country’s wealth building activities. At present the modern business industrialization, foreign trade, investment almost all dependent on banks. Now a day the Banking sector of Bangladesh is suffering the disease of default culture, which is consequence, or result of bad performance of most of the banks in Bangladesh. IBBL plays an important role towards the growth, economic development and especially RDS of Bangladesh. 1.3 Objectives of the study: The main objective of education is to acquire knowledge. To acquired knowledge, ultimately must do some practical application in addition to theoretical knowledge. Through this report, tried level best to present my practical knowledge as well as to find out• Investment Policy of IBBL • Investment Modes • Different investment Schemes • Differences between Conventional and Islamic banking systems 1.4 Scope of the study:
IBBL, the shariah based commercial bank is under general special guidelines of the central bank framed for the banking system as a whole and for bank of individual sectors. The concept of Private sector bank i.e. IBBL in our country is not so old. IBBL is now giving emphasis to create a constructive and meaningful competition with the private sector banking and NGO (who are trying to develop rural life). This study makes attempt to cover within its scope all most all the significant aspects of rural development scheme. 1.5 Methodology of the study: Mainly have collected data from two sources. These two sources are as following. • Primary source • Secondary source The primary sources of my information are: • Field observation • Investment opinion • Questioning the concerned persons. The secondary sources of my information are: 1. Annual report of lslami Bank Bangladesh Ltd 2. Desk report of the related department 3. Other manual information 4. Lecture in IBTRA 1.6 Limitations of the study: There are some limitations in my study. The faced some problems during the study, which mentioning them as below-: i) Insufficient data: Some desired information could not be collected due to confidentially of business. ii) Lack of monitory support: Few officers sometime felt disturbed, as they were busy in their job. Sometime they did not want to supervise me out of their official work. Sometimes the officials were busy and were not able to give me much time. iii) Other limitation: As we are newcomer, there is a lack of previous experience in this concern. And many practical matters have been written from my own observation that may vary from person to person.
2.0. Historical Background In the early period of Islam, the financial transactions of that period were not at like as today. As such, the very word banking was not used in that period. But all the transactions in early period of Islam had been completed without resorting to interest. The Muslim world has been in a state of degeneration for a number of centuries. The Muslim world has been in a state of degeneration for a number of centuries. The social breakdown and weakness brought about
by this degeneration paved the way for foreign domination which led to further disintegration and decline. This decline is decline reflected in all aspects of Muslim life and has been accompanied by poverty, reflected in all aspects of income and wealth, socioeconomic injustice, social disharmony and loss of creativity. Nevertheless, the undeniable fact is that the Muslim masses are intensely attached to Islam all over the Muslim world and sincerely crave for its revival and supremacy. The intelligentsia has been always for interest-fee economy. But political subjugation defeated them for long to succumb to interest-based economic system. However the struggle for restoration but the early period of the present century received as good manifestation for the cause of Islamic banking i.e. the Islamic economic system. During the 1930s revival for Islamic banking has been noticed gradually since literatures on the interest-fee economy particularly interest fee banking have been developing. During the 1940s after political independence from the colonial, most of the Muslim countries faced the struggle for revival of Islamic economy particularly Islamic banking. And the 1970s took a new shape for practical materialization of Islamic banks and financial institutions. The first attempt to establish an Islamic financial institution took in Pakistan in the 1 950s. It was a local Islamic bank in a rural area of erstwhile Pakistan (Wilson, 1983) it was an experiment initiated by some pious landlords. They deposited found at no interest on the credit advanced, but they had to pay a small service charge to cover the banks operational expense. The charge was lower than the fate of interest. Although the experience was encouraging but two main factors were responsible for its failure. First the deposits made were regarded by depositors (landlords) as once and for all deposits. With the increasing number of borrowers the gap between capital available and credit demanded was huge. Second, the bank staff did not have complete autonomy over the Bank’s operation and depositors showed considerable interest in the way their money was lent out (Wilson, 1983). The second attempt began in Egypt in 1963. It was established in a rural area of Nile Delta and was called Mit Ghamr Saving Bank. This attempt may be called the first modem experiment with Islamic banking without projecting an Islamic image, for fear of being seen as manifestation o Islamic fundamentalism which was anathema to the political regime. The pioneering effort, led by Ahmed El Najjar, took the form of a saving’s bank based on profit sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready) 1981), by which time there were nine such banks in the country. These bank which neither charged nor paid interest, invested mostly by engaging in trade and industry, directly or in partnership with others and shared the profits with their deposits (Siddiqi 1988) Thus they function essentially as saving investment institutions rather than as commercial banks. The experiment suffered by owing to changes the political atmosphere. Nevertheless, the project revived in 1971 under the name of Nasier Social Bank. The Nasir Social Bank was declared an interest-free commercial bank, although its charter made no reference to Islam or shariah (Islamic Law). The bank offered a full range or normal banking services and wide range of investment activities through equity participation (Ashker-1987). Islamic banking made its debut in Malaysia in 1983, but not without antecedents. The first Islamic financial institution in Malaysia was the Muslim Pilgrims Savings Corporation set in 1963 to help people save for performing hajj. The reason for the establishment of this institution was the contention of the Malaysian Muslims that money spent on pilgrimage
must be clean and untainted with Riba. Since this was not possible by putting money with the ordinary banks. And as such, this desire led to the establishment of a special financial institution. In 1969, this body evolved into the Pilgrims Management and fund Board or the Tabung Hajj as it is now popularly known. The Tabung Hajj has been acting as a finance company that invests the savings of would be pilgnms in accordance with Shariah, but its role is rather limited, as it is a non-bank financial institution. The success of the Tabung l-Iajj, however, provided the main impetus for establishing Bank Islam Malayasia Berhad (BIMB) which represents a full fledged Islamic commercial bank in Malaysia. The Tabung Hajj also contributes 12.8 percent of BIMB’s initial capital of M$80 million. BIMB has a complement of fourteen branches in several parts of the country. A significant development in Islamic Banking took place when a license for an Islamic bank was issued by the Saudi Arabian government to the fifty-year old ‘Al-Rajhi Banking Investment Corporation” and has since developed active relationships with major manufacturing and trading companies in Europe and several US corporations. Islamic Development Bank (IDB) was founded in 1975 as a multinational financial instruction by the several Muslim countries. The purpose of this bank is to support social and economic development in Muslim nations within an Islamic framework. The subscribers of the capital are the founder governments and as such it was established on government treaty. More seven Islamic Bank and Financial institutions had been established within three years of establishment of IDB. These were (a) Dubai Islamic Bank (b) Kuwait Finance house, Kuwait (c) Faisal Islamic Bank, Egypt & (f) Islamic Development Co. Sarjah. 2.1 Islami Bank Bangladesh limited: (IBBL) Islami Bank Bangladesh limited was incorporation on 13.03.1983 and received its Banking License on 28.03.1983. IBBL started functioning on 30.03.1983. The authorized capital of the Bank is TK. 10000.00 million and paid up capital is TK 4752.00 million. Inspired by the success of Islami Bank Bangladesh Limited 7 other Islamic Banks namelyAl-Baraka Bank Bangladesh Ltd (Now ICB Islami Bank), Al-Arafa Islami Bank, Social Islami Bank Ltd, Foysal Islami Bank(Now Sahamil Bank of Bahrain),Shajalal Islami Bank Ltd,Export Import Bank of Bangladesh and First Security Islami Bank Ltd have been established in Bangladesh. Prime Bank has established Islamic Branches. 2.2 Business Philosophy of IBBL The philosophy of IBBL is to the principles of Islamic Shariah. The organization of Islamic conference (OIC) defines an Islamic bank as “A financial institution whose status, 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. The sponsor, perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than a follower. The leadership will be in the area of service, constant effort being made to add new dimensions so that clients can get “Additional” in the matter of services commensurate with the needs and requirements of the country’ growing society and developing economy.
2.2 Islami Bank Vision: Islamic bank vision to always strive to achieve superior financial performance is considered a leading Islamic bank by reputation and performance. They are: • To establish and maintain the modern banking technology, •
To ensure the soundness and development of the financial system based on Islamic principles
•
To become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure the stability of finical systems.
•
Try to encourage savings in the form of direct investment.
•
Try to encourage investment particularly in project, which are more likely to lead to higher employment.
2.3 Islami Bank Mission:
•
To establish Islamic banking through the introduction of welfare oriented banking and also ensure equity and justice in the field of all economic activities,
•
Achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country.
•
Its main concern is to encourage social-economic up liftman and financial services to the low -income community particularly in the rural areas.
• 2.5 Objectives of Islamic Bank: The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following: • • • • •
To offer contemporary financial services in conformity with Islamic Shariah: To contribute towards economic development and prosperity within the Principles of Islamic justice; Optimum allocation of scarce financial resources; and Help to ensure equitable distribution of income.
These objectives are discussed below:
Offer Financial Services: Interest-based banking, which is considered a practice of Riba in financial transactions, is unanimously identified as anti-Islamic. That means all transactions made under conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions. Islamic Banking for Development: Islamic banking is claimed to be more development- oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs. Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy. Islamic Banking for Equitable Distribution of Resources: Perhaps the most important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties: the bank, the depositors and the entrepreneurs. 2.6 Role and contribution of IBBL to Bangladesh Economy Islami Bank Bangladesh Limited has many success stories of achievements. These are summarized below: • IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh. • The success of IBBL has imbibed other sponsors at home and abroad to establish Islamic Banking in Bangladesh. Four national, one international Islamic banks have since been established in the country. A private sector traditional bank has also established two full fledged Islamic Banking branches. Several other existing and proposed traditional banks hove also expressed their intention to introduce Islamic Banking. • An IBBL has successfully mobilized deposits from a section of people who hitherto-before did not make any deposit with interest based banks. • The Islamic Banking products which are offered by IBBL through its 200 branches located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic banking. • IBBL’s market share of deposit investment and ancillary business is steadily increasing. • IBBL, though still a tiny bank, handles more than 10% of country’s export and import trade • Among the contemporary commercial Banks IBBL’s position is first in respect of mobilization of deposit, deployment of fund, earning profit and foreign remittance. • Investment in industrial sector occupies nearly 33% of IBBL’s investment portfolio. This is a unique example of industrial finance by a commercial Bank.
• •
•
•
More than 1.15,000 workers are employed in the industrial projects financed by IBBL. IBBL has thus made significant contribution to solving unemployment problem of the country. Dhaka- the capital of Bangladesh being a Mega city- has acute transport problem. IBBL has joined hands with an enterprising group to introduce a fleet of Premium Bus service, which has attracted the attention of all section of the people and mitigated transportation problem of the city to some extent. IBBL has introduced several other welfare oriented Investment schemes, such as Small Transport Investment Scheme, Small Business Investment Scheme, Agriculture Implements Investment Scheme, Poultry Investment Scheme, Household Durable Investment Scheme, Housing Investment Scheme etc. IBBL launched a Rural Development Scheme for providing finance to drowntrodden section of the populace- an area where no other Commercial Bank has extended any finance. 1881’s mission is to reach to all 68,000 villages of the country as early as possible.
2.7 Shariah Council: Shariah Supervision Shariah Council of the Bank is playing a vital role in guiding and supervising the implementation and compliance of Islamic Shariah principles in all activities of the Bank since its very inception. The Council, which enjoys a high status in the structure of the Bank, consists of prominent Ulema, reputed banker, renowned lawyer and eminent economist. Members of the Shariah Council meet frequently and deliberate on different issues confronting the Bank on Shariah matters. They also conduct Shariah inspection of branches regularly so as to-ensure that the Shariah principles are implemented and complied with meticulously by the branches of the Bank. 2.8 SWOT analysis of IBBL Strengths • • • • • •
Sound profitability growth and high asset quality Experienced Management Honest, sincere and dedicated employee competency Wide market share and stable source of fund Largest network among PCBs High attention on recovery of overdue and classified investment and pre-overdue situation • Close monitoring on investment clients • High attention on individual’s performance • High attention on making quality investment and quick disposal of proposal • All the officials/manpower are dedicated and honest to serve its own duty • As a whole the human resource is our main capital/assets of the wing • Business Ethics of the wing is similar to the ethics and values of mass people of our county Weakness
• Traditional network system and lack of full-scale automation • Lack of latest information system • Lack of required ideas on Modern investment products • Poor marketing of investments product • Lack of required information specially on SME Opportunity: • Scope of market penetration through diversified investment products • Increase awareness of Islamic banking among the clients • Scope to develop new committed Entrepreneur • Countrywide Branches having wide opportunities to access in different kinds of Business. Challenges/Threats: • Market pressure for lowering of lending rate • Challenges of new entries • Challenges related to substitute organization • Entrepreneurship development
2.9 Problems and prospects of Islamic banking in Bangladesh Despite tremendous popular support spectacular success in terms of mobilization of deposit and distribution of profit Islamic banking in Bangladeshi yet to achieve the desired level of success due to the absence of appropriate legal framework for carrying out Islamic Banking operations in the country. All the government-approved securities in Bangladesh are interest bearing. Besides, Islamic Money Market in Bangladesh is yet to develop. As a result the Islamic banks, which are committed to avoid interest, cannot invest the permissible part of their Statutory Liquidity Reserve and Short Term Liquidity in those securities. Inspire of the present limitations, Islamic-banking system has tremendous potentiality and prospect in Bangladesh. Firstly, the successful launching and needs to an Islamic Money Market in the country. Thirdly Islamic banks have brought together many depositors and entrepreneurs under their fold and coverage. These depositors and entrepreneurs so long avoided interest- based banking on grounds of religious injunctions. The gradual and successful globalization of Islamic banking coupled with growing awareness of the people about its financial and social benefits makes it clear that the next century is going to be the century of Islamic banking. 2.10 Corporate Information of IBBL in different years
Particulars
2003
2004
2005
2006
2007
2008
2009
Authorized Capital
3,000.0 0
3,000.00
5,000.00
5,000.00
5,000.00
10,000.0 0
10,000 .00
Paid-up Capital
1,920.0 0
2,304.00
2,764.80
3,456.00
3,801.60
4,752.00
6,177. 60
Reserves Fund
3,280.3 7
4,329.92
5,450.94
6,551.23
7,418.04
9,308.00
13,927 .94
Total Equity
5,266.4 7
6,691.12
8,331.14
10,435.9 6
14,957.7 4
18,572.0 0
23,619 .81
Total Deposits (Including 70,552. bills payable) 65 Gross
88,452.1 8
108,261
132,814. 00
166,812. 78
200,725. 00
244,29 2.14
Total Investments 62,755. (Including Inv 90 in Share) Gross
83,893.6 3
102,145
123,959. 00
174,365. 55
198,763. 00
255,27 2.41
Import Business
46,237. 00
59,804.0 0
74,525.0 0
96,870.0 0
137,086. 00
168,329. 00
161,23 0.00
Export Business
21,738. 00
29,151.0 0
36,169.0 0
51,133.0 0
66,690.0 0
93,962.0 0
106,42 4.00
Remittance
16,668. 00
23,669.0 0
36,948.0 0
53,819.0 0
84,143.0 0
140,404. 00
194,71 6.00
Total Foreign 84,643. Exchange 00 Business
112,624. 00
147,642. 00
201,822. 00
287,919. 00
402,695. 00
462,37 0.00
Total Income
6,710.4 4
8,262.73
10,586.7 8
14,038.3 0
17,699.5 1
23,454.0 0
25,403 .86
Total Expenditure
5,908.4 2
6,419.74
8,424.36
11,129.6 3
13,918.7 0
15,151.0 0
18,886 .20
Net Profit 802.02 before Tax
1,842.99
2,162.42
2,908.67
3,780.82
6.348.00
6,517. 66
Payment to Government 426.61 (Income Tax)
829.35
973.09
1,490.12
2,322.46
3,647.00
3,253. 23
20% (Stock)
25% (Stock)
15% (Cash) 10% (Stock)
25% (Stock)
30% (Stock)
10% (Cash) 20% (Stock )
125,776. 94
150,959. 66
188,115. 27
250,012. 79
288,017. 19
340,63 8.49
Dividend 20% (Stock)
Total Assets 98,046. (including 85
(Note : One Million = Ten Lac )
2.11 Price Sensitive Disclosure of IBBL: Price Sensitive Disclosure of IBBL: This is for kind information of the valued Shareholders of Islami Bank Bangladesh Limited & others concerned that the Board of Directors of the Bank in its 182nd Meeting held on 24th December, 2010 took the following Price Sensitive decisions :SL. Particulars Decisions No. 01 Enhancement of Authorized Capital of Islami Authorized Capital enhanced from Bank Securities Limited, a subsidiary Tk.100.00 Crore to Tk.1,000.00 Crore company of Islami Bank Bangladesh subject to approval of Regulatory Limited. Authorities. 02 Enhancement of Paid up Capital of Islami Paid up Capital enhanced from Tk.30.00 Bank Securities Limited, a subsidiary Crore to Tk.500.00 Crore subject to company of Islami Bank Bangladesh approval of Regulatory Authorities. Limited. This is for kind information of the valued Shareholders of Islami Bank Bangladesh Limited & others concerned that the Board of Directors of the Bank in its 182nd Meeting held on 24th December, 2010 took the following Price Sensitive decisions :SL. 1.
Particulars Decisions Enhancement of Authorized Authorized Capital of Islami Bank Bangladesh Limited Capital of Islami Bank is proposed to raise from Tk.1,000 Crore (Tk.10,000 Bangladesh Limited. Million) to Tk.2,000 Crore (Tk.20,000 Million) Taka subject to approval of Bangladesh Bank and by Honourable Shareholders in the EGM.
2.12 SPONSORS OF IBBL Sponsors of IBBL Price Sensitive Disclosure of IBBL: Bangladeshi Sponsors:
Mofizur Rahman (Late)
Barrister Tamizul Haque Mohammad Younus (Late) Mohammad Shafiuddin Dewan (Late) Mohammad Bashiruddin Mohammad Hussain (Late) Nashiruddin Ahmed (Late) Mohammad Mosharraf Hossain Mohammad Malek Minar (Late) Zakiuddin Ahmed Engr. Mustafa Anwar Mohammad Abdullah Sirajuddowla Mohammad Nuruzzaman (Late) Abul Quasem A. K. Fazlul Huq Engr. Muhammad Dawood Khan Baitush Sharaf Foundation Ltd. Ibn Sina Trust Bangladesh Islamic Centre Bangladesh Islamic Economics
FOREIGN SPONSORS
Kuwait Finance House (K.S.C.), Kuwait Jordan Islamic Bank, Jordan Islamic Investment Corporation, Doha, Q
&
Exchange
Bahrain Islamic Bank, Bahrain Islamic Banking System International Holding S. A. Al-Rajhi Company For Exchange & Commerce,
Currency
Sheikh Ahmed Salah Jamjoom, Jeddah, K.S.A Sheikh Fouad Abdul Hameed Al-Khateeb (Late), K.S.A Dubai Islamic Bank, Dubai, U.A.E. The Public Institution Security, Safat,
For
Social
Ministry of Awqaf And Islamic Affairs Kuwait Ministry of Justice, Department of Minors Affairs,
Board of Directors Prof. Abu Nasser Muhammad Abduz Zaher Chairman Janab Yousif Vice Chairman
Abdullah
Al-Rajhi
Engr. Mustafa Vice Chairman Engr. Md. Director
Anwar
Eskander
Janab Md. Director
Ali
Khurshed
Khan Hossain
Dr. Abdulhameed Fouad Al Khateeb Director Dr. Md. Director
Shafiqur
Janab Mohammad Director
Rahman
Adnan
Midani
Janab Mohammad Abdullah AlJalahma Director Janab Director
Hafizul
Janab Director
Md.
Islam
Mian
Shahidul
Islam
Engr. Muhammad Director
Dawood
Khan
Janab Mohammed Director
Nazrul
Islam
Janab Md. Abdus Salam, FCA, FCS Depositor Director Janab Humayun Depositor Director
Bokhteyar
Janab Professor NRM Borhan Uddin, PhD
Independent Director
2.13 ACHIEVEMENTS OF IBBL National and international ratings of IBBL: IBBL's past performances have been evaluated by Bangladesh Bank, several credit rating agencies home & abroad and by the local press. International Press: “In the midst of a difficult Banking system known to be plagued by high non-performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm. However, IBBL provides a refreshing change and is, thus, a pleasant surprise. Although it does not command the market share as the 4 public sector banks, IBBL, which claims to have little interference in lending from the government, has nonetheless, managed to find a niche market of its own-says the ‘BANK ATCH’ a New York based international Credit Rating Agency in its January 30, 1998 issue. “As a market leader offering banking services based on the Islamic rule of Shariah, IBBL's profitability trend has been quite impressive. The Bank's ability to keep its return on asset (ROA) well above the industry's average, reflected its resilience to possible shocks in the banking system. Concerns over massive NPLs and under provisioning are common amongst local banks. But this seems well resolved in IBBL. IBBL's good performance and solid capital base have indeed provided refreshing change found within a banking system saddled and held back by huge NPLs” the above agency continued to comment in the same issue. National Press: “It is one of a few local banks according to CAMEL (Capital, Assets, Management, Earnings & Liquidity) rating made by the Bangladesh Bank. It holds the highest amount of liquidity among all banks and its ability to keep return on assets at 1.07 percent is well above the banking sector's average of 0.33 percent”- The Financial Express, Dhaka commented in its issue of May 28, 1998. “The Holiday” in its 29th August, 1997 issue carried out a report under the heading “Setting a precedence of sound banking” and commented “While the country's banking system is burdened with bad debt portfolios and also suffers from a liquidity shortage, the Islami Bank Bangladesh Ltd. (IBBL) has created a unique precedence by improving its reserve and deposit positions substantially, making handsome profits, and offering attractive dividends to its share holders and depositors.” IBBL's World rating: As per Bankers' Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL's world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition. IBBL's country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL's Financial Statements of the year 2001.
Award and Prizes: International & National Perspective: IBBL was awarded for several times by international & national organisations. The Global Finance, a reputed London based quarterly magazine, awarded IBBL as the best bank of the country for the year 1999 and 2000. IBBL has got the 2nd prize of National Export Fare for its pavilion of Service Organisation in 1985. Local: 1. Bangladesh Institution of Bank Management (BIBM) 2. The Institution of Bankers Bangladesh (IBB) 3. Bangladesh Association of Banks (BAB) 4. Bangladesh Foreign Exchange Dealers' Association (BAFEDA) 5. Central Shariah Board for Islamic Banks of Bangladesh 6. International Chamber of Commerce- Bangladesh Foreign: 1. International Association of Islamic Banks (IAIB), Jeddah, K.S.A. 2. Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain. 3. General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain (IBBL is a member of its Executive Council) 4. Society for Worldwide Inter-bank Financial Telecommunication (SWIFT)
General Banking General Banking is the heart of Banking. Here money collection procedure occurs. Other services, like cheque encashment, account transfer; account closing, bills and remittance are given here. So general banking is the most important thing in banking service. Procedures 1. Issuance of token, Maintenance of subsidiary day Book, writing of day Book, balancing of Ledger. 2. Opening of A/c Mudaraba Savings A/c Mudaraba term deposit A/c Al-Wadiah current A/cs, Mudaraba Hajj saving A/cs, writing of A/c opening registers and issuance of pass book and cheque Book. 3. Maintenance of current A/c ledgers, deposit ledger and TDR ledger and operation of computer. 4. Writing of transfer scroll, statement of current A/cs and deposit A/c and Hajj deposit A/c pass book. 5. Bills: Outward & inward Bills (OBC & IBC) and clearing. 6. Remittance: Issuance and payment of DD, TT, PO etc.
7. Writing of clean cash Book and posting of General Ledger and checking of computer final sheets with General Ledger. 8. Maintenance of charges, suspense and sundry deposit A/c, maintenance of dead stock and stationery articles registers. 9. Schedule Telegram and preparation of General ledger A/c statement. 10. Establishment: Preparation of Salary, pay sheet, LPC, maintenance leave register, personal files and method of correspondence and payment of income tax. 11. Reconciliation of General A/c.
DISPATCH Inward 1. Inward mail, other than those which are registered, marked confidential and addressed personally to same official, may be opened by an authorized member of staff who should enter in the inward mail register and mention serial number of the mail register on the letter/ paper received, affix "Received" date stamp on it and delivery the same to the concerned officials against acknowledgment. 2. Letters addressed personally to any official shall be opened by the address only. 3. Registered mails and mails marked confidential will be opened by an officer or management in small branches. All these letters shall however entered in the inward mails registers. 4. Stop payment instructions and court orders shall be received authorized officials who will immediately note date & time on it and take necessary steps. • OUTWARD 1. Outward letters must bear serial number and entry in the register with name and address. 2. Each typist will maintain a typist master file and dispatch Clark also maintain a separate master file for future record. 3. Local letters may be delivered through peon book. If the area is large and letters are many in number service of post-office may be utilized. 4. Letters dispatched must be entered in the outward mail register and bear proper postal stamps, if sent through post office. 5. Remarks such as ‘Urgent’ ‘By Airmail’ ‘Register' 'Registered with A/D' 'Confidential' etc. must appear on top of the letter as well as envelop. 6. If the letters are sent by registered post or courier service, postal receipt/ courier receipt must be maintained by the dispatch department in a file. Similarly acknowledgments received back should be maintained in the file. 7. If any telegram is sent by any branch, a copy of the message duly signed by authorized officer must be sent by post to the address as confirmation. 8. Similarly when the branch receives any inward telegram, they must compare it with the confirmatory copy when received. 9. Receipt for telegraphic message issued by telegraph office should be maintained in a file and authorized officer must check them at the time of passing expenses voucher. 10. If any telegram is sent relating to services given to a customer. Charges should be recovered from the customer concerned. 11. Manager and other officers of the bank must ensure economic use of telephone. Trunk call & STD conversation must be short. If telephone is used on account if customers, charges must be recovered. 12. Trunk calls & STD calls must be recovered in the trunk call register and verified with the telephone bill when received from T&T office. •
General Characteristics of Deposit Account
Bank receives deposit by different accounts. Those are two types: i) Al Wadiah --- Client A/C is conducted under Al - Wadiah system ii) Mudaraba Mode --- Client- Sahib Al Mal Bank- Mudarib
Under this arrangement - profit distribution under agreed ratio and loss (if any) will be borne by Sahib Al Mal Under Mudaraba mode there are many accounts as under: i) MSA - Mudaraba Savings Account ii) MHSA - Mudaraba Hajj Savings Account iii) MSB - Mudaraba Savings Bond iv) MSS - Mudaraba Special Scheme v) MTDR - Mudaraba Term Deposit Account vi) MMPDS - Mudaraba Monthly Profit Deposit Scheme vii) MMS - Mudaraba Mahor Savings A/C viii) MSNA - Mudaraba Short Notice A/C • Al-Wadiah Current A/C (AWCA) AWCA accounts are unproductive in nature, is nature, as banks lovable investment fund is concerned sufficient fund has to be kept in liquid from, as current deposits are demands liabilities. Thus huge portion of his fund becomes on performing for this reason banks do not pay any of AWCA - CD account holder. Businessmen and companies are the customers of this product. • Mudaraba Saving Account (MSA) As per Bangladesh bank instruction 90% of SB deposit are treated as time liability and 10% of it as demand liability. In IBL there is a restriction about drawing money from SB account but any time holder may draw money of any amount with prior motive. General house holder and individuals are the clients of this account • Mudaraba Term Deposit (MTDR) Fixed deposits are of two kinds midterm deposit (MTD) and term deposit (TD) instrument whose maturity period is within one year are known as MTD and those above one year are considered as term deposit. Calculation of profit TDR and provisioning regarding this is quite complicated issue. Profit is calculation at each maturity date and provision is made on that. Also at the month and provision of profit is made. • Mudaraba saving Account (MSNA) A/C MSA account can be treated can be treated as semi term deposit. Deposit should be kept in these accounts for at least seven days to get interest of MSA accounts is less then SB accounts. (5.5%) Generally profit but may increase to 6% or more depending on the fund Checkbook is issued them but frequent use of checkbook is discouraged. Governmentally organization big corporate house and banks are generally the clients of this account. • Account Opening Eligibility a) Persons over 18 years (except some restricted persons) b) Account of Club c) Association d) Agent e) Govt. f) Semi Govt. g) Organization h) Liquidators i) Minor j) Married Women
k) Pordanshil Women l) Illiterate Persons • Account Closing First a customer has to submit an application with his/her signature mentioning that he/she wants to close his/her A/C. Then the signature will be verified by the officer. Customer has to certify by different department (Advance, Foreign Exchange department) of Bank that he/she has no liabilities to the Bank. After that the Customer's A/C is debited and then Bank issue a Pay Order in the name of A/C holder. • Account Transfer Customer has to submit an application mentioning that he/she wants to transfer his/her A/C to his desired Branch and the officer will verify the signature, Customer has to be certified by different department of Bank that he/she has no liabilities to the bank. Then total particulars of A/C holder will prepare and sent to the Customer's desired branch. Liability of Recognizer is secondary and account holder is Primary. • General Practice at Regarding Accounts, in Account Opening Register After fulfilling all the requirements for opening account necessary entries are given in the account opening register. There are several registers for several accounts as MSA, AWCA, TDR etc. Date of opening name of the account holder, nature of business, address, initial deposit, and introduction various information are recorded in that register. New accounts number is given from the list of new numbers provided by the computer department.3.7.1 The principles of calculation and distribution of profit to Mudaraba Depositors generally followed by different Islami Banks are : •
Mudaraba Depositors share income derived from investment activities i.e. from the use of fund.
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Mudaraba Depositors do not share any income derived from miscellaneous banking services where the use of fund is not involved, such as commission, exchange, service charges and other fees realized by the Bank.
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Profit and loss resulting from the use of funds are separately maintained in the accounts from other income and expenditure relating to other activities and services offered by the Bank.
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Mudaraba Deposits get priority in the matters of investment over Bank's equity and other cost free funds.
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Mudaraba Depositors do not share any income derived from investing Bank's equity and other cost free fund.
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The amount of the statutory cash reserve and the liquidity reserve, which are required to be maintained with Bangladesh Bank, is deducted from the aggregate balance of Mudaraba Deposits to arrive at the net balance of profit sharing deposit.
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The gross income derived from investments during the accounting year is, at first,
allocated to Mudaraba Deposits and cost-free-funds according to their proportion in the total investment. •
The share of gross investment income of Mudaraba Deposits as worked out in terms of principle shown against serial No 7 above is distributed as under:
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The Bank’s Management at its discretion to rationalise the Rates of profit to Mudaraba Depositors might further raise Mudaraba Depositors’ share of 65% of gross investment income but it would not be reduced during any accounting year without giving prior declaration
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The rest amount of gross investment income is retained by the Bank as management fee for managing the investment & for making reserve for Bad & doubtful investments.
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Islami Bank Bangladesh Ltd, at present, applies the following weightages to Mudaraba Deposits: Sl. no. Particulars of Deposits Weightages 1. Mudaraba Hajj Savings A/C : 11 to 12 years 1.35 2. Mudaraba Hajj Savings A/C : Upto 10 years 1.30 3. Mudaraba Special Savings (Pension) A/C (MSS): 10 1.30 years 4. Mudaraba Special Savings (Pension) A/C (MSS) : 5 1.10 years 5. Mudaraba Muhur Savings Account (MMSA) : 10 1.30 years 6. Mudaraba Muhur Savings Account (MMSA) : 5 years 1.10 7. Mudaraba Savings Bond (MSB) : 8 years 1.25 8. Mudaraba Savings Bond (MSB) : 5 years 1.10 9 Mudaraba Monthly Profit Deposit A/C (MMPDS) 1.20 10. Mudaraba Term Deposit Account (MTDA) : 36 1.00 months 11. Mudaraba Term Deposit Account (MTDA) : 24 0.98 months 12. Mudaraba Term Deposit Account (MTDA) : 12 0.96 months 13. Mudaraba Term Deposit Account (MTDA) : 6 0.92 months 14. Mudaraba Term Deposit Account (MTDA) : 3 0.88 months 15. Mudaraba Savings A/C (MSA) 0.75 16. Mudaraba Foreign Currency Deposit A/C (MFCDA) 0.75 17. Mudaraba Special Notice A/C 0.55 Source : Diary 2005, IBBL, Page 13-14. •
Differential rates of weight ages have been assigned to Mudaraba Depositors on account of the following factors: a) Period of Deposits
The longer the period of deposit, the greater the risk they bear with regard to fluctuation of the rates of profit and erosion of the value of deposit due to inflation. The Term Depositors have also to forgo profit in case of premature encashment. b) Banking Facilities The Term Depositors do not enjoy any banking facility such as, operating accounts by cheques, transfer of account from one branch to another, collection of cheques and other instruments, executing standing instructions through their accounts and so on and so forth. On the other hand, the PLS Savings Depositors have freedom to get the above services through their accounts. PLS Short Notice Depositors enjoy still greater facilities in regard to making deposits in and withdrawal from their accounts. c) The pattern of Rates of Return on various types of cost bearing deposits of the traditional Banks in our Money Market have also an important bearing on allocation of weight age a different rates. d)
In consideration of the above factors, full weight age has been assigned to our Mudaraba Deposits of 36 months and relatively lower Weight ages have been given to Mudaraba Deposits of lower periods, Mudaraba Savings and Mudaraba Short Notice Deposits. •
Local Remittance
IBBL sells and purchases PO, DD and TT to its customers only. It does not offer remittance service frequently to those other then its customer. •
Pay Order (PO)
Pay Order an instrument, which is used to remit money with in a city thorough banking channel the instruments are generally safe as most of them are crossed. •
Issuing of a pay order (PO)
A customer can purchase pay order in different ways: By Cash A/C............................................................................. Dr By account Client A/C ............................................................. Dr By transfer head office/other departments client A/C .............
Dr
Bills Payable (PO) A/C ............................................................Cr Income A/C commission on Remittance .................................Cr •
Demand Draft (DD)
Demand Draft is many popular instruments for remitting money from one corners of country another. The instrument is basically used for transfer and payment. Difference between pay order and demand draft is in terms of place only PO is used for remittance money with in the city where as DD is used for within the country DD too, constitutes current liability on the part of a bank. At IBBL DD is not sold to people other than its customer. •
Telegraphic Transfer (TT)
Telegraph transfer in one of the fastest means of transferring money from one branch to another or from one to another. The TT issuing bank instructs its counterpart by tested telex message regarding remittance of money. No instrument is given for TT both parties should have account, as money is transferred. • Clearing As far safety is concerned customers get crossed check for the transaction. As we know crossed check cannot be encased from the counter rather it has though been collected through banking channel i.e. clearing. A client of IBBI received a check of another bank, which is located with in the clearing range deposit, the checks in account at IBBL New IBBL will not the money until the check is honored. • Transfer Delivery Transfer delivery is a cheque collection procedure among internal branches within the Clearing House. When a cheque is of a Branch Office is deposited to another Branch Office, then collecting branch on that date sends that cheque to their, Local Office, sends that cheque to that respective branch and takes necessary action for honoring cheque. If the cheque is dishonored then authorized branch send the cheque to the local office and Local Office send that cheque to the collecting branch on the collecting date. Here Clearing house function is not required because transactions occur among the same branch of same Bank within the Clearing House. • Cheque is of a same branch of IBBL If the cheque is of a Branch Office of a Bank (within the Clearing House of same city) then the collection branch send the cheque to the authorized branch/drawn on branch and issues an IBCA to the collecting branch. On the other hand, if the cheque is of another Bank (outside of Clearing House to another city) then cheque collecting branch will find out whether any branch office of the collecting branch situated near to Authorized branch. If yes, then cheque collecting branch will send the cheque to the branch office near Authorized branch, that branch (near Authorized branch) office collect the cheque from drawn on branch and issues an IBCA. If not, then the collecting branch will send that cheque to the Authorized branch, after that Authorized branch will send a DD with mentioning the name of their branch office near collecting branch and collecting branch will collect that cheque thereby. •
Outward Bills for Collection (OBC)
Customers deposit check draft etc for collection attaching with their deposit sleep. Instrument within the range of clearing arc collected through local clearing house but the other which are outside the clearing range are collected through OBC mechanism. A customer of IBBL principal branch local office Dhaka is depositing a check of Sonali bank Coxs-Bazar. New as a collecting bank IBBL principal branch will perform the following task. 1. Received seal on deposit slip. 2. IBBL local office principal branch crossing indicating them as collecting bank. 3. Endorsement give payees A/C will be credited on realization. 4. Entry on register from where a controlling number is given.
Collecting bank can collect it either by its branches of by the drawer's bank they will forward the bill then to that articulate branch. OBC number will be given on the forwarding letter. • Inward Bills for Collection (IBC) In this case bank will work as an agent of the collection bank branch receives a forwarding letter and the bill. Next steps are: 1. Entry in the IBC register, IBC number given. 2. Endorsement given- "our branch endorsement confirmed". 3. The instrument is sent to clearing for collection. 4. Miscellaneous creditor A/C. Now following procedures will take place in case of the following two cases. • Bills Collected Through Branch If the bill is forwarded to a branch they will collect it through IBC procedure. Collecting branch will receive and l.B.C.A from that particular agent branch according treatment from the angle of collecting branch will be. H.O. A/C concerned branch..................................................... Dr Customer A/C........................................................................... Cr Income A/C commission; postage............................................ Cr In this case commission will be charged by the collecting branch, not the agent branch. • Bills Collected Through Drawer's Bank Accounting treatment for the collecting branch will be a. Clearing............................................................................... Dr b. Customers A/CC................................................................. Cr Inward Bills For Collection (IBC) In this case bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill. Next steps are. 1. Entry in the l.B.C register, I.B.C number given. 2. Endorsement given - "Our branch endorsement confirmed" 3. The instrument is sent to clearing for collection................... Dr 4. Miscellaneous Creditor A/C OBC......................................... Cr
INTER BRANCH GENERAL ACCOUNT (IBG A/C) This is Branch transaction settlement account through Central Accounts Department (CAD). IBG statement of Branch is of two kinds: Originating Branch From where IBCA (Inter Branch Credit Advice) or IBDA (Inter Branch Debit Advice) is send to other branch that branch is called Originating Branch. Credit Transaction When a branch requests another branch (of the same bank) to pay a certain amount against any instrument (cheque, DD etc) and become liable to that bank, issues a IBCA to that branch and these transactions are recorded in the Credit side of IBG A/C serially.
• Debit Transaction When some cheques or any sort of financial instrument of another branch are deposited in a branch and this branch pays those instruments on behalf of authorized branch, issues an IBDA to that branch and these transactions are recorded in the Debit side of IBG A/C. • Responding Branch When a branch responds against an IBCA or an IBDA that branch is called Responding Branch. • Debit Transaction Incase of responding transactions, say a customer wants to draw any sort of financial instrument of a branch to some other place at his/her convenient then authorized branch of that financial instrument issues an IBCA to that "Drawn On" branch. Here "Drawn On" branch of Responding Branch pays on behalf of Originating Branch and record all transactions in the Debit side of the IBG A/C. • Credit Transaction Cheques are deposited for payment in a branch that branch sends those cheques or other financial instrument to Clearing House for clearing. After clearing those cheques or financial instruments collecting branch makes payment against those financial instruments, before paying this branch as Originating Branch sends an IBDA to the Authorized Branch/Responding Branch If those financial instruments are dishonored then respective parties are not paid and authorized Branch/Responding Branch again sends an IBDA to the Originating Branch. These returned financial instruments advice are recorded in the Credit side of the IBG A/C. • Cash Cash section demonstrates liquidity strength of a bank. It also sensitive as it deals with liquid money. Maximum concentration is given while working on this section. As far as safety is concerned specials precaution is also taken. Tense situation prevail if there is any imbalance in the case. • Vault All cash instruments (PO, DD, Check) and other valuables are kept in the vault is insured up to Tk. 4 core with a local insurance company. If cash stock goes beyond its limit of Tk. 4 core the excess money is transferred to Bangladesh bank if there is shortage of cash during transaction period money is transferred to drawn from the central bank. There are three keys of the vault, which are given to three seniors most officers. Daily an estimated amount of cash is brought out from the vault for transaction purpose. No more than Tk. 4 core brought at once from the vault on a single day. • Teller Customers Relationship In a bank a person who delivers and receives cash from the cash counter is known as teller a customer meets most of the time in a bank with a taller on the counter. So teller should hold certain quality should be friendly, provided prompt service and be accurate in his task. • Cash Packing and Handling Cash packing and handling needs a lot of care as any mistake may lead to disaster. Packing after banking hour when the countries closed cash is packed according to denomination. Notes are counted several times and packed in bundle Stetted and stumped with initial. • Evening Banking: After the banking hour the cash counter is closed. But sometimes customers come to draw or deposit money after the service hour. However their money is received or paid recorded in the next daybook. This is known as evening.
INVESTMENT MANAGEMENT OF IBBL: Conventional and Islamic bank operate to earn profit but they differ in the way of operation. Islami Bank emphasized legitimate (Halal) business. On the other hand traditional bank is not operated by the following rules and regulations approved by Islam that is the most powerful contradiction between them. Islamic Bank does not invest in loans and fixed interest securities. It can invest in ordinary share only while interest based bank can invest in loans and different kinds of securities. Islami Bank establishes and participate projects with its client as a partner and bears the risk along with the client on a proportionate basis. Besides, other conventional banks sometimes finance projects but do not bear risk. Finally, the concept of Islamic Bank is to establish on egalitarian society based on principles of social justice and equity. Whereas traditional banks pay a fixed interest on savings, time deposit and grant loans with interest for any purpose. We have gathered the fact that investment management is the theme of IBBL. The bank takes deposits and invests the same based on the profit-loss sharing. Bank go for the investment mainly which are long term and profitable in nature. IBBL also give high concentration on the investment that will generate more employment. As investment is one of the most priority areas for the IBBL, so it needs to cautious in investment decision. To ensure proper investment IBBL always goes with indepth study before making the investment. So in the next phases we are going to demonstrate the way IBBL follow the manage investment. One of the significant and revolutionary development in the banking area of the world during last four decades is the emergence and extra ordinary development of Islamic Banking in different countries of the world which has drawn the attention of the scholars and general public of the Muslim and non-Muslim countries including the world bodies like International Monetary Fund, World Bank etc.
3.1 Investment: The special feature of the investment policy of Islamic Banks is to invest based on profit-loss sharing system in accordance with theMechanism tenets and principles ofIjara Islamic Sharia. Earning of the BaiMechanism Share Mechanism profit is not the only motives and objectives of the Islamic Bank’s investment policy rather emphasis is given in attaining social good and in creating employment opportunities.
3.2 Investment Modes of IBBL A) Bai-Murabaha B) Bai-Muajjal C) Bai-Salam D) Istishna’a
A) Mudaraba B) Musharaka
A) Hire Purchase B) Hire Purchase Under shirkatul Melk
1. Bai-Mechanism (Trading mode): A) Bai-Murabaha: Bai- murabaha may be defined as a contract between a buyer and a seller under which the sells certain specific goods (permissible under Islamic shariah and the law of the land) to the buyer at a cost plus agreed profit payable in cash or on any fixed future data in lump sum or by installments. The marked up profit may be fixed in lump sum or in percentage of the cost price of the goods. Important features: • It is permissible for the client to offer an order to purchase by the bank particular goods deciding its specification and committing him to buy same from the bank on murabaha, i.e. cost plus agreed upon profit. •
It is permissible to make the promise binding upon the client to purchase from the bank, that is, he is to satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
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It is also permissible to take cash / collateral security to guarantee the implementation of the promise or indemnify the damages.
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Stock 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.
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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 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, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.
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The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
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The bank shall the goods at a higher price (Cost + {profit) to earn profit. The cost of goods sold and profit markup therewith shall separately and clearly be mentioned in the Bai-Murabaha 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 circumstance, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc.
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The price once fixed as per agreement and deferred cannot be further increased.
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It is permissible for the bank to authorize any third party to buy and receive the goods on Bank behalf. The authorization must be in a separated contract.
B) Bai-Muajjal: Bai-Muajjal may be defined as a contract between a buyer and seller under which the seller sells certain specific goods permissible under Islamic 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 him as per order and specification of the buyer. Important feature: i) Bank is not bound to declare cost of goods and profit mark-up separately to the client. ii) Spot delivery of the item and payment is deferred. iii) The bank transfers ownership and possession of the goods to the client before receipt of sale price. iv) Client may offer an order to purchase by the bank any specified goods and committing himself to buy the same from the Bank on Bai-Muajjal mode. v) It is permissible to make the promise binding upon the client to purchase from the bank. That is, he is either to satisfy the promise or to indemnify damage caused by breaking the promised. vi) Cash /Collateral Security should be obtained to guarantee the implementation of the promise or to indemnify the damages. vii) Mortgage / Guarantee /Cash Security may be obtained before / at the time of signing the agreement. viii) Stock and availability of goods is a pre- condition for Bai- Muajjal agreement. The responsibility of the bank is to purchase the desired goods at the disposal of the client to acquire ownership of the same before singing the Bai-Muajjal agreement with the client. ix) The Bank after purchase of good must bear the risk of goods until those are actually delivered to the client. x) The Bank must deliver the specified goods to client on the specified date and at specified place of delivery as per contract. xi) The Bank may sell the goods at one agreed price, which will include both the cost price and the profit. xii) The price once fixed as per agreement and deferred cannot be further in increased. C) Bai-Salam: Bai-Salam may be defined as a contract between a buyer and a seller under which the seller in advance in the certain commodity/products permissible under Islamic Shariah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the
commodity products to the buyer at a future time in exchange of an advance price fully paid on the spot. Importance Features: Bai-salam is mode of investment allowed by Islamic Shariah in which commodity/product can be sold without having the said commodity (ies)/product(s) either in existence or physical/constructive possession of the seller. If the commodity /product are ready for sale, Bai-Salam is not allowed in Shariah. Then sale may be done either in Bai-Muajjal mode of investment. Generally, Industrial and agricultural products are purchased /sold in advance under BaiSalam mode of investment to infuse finance so that product is not hindered due to shortage of fund/cash. • It is permissible to obtain collateral security from the seller client to secure the investment from any hazards Vis non-supply of supply of commodity (ies)/product, supply of low quality commodity (ies)/ product(s) etc. • 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 of signing the agreement. • Bai-salam on a particular commodity (ies)/product(s) or on a product of a particular field or farm cannot be affected. D) Istishna’a: Istishna’a is a contract between a manufacturer/seller and a buyer under which the Manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic shariah and Law of the Country after having manufactured at an agreed price payable in advance or by installments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer. Important Feature: •
Istisna’a is an exceptional mode of investment allowed by Islamic shariah in which product(s) can be sold without having the same in existence. If the product(s) are ready for sale, Istishna’a is not allowed in shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode of investment. In this mode, deliveries of goods are deferred and payment of price may be deferred.
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It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods.
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It gives the buyer opportunity to pay the price in some future dates or by installments.
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It is a binding contract and party is allowed to cancels the Istishna’a contract the price is paid and received in full or in part or the manufacturer starts the work.
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Istishna’a is specially practiced in Manufacturing and industrial sectors. However, it can be practiced in agricultural and constructions sectors also.
2. Ijara Mechanism (Leasing Mode): A) Hire purchase/Ijarah: The term Ijarah has been derived from the Arabic words Ajr and Ujrat, which means consideration, return, wages or rent. This is really the exchange value or consideration; return wages font of service of an asset. Ijarah has been defined as a contract between two parties, the Hiree andHirer where the Hirer enjoys or reaps a specific service or benefit againsta specified consideration or rent from the asset owned by the Hiree .to a Hirer against fixed rent or rentals hires out a certain asset for a specified period. B) Hire Purchase under Shirkatul Melk: Hire Purchase under Shirkatul Melk is a Special type of contract that has been developed through practice. Actually, it is a synthesis of three contacts: •
Shirkatul Melk: Shirkat 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.
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Ijarah: The term Ijarah has been derived from the Arabic words (Air) and (Ujrat) which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service f 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 the Hiree to a Hirer against fixed rent or rentals hires out a certain asset for a specified period.
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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 mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, and machinery, transport etc. Purchase the asset with that quit money, own the same jointly, share the benefit as per agreement and bear the loss in proportion their respective equity. The share, part of 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 the either gradually part by part or in lump sum within the hire period or after the expire of the hire agreement. Importance Features: o In case of Hire Purchase under Shirkatul melk transaction the assets / property involved is jointly purchased by the Hiree (Bank) and the Hirer (client) with specified equity participation under Shirkatul Melk contract in which the amount of equity and share in ownership of the asset of each partner (Hiree Bank and Hirer Client) Are clearly mentioned. Under this agreement, the
Hiree and the become co-owner of the asset under transaction in proportion of their respective equity participation. o
In Hire Purchase under Shirkatul Melk agreement, the exact ownership of both Hiree (Bank) and Hirer (Client) must be recognized. However, if the partners agree and wish that the asset purchased may be registered in the name of any of them or in the name of any third party, clearly mentioning the same in the Hire purchase Shirkatul melk agreement.
o
The share /part of the purchase asset owned by the Hiree (Bank) is put at the disposal / possession of the Hirer (client) keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulation are also to be clearly stated. Under this agreement, the Hirer (client) becomes the owner of the benefit of the asset but not of the asset itself, in accordance with the specific provision of the contract which entitles the Hiree (Bank) is entitled for the rentals.
o
As the ownership of hired portion of the asset lies with the hiree (bank) and rent is paid by the Hirer (client) against the specific benefit, the rent is not considered as price of the asset.
o In the Hire Purchase under Shirkatul Melk agreement, the Hiree (Bank) does not sell or the Hirer (Client) does not purchase the asset but the Hiree (bank) premise to sell the assets to the Hire (client) part by part only, if the Hirer (client) pays the cost price /equity /agreed price as fixed for the asset as per stipulation within agreed upon period on which the hirer also gives undertakings. o
The promise to transfer legal title by the Hiree and undertaking given by the Hirer to purchase ownership of the hired asset upon payment part as per stipulations are affected only when it is actually done by a separate sale contract.\
Share Mechanism A) Mudaraba: It is a form of partnership where one party provides the fund while the other provide the expertise, labor and the letter referred to at the Mudarib any profits accrued are shared between the two parties on a pre –agreed basis, while capital loss in exclusively born by the partner providing the capital. Importance Features: •
Bank supplies capital as Sahib- al –Mall and client invest if in the business with his experience.
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The client maintains administration and management
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Profit is divided as per agreement.
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Bank bears the actual loss alone.
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Client cannot take another investment for that specific business without the permission of the Bank.
B) Musharakah: The term Shirkat and Musharakah have been derived from Arabic words “Shairkah” and “Sharika.” The word shirkah means a partnership between more than one partners. Thus the ward “Musharaka” and “Shirkat” means a partnership established between two or more partners for purpose of a commercial venture participate both in the capital and management where the profit may be shared between the partners as per agreed upon ratio and the loss. If any incurred, is to be borne by the partners at per capital /equity ratio. Important Features: The investment client will normally run manages the business. The bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operation s of the business of the client. The bank may appoint suitable personal(s) to run the manage the business and to maintain books of accounts of the business property. As the investment client shall manage the enterprise, the bank may more share of profit to him than that of his proportion capital contribution. Loss, if any, shall be shared on the basis of capital ratio.
3.3 Operational Procedure of Investment of IBBL: •
Induction of client
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Application
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Categorization
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Processing and appraisal
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Sanction
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Documentation
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Purchase of goods by the Bank
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Taking delivery of goods by the Bank
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Sales and delivery of goods to the client
Application: • • •
Obtain application in triplicate from the client of F-167A and record the same in the Investment Proposal Received and Disposal Register (B-53). Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/ Trustee/ Administrator on the top right hand corner of the application. Scrutinize the application of the Client to see that(a) All columns are properly field in; (b) Particulars and information given therein are complete and correct in all respects; (c) All required Documents/papers as listed in the footnote for the application is submitted;
(d) It is signed by the client as per specimen signature with the bank and duly verified by the authorized official of the bank. Categorization: Categories the proposal as under: • Hire Purchase under Shirkatul Melk Commercial: Investment on hire purchase under Shirkatul Melk mode to individual /firm/company /society for commercial purpose shall be termed as hire purchase under Shirkatul Melk Commercial. • Hire Purchase under Shirkatul Melk Industrial: Hire Purchase under Shirkatul Melk investment to industrial undertaking in the form of land, building, machineries, equipment, transport, etc shall be termed as Hire Purchase under Shirkatul Melk Industrial • Hire Purchase under Shirkatul Melk Agriculture: Hire Purchase under Shirkatul Melk investment to agriculture sector in the form of Agriculture equipment’s, machineries, shallow Tube–well, Tractor, trailers, Transport etc. shall be termed as Hire Purchase under Shirkatul Melk agriculture. • Hire Purchase under Shirkatul Melk Transport: Hire Purchase under Shirkatul Melk Industrial in the form of transport –Bus, truck, car, taxi, lunch, steamer, cargo vessel, air transport etc. shall be termed as Hire Purchase under Shirkatul Melk transport. HHire Purchase under Shirkatul Melk Commercial • Hire Purchase under Shirkatul Melk Industrial: Hire Purchase under Shirkatul Melk Agriculture Hire Purchase under Shirkatul Melk Transport • ire Purchase under Shirkatul Melk Real Estate: Hire Purchase under Shirkatul Melk Industrial in the form of land building, market, apartments, for use /rental shall be termed as Hire Purchase under Shirkatul Melk Real Estate. Processing and Appraisal: Enter the Application in the “Investment Proposal Received and Disposal Register (B-53) and allot a Serial Number to it. •
Examine shariah permissibility of the goods. Reject the proposal outright, if not permitted by Islamic Shariah.
•
Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current Investment Policy Guidelines.
•
Visit the Business establishment of the Client. Talk to the business and important personalities of the locality to ascertain the Honesty, Integrity and Business dealings of the Client.
•
Request for confidential report of the client from local Bank Branches. Confident Report from Credit Information Bureau (CIB) of Bangladesh Bank through Head Office Investment Division as per Instruction Circular of Head Office in this Regard.
•
Obtain Financial Statement/Balance Sheet of the Client for the last three consecutive years for Investment Proposals of Tk. 50.00 lac or above as per Head Office Instruction.
•
Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or Hypothecated.
•
Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of the Bank for examination and furnishing his opinion.
•
Obtain Lawyer’s Opinion as per clause No. 8.02.
•
Please study the following carefully and note down the actual findings in the Appraisal Form against each item :
•
Work out the purchase and sale prices of the goods as per guidelines.
Documentation: Before purchasing the asset/property by the Bank, obtain sufficient collateral securities as mentioned in the sanction advice along with the following charge documents properly executed i.e. duly filled in, signed, stamped, verified and witnessed where necessary: • • • • • • • • • • • • • • • • •
Hire Purchase under Sirkatul Melk Sanction Advice deal-wise duly accepted by the client. Hire Purchase under Shirkatul Melk Agreement (Deal-wise). Letter of Pledge (Deal-wise)/Mortgage Deed. Single party D.P. Not, if there is no guarantor. Double party D.P. Not, if there is guarantor (s) to be made by the Client in favor of the guarantor and endorsed by the later to the Bank. D.P. Not Delivery letter. Letter of Hypothecation for the asset(s) and Client’s stock in Trade/work- in process. Letter of Disclaimer, (if stored in Client’s/Party’s own/hired Godown. Insurance policy (If stored in Client’s/Party’s Godown/yard under Bank’s effective control) duly recorded in insurance register. Letter of guarantee. Balance confirmation letter. Letter of installments. Letter of Disbursement. If the investment is made collaterally secured by Mortgage of property, obtain the following documents: In case equitable mortgage, Memorandum of Deposit of Title Deep (MDTD) signed by the owner of the property. In case of Legal Mortgage, Registered Mortgage Deed should be obtained. Personal Guarantee of the owners of the property on.
• • • •
Original Title Deeds with CS, RS, SA, Mutation Parcha, DCR of the property and Mutation record. Up-to-date Rent Receipt. Non-encumbrance Certificate along with Search Fee Paid Receipt of the concerned Registry/Sub-Registry office. Site plan (Map/Naksha) of the Mortgaged property.
Where the Investment is secured by pledge/Hypothecation of Stock-in-Trade, Machineries etc., also obtain the following Document: • • • •
• • • • •
• • • • •
•
Letter of Pledge asset & goods security, for Client’s stocks in Trade/work-in-Process etc. if any. Letter of Hypothecation for Client’s stocks stores, Work-in-Process etc. Legal Mortgage of Machineries with full details of each machinery In case the investment collaterally/ additionally secured by pledge of Shares of reputed Public Limited Company on Bank’s approved list and quoted in the Stock Exchange, the following additional documents are to be obtained: Agreement for Pledge of share along with original share certificates (No share in the name of minor shall be accepted as security). Blank Share Transfer Deed in Duplicate – on copy signed, dated and another copy signed and undated. Share Delivery letter addressed to the Bank. Letter to the concerned Company to register Line in Bank’s favor. This notice shall be sent be registered acknowledgement due post (registered A/D post) and confirmation of recording the Line shall be obtained from the concerned company. Letter of authority in Bank’s favor duly signed by the shareholder to collect dividend /Bonus on his behalf on the share pledged to the Band. In case of Investment to partnership Firms, obtain the following Document: o Copy of partnership deed signed by all partners. b. Copy of partnership deed duly attested by a 1st Class Gazetted officer with the original copy and attested by the incumbent-in-charge of the Branch. In case of investment to private or public Limited Company, obtain the following additional document: Obtain certified copy of the Memorandum and Articles of Association of the company to ensure that the company has necessary power to borrow/avail investment from any Bank. Resolution of the board Directors of the Company to avail Investment/Facility/Borrow, do Business with IBBL and authorizing the office bearers to execute necessary Documents. Personal Guarantee of the Directors of the Company. If the investment is allowed on Hypothecation of assets, in addition to other charge documents, 1st charge under relevant section of the Company’s Act-1994 shall be created in Bank’s favor in respect of Company’s assets prescribed as security. This charge shall be created with the registrar of Joint Stock Companies within 21 days from the date of execution of relative Change Documents. Certificate issued by the registrar of Joint Stock Companies under section 114 of The Companies Act-1994 in respect of creation of charges.
•
• • • •
Copies of Memorandum and Articles of Association with the latest amendments, if any, duly certified by the registrar of joint stock companies and attested by the managing director on every page with official seal of the company and duly verified by the Incumbent-In-Charge of the Branch. A copy of the Certificate of Incorporation duly attested by the Incumbent-In-Charge of the Branch. A copy of the certificate of commencement of Business (incase of publish Limited company) duly attested by the Incumbent-In-Charge of the Branch. In case of investment to a trust organization obtain the following Document in addition to other charges Documents:
•
Copy of trust deed duly attested by a 1st class Gazette officer and verified by the incumbent-in-charge of the branch with the original copy. The Trust Deed must contain a clause authorizing the Trustees to do Business with banks and to avail investment facilities /borrow from banks. Resolution of the Board of Trustees to do business with IBBL and avail investment/borrow from IBBL. The charge documents and all other agreements shall be signed /executed by persons authorized by all the members of the board of Trustees, in Trustees are authorized to delegate their powers by the trust Deed; otherwise all the Trustees must sign/execute the charge documents and all other agreements. Personal guarantee of all the members of the board of trustees must be obtained.
•
In case of investment to co-operative security, obtain the following documents also:
•
Clearance from the register of co-operative societies for doing business and avail faculties / investment from IBBL within the annual borrowing limit of the society. Litter to be issued to; the concerned registrar of co-operative societies under registered A/D Mail informing about allowing investment /facility to the concerned society by the bank as per clearance accorded by him. Personal guarantee of the office Bearers of the society if their personal capacity. A copy of the bylaws of the society duly certified by the registrar of the co-operative societies.
• •
• • •
Signature of the Client: After completion of Document, enter Document in Documents Execution Register (B-103). Movement of Document, if any, should be duly recorded in the Document Excustody Register duly singed by the Custodians. Purchase of Goods by the Bank: •
That the goods desired by the Client are first purchased by the Bank and the ownership of the Bank on the goods is established, i.e. Bank must transform its money into goods.
•
That after purchase of the goods, the risk of the goods is borne by the Bank until the possession of the Merchandise has been passed on the Client.
•
That the specification of the goods, delivery schedule and other terms of contract are fulfilled.
•
Obtain deal-wise application Order for Purchase on F-136 after due study.
•
Open investment account in Investment Account Opening Register (B-102).
•
Enter the Account Particulars in the Investment Ledger (B-105).
•
It should be carefully noted that purchase of goods shall be made only after completion of all the Documentation formalities, including Pre-Audit memo (F215).
•
In case purchase of Bai-Murabaha goods by the Bank on Credit/deferred payment basis, the Bank shall execute a Credit Purchase Agreement with the seller to that effect mentioning date of delivery of Goods to the bank and that of payment by the Bank.
•
If the goods are to be purchased from the local or outstation market and money is to be paid/remitted thereof and other expenses such s TA/DA, transportation etc, shall be borne by the Bank, which shall ultimately be loaded on the cost of Goods.
Taking Delivery of Goods by the Bank: •
After finalization of purchase of Bai-Murabaha Goods either by the Bank officials or through any Agent from the local or out station market the Bank shall request the seller to deliver the goods purchased to the Bank’s Authorized official /Agent or to the Bank go down against proper acknowledgement.
•
After taking delivery of the goods by the Bank or trough and Agent, the Bank shall make payment of the price of the goods to producers /sellers /supplier through DD/TT/PO against Cash memo which will exclusively be issued in the name of the Buying Agent.
•
The Bank shall not be invest in such cases where the allotting Authority will not accept the Letter of Authority and agree to deliver the goods to the Bank as per authorization of this Allotted.
3.4 Mode Wise Investment: Mode wise distribution of investment as on 31 st December 2003 vis-à-vis corresponding period of last year is given below: (Million in Taka)
Investment Mechanism
31-12-2006
31-12-2007
Modes of Investment
Amount
% of total Amount Investment
% of total Investment
Bai-Murabaha
23,522.92
50.83%
31,138.88
52.77%
HPSM
14,131.48
30.53%
18,065.10
30.62%
Bai-Muajjal
4,965.76
10.73%
5,512.13
9.34%
Purchase & Negotiation
1865.26
4.03%
1,801.33
3.05%
1,765.65
2.99%
610.27
1.04%
102.00
0.17%
12.13
0.02%
59,007.49
100.00%
Quard-E-Hasana Bai-Salam
407.98
0.88%
Mudaraba Musharaka
37.02
0.08%
Others
1350.19
2.92%
Total
46280.61
100%
Part-2 SPECIAL INVESTMENT SCHEMES OF IBBL: Islami Bank Bangladesh Limited, since its inception, has been working for the upliftment and emancipation of the underprivileged, suppressed, downtrodden and neglected sections of the populace and has taken up various schemes for their well-being. The objectives of these schemes are to raise the standard of living of low-income group, development of human resources and creation of avenues for self-employment.
3.1.1 Household Durable Scheme (HDS): The Household Durable Scheme has been introduced in 1993. The objective of the scheme is to increase standard of living and quality of life of the fixed income group by extending them investment facilities to purchase household articles such as furniture like sofa set, wardrobe; electric and electronic equipment like Television, Refrigerator, Gas cooker, Air Conditioner, P.C., Washing Machine, Electric Generator, Motor Cycle; Gold Ornaments, Mobile phone; Medical Equipment, Engineering Equipment, Educational Equipment etc. Objectives • To assist service holders with limited income in purchasing household durable. • To assist the fixed income group in raising the standard of living. • To create opportunity for the service holders to enjoy the benefit of modern and sophisticated living and at the same time lead a decent and honest life. • Eligibility
• • • • • • • • • • • • • • • • • •
• •
Interested permanent officials of the following organizations may apply for investment: Government Organizations. Semi-Government Organizations and Autonomous Bodies. Banks and Financial Institutions. Armed Forces, BDR, Police and Ansars. Teachers of Universities, Government Colleges, School and Senior Madrashas. Officers of International Financial & Relief Organization. Officers of the multinational companies. Officers of the local established and renowned public limited companies. Permanent Teachers & Officers of prominent Private Universities, Medical Colleges & University Colleges. House Owners. Doctors, Engineers, Architects, Chartered Accountants/ FCMA and other important professionals. Investment clients of IBBL. Deposit client of IBBL. Shopkeepers and Businessman. Wage earners, Panel lawyers of IBBL, C & F Agents enlisted in IBBL etc. Graduate & post Graduate Students of Universities, Medical Colleges, Engineering Colleges, University Colleges for purchase of PC, Medical/Engineering Equipment/ Machinery, Books etc. In case of Government, Semi-Government and Autonomous Organizations the age of the investment clients must be 25 and above with at least three years of service and he must have at least three years of service prior to his retirement. In case of private organizations, teachers of school, college and madrashas the age of investment clients must be in between 30-50 with at least five years of service and he must have five years of confirm service prior to his retirement in the same organization. In case of others service holders the age limit must be within 27-60 years. In case of students the minimum age must be 18 years and maximum 25 years.
Security The investment client shall execute/provide the following documents in order to secure the investment: • All required charges documents as per rules of the Bank. • A written undertaking to the effect that the monthly installments shall be paid regularly. • Personal guarantee of an official of the same rank or superior rank. The guarantee shall have to be duly authenticated by the competent authority of the concerned organization. • Personal guarantee of another person, preferably family member (Taka in millions) Particulars Household Scheme
2001 Durable 588
2002 735
2003 866
2004 887
2005 911
2006 879
2007 879
Household Durable Scheme 1000 900 800 700 600 500 400 300 200 100 0
2001
2002
2003
2004
2005
2006
2007
3.1.2 Housing Investment Scheme (HIS): One of the basic human needs is to have a house to live in. A house is an abode of peace and happiness. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis. To meet this basic human need, Isalmi Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy living. The Bank has introduced “Housing Investment Scheme” with the objective to ease and minimize the housing problem and assist service holders and professionals with limited income in materializing their dream of becoming owner of housing. Primarily the scheme is extended to 6 divisional cities, which is being extended gradually to other greater district towns. Objectives •
To extend the benefits of the investment of the Bank under the Scheme to different sections of the people.
•
To assist in solving the existing housing problem of the country.
•
To assist the service holders and professionals with fixed income to arrange for house of their own.
•
To extend the investment facilities of the bank to every nook and corner of the country, by size of investment, by sector of investment and on the basis of geographical area.
•
To make investment facilities easily available under Islamic Shariah to those people who do not want to avail investment facilities from interest-based financial institutions.
Eligibility Initially the following categories of people shall be eligible to apply for availing investment facilities under this Scheme: •
Officials of the Defense Forces.
•
Permanent Officials Organizations.
•
Teachers of the established Universities, University Colleges & Medical Colleges.
•
Graduate, Engineers, Doctors and established professionals.
•
Bangladeshi Officials of reputed Multinational Companies, International Financial Organizations, Donor Agencies, foreign Embassies etc. Officials of local established & reputed Public Limited Companies.
•
Wage earner professionals like Doctors, Engineer, Accountants, Teachers and any other profession doing job abroad with hand-some some-package.
of
Government,
Semi-Government
and
Autonomous
Security •
Personal guarantee of the clients, his/her spouse, adult son(s) and daughter(s) shall have to be obtained.
•
Mortgage of land and building to be constructed thereon, apartment/ flat/ house in favor of the Bank till the full payment of dues to the Bank.
•
An undertaking from the client as well as from the dependants (nominees) to the effect that the retirement benefits including Provident Fund will be appropriated towards adjustment of the house building investment liability of the client prior to any other appropriation, if the liability relating thereto or any of it remains unadjusted at the time of getting the retirement benefits. (Taka in millions) Particulars 2001 2002 Housing Investment 200 468 Scheme
2003 500
2004 2005 2006 598 662 725
2007 789
Housing Investment Scheme
900 800 700 600 500 400 300 200 100 0 2001
2002
2003
2004
3.1.3 Real Estate Investment Program (REIP):
2005
2006
2007
Professionals, Service-holders, Businessmen, Real Estate developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under this program. Investment is to be extended to build new houses and for extension / completion of the house already constructed, commercial building, shopping complex, flat/apartment etc. (Taka in millions) Particulars Real Investment
2001 Estate 1015
2002 1507
2003 1642
2004 2264
2005 3419
2006 4573
2007 5728
Real Estate Investment 7000 6000 5000 4000 3000 2000 1000 0 2001
2002
2003
2004
2005
2006
2007
3.1.4 Investment Scheme for Doctors (ISD): Islami Bank Bangladesh Limited has taken the initiative an introduced the “Doctors Investment Scheme” to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment. Objectives • To provide investment facilities for establishment of chambers, clinics, pharmacies and procurement of medical equipment by the unemployed medical graduates and thus to provide self-employment. • To assist newly passed unemployed medical graduates to establish clinics by way of formation of groups by 5 years. • To assist experienced and established physicians to procure improved and modern medical equipment and thus to improve the standard and techniques of treatment. • To assist specialists and consultant physicians to procure specialized medical equipment for extending improved treatment to the people. Eligibility Criteria • Newly passed medical graduates who are willing to establish chambers, pharmacies and small clinics in district and Thana level towns.
• • • •
Experienced and established doctors who are settled in district and other towns but cannot procure modern medical equipment to improve their techniques of treatment. Specialized and consulted physicians who are willing to procure latest and specialized type of medical equipment. Newly passed medical graduates who are willing to from groups in order to establish clinic. Priority is given to specialist and consultant physicians like dentists, child specialists, and ophthalmologists etc. (Taka in millions)
Particulars
2001
Investment Doctors
Scheme
for 40
2002
2003
2004
2005
2006
2007
82
95
97
101
105
109
Investment Scheme for Doctors
120 100 80 60 40 20 0 2001
2002
2003
2004
2005
2006
2007
3.1.5 Rural Development Scheme (RDS): Bangladesh is predominantly an agricultural country with vast majority living in rural areas. More than 60% of the people live below the poverty line. Seasonal unemployment and underemployment is so acute that many people remain idle and without job in most of the time of the year. As a result people in large number are migrating to urban areas, particularly in metropolis in search of employment thereby creating social and environmental hazards. Islami Bank has, therefore, taken up a Scheme to reactive the rural economy and develops model villages through integrated rural development approach.
Objectives The main objectives of the Scheme are: • To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas. • To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor. • To alleviate rural poverty through integrated rural development approach. • To extend investment facilities for hand tube-wells and rural housing, keeping in view the needs of pure drinking water and housing facilities of the rural dwellers. • To provide education and Medicare facilities to the poor rural people.
Security Requirements Generally, security will not be required against investment under the Scheme as entire Scheme has been drawn taking into account the social welfare objective of the Bank for upliftment of the socially down-trodden and economically backward and weaker section of the population of the society. However, Group discipline should be strictly followed and complied with so that only the right persons are selected and included as member of the Group. In case of investment for purpose of pond fishery, special ceiling in off-farm activities and agricultural and irrigation implements, Branch should obtain after due verification, of land documents of the clients and keep their documents as collateral by way of simple deposit of title deeds through a memorandum of deposit executed by the client/owner. Besides, in all cases, each member of the Group will give personal guarantee for the other members of the same Group and the members will be jointly and severally liable and responsible for payment of investment. (Taka in millions) Particulars Rural Development Scheme
2001 140
2002 273
2003 371
2004 432
2005 571
2006 710
2007 849
Rural Development Scheme
900 800 700 600 500 400 300 200 100 0 2001
2002
2003
2004
2005
2006
2007
Sector wise distribution of investment as on December 31, 2005 vis-Ă -vis corresponding period of last year are given below: Investment in Different Sector (Taka in millions) Sector Industry Commerce Real Estate Transport Agriculture
2007 24,480.21 20,467.76 5,204.18 2,475.11 2,235.29
2006 19,692.68 17,534.07 3,581.72 1,851.32 2,350.52
Others
4,144.94
1,270.30
From the graph, it is observed that investment in the Industry sector is the highest of all the sectors. In Industry sector, from 2004 – 2005 investments are increased by Tk.4, 787.53 million. Second highest sector is the Commerce sector that holds Tk.20, 467.76 million in the year of 2005. In case of Real Estate sector investment is increased from 2004 – 2005 by Tk.1, 622.46 million. In Agriculture sector investment is the lowest of all the five sectors.
Difference between Conventional & Islamic banking Conventional Bank They have customized banking offerings to the clients not in the Islamic point of view They provide the prefixed interest rate & overcharged if needed Depositors are not concerned with profit/loses
Islamic Bank It portrays huge customization of offerings to the clients with Islamic rules & justifications Interest rate charged according to the Islamic Sarah Depositors act as the business partners with the banks & shares the profit/loses They earn more using the fund of depositors Islamic bank invests the amounts of depositors charging more interest rate according to the promised interest rate not tries to earn more They can invest the surplus amount in various Islamic bank never concerned with to invest the financial events surplus amount in the other financial events till the customer doesn’t informed They don’t have any system of payment the Islamic bank has the systematic Shariah process Zakat to pay the Zakat each and every year
They charge more if any client fails to pay the Islamic bank doesn’t charge on the delay price after consuming goods & services payment or any clients failure of paying price of particular goods & services
They don’t have differentiations in the account Islamic bank two different criteria’s on the holders sharing profit/loses client’s account holding 1. Musharaka & 2. Mudaraba They don’t take the responsibilities for any loses Islamic bank bears the loses if any losses or bear any risks incurred with only the Mudraba accounts They are following general rules & regulations Islamic bank controls its operations & activities with the contrast of ethics with moral judgment & the Islamic jurisprudence They are inspecting their banking systems not by Islamic bank inspecting their banking systems the specific expertise’s with expertise’s who has the control to handle the operations In the matter of L/C customers hold the name of Islamic takes the ownership title instead of authorization customers in the L/C matter arises They are dealing with the documents for the Islamic bank deals with goods & commodities clients with their clients
Foreign Exchange of IBBL Foreign Exchange Department is an important branch of IBBL, which deals with import, export and foreign remittances. Foreign Exchange department is an international department of the bank. It facilitates international trade through its various modes of services. It bridges between importers and exporters. If the branch is an authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country. This department mainly deals in foreign currency that’s why it is called foreign exchange department. Bank branch should be authorized dealer, with due approval from Bangladesh Bank to run foreign exchange transactions. According to the Bangladesh Law, the payment must be received within 120 days. This department is playing an important role in enhancing export earnings, which aids economic growth and in turn it helps for the economic development. On the other hand, it also helps to meet those goods and service, which are more demandable and not adequate in our country. Foreign Exchange Department is dividend in to 3 sections. •
Import
•
Export
•
Remittance
and
Modes Used in Foreign Exchange Investments •
Murabaha/ Bai Muazzal ---- Import/Export
•
Bai- Salam -------------------- Reshipment
•
Hire purchase----------------- For important Machinery under project Investment
3.2 Foreign Exchange Performance-2007: Import
Tk. 74,525million
Export
Tk 36,169 m
Remittance
Tk
Total
Tk. 1, 47,642/=
36,948 m
36948
Remittance
36,169
Export
74,525
Import
0
20,000
40,000
60,000
80,000
Figure: Graphical Representation of Foreign Ex. Performance 2007 3.3 The Documentary Letters of Credit: Letter of Credit is a credit contract where the Opening/Issuing Bank is committed to place an agreed amount of money at the beneficiary’s disposal under some agreed conditions.
Forms of Documentary Credit 1. Revocable Credit: A revocable credit is one where the issuing bank is at liberty to revoke that is it can cancel the credit at any time. According to UCPDC (Uniform Customs for Practice of Documentary Credit), a revocable credit may be amended or cancelled by the issuing bank at any time and without prior notice to the beneficiary before shipment of consignment against the L/C. 2. Irrevocable Credit: An irrevocable L/C is one, which cannot be revoked or amended by the bank with the concurrence of the interested party.
Some Important terms of Letter of Credit Amendment of Credit: Sometimes the importer may require amendment to be made in the L/C, but this amendment must be made with the consent of the exporter, otherwise amendment will have no validity. Adding Confirmation: Sometimes the exporter may not rely on the L/C issuing bank. Exporter requires the L/C to be confirmed by another bank situated in his country. Then on request of issuing bank, any bank in exporter’s country gives guarantee about the payment. This is called Confirming Bank. By adding such confirmation, confirming banks undertakes the liability to honor the bill of exchange of exporter. Validity and Expiry of Credit: All L/C must mention the expiry date of L/C within which the documents for payment/acceptance must be presented. This date must exceed the date of issuance of the bill of lading or other shipping documents, during which presentation of documents for payment/acceptance must be made. FOB (Free On Board): Under FOB basis, the exporter quotes the price covering all his expenses until the goods duty packed are delivered “on board”, the carrying vessel named and arranged by the buyer with the freight and the insurance being paid by the buyer. The importer bears any costs incurred and all risks from the time the goods are placed on board inclusive of those arising out of the ship’s failure on berth.
Cost and Freight (C & F): In this case the exporter quotes the FOB price plus insurance cost. The responsibilities of carrying out all formalities for shipment of the goods develop upon the seller. CIF (Cost, Insurance and Freight): Under CIF, the exporter quotes C&F price plus the insurance cost. The responsibility of carrying out all formalities for shipment of the goods develops upon the seller. FAS (Free alongside Ship): Under FAS, the seller quotes the price covering all his charges until such time as gods are loaded on train at the specified railway station. The buyer is responsible for all charges from the time he takes delivery of all goods from the exporter’s yard. EX-Factory: The seller quotes the price of the goods ex-factory on the date agrees. The importer is responsible for all further necessary arrangements and charges.
Parties to Letter of Credit 1. Importer (Buyer)/Applicant 2. The Issuing Bank (Opening Bank) 3. The Advising Bank/Notifying Bank) 4. Exporter/Seller (Beneficiary) 5. Confirming Bank 6. Negotiating Bank 7. The Paying/Reimbursing/Accepting/Remitting Bank Applicant: The person/body who requests the bank (opening bank) to issue letter of credit. As per instruction and on behalf of the applicant, the bank opens L/C in line with the terms and conditions of the seller contract between the buyer and the seller. Opening bank/Issuing Bank: The bank which open/issue letter of credit on behalf of the applicant/ importer. Issuing bank’s obligation is to make payment against presentation of documents drawn strictly as per terms of the L/C. Advising/Notifying Bank: The bank through which the L/C is advised/forward to the beneficiary (exporter). The responsibility of advising bank is to communicate the L.C to the
beneficiary after checking the authenticity of the credit. It acts as an agent of the issuing bank without having any engagement on their part. Beneficiary: Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter. Confirming Bank: The bank which under instruction in the letter of credit adds confirmation of making payment in addition to the issuing bank. It is done at the request the issuing bank having arrangement with them. This confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank. Negotiating Bank: The bank, which negotiates documents and pays the amount to the beneficiary when presented complying credit terms. If the negotiations of documents are not restricted to a particular bank in the L/C, normally negotiating bank is the banker of the beneficiary. Error: Reference source not found3.4 The plan of payment by means of the letter of credit: The description of process: •
The contract is concluded between the importer (buyer) and exporter (seller);
•
Letter of credit (to open the letter of credit) according to conditions to the contract and transfer the sum of a covering under the letter of credit;
•
The bank of the buyer (importer) opens the required letter of credit and the Bank-Correspondent asks to notify the supplier (exporter) on opening of the letter of credit;
•
Straight Bank (the Bank-correspondent of the Bank-Emitter) informs the supplier (exporter) on opening of the letter of credit;
•
The supplier (exporter) organizes transportation of the goods by means of the conclusion of the agreement with the transport or Insurance Company and receives the transport invoice or insurance policy.
The supplier (exporter) gives, according to the contract, the following documents:
Air or Railway invoice Insurance policy, Packing sheet, Certificate of quality And other documents straitening to bank for payment under the documents. It is supposed that all documents correspond to conditions of the letter of credit. In this case we proceed from the assumption, that straitening and executing bank is the same. The Executing Bank checks all documents on conformity to the letter of credit and, if not it is found out of any divergences, the Bank pays the requirements of the Exporter. If the divergences are found out, executing the bank can work with one of the following: •
To pay the documents after reception from the Exporter of the letter of guarantee,
•
To pay the documents after reception of the consent with divergences from the BankEmitter.
•
Executing the Bank sends the documents to the Bank-Emitter according to the conditions, stipulated by the letter of credit;
•
Executing the Bank sends the requirement about a covering (with the invoice of the addressee under the letter of credit) to Confirming Bank;
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The Bank-Emitter notifies the Buyer (Importer) on arrival of the documents;
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The Buyer (Importer) receives from the Bank-Emitter the documents;
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The Buyer (Importer) gives the invoice of the Transport Company for reception of the goods;
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After reception of the goods from the transport.
Figure: Summary of the Plan of Payments 3.5 Modes of sales of Goods: 1. Cash in advance: Risk is minimum The Performa invoice is used 2. Open Account: Goods are sent first and payment is made afterwards. There are no intermediaries. Performa invoice is used here as well. 3. Documentary Collection:
Same as an open account but the use of bank as an
intermediary. Here the risk is zero. Here the bank acts like an agent. 4. Documentary Credit: L/C Back- to- Back L/C Back -to -back L/C means one credit backs another. It is new credit in favor of another beneficiary. Sometimes beneficiary seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit.
Besides, the formalities and requirements for (L/C opening) the following formalities and documents are also required for opening back-to-back L/C. •
Master L/C
•
Valid bonded ware house license
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Quota allocation for quota items
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ERC in addition to IRC
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Indemnity/Undertaking
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NO objection from previous banker
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Factory inspection certificate
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BGMEA Membership
FINDINGS OF THE REPORT have found some problems and prospect of schemes of Islamic bank Bangladesh limited, that are mentioned below: •
HOUSEHOLD DURABLE SCHEME: It is a good investment scheme of IBBL. But it seems to me that the rate of return is high i.s: 19% which is complicated to pay back .for this reason general people cannot take it easily. Many people cannot get facility of that scheme of IBBL.The procedure of taking investment is very long.
•
INVESTMENT SCHEME FOR DOCTORS: It is a good investment scheme of IBBL by taking funds new doctors are buying modern medical instrument and opening the chamber for giving treatment to the patient. So bank should provide big portion of investment under this scheme then more new doctors will commence their service to patient and country’s people will get more service from the doctors.
•
SMALL BUSINESS INVESTMENT SCHEME: Bangladesh is a third world developing country and its economy based on agriculture. So small business investment scheme is very suitable for this country. Many people are opening their small business by making investment of that scheme from IBBL. Therefore, I think that it is a very good investment scheme for this country and the portion of amount should increase in that scheme.
•
HOUSING INVESTMENT SCHEME: It is very good investments scheme for house fewer clients. However, it seems to me that the rate of return is high and many people cannot take it from bank. Therefore, rate of return should be reducing and then many people will able to take it form bank.
•
REAL ESTATE INVESTMENT PROGRAM: It is a good idea and a good investment program for them whose are not accepted to get investment under house investment scheme. This type of people can take funds under real estate investment program.
•
TRANSPORT INVESTMENT PROGRAM: Transport investment program is a good program. Under this program IBBL provides investment to the existed transport businessmen. However, IBBL does not provide investment to the knowledgeable businesspersons those are not existed. So in this case, existed businesspersons who are rich, they become richer and who have no money or little money, they are not getting scope to compete in the transport market. So rich people are being richer and poor people are being poorer.
•
CAR INVESTMENT SCHEME: It is a good investment scheme of IBBL. Many mid level and high- level officers are not able to buy a car by giving full payment at a time. Therefore, they have a great opportunity to buy a car under this scheme. Under this scheme, they buy a car.
•
RURAL DEVELOPMENT SCHEME : It is a good scheme of IBBL. Under this scheme rural people are taking investment from IBBL and they are developing their life day by day. They are being able to meet their life’s need. So it seems to me that the portion of amount of this scheme and the operation and rang should increase. Then people that are more rural will get the facility under this scheme.
•
AGRICULTURE IMPLEMENTS INVESTMENT SCHEME: Under this scheme poor farmers are getting funds for buying their agriculture instrument like power tiller, power pumps, shallow tube wells, thresher machine. Since our country’s economy is based on agriculture sector. Therefore, it is more suitable for our economy. I think that the scope of investment scheme should increase rapidly.
•
MICRO INDUSTRIES INVESTMENT SCHEME: It is also be a good investment scheme of IBBL. Entrepreneur of small business are taking investment under this scheme. Small business entrepreneurs are getting encouragement under this scheme and our country’s economy is being strong.
RECOMMENDATIONS • •
Present Shariah Supervisory Boards should be more careful to check all the activities of the Islamic banks so that no unlslamic practices can bring any destruction to its proper growth. Management of the bank should immediately take steps so that the activities of bank can be spread in rural areas of Bangladesh too.
• • • • • •
• • • • •
All lslami Banks working in Bangladesh and out side Bangladesh may create instrumental Islamic Money Market for their own interest. All the employees of the bank should try to create personal relationship and follow the dynamic Leadership of Islam for their own benefit and for the growth of real Islamic society in Bangladesh. 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 and Clients get - together. This Bank should arrange a wide varieties of regular programs like “SEMINAR”“MOSQUE -BASED DISCUSSION” etc. about Islamic Banking Function countrywide to remove the negative impression about IBBL. The authority of IBBL should Conveyance pressure on Government bodies to run proper and sufficient application of Islamic banking law in Bangladesh. Practice amount of doubtful income declined substantially during the year as compared to the past few years, indicating more carefulness of the Management in complying with Shariah. As a result, idle money will be invested to increase potential profit of this Bank. Inclusion of more subjects based on the Quran and Sunnah in the Training Courses of the Islami Bank Training & Research Academy in order to develop human resources having morally. To fulfill the vision of “mass banking” this Bank should grants investment portfolio to new entrepreneurs mew businessmen new companies etc. To gain success in the programs like Poverty Alleviation and “Self Reliant” especially in rural areas, this bank should provides investment facilities on the basis of individual. Think that investment should not provide not only existed transport businessmen but also knowledgeable businessmen about transport. CONCLUSION
One important development in the field of banking since the seventies has been the emergence of Islamic Banking. It made an auspicious beginning in Egypt and quickly spread to the other Muslim countries. Many conventional banks in the western world have also opened separate windows to conduct banking on the Islamic mode to attract business from the oil rich Arabs and other Muslim countries. Bangladesh joined the caravan of Islamic banks in 1983 when a sharia based bank –Islamic Bank Bangladesh Ltd was established as a joint venture bank. Islamic financial practices are built around the belief that “Money is not an earning asset in and of itself. Su’raturl Rum:Verse 39,Allah said,”And whatever Riba you give so that it may increase in the wealth of the people, it does not increase with the Allah, but that which you give in Zakat seeking Allah’s countenance then those they shall have increase” So, conventional bank is a financial institution which operates its operations based on interest, it takes interest from the borrowers and gives interest to the depositors.
After all, although it is facing some problem, it has a bright future and day-by-day it is enhancing it′s financial activities over the country. Many organizations are following to IBBL and they are starting their business based on Islamic shariah in the economy in Bangladesh. BIBLIOGRAPHY Book References: • • • • •
“The role of Islamic Banks in the Development of small Entrepreneurs”. IBTRA,IBBL, Dhaka. Minsky, H. P. (1982). “Can it Happen Again”. In M. E. Sharpe (ed.), Essays on Instability and Finance. Mohsin S. Khan (1995). “Islamic Interest-Free Banking”. In Encyclopedia of Islamic Banking, London: Institute of Islamic Banking and Insurance. Sametz, A. W. (1982). “The Capital Market” In Polakoff & Others (ed.), Financial Institutions and Markets: Special Issue. Boston: Houghton Muffin Co. Siddiqi, M. N. (1983). “Economics of Profit-Sharing” In Z. Ahmed, M. lqbal and M. F. Khan (eds.), Fiscal Policy and Resource Allocation in Islam.
Class Notes: • • • •
Jb. Muhammad Abdullah, VP & FM, IBTRA Janab Nurul Islam Khalifa, EVP,IBBL, CID-I, HO Jb. Md. Rokan Uddin, VP & FM, IBTRA Jb. S.M. Rezaul Karim, AVP & FM, IBTRA
APPENDIX: Manual: • • • • •
Investment policy and Risk Management. Manual for Hire Purchase under Shikatul Melk investment. Manual for General Banking Operation. Manual for Investment under Musharaka Mode. Manual for Investment under Bai-Muajjal Mode.
Web Site: •
http://www. islamibankbd.com