View with images and charts Overview of Islami Bank Bangladesh Ltd 1.1 Historical Background of IBBL In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah. In January 1981, Late President Ziaur Rahman while addressing the 3rd Islamic Summit Conference held at Macca and Taif suggested, "The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce." This statement of Late President Ziaur Rahman indicated favorable attitude of the Government of the People's Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country. Earlier in November 1982, Bangladesh Bank, the country's Central Bank, sent a representative to study the working of several Islamic Banks abroad. In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies, Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Banker's Association (BIBA) mode significant contributions towards introduction of Islamic banking in the country. The came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking. Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen society (now reorganized as industrialist & Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islamic Bank. At last, the long drawn struggle, to establish an Islamic bank in Bangladesh becomes a reality. Islamic Bank Bangladesh Limited was established in March 1983. In which 19 Bangladeshi nationals, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe Including IDB and two eminent personalities of the kingdom of Saudi Arabia joined hands to make the dream a reality. 1.2Business 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 banking of the receipt and payment of interest on any of its operationsâ&#x20AC;?. 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.
Mission and objective
To conduct interest free banking.
To establish participatory banking instead of banking on debtor creditor relationship.
To invest through different modes permitted under Islamic Shariah.
To accept deposits on profit-loss sharing basis.
To establish a welfare-oriented banking system.
To extend co-operation to the poor, the helpless and the low-income group for their economic uplift.
To pay a vital role in human development and employment generation.
To contribute towards balanced growth and development of the country through investment operations particularly in the less developed area.
To contribute in achieving the ultimate goal of Islamic economic system.
2.2 Functions The Bank provides all kinds of commercial banking services including deposits taking, extending investment, and al kinds of services relating to foreign exchange business including import, export and remmitance to the customers following the principles of Islamic Shariah, the provisions of the bank company act1991 and Bangladesh Bank’s directives. 2.3 Capital The Authorized Capital of the bank is Tk 5000 million. The paid up capital of the bank was raised from Tk2764.80 million to 3456 million during 2006 by way of issuing bonus share at 1:4 2.4 Head office, Zones & Braches Network For effective monitoring of the braches, two new zones have been credited in 2006 raising the number of zonal office from six to 8. IBBL has also opened seven new branches during the year 206 raising the total number of branches to 176 from a69 of the previous year. The bank plans to open more branches covering important economic & commercial places both in urban & rural areas. Head office and 8 zones are function for effective control, close supervision and proper monitoring of the total operation of the branch as well as assisting them in the development of business. Particulars of corporate branches and zones are given below: Particulars
Number of Branches as on 31.12.2006
1. Corporate Branches
Zones 2. Dhaka Central zone
3. Dhaka South zone
4. Dhaka North zone
5. Chitagong zone
6. Bogora zone
7. Khulna Zone
8. Commilla Zone
9. Sylhet Zone
Branch Expansion: 2002-2006
Number of Branch 200 180 160 140 120 100 80 60 40 20 0
151 Number of Branch
Y2002 Y2003 Y2004 Y2005 Y2006
2.5 Products line: IBBL has so far introduced the following deposit products: I. II.
Al Wadeah Current Account Mudaraba Haji Savings Account(1 years to 25 years)
Mudaraba special Savings (Pension)[5 years to 10 years]
Mudaraba Muhor Savings Account
V. VI. VII. VIII. IX.
Mudaraba Savings Bond[5 years and 8 years] Mudaraba Monthly Profit deposits [3 months, 6 months,12 months, 24 months and 36 months] Mudaraba Saving Deposit Mudaraba Special Notice Deposits Mudaraba Foreign Currency
2.6 Role and contribution of IBBL To Bangladesh Economy Islami Bank Bangladesh Limited has many success stories of achievements. These are summarized below: π
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 hither-tobefore did not make any deposit with interest based banks. The Islamic Banking products, which are offered by IBBL through its 118 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 and earning profit.
π π π π π π π π
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 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
π π π π π
Implements Investment Scheme, Poultry Investment Scheme, Household Durable Investment Scheme, Housing Investment Scheme etc. IBBL launched a Rural Development Scheme for providing finance to drown-trodden section of the populace- an area where no other Commercial Bank has extended any finance. IBBL's mission is to reach to all 68,000 villages of the country as early as possible. a IBBL has contributed a remarkable amount million Taka as income tax to the Government Exchequer on its net profit over the last 18 years, a At the initiative and drive of IBBL, several Universities in Bangladesh, have introduced Courses on Islamic Banking and finance. IBBL has organized a good number of national and international Seminars on Islamic Banking and Economics. Importantly, IBBL sponsored a Seminar at Dhaka with a view to forming an Islamic Common Market. Due to constant persuasion of IBBL the Government has granted license for establishment of an Islamic Insurance Company. By now, two (2) Islamic Insurance Companies have started business. IBBL has earned reputation in the country as a corruption free institution. IBBL is held in high esteem in the banking circle as a good managed bank. Under the leadership of IBBL, Bangladesh Association of Banks (BAB) has been formed. This is a platform to ventilate the standpoints on banking issues of the private sector banks. a IBBL has taken initiative to form an Association of Islamic Banks in Bangladesh for furtherance of the causes of Islamic banking. IBBL has established a foundation called Islami Bank Foundation 1 for carrying out social welfare activities. The foundation has taken up a number of schemes covering the whole of Bangladesh.
2.7 Development of manpower, research, training and motivation The principles and working procedures of Islamic banks are completely new and different from the conventional banks. There is an inevitable need for training of the employees of the banks to orient and attune them to the new system of Islami banking. To ca-ter to this need, Islami Bank training and Research Academy (IBTRA) was established in 1984, soon after the inception of the Bank. The activities of IBTRA cover both training and research on various aspects of Islamic banking. The Academy developed a rich library of its own with a treasure of valuable books on different subjects including Islamic economics, banking, comparative philosophies and journals of home and abroad and research articles and documents. Employees of the Bank, learners and researchers have been taking full advantage of the library. The Academy edited books on "Readings in Islamic Banking" and "Investment Operations". It also edited and published a brochure on "Investment and Trade Opportunities in Bangladesh." Keeping in view the existing and future training requirement of the Bank and also to generally cater such needs of different Islamic banking & financial institutions of the region, the management of Islami Bank Training and Research Academy has been placed at the disposal of an Academic Council consisting of 3 Directors of the Board, Management Executives of the Bank, Shariah scholar, renowned academicians and representatives of reputed institutions engaged in the training of bank officials of the country.
The Academy conducts training courses, and workshops. The courses include Islamic Banking, Banking Law and Practice, Investment Operations and Management, Foreign Trade and Foreign Exchange, Shariah Based Audit and Inspection. Besides, orientation, induction, foundation and motivation courses on different subjects are also conducted round the year. In addition to conducting regular training courses, it arranges seminar on Islamic economics and banking and such other related topics of current interest. Apart from this, an "Executive Development Program" has been introduced at the Head Office of the Bank in Dhaka since 1988 for enriching knowledge and thought process and developing professional skill of the Executives. This program has proved to be effective and now being extended outside Dhaka. The Academy conducts internship courses for the students of different Departments of various Universities of the country. The Bank introduced annual award for the best three students of the Department of Banking and Finance of Dhaka University who secure 1st class 1st, 2nd and 3rd with 'Islami Banking' as special subject from the year1994. The Bank is also providing financial assistance for publication of a textbook on 'Islamic economics and banking' for the university students. Besides, a motivational program has been introduced since 1987 for the clients of the Bank. Client-orientation program are arranged at different branches for disseminating the concept of Islamic economics and banking and to acquaint the :clients with the operations of Islamic banking system, 'he Bank, in 1993, co-sponsored a 3-day international Seminar on 'Islamic Common Market' n which scholars, economists, bankers, industrialists' 2nd representatives of trade bodies of 15 ;countries participated. The Bank, with the: collaboration of International Association of Islamic Banks (IAIB), organized an International Seminar on Islamic Banking in 1985 and another international Seminar on Islamic Banking and insurance in 1989. Islami Bank Training and Research Academy has introduced Diploma in Islamic Banking since 1998. Manpower Position: 2002-2006
Number of employee 8000
Number of employee
3000 2000 1000 0 Y2002 Y2003 Y2004 Y2005 Y2006
2.8 Publicity and public relations The Bank, since its birth, has been relentlessly working to project and promote the lofty ideals of Islam in the fields of economics and banking and to reach the people of all walks of life and bring home to them the concept of Islamic banking. Thus, it has been able to create a favorable image about Islamic banking among the people. The Bank releases advertisements through radio, television, magazines and newspapers to make urban and rural masses aware of the ever growing concept, modes of operation, schemes and services of the Bank and to focus on its progress and motivate traders, businessmen and industrialists to establish and broaden their business links with the Bank. To promote healthy growth of art and literature in the country, literary magazines are patronized. The Bank has so far published a number of books, booklets, souvenirs and folders on different aspects of Islamic banking and Islamic economics. Attractive multi-colored posters were also published depicting the aims and objectives, people-oriented special investment schemes of the Bank. National and international newspapers and magazines published features and in-depth reports on the progress of the Bank and made editorial comments praising the welfare activities of the Bank. Bank's quarterly research journal Islami Banking' highlighting the concept of Islamic economy, banking, insurance, prospect of economic collaboration among the Muslim countries etc. started its publication in 1992 which has been widely acclaimed by all sections of people including academicians, economists, bankers, journalists, judges, intellectuals etc. A periodical house magazine named 'Islami Bank Parikrama' is being published regularly as the mouthpiece of the Bank. Discussion meetings, seminars, Symposia, workshops are also being arranged to apprise the people of the Islamic banking system. Stalls and booths were opened in different national and international fairs for projecting the activities of the Bank. 2.9 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 to-ensure that the Shariah principles are implemented and complied with meticulously by the branches of the Bank. MILE STONE Established on
13th march 1983
Inauguration of 1st Branch
30th march 1983
12th August 1083
Listing in Dhaka stock exchange ltd
Listing in Chittagong stock exchange ltd
1 Rights Share issue
2nd Rights Share issue
4 Rights Share issue
Opening of 50th Branch
26th November 1991
Opening of 50th Branch
12th June 1997
Opening of 50th Branch
30th November 2004
Joining/Agreement with CDBL
29th December 2004
3 Rights Share issue
Social Welfare Activities of Ibbl 3.1Social-welfare activities of Islam bank foundation One of the distinguishing features of Islami Bank is that its overall activities are directed towards the welfare of the society. The Bank, since its inception, has dedicated itself for the enlistment and emancipation of the helpless and downtrodden people of the society. With this end in view, the Bank has created a separate fund, which was earlier known as Sad aqua Tahbil. In 1991, the Sadaqua Tahbil was reorganized and enlarged-under the new name of 'Islami Bank Foundation' with a fund of Taka 38.00 million in order to conduct social-welfare activities on a wider scale. As one of the leading non-government voluntary organizations of the country, the Foundation has been working with unique and special programs for the welfare of distressed humanity and to make poor, downtrodden, landless and asset less people self-reliant. The aims and objectives of the Foundation are to serve distressed humanity, promote people oriented mass education, extend health and Medicare facilities to the poverty-stricken people in urban and rural areas, create facilities for productive self-employment and develop human resources for improving economic condition and quality of life, assist healthy growth of art,
culture and literature, science and technology, sports, research and propagation of Islamic teachings. The Foundation has taken up a number of schemes covering the whole of Bangladesh. Environmental Awareness At the moment IBBL has around 950 different kinds of running projects divided into 22 different industrial sectors. IBBL believes in green Industrialization. It is a common practice of our bank to take clearance from all the concerned Government Authorities to establish each project including the clearance for any kind of environmental hazards created by the specific project. IBBL takes maximum possible care to protect the environmental pollution by its projects. In this regard, IBBL encourages its Dyeing & Printing Projects to establish Effluent Treatment Plants (ETP) to protect water and soil from pollution. All the Brick Fields financed by IBBL has at least 120 feet chimney to minimize the air pollution. IBBL assures obtaining NOG of various Authorities such as Explosive Department, fire services department, Rupantorito Prakitic Gas Company etc. for setting up gasoline/CNG filling station. Beautification Program Under the beautification program of Dhaka City Corporation, Islami Bank Bangladesh Limited is doing the work to enhance the beauty of the road of Dhaka City Corporation starting from Rajarbag traffic Signal to Kamalapur Railway Station by plantation of beautiful plants and trees on Road Island Income Generating Programs Access to required finance and other related inputs may help many to become self employed. In absence of such opportunity, the unemployed youths entangle themselves in various antisocial activities. Islami Bank Foundation has, therefore, taken up the following Selfemployment projects: 1. Rickshaw 2. Sewing 3. Poultry Keeping 4. Rural Health Work 5. Milk Cow/Goat rearing 6. Small Trade Educational Programs Education is the backbone of a nation. Awareness building, skill training, access to information-all depends on education. But it is regrettable that the rate of literacy is still very low in Bangladesh. Most of the children are deprived of the light of education due to poverty, lack of sufficient educational institutions, non-availability of textbooks etc. In a ward, the unfavorable socio-economic conditions are responsible for this chaotic situation. The Foundation has, therefore, taken up the following programs to improve the country's educational scenario: a) Support to Model Forqania Maktab b) Scholarship/lump grant for poor and Meritorious Students
c) Financial support to Educational Institutions Health and Medicare Programs Health and Medicare facilities are the basic and fundamental rights of each individual but most of the people of our country are still deprived of it. The Foundation has, therefore, taken up the following: Programs to extend health, Medicare and sanitation facilities to the urban and rural areas:a) Establishment of Medical Centers b) Supporting charitable dispensaries c) Lump-sum help for medical treatment d) Tube well Installation e) Sanitary Latrine construction etc. Such Assistance is also extended to the members of Rural Development Scheme (RDS) of IBBL. Under Health and Medicare programs, preventive measures have also been taken. Special steps have been taken for construction of sanitary latrines and installation of tube wells in the villages covered under to whom Islami Bank Bangladesh Ltd. is providing finance for income generation activities. Humanitarian Help Programs These program aims at providing help to distressed people who are unable to meet their basic needs like food, clothing, shelter and medicine. The old widow and children without guardians get preference. Besides, the program extends assistance to orphanages, provide fund for the marriage of poor girls, assist indebted people, help distressed wayfarers etc. Relief and Rehabilitation Programs Participation in relief and rehabilitation activities in natural disasters and in emergency forms an important program of Islami Bank Foundation. During calamities like flood, tornado, tidal surge etc. the Foundation mobilizes its own people as well as donates to the relief fund opened at the government level. The Foundation also tries its best to extend hands of assistance and co-operation to the Muslim brethren elsewhere in the world. Dawah Programs One important objective of Islami Bank Foundation is to disseminate the true knowledge and teachings of Islam. The Foundation has, therefore, taken up various schemes to enlighten the common people as well as the elite and make them familiar with the concept of Islam. Islamic research magazines and other Islamic Literatures are being distributed among the Academicians, Journalists, Justices, Lawyers, High Officials, Bankers, Literatures and important Libraries and Institutions of the country. The Foundation is also working among the prisoners for their moral reforms. Welfare Oriented Investment Schemes A. Islami Bank Hospital
With the objective of providing low-cost curative services to the less affluent segment of the society, the Foundation has so far set up Hospitals at three Divisional Headquarters in Dhaka, Rajshahi and Khulna. Services of eminent general practitioners and specialists in various fields of treatment like Medicine, Surgery, Gynae, Paediatric, E.N.T. Urology, Neurosurgery, Skin, Orthopaedic etc. are harnessed in these hospitals. Standard diagnostic, medical and surgical equipments are in used in these hospitals. The Foundation plans to establish Hospitals at each Divisional Headquarters of the country. B. Community Hospital Besides establishing Hospitals at the Divisional Headquarters, IBF has a plan to assist local initiatives in setting up Hospitals at District level. Establishment of Four such Hospitals is planned during 1999, C. Monoram: Islami Bank Crafts & Fashion The project has been taken up as a sales outlet of homemade garments, handicrafts and other items produced by the distressed women. The main objective of the project is to create conducive and healthy atmosphere in which women can contribute to the family income by working within the limits of Shariah. The other objective of this project is to develop designs of women-wear, which will conform, to the principles of decency and modesty as laid down by Islam and at same time compare well with the modern-day-fashions. D. Service Centre To save the people of coastal and river belt from natural disaster, erosion etc. a special project has been taken in the name and style of Service Centreâ&#x20AC;? Under this programme pucca structure constructed in coastal areas, river belts and off shore islands would be used for integrated social development of the people as well as provide safe. shelters during natural calamities. Two such Service centers (in Noakhali and Manikgonj) have already been established. E. Islami Bank Institute of Technology The large number of unemployed youth of, the country may be turned as assets through taking up Human Resource Development (HRD) Programme. The youths with skills in various sectors of technology may become self-employed in the land and can also get employment opportunities abroad. Islami Bank Foundation has, therefore, established 3 Technical Institutes, two in Dhaka and another in Bogra, which are rendering training facilities in Computer, Secretarial Science, Driving, Electrical, Refrigeration and Air Conditioning, Radio & T.V, Tailoring and Garments etc. F. Islami Bank Model School and College As Dhaka, the capital of Bangladesh, is turning to be a Mega City, a large number of English Medium Schools are creeping up which follows curriculum not conforming fully to the need of the country. As an attempt to combine modern education (which are secular) with religious education for a total development of the children, Islami Bank Foundation has established an English medium Model School and College in Dhaka. Establishment of a Bangla medium school affordable by lower and middle class economic strata of the society is also being envisaged.
Islami Bank Physiotherapy and Disabled Rehabilitation Centre
In Bangladesh there ore a great number of unfortunate disabled persons who have no other means to maintain themselves. Without resorting to beggary. The burden of the society might be lessened and these people can be helped to become self-reliant through imparting special skills. Keeping this in view, Islarni Bank Foundation has decided to rehabilitate these unfortunate disabled persons through establishing a centre named "Islami Bank Physiotherapy and Disabled Rehabilitation Centre" This Centre while making temporary arrangement for food and shelter for the disabled, will arrange for health check up, physiotherapy and occupational therapy and look for job placement through internship in various factories and trading houses. H. Centre for Development Dialogue Alongside with the governmental efforts at National level and multilateral and bi-lateral institutions at the international level, Non Govt. Organizations (NGOs) in different parts of the world especially in the developing countries are playing increasing role in experimentation with Development models. Most of the organizations unfortunately, fry with development techniques from a standpoint, which often turn antagonistic to the belief and social norms of the people. The renowned foreign and national NGOs have their established training centre(s) where they train their own people and rent out the facilities to others. Islami Bank Foundation has decided to establish a training centre of its own named Centre for Development Dialogue" which will create opportunity for imparting training facilities for its own staff members as well as the staff members of other development organizations. Besides the above-mentioned project, the Foundation runs projects like: (i) Legal Aid Project for the welfare and Legal support to victims and their family members, holding of seminars and symposium on the rights of the vulnerable (women, children, disabled etc.), opinion mobilization against various forms of social ills etc. (ii) Talimul Quran Project for propagating the teaching of the Holy Qur'an. (iii) Bangladesh Sangskritic Kendro projects for upholding and promoting the culture of the land. I. Midwifery training Program In the rural areas, the traditional birth attendants conduct the normal delivery. They do not have any formal training in this regard and therefore, a good number of mothers and babies die during the delivery. Many of them, though do not die suffer even whole the life due to wrong handling of the traditional birth attendants. Considering the above situation Islami Bank Foundation has taken Midwifery Training Program with the help of Islami Bank Hospitals and Bank Community Hospitals. In the year 2006, a total number of 275 traditional birth attendants received midwifery training GENERAL BANKING ACTIVITIES OF ISLAMI BANK BANGLADESH LTD GENERAL BANKING ACTIVITIES To Open A New Account:
This is an era of keen competition among banks. Most of the commercial banks vie with one another in tapping the savings of the public by means of purchasing of different types of financial product. These products are known as secondary securities, which shows claim against the financial institutions. Popularly these products are known as deposit; of different kinds and of various maturate. The most popular products are current-deposit (CD), savings bank deposit (SB), fixed deposit, short-term deposit etc. General Practice at Regarding Accounts: Account Opening Registering; 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, and TDR etc. Date of opening name of the account holder, nature of business, address, initial deposit, and various information are recorded in that register. New accounts number is given from the list of new numbers provided by the computer department. Check Book Checkbook is issued to the new customer after opening account. Two separate checkbooks are given for current and saving accounts. AWCA accounts Checkbook consists 25 and 50 leafs, while MCA account Checkbook has 10 leafs. There is a check book issue register in this regard; where Check book number, leaf number, date of issue etc. information are kept. All the necessary numbers are the sent to the computer department to give entry in the program. Incidental Charges: Taka 10 or 50 = each for twice a year is debited from customers AWCA account for rendering service to him. Tk. 50 = each is debited from customers account for providing him solvency certificate. Profit: Profit is the price of product, which is determined by the market forces. Every bank offers a competitive price to attract deposit. General Characteristics of Deposit Account Al-Wayadea Current A/C (AWCA) AWCA accounts are unproductive in nature as far as banks loan able investment fund is concerned sufficient fund has to be kept in liquid form, as current deposits are demand liabilities. Thus huge portion of his fund becomes no performing. For this reason, banks do not pay any of AWCA CD account holder. Businesspersons and companies are the main customers of this product. Mudaraba Savings Account (MSA) As per Bangladesh Bank instruction, 90% of SB deposits are treated as time liability and 10% of it as demand liability. In EBL, there is a restriction about drawing money from SB account but anytime holder may draw money of any amount with prior notice. Generally, householder and individuals are the clients of this account. Mudaraba Savings Notice (MSNA) A/C
MSA accounts 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. (5.50%) generally profit, but may increase to 6% or more depending on the fund. Check book is issued them but frequent use of checkbook is discouraged. Government organization, big corporate house and banks are generally the clients of this account. The volume of this account is generally large and notice has to be given to draw money. Mudaraba Term Deposit Receipt (MTDR) Fixed deposit are of two kind 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 (TD). 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 mode. Local Remittance IBBL sells and purchases P.O. DD and T.T. to its customers only. IT does not offer remittance service frequently to those other than its customer. Pay Order (PO) Pay order an instrument which is used to remit money within a city through 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 Bills Payable (PO) A/C ..................................................................CR Income A/C commission on Remittance....................................... CR By account
Client A/C.............................................................. DR
By transfer head office/other departmentâ&#x20AC;&#x2122;s client A/C..... ........... DR Service Charge: Tk 1 to Tk 10000
Tk 10001 to 500000 =tk20/Tk500001 to 1000000 =tk30/Tk 1000001 and above=tk50/VAT: 15% of principle Amount Demand Draft (DD) Demands Draft is a very much popular instrument for remitting money from one corners of a country another. The instrument is used for transfer and payment. Difference between pay order and demand draft is in terms of place only P.O. is used for remitting money within the city whereas 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. Service Charge: Tk 1 to 10000
Above Tk 10000
=1 Tk for every 1000
VAT: 15% of principle Amount Telegraphic Transfer (TT) Telegraph transfer is 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 T.T. both parties should have account, as money is transferred. Telephone Charges: Tk 30/Service Charge: Tk 1 to 10000
Above Tk 10000
=1 Tk for every 1000
VAT: 15% of principle Amount Collecting: Clearing As far safety is concerned customers get crossed check for the transaction. As we known crossed check cannot be encashed from the counter, rather it has though been collected through banking channel i.e. clearing. A client of IBBL received a check of another bank, which is located within the clearing rage; deposit the check in the account at IBBL. Now IBBL will he will not the money until the check is honored. Outward Bills for Collection (OBC) Customers deposit check, drafts etc. for collection, attaching with their deposit sleep. Instrument within the range of clearing are 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, Coxâ&#x20AC;&#x2122;s Bazar. Now 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 banks. 3. Endorsement given "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 branch of by the drawer's bank. They will forward the bill then to that particular branch. OBC number will be given on the forwarding letter.
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 IBCA 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 IBC 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 Endorsement - Various Types Endorsements
In case of
Payees A/C Created
Pay to Mr. X
Received payment payees A/C Credited
Pay to IBBL Mr. X
Payees A/C Credited
Pay to Mr. X. EBL
Payees A/C will be credited on realization
Bills for collection
Our banks endorsement confirmed Received Payment
EBL or Cash
First Payees endorsement confirmed second payees Our collecting agents endorsement Confirmed 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 special precaution is also taken. Tense situation prevails if there is any imbalance in the case account. Vault All cash, instruments (P.O.D.D. check) and other valuables are kept in the vault is insured up to Tk. 4 crore with a local insurance company. If cash stock goes beyond its limit of Tk. 4 crore, 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 Crore brought at once from the vault, on a single day. Teller Customer 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 teller on the counter. So teller should hold certain quality. > Should be friendly. > Provide prompt service. > Be accurate in his task. In short, a teller should be efficient, otherwise he has to pay. 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 counter is closed, cash are 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 aid recorded in the next daybook. This is known as evening. (a) Principles of Distribution of Profit to Mudaraba Depositors
The principles of calculation and distribution of profit to Mudaraba Depositors generally followed by different Islami Banks are as under: 1.
Mudaraba Depositors share income derived from investment activities i.e. from the use of fund.
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 in connection with sale and purchase of Demand Drafts, Telegraphic Transfers and Mail Transfers etc.
Profit and loss resulting from the use of funds is separately maintained in the accounts from other income and expenditure relating to other activities and
services offered by the Bank.
Mudaraba Deposits get priority in the matters of investment over Bank's equity and other cost free funds.
Mudaraba Depositors do not share any income derived from investing Bank's equity and other cost free fund.
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.
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:
Minimum sixty-five (65) percent is distributed to Mudaraba Depositors applying the rates of weight age shown below. Mudaraba Depositors' share of sixty-five (65) percent of gross investment income might further be raised by the Bank's Management at its discretion to rationalize the Rates of profit to Mudaraba Depositors but it would not be reduced during any accounting year without giving prior declaration.
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.
Islami Bank Bangladesh Ltd, at present, applies the following weight ages to Mudaraba Deposits. 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 at 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.
ACCOUNT NAMES AND PROFIT RATE SI. No.
Particulars of Deposits
Final rate of profit for 2006
Mudaraba Hajj Savings i)
From 11years to 25 years Term
From 1 year to 10 years Term
Mudaraba Waqf Cash Deposit Account
Mudaraba Special Savings (Pension) i)
Above 10 Years Term
Upto 10 Years Term
Mudaraba Muhor Savings Account i)
10 Years Term
5 Years Term
Mudaraba Savings Bond (MSB) i)
8 Years Term
5 Years Term
Mudaraba Monthly Profit Deposit (MMPDS)
Mudaraba Term Deposits i)
Mudaraba Special Notice Deposit
Mudaraba Foreign Currency Deposit
h) i) i)
DIFFERENT INVESTMENT SCHEME INVESTMENT The special feature of the investment policy of the bank is to invest on the basis of profit loss sharing system in accordance with the tents and principles of Islamic Shariah. Earning profit is not the only motive and objective of the Banks investment policy rather emphasis is given is attaining social good and in crating employment opportunities. Pursuant to the investment, policy adopted by the bank a 7 years perspective investment plan has been drawn up and put into implementation. The plan aims at diversification of the investment portfolio by size, sector, geographical area, economic purpose and securities to bring in phases all sectors of the economy and all types of economic groups of the society within the fold of banks investment operations.Accordingly the plan envisages composition of the investment profit-folio with for agriculture and rural investment, 16% for industrial term investment, 14% for industrial working capital, 6% for housing and real estate, 6% for transport arid cornmunication, 2% for electricity, gas, water and sanitation services, 2% for storage's 40% for import, export and local trade and trade related activities and % for other productive purposes by the end of the plan period, i.e. the year 2002.Further, in order to diversify investment profit-folio, the bank engaged itself in investment operations through special schemes introduced during the years. The Hank is planning to introduce yet other new investment schemes in addition to welfare oriented investment schemes viz-Rural Development scheme. Transport investment schemes, car investment scheme, small business investment schemes, Doctors investment scheme, Household Durables investment scheme, Housing investment scheme and agricultural implements investment scheme etc. Besides the bank is financing various economic groups in different sectors in both urban and rural areas for enlistment of their economic condition. Objective and Principles: The objectives and principles of investment operations of the Banks are: The investment fund strictly in accordance with the principles of Islamic Shariah. To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural.
To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring therefore. To make investment keeping the socio-economic requirement of the country in view. To increase the number of potential investors by making participatory and productive investment. To finance various developments schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and upliftment of the society. To invest in the form of goods and commodities rather than give out cash money to the investment clients. To encourage social upliftment enterprises. To shun even highly profitable investment in fields forbidden under Islamic Shariah and is harmful for the society. The Bank extends investments under the principles of Bai-Marabaha,'Bai-Muazzal Hire purchase under Shairkatul Mcilk and Musharaka. The Bank is making sincere efforts to go for investment under Mudaraba principle in near future. Investment Policy of IBBL Investment operation of the Bank is of vital importance as the greatest share of total revenue is generated from it. Maximum risk is centered in it and the very existence of a Bank mostly depends on prudent mgt. Of its investment policy.A sound well defined, well planned and appropriate investment policy frame work is a pre-requisite for achieving the goal of the Bank i.e. implementation and materialization of the economic and financial principles of Islam in the Banking area and justice in trade, commerce and industry and to build socioeconomic infrastructure, create opportunity for income and sustained economic growth of the country. Investment perspective plan of IBBL. a) b)
7 - years perspective plan (1996-2002). 5 - Years perspective plan (2003-2007).
5 -years perspective Investment Finn (2003-2007). a) By size of Accounts, (3000-250 crore) b) By Sector (Public & Private) 5% (Rural) & 95% (Urban) c) By Areas (Urban & Rural) (6to 10%- 94 to 90%) d) By Economic purpose (2% to 40%). c) By Securities (2%-70%) d) By mode (7.5% to 65.50%). Investment portfolio of Islamic Bank Bangladesh ltd. 1. Port-folio Management a) Port-folio Management of a Bank i) Linear Programming (Maturity of Liability with the Asset). ii) Pull of fund approach.
b) Importance of Port-folio Management, particularly for an Islamic Bank. Importance of Money market. Importance of Investment 2.Salient Features of Investment policy of IBBL. Identity a) If is an ideological Banking organization. b) Firmly committed to implement & materialize the economic and financial principles of Islam in the Banking arena. Objectives a) To do away with disparity and establish justice in the trade, commerce and Industry. b) To build socio-economic infrastructure, create opportunities for employment and income generation & poverty alleviation. c) Contribute to the Socio-economic upliftment and sustained Economic growth of the country. d) Strict observance of the Islamic Shariah Principles. e) Investment to National Priority Sectors. f) Investment to Trade, Commerce, Industry, Foreign Trade, IT, Small Scale Industries, Transportation, Service sector. 3.
Other Features a) Observance of the legal Investment Limit of the Bank (90%
of total deposit).
b) Observance of Legal Investment Limit per client-50% of equity (50% funded,50% non-funded). c) d) b)
Optimum utilization of Invest able fund. Profitability of the Investment. Safety & Security of the investment.
4. a) b) c)
Composition of Port-folio. Money market port- folio (unto one year). Capital Market port-folio (above one year). General Investment Port-folio.
5. Strategies: a) Fort-folio having high return shall be preferred. b) Lower risk shall get preference. c) Flexibility in clearing R.R. case-to-case basis depending on the Risk, amount of investment, Nature of investment, etc. d) Emphasis be given to collage & small industries, rural industries. e) Export oriented Import substitute industries. f) Labor intensive industries. g) Micro investment/small investment schemes. 6. Delegation of Authority: Manager, Zone, Management, EC, Board.
7. Review: Quarterly. 8. (A) Investment portfolio (As on March 07) i) Total Deposit : Tk.7297.34 crore. ii) Total Investment : Tk.6723.41 corore. in) Total overdue(OD) : Tk.369.92crore. iv) OD % of total Investment : Tk.5.50%. v) Total No. of Deposit clients : About - 20.00 lac. vi) Total No. of Investment clients : About -2.50 lac. (Micro credit 57,000) (B) Project Investment Prot-folio (As on March, 07) No. of Projects Bank Finance Garments related 73 Textile related 88 Others 343
Self finance 95 11 25
(C) Total Investment Amount (Taka in crore) Industry (Term) – Industry (W/C) – Special Schemes – Real Estate – Trade & Commerce/others –
Total 168 99 368 1218.13.00 (18.18%) 1634. 10 (24.30%) 394. 74 (5.17%) 523.26 (7.78%) 2953.18 (43.92%)
Summary of Mode wise Investment at Jatrabari Branch, Dhaka. 31.12.2006 SI No.
No Of Clients
Amount (in Lac)
Bai-Murabaha Post Import
HPSM (Real Estate & housing)
Industry Investment Scheme
Poultry Investment Scheme
Doctors Investment Scheme
Transport Investment Scheme
Car Investment Scheme
Staff House Investment Scheme
Small Business Investment Scheme
House Hold Durable Scheme
Staff House Hold Durable Scheme
Quard against TDR
QPF & QBF
MODES OF INVESTMENT (i) (ii) (iii) (i)
Bai-mode (Trading Mechanism) Leasing mode (Ijara Mechanism) Share-mode (Share Mechanism)
Bai-mode (Trading Mechanism)
Bai â&#x20AC;&#x201C;Mode can be classified into four categories: A. Bai Murabaha B. Bai Muajjal C. Bai Salam. D) Istishna'a A) Bai-Murabaha: The terms 'Bai- Murabaha" has been derived from Arabic words Bai and Ribhun. The word 'Bai' means purchase and sale and the word 'Ribhun' means an agreed upon profit. BaiMurabaha" means sale for an agreed upon profit. Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller 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 date in lump sum or by installments. The profit marked up may be fixed in lump sum or in percentage of the cost price of the goods. Important feature:
It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the 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 either to satisfy the promise or to indemnify the damages caused by breaking the promise without excuse. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages. iv. It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement
Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement. Therefore, the Bank must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Murabaha agreement with the Client.
After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on Bai-Murabaha to the Client buyer, the Bank shall bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the Bank of the defects, that means, if the goods are damaged, Bank is liable, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.
The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract. The Bank shall sell the goods at a higher price (Cost+Profit) to earn profit. The cost of goods sold and profit mark-up therewith shall separately and clearly be mentioned 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 circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc. ix. x.
The price once fixed as per agreement and deferred cannot be further increased. It is permissible for the Bank to authorize any third party to buy and receive the goods on Bank's behalf. The authorization must be in a separate contract.
Categories the Proposal as under: a) Bai-Murabaha commercial: Investment for purchase and sale of goods to individual or firm or company for trading purpose shall be termed as Bai-Murabaha commercial. b) Bai-Murabaha Industry: Investment to industrial Undertaking in the form of supply of Machineries equipment's, Raw Materials etc. will be termed as Bai-Murabaha Industrial.
c) Bai-Murabaha Agriculture: Investment to agriculture sector for supply of seeds, fertilizer etc, shall be termed as Bal Murabaha Agriculture. d) Bai-Murabaha Import: Investment for Import termed as Bai-Murabaha Import. Documentation: 1. Before purchasing the goods by the Bank, obtain sufficient collateral's / 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: I.
Murabaha sanction advice deal wise duly accepted by the client,
Bai Murabaha agreement after purchase of the goods by the Bank
Agreements for pledge of goods. ;
Single party D.P. note, if there is no guarantor.
Double parties D.P. note, if there is guarantor, to be made by the client in favor of the guarantor and endorsed by the latter in favor of the Bank,
Joint and several D.P. notes signed by all the directors in case of limited company;
VII. VIII. IX. X. XI. XII.
D.P. note delivery letter duly signed by the maker and the endorsee Letter of hypothecation for clients stock in trade/work in process, if the investment allowed in additionally secured by Hypothecation of stock/ stock-in-trade, Letter of disclaimer, if stored I party's own/hired godown; Insurance policy. Trust receipt, duly executed by the client if goods delivered under TR. Balance confirmation letter.
Letter of Guarantee signed by the Guarantor as per terms of sanction,
Letter of Installments, if sale price is payable on installments.
If the investment is made collaterally secured by mortgage of property, obtain the following documents: I. II.
In case of equitable mortgage, Memorandum of deposit of title deed (MDTD) signed by the owner of the property. In case of legal Mortgage, registered mortgage deed should be obtained.
Personal guarantee of the owner(s) of the property.
Original title deed(s) with ES. RS. SA. Mutation parcha, OCR of the property and Mutation record.
Up to date rent receipts. Nor encumbrance certificate along with search fee paid receipt.
Site plan of the proposed mortgage property.
Valuation certificate counter signed by the manager certifying the market value and the forced sale value.
Lawyer's certificate about verification of the title deed, legal opinion should be self-contained without any ambiguity and clean in all respects.
An affidavit sworn in before a 1st class magistrate by the owner of the property to the effect that the property offered for mortgage as security is fee from encumbrances and the owner (s) in possession and he/she/they will not encumber/ transfer/sale and/or charge the property in any manner whatsoever to others during the continuance of Banks investment without prior written clearance of the Bank.
3. Where the investment is secured by hypothecation of stock-in-trade machinery's etc., also obtain the following documents. 4. In case investment is collaterally / additionally secured by pledge of shares of reputed public limited company on banks approved list and quoted documents are to be obtained: (i)
Agreements for pledge of shares along with original share certificates,
Share transfer deed in duplicate - one - copy signed, dated and another copy signed undated.
Share delivery letter addressed to the Bank,
Letter to the concerned company to register lien in Banks favor,
Letter of authority in Banks favor duly signed by the shareholder to collect dividend and bonus on his behalf of the share pledged to the bank.
B) Bai-Muajjal: The terms "Bai" and "Muajjal" are derived from the Arabic words 'Bai' and 'Ajal'. The word 'Bai1 means purchase and sale and the word 'Ajal' means a fixed time or a fixed period. "BaiMuajjal" is a sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit. 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 the Law of the country to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the buyer. Important features: i)
Bank is not bound to declare cost of goods and profit mark-up separately to the client.
Spot delivery of the item and payment is deferred. Ownership and possession of the goods is transferred by the Bank to the client before receipt of sale price, 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,
viii) ix) x)
xi) xii) xiii) xiv)
It is permissible to make the promise binding upon the client to purchase from the Bank. That is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise, 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 BaiMuajjal 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 signing the BaiMuajjal Agreement with the client, The Bank after purchase of goods must bear the risk of goods until those are actually delivered to the client, The Bank must deliver the specified goods to the client on specified date and at specified place of delivery as per contract, The Bank may sell the goods at one agreed price which will Include both the cost price and the profit, The price once fixed as per agreement and deferred cannot be further increased.
Down Payment: Minimum 25% of the total value of the articles. The clients shall have to deposit the amount of down payment in his Mudaraba saving 7-investment account with the concerned branch before the disbursement of investment. Security: •
The investment client shall execute provide the following documents in order to secure the investment.
All required charge documents as per rules of the Bank.
A written under taking to the effect that the monthly installments shall be paid regularly.
Personal guarantee of an official of the same rank or of higher 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.
Letter of authority to deduct installments from the monthly salary.
C. Bai-Salam: Bai Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance in the certain commodity (ies)/ products(s) 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 (ies)/ product(s) to the buyer at a future time in exchange of an advanced price fully paid on the spot. Rules of Bai-Salam:
i) 11) i) iv) V)
vi) vii) viii) viii) ix) x) xi) xii)
It is a condition that the commodity known by both parties to the agreement. Misunderstandings about the commodity may lead to disputes, which could void the contract. It is a condition that the quality of the commodity be monitored closely, as very little variation from specifications in the contract are allowable. If the commodity cannot be monitored for quality standards, a salam transaction is impermissible. It is a condition that the commodity be deliverable on the due date. If there is uncertainty about the ability to deliver the commodity at the due date, a salam transaction is impermissible, It is permissible to draw a salam sale contract for a total to be delivered increments on different specified future dates, It is a condition that the commodity is a liability debt. The seller is obliged to deliver the commodity when it is due, according to the specifications stipulated in the contract, whether or not his firm produces the commodity or obtained from other firms. Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before, delivery on the due date, Salam is impermissible on Land lots and real estates. Salam is permissible on a commodity of a specific locality if it is assured that it is usually available in that locality and it rarely becomes unavailable, It is a condition that the purchase price in salam is specified and advanced to the seller at the time of signing of contract. It is a condition in a salam sale that the due date is known to avoid confusion, which may lead to a dispute. It is a condition that the place of delivery be stated in the contract if the commodity requires special handling and delivery arrangements, It is permissible to take a mortgage on salam debt to guarantee that the seller satisfies his obligation by delivering the commodity on the due date, It is impermissible for the buyer of a salam commodity to sell the commodity before reciving it. It is known tliat the salam commodity is a liability debt to the seller and not a commodity that exists. However, it is permissible for the buyer to draw a parallel salam contract without connecting it to the first salam contract.
Important feature: There are some important features of Bai-Salam as given below: Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity(ies)/ product(s) can be sold without having the said commodity(ies)/product(s) either in existence or physical/ constructive possession of the seller. If the commodity (ies)/product(s) are ready for sale, Bai-Salam is not allowed in Shariah. Then the sale may be done either in BaiMurabaha or in Bai-Muajjal mode of investment. Generally, Industrial and Agricultural products are purchased/sold in advance iii.
Under Bai-Salam 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 viz. non-supply/partial supply of commodity
(ies)/product(s), supply of low quality commodity (ies)/product(s) etc. ii)
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 [for Agricultural Product(s) only].
The seller (manufacturer) client may be made agent of the Bank to sell the goods delivered to the Bank by him provided a separate agency agreement is executed between the Bank and the Client (Agent).
D) Istishna'a The Istisna'a sale is a contract in which the price is paid in advance at the time of th econtract and the object of sale is manufactured and delivered later. The majority of the jurists consider Istisna'a as one -of the divisions of Salam, Therefore, it is subsumed under the definition of Salarn. But the Hanafie school of Jurisprudence classifies Istisna'a as an independent and distinct contract. The jurists of the Hanafio school have given various definitions to Istisna'a some of which are: 'that it is a contract with a manufacturer to make the something â&#x20AC;&#x153;and "It is a contract an a commodity on liability with the provision of work". The purchaser is a called 'Mustasnia' contractor and the seller is called 'sania' maker or manufacturer and the thing is called 'masnooa' manufactured, built, made. Important feature: i. Istisna'a is an exceptional mode of investment allowed by Islamic Shariah in which produces) can be sold without having the same in existence. If the produces) are ready for sale. Istisna'a is not allowed in Shariah. Then the sale may be done either in Bai-Murabaha or in Bai-Muajjal mode of investment. In this mode, deliveries of goods are deferred and payment of price may be deferred. ii. iii. iv. v.
It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods. It gives the buyer opportunity to pay the price in some future dates or by installments, It is a binding contract and no party is allowed to cancel the Istisna'a contract after the price is paid and received in full or in part or the manufacturer starts the work, Istisna'a is specially practiced in Manufacturing and Industrial sectors. However, it can be practiced in agricultural and constructions sectors also.
(ii). Leasing Mode (Ijara Mechanism) Leasing Mode can be classified into two categories: A. Hire purchase/ljarah B. Hire Purchase under Shirkatul Melk
The term Ijarah has been derived from the Arabic works Ajr and Ujrat If, which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period. (b) Hire Purchase under Shirkatul Melk: Hire purchase under Shirkatul Melk is a special type of contract, which has been developed through practice. Actually, it is a synthesis of three contractes; Shirkat. Izara and sale. Shirkat means partnership. Sharikatul Melk means share an 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 contract. Important Features: i.
In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is jointly purchase by the Hiree (Bank) and the Hirer (Client) with specified equity participation under a Shirkatul Melk Contract In which the amount of equity and share In ownership of the asset of each partner (Hiree Bank & Hirer Client) are clearly mentioned. Under this agreement the Hiree and the Hirer become co-owner of the asset under transaction in proportion to their respective equity participation.
In Hiree Purchase under under Shirkatul Melk Agreement, the exact ownership of both the Hire (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 the any one of them or in the name of any third party, clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement. However, in IBBL, no third party registration shall be allowed.
The share/part of the purchased asset owned by the Hiree (Bank) is put at the disposal /possession of the Hirer(Client) keeping the ownership with him (Bank) 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 stipulations 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 provisions of the contract which entitles the Hiree (Bank) is entitled for the rentals.
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 or part of price of the asset.
In the Purchase under under Shirkatul Melk Agreement the Hire (Bank) does not sell or the Hirere (Client) does not purchase the asset but the Hiree (Bank) promise to sell the asset to the Hirer (Client) part by part only, if the Hirer (Client) pays the cost price
/equity/agreed price as fixed for the asset as per stipulations within stipulations within agreed upon period on which the Hirer also gives undertakings. vi.
The promises to transfer legal title by the Hiree and undertakings given by the Hirer to purchase ownership of the hired asset upon payment part by part as stipulations are effected only when it is actually done by a separate sale contract.
Higher purchase under Shirkatul Melk: Hire purchase under Shirkatul Melk is special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts: 1. Shikat 2.
Shirkat: Shirkat means partnership. Shirkatul Melk means share in ownership, when two or more partners 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 bear the loss in proportion to their respective equity, the contract is call Shirkatul Melk contract. Ijarah: Ijarah has been defined as a contract between two parties the Hirer and hirer where the hirer enjoy specific service or benefit against a specified consideration or sent from the asset owned by the hire. It is a hire agreement under which a certain asset is; hired out by the hire to a hirer against fixed rent or rentals for a specified period. Sale: This is sale contract between buyer and a seller under which. The ownership of certain goods or asset in transferred by seller to a buyer against agreed upon price to be paid by the buyers. 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, machinery transports etc. Purchase the asset with that equity money, one the some jointly, share the benefit as per agreement and bear the loss in proportion to their prospective equity. The share, part or proportion 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 / proportion to the client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement. Stages of hire purchase under ShirkatuI Melk: Thus, hire purchase under ShirkatuI Melk agreement has got 3 stages.
Purchase under joint ownership
Sale and / or transfer ownership to the partner hire.
Simplification of Documentation: Master documents for the entire revolving limit covering the period 'of investment should be obtained by execration of the of the following documents: a)
DP note delivery letter
Letter of arrangement
Letter of pledge / hypothecation
Letter of continuity
Usual mortgage formalities to be completed
Letter of guarantee (where necessary)
Documentation for the subsequent deals under the umbrella of the master documents should be the following: a)
Party's request letter
b) Letter agreement (deal wise.) unstamped which will be the continuation of the mater agreement c)
Balance confirmation receipt.
Categories the proposal as under: 1.
Hire purchase under ShirkatuI Melk commercial:
Investment on hire purchase under ShirkatuI Melk mode to individual / firm / company / society for commercial purpose(s) shall be termed as hire purchase under Shirkatul Melk commercial. 2.
Hire purchase under Shirkatul Melk Industrial:
Hire purchase under Shirkatul Melk Investment to industrial undertaking in the form of Land, Buildings, Machinery's equipment's, Transport etc. shall be termed as hire purchase under Shirkatul Melk Industrial. 3.
Hire purchase under Shirkatul Melk Agriculture:
Hire purchase under Shirkatul Melk investment to Agriculture sector in the form of Agricultural equipment. Machinery's, Shallow Tube-Well, Deep Tube-Well, Tractor, Trailers, Transport etc. shall be termed as hire purchase under Shirkatul Melk Agriculture. 4.
Hire purchase under Shirkatul Melk Transport:
Hire purchase under Shirkatul Melk investment in the form of transport Bas, Track, Car, Taxi, Launch, Steamer Cargo Vessel, Air Transport etc. shall be termed as hire purchase under Shirkatul Melk Transport. 5. Purchase under Shirkatul Melk Real Estate: Hire purchase under Shirkatul Melk investment in the form of land building, Market, Apartments for use/ rental shall be termed as Hire purchase under Shirkatul Melk Real Estate. Cost Price of the Assets: a) Purchase price of the asset plus other expenditure concerning the purchase i.e. transportation, storage costs of construction, cost of installation, making etc. Before hire of the asset to the hire purchase. b) Conveyance - TA/DA of Bank official or Agent, if any. c) Commission paid to the Agent, if any. d) Cost of remittance of fund. e) Transportation cost up to Bank's Godown / Clients project site (if any) f) Transit insurance and out of pocket expenses g) Godwon rent and staffs salary. h) Income loss sustained during the gestation period. (iii) Share Mode (Mechanism) : Share mode can be classified into two ways: A. Mudaraba B. Musharakah A. Mudaraba: Mudaraba may be defined as a contract between two parties under which one party (Bank) supply capital and another party (client) invest his efficiency, labor and necessary business activities. In such a business, Bank is called Sahib-Al-Mall and the client is called Mudarib. Important features: i) Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience. ii) Administration and Management is maintained by the client, iii) Profit is divided as per agreement, iv) Bank bears the actual loss alone. v) Client cannot take another investment for that specific business without the permission of the Bank. Compensation:
Mudaraba agreement may include a clause to the effect that if any partner violates any rules Mudaraba or any terms & conditions of Mudaraba agreement, the business or other partners will have the right to impose compensation on him as determined by the arbitration Committee of the Bank. B. Musharakah: The terms "Shirkat" and Musharaka" have been derived from Arabic worlds "Shairkah" and "Sharika". The world shirkah means a partnership between more than one partner. Thus the word "Musharaka" and "Shirkat" mean a partnership established between two or more partners for purpose of a commercial venture participated 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 ad per capital/equity ratio. In this case of Investment, "Musharaka" meaning a partnership between the Bank and the Client for a particular business in which both the Bank and the client provide capital at an agreed upon ratio and manage the business jointly. Share the rent as per agreed upon ratio and bear the loss, if any, in proportion to their respective equity. Bank may move itself with the selected Client for conducting any Shariah permissible business under Musharaka mode. Main features: i. Bank and client both supply capital unequally / equally, ii. Profit is divided as per agreement and actual loss is divided as per equity, iii. Client will maintain all accounts properly bank or its agent may verify or audit it. iv. Banks can advice the client in such a business in respect of the business. Types of Shirkat & Quard-E-Hasana : Shirkat, in the terminology of Islamic Fiqh, is mainly of two types: i. ii.
Shirkat -al-Meelk ( Non-contractual) and Shirkat-al-'Uqud (Contractual)
i) Shirkat-al-Meelk (Non-Contractual) Shirkat-al-Meelk (Non-contractual) is created by means of inheritance, wili, or other circumstances resulting joint ownership of two or more persons in a particular asset / property in common. The owners or partners share the asset / property and the returns arising there from as per their ownership ratio. For example, it two persons receive an inheritance or gift of property which may or may not be divisible, the persons have to share the property and its income, if any, accordance with their share in it until they divide it (if divisible) or sell it (if indivisible). Shitkat-ni-Meelk (Non-contractual) is further divided into two types: i. Shirkat-al-Meelk bil Ikhtiyariayyah (Voluntary) and ii. Shirkat-al-Meelk bil Jabriyya (Involuntary) Shirkat-al-Meelk bil Ikhtiyar iyyah (Voluntary)
If the partners do not take their shares dividing the asset / property under joint ownership though it is divisible and agreed to keep it under joint ownership, then this type of Shirkat is called Shirkat-al-Meelk bil Ikhtiyar iyyah (Voluntary). Shirkat-al-Meek bil Jabriyyah (Involuntary) If the asset / property under joint ownership is not divisible and the partners are bound to keep it under joint ownership, then it is called Shirkat-al-Meelk bil Jabriyyah (Involuntary) Shirkat-ai-'Uqud (Contractual) This is the second type of Shirkat, which means, "a partnership effected by a mutual contract" where two or more persons agree to contribute in the capital (Capital may be in the form of cash, commodities, machineries, properties, expertise, goodwill etc.) , participate in the management, share its profit, and bear the loss, if any. Shirkat-al-'Uqud (Contractual) is further divided into four kinds: i. Shirkat-al-Mufawadah (full authority and obligation) ii. Shirkat-al-lnan (restricted authority and obligation) iii. Shikat-ai-Addan (Labor, skill and management) and iv. Shikat-al-wujuh (goodwill, credit-worthiness and contacts) Shirkat-al-Mufawadah Shirkat-al-Mufawadah is a partnership is a partnership in which all the partners are adults, all of them are equal in their capital contribution, ability to undertake responsibility in the management and thus share the profits/ losses, have full authority to act on behalf of the others and are jointly and severally responsible for the liabilities of their Musharaka business incurred in the ordinary course of business. Thus each partner can be an Agent for the business and stands for surety or guarantor for the other partners. The partners act as agents but not as sureties for other parties. Thus their liability towards third party is several and not joint. Shikat-al-lnan In Shikat -al-lnan it is not necessary that all partners be adult. Moreover, it is not a precondition either to supply equal capital or to share the profit/loss equally by each partner. They are not equally responsible for the management of the business also. Thus shirkat-al-lnan means a partnership contract between two or more individuals or institutions in which all the partners may invest capital in unequal proportion, may undertake the responsibility for the management of the business unequally, may share the profit in proportion to their respective capital contribution or as per terms of contract and bear the loss in proportion with their respective capital contribution. Shirkat-al-Abdan
This is a partnership contract in which two or more persons contribute their skills and efforts for management of the business without contributing the capital and income earned from the business is distributed among the partners according to pre-agreed ratio. For example, if two persons agree to undertake tailoring services for their customers on the condition that the wages so earned will go to a joint pool which shall be distributed between them irrespective of the size of the work each partner has actually done. This type of partnership is shirkat-alAbdan, which is also called shirkat-al-Taqabbul or shirkat-us-Sana. Shirkat-al-Wujuh It is a contract between two or more persons who have goodwill, creditworthiness and prestige and who are expert In trading. Here the partners have no capital investment at all. Ail they do is that they purchase the commodities on credit and sell the same for cash. The profit so earned is distributed between them at a pre-agreed ratio. Compensation: Musharaka agreement may include a clause to the effect that if any partner violates any rules Musharaka or any terms & conditions of Musharaka agreement, the business or other partners will have the right to impose compensation on him as determined by the arbitration Committee of the Bank. QUARD-E- HASANA: Quard means loan without interest and Hasana means beautiful. Quard-e-Hasana implies beautiful loan on good faith or beneficial loan. Islamic Banks do not recover any charge, even service, from Quard-e-Hasana account. Loanee has to repay the principal amount. This loan facility in extended only to deserving cases on compassionate grounds and special welfare consideration. The principal amount is refundable within a reasonable time. Islamic Banks grant this loan not only for consumption purpose but also for owning factor(s) of production. The ultimate objects of both the consumption and production Quard-e-Hasana are to enable the loanees to support economic problems.In Islamic Banks, an investment is created against pledge of Mudaraba Term Deposit Receipt (MTDR). Generally, 80% of the MTDR is allowed to the holder for Halal activities without any profit. Only a minimum service charge (in IBBL Tk. 200/-) per deal. It is called Quard against Term Deposit Receipt (QTDR). Quard against TDR: While allowing Quard against TDRs the following points are kept in mind: 1. A written application is to be obtained from the holder of TDR requesting the Bank to allow him Quard against TDR. 2. 3. 4. 5. 6.
If acceptable, a sanction letter to be issued mentioning the terms of sanction. The limit will be maximum one year. TDR will not be eligible for Quard till it is aged minimum one month. Quard amount should be maintained in Investment Ledger with all the necessary particulars. Profit is to be charged/ allowed neither on the Quard amount nor on the relative TDR. A service charge of Tk. 2007- (in B3BL) per year may be realised for each
7. 8. 9. 10.
sanction. A margin on TDR as per practice/instruction of HO/Bangladesh Bank may be kept on TDR. Proper lien should be marked on the TDR ledger to safeguard any fraudulent encashment of the TDR. Concerned TDR duly discharged on revenue stamp will have to be taken as security. Letter of lien & letter of authority to appropriate the proceeds of the TDR on stamped form be taken duly signed by its holder.
D.P. Note and D.P. Note delivery letter should be taken duly signed from the client and preserved duly entered in the Document Execution Register Besides the above, there are some other modes, which have not been practiced in Islamic Banks of our country yet. But in other Islamic Banks of the world. These are Hawaiah, Wakalah, Kafalah, Jo'alah, Muzara'a, Musa'qaat, Musawama, Muzaidah, Istijrar etc. Investment under special schemes 2006: Islami Bank Bangladesh Limited being welfare oriented banking institution has by now introduced and implemented 15 special investment sectors and various sections of people for their socio-economic upliftment and to improve their standard of life. AH, the schemes so far introduced have gained popularity, received wide response of the general masses, and is being appreciated by the conscious people of the society. Performance of the scheme as on 30/12/2006 is as under. Composition of the Investment scheme (Year 2006)
Proportion in %
Agriculture and Rural Investment
Industrial Term Investment
Industrial Working Capital
Housing and Real Estate
Electricity, Gas, Water & Sanitation
Transaction & Communication Storage
Import, Export & Local Trade & Trade Selected Activities
Household Durable Schemes
Investment Schemes for Small Business
Investment Schemes for Doctors
Poultry & Dairy
Rural Development Schemes
Micro Industry Schemes
Others Special Schemes
Other productive Purpose
COMPOSITION OF DIFFERENT SCHEMS OF IBBL
Investment under Special Schemes The volume of investment of IBBL has been increasing substantially day by day. Besides, the network of our branches has been widened and the investment portfolio of the Bank has also been diversified. This has necessitated proper handling and management of the investment portfolio of the Bank at both branches and head office level by way of implementation of systems, procedures, norms, Principles and practices of the investment, enforcement of business discipline and establishing accountability at all tiers. The Bank, since its inception, has been working for the uplillmunt and emancipation of the under privilege, 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. IBBL operates 14 schemes under project investment department - 11 (PID - 11). These are as follows: 1.
Household Durable Scheme.
Car Investment Scheme.
Transport Investment Scheme.
Housing Investment Scheme.
Real Estate Investment Program.
Doctors Investment Scheme
Small Business Investment Scheme
Agriculture Implements Investment Scheme.
Poultry Investment Scheme.
Small Transport Investment Scheme.
Mirpur Silk Weavers Investment Scheme.
Staff House Building Investment Scheme
Household Durable Scheme for the employees of the Bank.
Micro Industries Investment Scheme.
Rural Development Scheme.
Household Durable Scheme: Islami Bank Bangladesh Limited has, therefore introduced Household Durable Investment Scheme, which has already created great enthusiasm amongst the people and received tremendous response form them. Objective: i) To assist the service-holders with limited income in purchasing household durable. ii) To assist the fixed income group in raising the standard of living. iii) To create opportunity for, the service holders to enjoy the benefit of modern and sophisticated living and at the same time to lead a decent and honest life. Items: a) Refrigerator / Deep-freeze b) Television c) Radio / Two-in-one / Three-in-one d) Motor Cycle / Bi-Cycle e) Air Cooler/Air-Conditioner f) Personal Computer g) Washing Machine h) Furniture, Viz., Cot, Almirah, Sofa Set, Wardrobe, Carpet etc i) Sewing Machine. j) Kitchen Appliance like Oven, Toaster, Blender, Pressure Cooker etc; k) Electronic Generator: IPS, UPS etc. 1) Power Generator, Motor Pump / Power Pump etc. m) Any other items considered suitable by the Bank. Eligibility: Interested permanent officials of the following organizations may apply for investment. a) Government organizations. b) Semi-Government organizations and autonomous Bodies
c) Banks and Financial Institutions d) Armed Forces, BDR, Police and Ansers e) International financial and Relief organizations f) Multinational Companies g) Locally established and renewed public limited companies h) Teachers of Universities, Government Colleges schools and senior Madrashas. i) Permanent teachers and officers of established and prominent private universities. Medical colleges and University colleges. In addition, application of the interested officials of established and reputed private organizations may be considered by the head office of the bank upon approach for investment under this scheme by the head of the concern organization. Any client may avail the facility for more than one item. Holdover, total investment of the Bank to a client shall not exceed Tk. 75, 0007. A client who repays 50% of Banks existing investment in due time may avail investment for procurement of new items within the limit of Tk. 75, 0007The amount of Banks investment shall be determined in a manner that the monthly installment does not exceeds 50% of the client's monthly emoluments. However, the Bank may relax this condition in especial eases on being satisfied ; about the repayment capacity of the applications. Period of investment: maximum 2 (two) years Car Investment Scheme: Car is considered as an essential mode of transport in the modern society, particularly by a section of the officials, business house and business executives and established professionals movement in discharging their duties and responsibilities punctually an efficiently. To meet this need Islami bank has introduced the "Car investment Scheme" for the mid and highranking officials of government and semi government organizations. Corporations, executions and directors of big business house and companies and also for person of different professional groups on easy payment terms and conditions. Nature of Car and Garments Procedure: New reconditioned cars of reputed brands imported within the provision of import policy in force shall be allowed to be procured under the scheme. Interested clients should submit at least 3 (three) quotations from 3 different bonafide and genuine car dealers / importers / sellers along with the prescribed application form duly filled in no supervisory agent of the Bank, appointed under the scheme, shall involve in this business, directly or indirectly. Selling of Banks Investment:
Banks investment is maximum Tk. 3.50 Lac per client against purchase cost of the vehicle. Registration and comprehensive insurance cover shall be in the name of the Bank. The clients shall have to bear all subsequent expenses relating to blue book, registration first party insurance, tax token, fitness certificate etc. Clientâ&#x20AC;&#x2122;s equity: Minimum 30% of the purchase cost of the vehicle. The amount of equity shall have to be deposited with the Bank before disbursement of Banks investment. Period of Investment: Period of investment is maximum 4 (four) years from the date of disbursement or delivery of the vehicle to the client, which over is earlier. Mode of investment: a. Hire Purchases b. Hire Purchases Shirkatul Melk. House Investment Scheme: The bank has introduced this scheme recently to case the serious housing problem in the urban areas and to arrange for comfortable accommodation of the fixed income group. Officials of the defense forces; permanent officials of government, semi-government and autonomous organization; teachers of the established universities, universities, university colleges and medical colleges; graduate engineers, doctors and established professionals; Bangladesh, officials and reputed multinational companies, international financial organizations, donor agencies, foreign embassies etc., officials of local established and reputed public limited companies; wage earner professionals like doctors, engineers, accountants, teachers and any other profession doing good job abroad with hand some pay package shall be eligible to apply for availing investment facilities under the scheme. Transports Investment Scheme: To case the existing transportation problem and ensure speedy economic growth and development of the country particularly the expansion of trade, commerce, and industry, the Bank has taken up this scheme, under this scheme investment is being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport like bus, mini-bus, track, launch, cargo-vessel, transport for rent-acar service; and baby-taxi, tempo, pick-up van for self employment; and ambulance for clinic and hospital. The Bank is also extending investment facilities to multinational companies, established business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps. Investment Scheme for Doctors: The Bank has been taken up this scheme to help unemployed qualified doctors to go for selfemployment and to provide latest medical equipment's to specialist doctors to extend modern medical facilities throughout the country.
Small Business Investment Scheme: This scheme has been taken up for self-employment of educated unemployed youths of rural and urban areas and to provide investment to small businessmen and entrepreneurs. Investment is extended for about 200 economic activities in sectors as live stock fishing, agro-farming processing and business, manufacturing, trading / shop - keeping, transportation, agricultural implements, forestry and service viz., laundry, signboard painting etc. under this scheme small businessmen and entrepreneur^ are given investment up to take one lac on easy terms and conditions. Agriculture investment scheme: In keeping with the view of the people oriented and welfare objective of the bank, this scheme has been introduce to provide power tillers, power pumps, shallow tube-wells, thresher machines etc. on easy terms to unemployed rural youths for self-employment and to the farmers to help augment production in agriculture sector. Rural development scheme: Bangladesh is predominately an agriculture country with vast majority living in rural areas. More then 60% of the people live below the poverty line. Seasonal unemployment and under employment is so acute that may 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 branch 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 approach. The objective of the scheme is to crate income generating and productive self-employment opportunities through extension of investment for the development of rural areas and thereby contribute in alleviating rural poverty. Initially the scheme was introduced in 18 districts through 21 branches of the Bank, which was extended to 712 villages in 38 districts through 52 branches of the Bank on 30-6-99. This will gradually be extended throughout the country. Investment will be allowed for the purpose of, amongst, others, production of 21 types of main crops viz. Food, Creals and cash crops, off-farm activities like doing, but fattening goat rearing, poultry, shop keeping, padding etc, rural transport like Rickshaw, Rickshaw-Van, Cart etc., irrigation equipment, hand tube-well, housing materials, in all covering about 343 types of economic activities. Islam! Bank foundation, a subsidiary of the Bank, engaged in social welfare activities shall side by side, take care of the requirement of sanitation, Medicare and Education of the villages through integrated area development approach under Islamic Model. Mirpur Silk Weavers Investment Scheme: The scheme has been taken up to assist the silk weaves of Mirpur area particularly in respect of requirement of working capital BMRE of existing unit by adding further machinery's, to develop new entrepreneurs and assist the workers for getting further, training for producing products of various modern design and for modernization of the silk sector. Outstanding amount of investment as at the year-end different welfare scheme are as under: Amount in million Tk
Sl no 1
Name of scheme
Rural development scheme 2 House hold durable 3 Investment scheme for doctor 4 Transport investment scheme 5 Car investment scheme 6 Small Business investment scheme 7 Micro industries investment scheme 8 Agricultural implements investment scheme 9 Housing investment Scheme 10 Real estate investment program Sub total (investment under scheme) Total investment % to total investment
18822.3 8 28.25 325.06
2947.3 8 27.75 629.81
46280.1 1 13.99%
10145.6 6 75858.5 6 13.37
5859.7 9 12050. 19 93644. 15 12.87
13574.20 113575.07 11.95
PERFORMANCE AND RATIO ANALYSIS 6.1 IBBLâ&#x20AC;&#x2122;s 5 years performance at a glance Particulars
00 Reserved Fund
Equity/capital Surplus/ 262.64 (Deficit) Import Business
Total Foreign Exchange 65131
Business Total Income
Net Profit before Tax
(Income Tax) Dividend
s Total Assets (including 77463,12
Contra) Total Assets (excluding 65080.7
Contra) Fixed Assets Number
1725.53 Foreign 830
Shareholders Number of Branch
Cost of fund(%)
Book Value per Share 5532
(Taka) Market Value per Share 3956 (Taka) Highest) Mobilization of Deposit
The year 2006 was another successfully year of mobilization of deposit. Total deposit stood at Tk 132419 million as on 31st December 2006 as against Tk 107779 million of the preceding year registering an increase of Tk 24,640 million, i.e. 22.86% growth as compared to the growth rate of 18.79% of the Banking sector during 2006. The percentage of growth of deposit in 2005 was 22.70% The share of deposit of IBBL in banking sector as on 31...12.2006 increased to 7.74% from6.66percentage as on 31.12.2005 Total number of depositors of IBBL increased to increased to 3207,131 as on 31 st December 2006 from 2705180 of the preceding year , registering as an increased of 18.56%as against increase of 18.06%as on 31.12.2005 Trend of deposit: 2002to 2006 Year Deposit amount
6.3 Investments Investment of the bank increased to Tk 113575 million as on 31.12.2006 from Tk 93644 million as on 31.12.2005 showing an increased of Tk 19931 million i.e. 21.28% growth as against 3.2% negative growth of investment of the banking sector. This increased investment growth of the Bank in 2006 is due to the thrust given to promote investment for effective utilization of depositors fund. The percentage of increase of investment of IBBL in 2005 was 23.44%. The share of investment of IBBL in banking sector as on 31.12.2006 increased to 7.67%from 6.67%as on 31.12.2005 Trend of Investment: 2002to 2006 Year Deposit amount
a) Sector wise investment Sector wise distribution of investment as on 31.12.2006 vis-a vis the corresponding period of last year is given bellow: SL no 1
2 3 4 5 6
Commercial Real Estate Agriculture Transport Others Total
62642.10 28983.80 8357.80 5890 2722.40 4978.97
2005 %to Total investment 55.15 25.52 7.36 5.19 2.40 4.38
Amount 46063.51 29284.21 6813.70 6445.67 2975.12 2061.94
% to Total investment 49.19 31.27 7.28 6.88 3.18 2.20
Commercial Real Est at e A gricult ure
Transport Ot hers
Composition of sector wise investment as on 31.12.2006 b) Mode wise investment Mode
Bai- Murabaha Hire Purchase under Shirkatul Melk Bai- Muajjal Purchase & Negotion Quard Bai- salam Mudaraba Musharaka Total
2005 % to Total Amount Investment 52.36 51822.28 34.69 30046
% to Total investment 55.34 32.09
1974.20 905.62 50 12.95 113575.07
1.74 0.80 0.04 0.01 100
1966.13 641.44 50 20.42 75858.56
2.10 0.68 0.05 0.02 100
Composition of Mode wise investment as on 31.12.2006 Bai- Murabaha 0.80%
Hire Purchase under Shirkatul Melk
1.74% 4.27% 6.09% 34.69%
52.36% Purchase & Negotion Quard
Mudaraba 6.4 Performance of rural development scheme up to 31.12.2006
Year wise data for the last 4 years performance of the scheme are given below
Particulars Village Center Member(male) Member(female) Total members Cumulative disbursement(million Tk) Outstanding investment Rate of Recovery Members saving(million Tk) Tube well Sanitary latrine Field officers
2003 3700 5541 7190 12327 5 2924
2004 4230 6384 9808 15365 7 4217
Growth 14% 16% 36% 25%
Growth 8% 34% 33% 33%
2005 4560 8526 13047 20439 8 6033
Growth 77% 80% 150% 84%
2006 8057 15321 32766 37680 9 9303
2539 977 639
3400 1500 731
34% 54% 14%
4421 2204 868
30% 46% 19%
5525 3147 1368
25% 43% 58%
Foreign exchange business Total foreign exchange performance is as under Particulars Import Export Remittance Total
% of total
% of total
96870 51133 53819 201822
48.% 25.34% 26.66% 100%
74525 36169 36948 147642
50.47% 24.50% 25.03% 100%
% of growth in 2006 over 2005 29.98% 41.37% 45.66% 36.00%
100000 14670 16673 33788
16668 21738 46237
23669 29151 59804
Equity Movement Year
Equit y y2002
y2003 5266.47 y2004
Trend of Import Year Import amount
40000 20000 0
Trend of Export Year Export amount
Export 60000 50000 40000 30000 20000 10000 0
Trend of Remittance
Year Remittance amount
10000 0 y2004
Trend of Income Year Income amount
Toatl Imcome 14038.3
15000 10586.78 10000 5234.07
8262.73 Toatl Imcome
5000 0 y2002
Operating Result Year Income amount Total Expenditure Gross Profit
2002 5234.07 4240.02
2003 6710.44 5908.42
2004 8262.73 6419.74
2005 10586.78 8424.36
2006 14038.30 14038.30
12000 10000 8262.73
Gross Profit 2162.42
PAID UP CAPITAL(2002-2006) Year Paid up capital
Paid up Capital 3456
2764.8 Paid up Capital
RESERVE FUND(2002-2006) Year Reserve Fund
Reserve Fund 8000
2000 0 y2004
DEPOSIT MIX AS ON 31.12.2006
Mudaraba savings Mudaraba Term saving 8%
0% 1% 00% % 4% 1% 0%
Mudaraba Special savings Current & Contingency 39%
Mudaraba saving Bond Mudaraba Monthly Prifit deposit Mudaraba SND
Bills Payable 20%
Mudaraba Hajj Mudaraba Foreign Currencyposit Mudaraba Muhor savings Mudaraba Waqf cash deposit
Recognitions: IBBL was awarded for several times by international & national organizations. The Global Finance, a reputed London based quarterly magazine4, awarded IBBL as the best bank of the country for the year 1999, 2000 and 2005. IBBL has the 2nd prize of National Export Fare for its pavilion of Service organization Credit Rating of the Bank Credit Rating Information and Services ltd (CRISL) has submitted its report on financial year 2002, 2003, 2004,2005 & also 2006 and assigned A+(Adequate Safety) for term rating scale for 2002 &2003, and upgraded the same to AA-(High Safety) for 2004 &2005 and further upgraded the rating to AA(High Safety) in 2006. National and International ratings of IBBL IBBLâ&#x20AC;&#x2122;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 (RQA) 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, and 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. IBBL was awarded as the best domestic bank in Bangladesh in 1999 & 2000 by the Global Finance, an internationally reputed financial magazine published from U.K. "The Holiday" in its 29 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 1999 edition) published by the Reed Business Information, Windsor Court, England, IBBL's world Rank is 1902 among 4500 banks selected by them. 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 1997, Camel Rating Of Islami Bank Bangladesh Limited CAMEL rating is the most powerful tool for evaluating the overall performance of Banks. CAMEL rating has been introduced by Bangladesh Bank, which incorporates all the major dimensions of the operation of a Bank: C = Capital adequacy A = Asset management M = Management Effectiveness E = Earning Performance L = Liquidity It sets standard from best rating (1) to the worst (2) The rating is 1 = Strong 2 = Satisfactory 3 = Fair 4 = Marginal 5 = Unsatisfactory Capital adequacy: Capital rating = (capital & reserve/ total risk weighted asset) X 100% = (5200.37/55147.08million taka) X100%
=9.43% Rating % Description 1 9.00% and above Strong 2 8.00%-8.99% Satisfactory 3 7.00%-7.99% Fair 4 5.00%-6.99% Marginal 5 4.99% and above Unsatisfactory So, the ranking of Islami bank Bangladesh limited is strong (rating 1) Assets quality rating: Assets quality rating = (classified loans/ total loans) X 100% =15% Rating 1 2 3 4 5
% Upto5.00% 5.01%-10.00% 10.01%-15.00% 15.01%-20.00% Above 20.00%
Description Strong Satisfactory Fair Marginal Unsatisfactory
So, the rating of asset quality rating of Islami bank Bangladesh limited is Fair (rating 3) Management quality rating: Management quality rating =(C+A+E+L)/4 = 9/4 = 2.25 Rating 1 2 3 4 5
Average rating 1.00-1.49% 1.50-2.49% 2.50-3.49% 3.50-4.49% 4.50-5.50%
Description Strong Satisfactory Fair Marginal Unsatisfactory
So, the ranking of management rating of Islami bank Bangladesh limited is Satisfactory (rating 2) Earning rating: Earning rating = (net income/total asset) X 100% =375./81704.74 *100 = .0459% Rating 1 2 3 4 5
Earning rating 0.85%&above 0.65%- 0.84% 0.45%-0.64% Below0.44% Net loss
Description Strong Satisfactory Fair Marginal Unsatisfactory
So, the ranking of earning rating of Islami bank Bangladesh limited is fair (rating 3) Liquidity rating: Liquidity rating= (total liquid assets / total deposits) X 100% = 14882.373/69941.79 *100 = 21.28% Rating 1 2 3 4 5
Earning rating 30.00%& above 20.00%-29.99% 19.00%-19.99%
Description Strong Satisfactory Fair
So, the ranking of earning rating of Islami bank Bangladesh limited is Satisfactory (rating 2) Composite camel rating: Composite camel rating=(c+a+m+e+l)/5=11/5=2.20 Rating 1 2 3 4 5
Average rating 1.00-1.49 1.50-2.49 2.50-3.49 3.50-4.49 4.50-5.49
Description Strong Satisfactory Fair Marginal Unsatisfactory
Therefore, the ranking of composite camel rating of Islami bank Bangladesh limited is satisfactory. BALANCE SHEET AS AT DECEMBER 31, 2006 Amount in TK Particulars
Cash in hand
Cash in hand(including Foreign Currency)
PROPERTY AND ASSETS
Balance with Bangladesh Bank & its Agent 22359985746 Bank(including Foreign Currency)
Balance with other Bank & Financial Institutions
Money at call & short notice
-- -- -- --
Investments in share & securities
General investment etc
Bills Purchased & Discounted
Fixed Asset including Premises
Non- Banking Assets Total Assets
LIABILITIES AND CAPITAL Liabilities Borrowing from other Bank, financial institution and agents Deposit & other Accounts Current and other accounts Bills Payable Mudaraba savings deposit Mudaraba term Deposits Bearer Certificate of Deposits Other Mudaraba Deposits Other Liabilities Total Liabilities Capital/ Share-holdersâ&#x20AC;&#x2122; equity Paid up capital Statutory Reserve Other Reserves Retained Earnings(Proposed Dividend) Total Liabilities &shareholdersâ&#x20AC;&#x2122; Equity
Financial statements provide information about a form’s position at a point in time as well as its operation over some past period. However the real value of financial statements lies in the fact that they can be used to help predict a firm’s financial position in the future and to determine expected earnings and dividend. We shall point out and explain some ratios with graphical presentations that are below: Ratio 1. Liquidity a) Current asset 2. Asset Management A) Total Asset Turnover B) Fixed Turnover 3. Debt Management A) Debt Ratio B) Debt to Equity Ratio 4. Profitability A) Net profit Margin B) Return on asset (ROA) C) Return on Equity (ROE) D) Payout ratio 5. Market Value A) Price/Earning Ratio B) Market/ Book value Ratio Current asset 1. Current Ratio =
Current asset are (in Islami bank Bangladesh Ltd) Cash in hand and Balances with other banks & Financial Institutions. Current Liabilities are Current and others account, Bills Payable, Mudaraba savings deposit.
24848.07 ------ ---67024.98
2004 20125.2 ------------48565.6 0.414
Comment: We know current ratio’s standard is 2:1. Here it is seen that IBBL’s current assets are very lower than current liabilities. They will face problem when they pay their current liabilities.
Current ratio 0.6 0.502
0.3 0.2 0.1 0
Fixed Asset turnover indicates how efficiently the firmâ&#x20AC;&#x2122;s uses its plant & equipment to help generate Sale/revenue 2. Fixed Asset turnover= --------------------Total Fixed Asset
Comment: Here it is seen that IBBL is efficiently using their fixed assets after each year. In 2006, IBBL has efficiently used their fixed asset.
Fixed Asset Turnover 4
2.5 2 1.5 1 0.5 0
Fixed Asset Turnover
Total asset turnover indicates how efficiently a firm is using all of its assets Sale/revenue 3. Total Asset Turnover =
--------------------Total asset turnover
0.0938(times) 0.0861(times) 0.0808 (times) 0.0821(times) 0.0804(times)
Comment: High turnover indicates that firm is using its asset effectively and lower turnover shows less effectively its asset. In 2006, Total asset turnover is good relatively to previous year.
Total Asset Turnover 0.095
0.09 0.0861 0.085
Total Asset Turnover
Net profit margin shows the firmâ&#x20AC;&#x2122;s incoming capabilities 4. Net profit Margin =
Net income ---------------- x100 Sales/Revenue
Comment: Here it is seen that income-earning capabilities in 2006 is very lower than previous year. In order to earn high profit IBBL has to be cut expenditures.
Net Profit Margin 14.00% 12.00% 10.00%
6.00% 4.00% 2.00% 0.00%
Net Profit Margin
Return on asset provides an idea of the coverall return on investment earned by the firm 4. Return on Asset(ROA)=
Net income -------------x100 Total asset
Comment: Here IBBL earned on asset is relatively good than others years (except in 2004). Investing its asset in different projects IBBL has earned good return.
Return on Asset 1.20%
0.60% 0.40% 0.20% 0.00%
Return on Asset
Return on equity measures the rate of return on common stockholder investment Net income --------------------x100 Common Equity
5. Return on Equity(ROE)=
Comment: In 2002 IBBLâ&#x20AC;&#x2122;s ROE was good than in 2006. So in 2006 its ROE may not be said satisfactory Return on Equity 20.00% 15.00%
Return on Equity
Payout ratio is the proportion of net income paid out in cash dividend
6. Payout Ratio =
Cash dividend ---------------Net income
0.617(times) 0.614(times) 0.455(times) 0.981(times) 0.268(times)
Comment: In 2006, IBBL has paid more cash dividend compared to other years Payout Ratio 0.981
1 0.8 0.6
Price / Earning ratio shows how much investors are willing to pay per Tk of reported profit
8. Price/ Earning Ratio=
Market value per share ----------------------------Earning per share
Comment: The higher Price / earning ratio, the higher growth prospectus for firms. The Lower Price / earning ratio, the higher risk for firms. In 2005, IBBL P/E was good compared to 2006. Price/earning ratio 25 20 15 Price/earning ratio
10 5 0
y2002 y2003 y2004 y2005 y2006
Market / book value ratio gives another indication of how investors regard the company. 9. Market / Book Ratio
Market value per share = ----------------------------Book value per share
Comment: In 2006, Market / book value ratio is lower that is, firms can sell its share at a lower rate in market. Market/Book value ratio 2
Market/Book value ratio
Debt ratio indicates how much debt included in the total asset
10. Debt Ratio=
Total debt --------------x100 Total assets
Comment: IBBLâ&#x20AC;&#x2122;s debt amounts are declining year after year. It indicates a good sign of IBBL. High debt indicates the riskiest of the firm.
Debt ratio 1.04%
1.05% 1.00% 0.95%
0.85% 0.80% 0.75%
Debt to Equity ratio implies that the proportion of debt and equity in firmâ&#x20AC;&#x2122;s
11. Debt to Equity Ratio=
Total debt ----------------x100 Total Equity
Comment: IBBL has more debt than equity. Firm will have to decrease their debt by increasing their equity. Higher debt does not indicate a good symbol for the firms.
Debt /Equity ratio 19.09%
10.00% 5.00% 0.00%
Debt /Equity ratio
Swot Analysis And Difference Between Islami Bank And Conventioanl Bank SWOT ANALYSIS OF IBBL SWOT is an acronym that stands for strength, Weakness, opportunities, and threats. SWOT analysis is a careful evaluation of an organization’s internal strength and weakness as well as its environmental opportunities and threats. Strengths
Strong Liquidity position Stable source of fund Largest Network of branches among the banks Satisfactory business growth Varieties product line Expert top management Acquired many depositors and entrepreneurs Devoid of interest based bank Sufficient Capital
Absence of appropriate legal framework for carrying out in the country. Insufficient Marketing effort Tight liquidity position Poor Corporate Government Limited market share Poor motivational effort from the top management Islamic Money market in Bangladesh is yet to develop. It cannot invest the permissible part of their Statutory Liquidity Reserve and Short term Liability in money market.
Can provide ATM booth expansion, Can launch POS(point of sale) Can give locker insurance where clients keep their precious goods, Can start SMS Banking service Can expand Online Banking and Online data transfer Can provide traveling loan, Marriage loan, Home loan, SME and agro based industry
Threats Increased competition in the market Market pressure for increasing the SLR New Islamic oriented bank has arrived with new lucrative offer rate that are better than Islamic Bank Bangladesh Ltd Some bank has launched new loan rate without interest rate up to three months that are threat to Islamic bank Bangladesh Ltd Organizational strengths are skills and capabilities that enable an organization to conceive of and implement its strategies Organizational weaknesses are skills and capabilities that don’t enable an organization to choose and implement strategies that support its mission. Organizational performance.
Organizational threats are areas that increase the difficulty of an organization performing at a high level 7.1Difference between Islamic banking and Conventional banking in operational aspects: Investment Islamic Banking Conventional Banking OPEARATIONAL ASPECTS: INVESTMENT Investment Operation: 01.Under Trading Modes: Buying and selling should be confirmed in In conventional banking, Islamic Banking. Three components should due to basic difference in be ensured- existence of goods, having the principle, no type of loans possession/ ownership/title and transfer of and advances can be ownership. As per clients order bank will compared with trading procure the goods and then sell to the clients modes. However, there is with adding profit. Quotation, cash memo an apparent similarity at and other papers (if any) should be in favor operational level of the of bank to ensure procurement of goods. trading mechanism with
Goods once sold cannot be resold i.e. in case of payment failure bank cannot charge on the goods already sold. In practice, bank charge compensation to control willful default which is not realized as income in bank’s books of accounts. Customary trading modes are Bai Muajjal, Bai Mudaraba and Bai Salam
the cash credit (hypothecation and pledge) of conventional banks. But the concept of buying and selling between bank and client is absolutely absent. Compound interest is charged and for in case of failure of payment
02. Under Shirkat modes: Shirkat modes are Mudaraba and Conventional banks do not MUsharaka.Mudaraba principle is the same practice these types of as mentioned in case of deposit mechanism mobilization.Musharaka is the equity participation of both the parties involved. Under Musharaka profit is shared as per agreement and loss is shared per equity. Musharaka business can be formed with or without participation in management. 03.Under Hire purchase mode Islamic banks are operating a special type of mechanism called HPSM- a mechanism derived through the combination of HP and Musharaka. There are three contracts (Purchase, sale and rent contract) to be performed under the HPSM mode. Ownership is gradually transferred to the client after payment of each installment. Rent is not clurged and accounted for in gestation period
In conventional banks, HP is practiced. Two contracts (Purchase and sale) are performed between bank and client. On payment of the last installment, ownership is transferred to the client. Interest is accounted for at gestation period
04.Overdrafts,Packing Credit, Demand Loans, Purchase of demand drafts: These are well practiced by In Islamic banking, there is no provision to conventional banks practice the mentioned modes due to the involvement of interest. However working capital needs can be met through the mechanism mentioned earlier under Islamic banking. 05. Bai-Murabaha Loans A loan is an advance • The client approaches the Islamic bank sanctioned in lump with the request to finance his specific sum requirement like purchase of capital The borrower can goods, raw materials, machinery draw it at a time or equipment or consumer durable with by pre agreed specification and price information. installment. The bank, after being convinced of the The bank debits the viability of the proposal, informs the money to the loan client about the margin of profit which
the bank would like make on the account opened in original price. the name of the The final price of the commodity, which borrower includes the price of the commodity paid by Interest is usually the bank to the original seller and the bankâ&#x20AC;&#x2122;s calculated and charged profit with other incidental costs, is deferred quarterly to a payment on an installment basis 7.2 Justice for separate Islamic banking For smooth and better functioning of Islamic banks & Financial Institutional, a complete separate Act for Islamic Bank and Financial Institutional is essential for the following reasons: 1) The nature of deposit of Islamic Banks Is different from that of conventional banks. The Islamic banks mobilize deposit on Mudaraba and Al- Wadiah basis under Islamic Shariah, while conventional banks do this on prefixed interest basis. The depositors of Islamic banks are business partners of the bank and they share the profit / loss of the business. But the Conventional banks use the fund of depositors against fixed interest. Conventional bank may utilize their surplus fund in any interest-based securities/ bonds while, Islamic bank can do the same. Inn absence of Islamic Instrument Requirement (CRR) and Statutory Liquidity ratio of Islamic banks should be different from those of conventional bank. 2) It is obligatory for Islamic banks as per Shariah to pay Zakat while Conventional banks do not act on such obligation. In the bank Company Act, 1991 there is no provision to pay Zakat by the Islamic bank. 3) The Islamic banks deploy their funds as per different modes of investment/Financing approved by Islamic Sharaih. Most of the investment 4) Islamic banks are on Bai-Mode. In this mode Banks sell specified goods to the client on cost plus agreed upon profit or at a negotiable price within the fixed period, Islamic bank canâ&#x20AC;&#x2122;t impose or realize additional amount as income of the bank. But the Conventional bank can continue to charge interest. Even they can charge and realize penal interest as income of the bank. The other ideal modes of Islamic banks are Musharaka and Mudaraba, In Mudaraba modes Islami banks share the profit with the client. If the any loss incurred, all the loss is borne by Islamic bank. On the other hand, the earnings of Conventional bank is prefixed and certain which continue till final payment. As business partner, the asset quality of Islamic bank is different and better. So the classification and provisioning rules should be separate for Islamic bank 5) As activities and operation of Islamic Banks, particularly investment port-folio is completely separate from that of Conventional banks the act and procedures for initiation of legal action against the default clients should be separate under the frame work of Islamic Jurisprudence. 6) Inspection of Islamic bank is made as per system adopted for Conventional bank and sometimes by the inspectors within having knowledge of Islamic system and law. The
Inspection of Isalmic bank should be done with a view to identifying both general and shariah lapses by the persons having good knowledge of Islamic Shariah and baking. 7) The instruction/guideline given by Bangladesh bank to Islamic banks should be different from that of Conventional banks as the operation of these two types of banks are completely different in nature. 8) As per section 35 of bank company act, 1991 any unclaimed amount is to be paid to Bangladesh Bank with interest after ten years, which is not compatible with Sharaiah. In such situation, Islamic banks face difficulties in setting such unclaimed amount. 9) In Malaysia and Indonesia where Islamic bank flourished, those are governed by separate act from the very beginning. 10) The Mudaraba depositors of Islamic banks are agreeable to share the loss, if any, arises out of investment operation. So, the investment made out of Mudaraba deposit should be excluded in calculating risk-weighted asset for which separate Islamic banking Act is essential. 7.3 Islamic Banking vis a vis Conventional Banking Theoretical discussions on Islamic banking and finance have established that a system based on profit sharing is not only viable but also has a number of advantages over the interestbased system. In this section, I evaluate the Islamic Banking model. Equity: Islam is a religion, which emphasizes justice to all parties. A contract based on interest involves injustice to one of the parties, sometimes to the lender and sometimes to the borrower. The riba contract is unjust to the borrower because if somebody takes a loan and uses it in his business, he may earn a profit or he may end up in a loss. Now, in the case of loss the person using that money let me call him entrepreneur, loses his labor. In addition to this loss, he has to pay interest and the capital to the lender. The lender, or the financier, in spite of the fact that the business of the enterprise has ended up in a los, gets his money as well as his contract can be injustices to the lender. Many people do not realize that a riba contract can be unjust to the lender and always so the borrower. In most of the underdeveloped countries, perhaps it is more unjust to the lender. I will explain how. In most of the underdeveloped countries and even in many developed countries, most of the borrower today is big capitalist. They pay may be 10% or 15% rate of interest. We know that if the rate of inflation is higher than that, then the real rate of interest becomes negative. The lenders are usually small saver like you and me. Bank collect the saving of all small savers and pass them on to the industrialists who earn a rate of 50%-100% profit but pay back only 10-15% rate of interest which in real sense is not even equivalent to the rate of inflation. Based on that rate of interest and of course minus the administrative expenses of the bank and their own margin, the bank pas on the difference to the lender. This is why the bank gives very small rate of return to the small savers. In an inflationary environment, the real rate of interest is even negative. Therefore, had these savings been invested based on profit sharing, they would have got much better return.
On the basis of pure economic reasoning, Islamic banking is superior to an interest based arrangement because it ensures equity between the borrower and the lender. Both parties share the accrued return, which the project generates. Let me also mention here that in most of the countries even in a country like United State. Which is the front-runner of capitalist model; there are regulations, which place upper limits on the rate of interest. On famous regulation of this kind was Regulation in United State which has now been scrapped but still there are rules in many countries which place an upper limit on the rate of interest that the bank can pay. Now we can know that the rate of inflation in many countries is more than 50%. In the Latin American country, sometimes the rate of inflation has been 1000%. In some Muslim countries, also the rate of inflation is quite high. In early 80â&#x20AC;&#x2122;s the rate of inflation in Turkey was more than 50% and never in the history the arte of interest has gone anywhere near this rate. The rate of interest cannot adjust automatically with the rate of inflation and hence the lenders are at a disadvantage. In profit sharing system as the prices increase, the rate of return of the project also increases along with the rate of inflation. Thus, the real of return does not become negative due to inflation. At the level of an economy, the real rate of return is always positive. There may be a few enterprises, which end up in a loss but largely in a growing economy the rate of return remains positive. Therefore, both the borrowers and lenders will share that rate of return in an equitable manner. Allocative Efficiency: A profit sharing system is also more efficient. It is more efficient because the Islamic banks would be interested in the productivity of the project. As I jus mentioned, in an interest-based system the sole criteria for the distribution of credit is the credibility of the borrower. In Islamic banking, the productivity of the project is more important. Therefore, the finances will go to more productivity projects. In his way, the resources instead of going to low return projects of people having credibility will flow to high return project even if the credibility of the borrower is lower. Therefore, the system is more efficient in allocation of resources. It is more efficient because the bankâ&#x20AC;&#x2122;s interest is now linked to the project. Incase of interestbased system, banks need not care much about project evaluation. Their interest is with the borrower. Incase of profit sharing they have interest in the project itself. Therefore, they will evaluate the project very carefully and allocate fund to, more efficient projects. Thirdly, since the return of Islamic banks depends on the success of the project, they may also contribute in the management of the project. Since they are specialized in the area of finance and investment, their expertise will improve the profitability of the project Stability of banking System: The third criterion usually I talk about in economics is stability. From the stability point of view also, the Islamic banking model is more stable than conventional banking.(here I am talking about the stability of the banking system and not of the economy.) In an interest-based system, there is lack of symmetry in the cash flow of the banks and the cash flow of the enterprise. The entrepreneurs or the businesspersons have to give a fixed interest to the banks that has no relationship to the actual return of the project. Therefore, of the project is not going well in some stage of project or in the entire life of the project, there develops an asymmetry between the cash inflow and cash outflow of the project. That creates instability in the entire business sector. From the other end, the bankers also lack equilibrium in their asset side and the liability side because their asset is fixed while their liabilities are variable. When there is any external shock, there is no automatic mechanism,
which can restore between assets and liabilities of the bank. In case of an Islamic system, the liabilities of the bank are on the basis of assets side as well as the liability side of the banksâ&#x20AC;&#x2122; balance sheet. Growth: The fourth criterion on which economist usually judge a scheme is that of growth. From growth point of view, also the Islamic banking system is better than the Conventional banking system for the following reasons. Firstly, Islamic banking model promotes innovation. Innovation is not something on which the big Industrialist has monopoly. Anybody can be enterprising. Anybody can have a good idea. In Islamic banking, if a small or middleclass entrepreneur has a better project, he has, one- a possibility of getting it financed and, two- he will not be held back by the fear of tremendous risks. We know that innovators involve risks. Since risk is shared between the financier and entrepreneur, Islamic banking system results in a better distribution of only his labor and the bank is risking its capital. Therefore, ingenious entrepreneur will be forthcoming and innovation will be promoted. Secondly, conditions of the cost of capital, one of the determinants of the rate of investment in any economy, are more favorable under the Islamic system. The cost of capital in an interest-based system, which is the rate of interest, is fixed. In an Islamic economy, the cost of capital varies with productivity. There is no fixed cost of capital. In the period when there is a recessionary trend in the economy, productivity goes down. Thus, it does not have that deterrent effect on investment, which a fixed cost of capital has. Therefore, even in that period, relatively speaking there will be greater investment in an Islamic economy or in the profit sharing economy as compared to an interest based economy. So, for these reason, from the growth point of view also, Islamic banking system fares better. Superiority of Islamic Banking system over the Conventional banking system While Islamic banks perform mostly the same function as the conventional banks, they do it in distinctly different manners. Some of the distinguishing features of Islamic banking are given below Risk sharing: The moist important feature of Islamic is that it promotes risk sharing between the providers of funds (Investor) and the user of fund (entrepreneur). By contrast, under conventional banking the investor is assured of a predetermined rate of interest. Since the nature of this world is uncertain, the results of any project are not known with certainly ex-ante. Therefore, there is always some risk involved. In conventional banking all, this risk is borne by the entrepreneur. Whether the project succeeds and produces a profit or fails and produces a loss the owner of capital gets away with a predetermined return. In Islam, this kind of unjust distribution is not allowed and hence in Islamic baking both the investor and entrepreneur shares the result of the project in an equitable way. Incase of profit, both shares it in preagreed proportion. In case of loss, all financial loss is borne by the capitalist and the entrepreneur loses his labor. Emphasis on productivity as compared to credit worthiness:
Under conventional banking, all that maters to a bank is that its loan and interest thereupon are paid to it on time. Therefore, in granting loans the dominant consideration is the credit worthiness of the borrower. Under profit loss, sharing banking the bank will receive a return only if the project succeeds and produces a profit. Therefore, an Islamic bank will be more concerned with the soundness of the project and the business acumen and managerial competence of the entrepreneur. This feature has important implication for the distribution of credit as well as the stability of the system. Moral dimension: The conventional banking is secular in its orientation. As against this in the Islamic system, all economic agents have to work within the moral value system of Islam. Islamic Bank is no exception. As such, they cannot finance any project, which conflicts with the moral value system of Islam. For example, they will not finance a wine factory, a casino, a nightclub or any other activity, which is prohibited by Islam or is known to be harmful for the society Conclusion and Recommendation Conclusion IBBL was established as a public limited banking company in Bangladesh in 1983 as the first interest free shariah based scheduled commercial bank in South East Asia. Naturally, its modus operandi is substantially different from those of other commercial Banks. The Bank conducts its business on the shariah principles of Mudaraba, Musharaka, Bai- Murabaha, Bai- Muajjal, Higher purchase under shirkatul melk and bai-Salam etc. A shariah council in the bank ensures that the activities of the bank are being conducted on the precepts of Islam. Islami Bank Bangladesh Ltd. is regarded as the pioneer in the private sector Islami Banking of Bangladesh. The success of IBBL is largely credited to its first Islami Banking system in Bangladesh. Their market share is also high from other banks. Their internal rules and regulation is also different from other banks. Their customer is very much impressive. The bank is committed to run all its activities as per Islamic Shariah. IBBL through its steady progress and continued success has, by how, earned the reputation of being one of the leading private sector Banks of the county. The bank has shown steady progress in this important sector. Main items of imports (by the help of IBBL) are machinery, garments, fabrics and accessories, ships for scraping, rice pharmaceuticals etc. Whereas main items of exports are jute goods, readymade garments, leather, frozen fish, fertilizer, etc. Still now hear about 301 Islamic banking and financial institutions in about 49 countries of Asia, Africa, Europe, America and countries like Pakistan, U.K., U.S.A., Germany, Argentina, Denmark, Luxembourg, Switzerland and India have been established. The banking system of Pakistan and Iran was totally remodeled On the basis of Islamic Shariah services. IBBL will be more effective in our economy by launching new financial 'products to attract depositor as consumer credit scheme, pension scheme, child education scheme, plastic money ATM etc.
So now, the Islami Bank Bangladesh Ltd. is in leading position in Financial Institutional sectors in Bangladesh. Recommendation o o o o o o o
Giving better customer’s service Full computerization of all activities Supply of new PC is in place of old one. Sufficient number of PC needed for proper working. Interior decoration should be introduced for clients comfort. Modern courses on banking should be included in job training. It is necessary to strengthen the motivational programs including the internal sitting to create the sense of accountability hereafter for all out compliance of Shariah in Islamic Banking among all concerned including official, employees and clients. It is necessary to give clear ideas about Islamic Banking to investment clients, especially new investment clients before allowing them investment at the branch level. Branch manager, Second officer and investment officer may play a vital role in this regard. It is necessary to introduce other investment modes side by side the buying and selling mode of Bai Mudaraba, Bai Muajjal, Bai Salam and Istisna etc, according to the nature of modern trade and commerce complying with the basic principles of Islamic Shariah It is essential to continue al out effort for widening the Agricultural and Medium Investment Scheme to bring the Islamic Banking facilities to the doors of the mass people To take necessary steps for opening separate lady’s counters run by lady official to render Shariah compliant services to the women clients at the Branches
FINDINGS IBBL is the pioneer of Islamic Banking Business in the Private sector The Customer service is very much impressive than of other financial institutions. Foreign exchange is the major contributor to its earnings. Remittances, both local and foreign are effective manner of customer service. Workers are so much honest The overall performance is good. REFERENCES: • • • • •
Annual reports, IBBL 2002-6 Daily data collection from bank Islami Bank 5 years of progress IBBL based on Islamic Shariah. Islami Bank 8 years of progress Islamic Economic research bureau, Thoughts on Islamic banking, Dhaka, Feb. 1992
• • • •
Nassief Nabil, Faysal Md. Islamic bank of Bahrain, “Islamic banking around the world” (Mimeo) Various types of publications of IBBL. Notes and guidelines of workshops. Chapra M. Umar, review of Islamic economics.