Marketing of Financial Products of Islami Bank Bangladesh Limited

Introduction

ORIGIN:

Dr. Arifur Rahman, Professor of Faculty of Business, who is also the supervisor, has assigned me to select a topic on “Marketing of Financial Products of Islami Bank Bangladesh Limited (IBBL): Some Observations” Here I am supposed to analyze investment banking as a whole scenario of Islami Bank Bangladesh Limited (IBBL) particularly in terms of its precise definition, problems, factors, contributions, and inventions.

 Objective:

The primary objective of this report is to observe the investment related activities for the Investment Department of Islami Bank Bangladesh Ltd.

The other objectives include:

§  To understand the different modes of investment.

• To familiarize with the various investment schemes.
• To get the practical exposure of the banking activities.
• To adapt with the corporate environment.
• To understand the investment policy of IBBL with other banks.

Scope:

In this report I have focused on all the tools which include profiles of IBBL, investment modes like Bai mode, Profit & loss sharing, bearing mode, Rent sharing mode, different schemes of investment such as household durable schemes, housing investment scheme, transport investment scheme, car investment scheme, investment scheme for doctors small business investment scheme, rural development scheme, etc. and lastly financial performances have been depicted.

 Methodology:

a)  Nature of the study: Exploratory

b) Sources of information: Both primary and secondary information sources were used to complete this report.

• Primary sources: Primary sources were officers and manager (AVP) of the Islami Bank Bangladesh Ltd., Mohammadpur Krishi Market Branch. Following factor were considered to collect information:

1. Face to Face conversation.

• Secondary sources: Secondary information was collected from various books, journals, manuals, and also from the web sites.

      c) Analysis techniques and Presentation of information: Self study was used to analyze the collected information. Collected information and findings of the analysis are presented in both table and graphical form

      d) Preparation and submission of report: A report is prepared and submitted to the Faculty of Business for evaluation.

LimitationS:

I have faced some problems during preparing my report:

a)      Lack of experiences has acted as constraints in the way of meticulous exploration on the topic.

b)      Shortage of time for preparing the report in order.

c)      Lack of updated information.

d)     Internet speed is very slow (outside) for collecting necessary data in time.

e)      The study was conducted mostly on secondary data.

Chapter 2: Background of Islami Bank Bangladesh Limited

History of Islami Bank Bangladesh Ltd.

In the late seventies and early eighties, muslim countries were awoken by the emergence of Islami Bank which provided interest free banking facilities. There are currently more than 300 interest free institutions all over the world. Islami Bank now a days not only operate in almost all Muslim countries but have extended their wings to the western world to serve both Muslim and non Muslim customers. In case of Islami Banking, the establishment of Mitghamar Local Savings Bank in 1963 is said to be a milestone for modern Islami Banking. The history of Islami Banking can nevertheless be traced back to the birth of Islam.

In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganise its economic and financial system as per Islamic Shariah (legal framework of Islamic Ideology).

In 1978, Bangladesh recommended in Islamic Foreign Minister Conference in Senegal towards systematic efforts to Islamic Banking.

In 1980, Foreign Minister Conference in Pakistan where Bangladesh Foreign Minister Prof. Shamsul Hoq, proposed for taking steps for Islamic Banking. Further, Bangladesh Bank sent representation abroad to study Islamic Banking System. Also, International Seminar held in Dhaka inaugurated by Bangladesh Bank Governor for early introduction of Islamic Banking.

In 1981, PresiProfessort of the Peoples Republic of Bangladesh addressed the 3rd Islamic Summit Conference held at Makkah and Taif suggested, ”The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.”

In 1982, IDB visited Bangladesh for study. They found contributions done by Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA); they mobilized the seminars, public opinion through symposia & workshop. Professional activities reinforced by Muslim Businessman Society (now reorganized as Industrialists and Businessman Association). The body mobilized mainly equity capital for emerging Islamic Bank. Finally, in 1983 Islami Bank Bangladesh Limited (IBBL) came out to take the challenge of doing banking business.

Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability under the companies Act 1913. The bank began operations on March 30, 1983, with major share by the foreign entrepreneurs.

IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by the Islamic Development Bank and financial institutions. The total number of branches in 2008 stood at 196. Now the authorized capital of the bank is Tk. 5000 million and subscribed capital is Tk. 3801.6 million.

 Islamic Banking

Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations. -OIC

Ziauddin Ahmed says, “Islamic bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam.”

It appears from the above definitions that Islamic bank is a system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic bank is often known as PLS-banks.

 Mission

To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country to encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas.

Vision

Our vision is to always strive to achieve superior financial performance, be considered a leading Islamic bank by reputation and performance.

• Our goal is to establish and maintain the modern banking techniques, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems.
• We will try to encourage savings in the form of direct investment.
• We will also try to encourage investment particularly in projects which are more likely to lead to higher employment.

Objectives of Islamic Bank

The primary objective of establishing Islamic Bank all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic bank when viewed in the context of its role in the economy are listed as following:

• To offer contemporary financial services in conformity with Islamic Shariah;
• To contribute towards economic development and prosperity within the principles of Islamic justice;
• Optimum allocation of scarce financial resources; and
• To help ensure equitable distribution of income.

  Essential Features of Islamic Bank

1.      Prohibition of interest

 The traditional capitalist banking system depends on interest. It receives interest for providing loans and pays interest for taking loans. The spread between these two interests is the source of its profit. But according to Islamic Shariah all types of interest is banned. So, Islamic bank does not carry on business of interest and it completely avoids the transaction of interest.

 2.      Investment based on profit

After departing from interest, the alternate ways of income for Islamic bank is investment and profit. Thus IBBL gives up any transaction of interest and makes investments based on profit. Bank distributes its profit to its depositors and shareholders.

 3.      Investment in Halal business

Islamic Shariah has banned the business of haram goods. For example, Islam not only forbids the drinking of alcohol but also banned any business of alcohol. Therefore, Islamic bank does not get any haram business and only do halal business.

 4.      Halal paths and procedures

 Islamic Shariah also rejects any haram path or process in case of a halal business. Therefore, Islamic bank system only allows the halal path procedures of halal business.

Distinguishing Features of Conventional and IBBL

The distinguishing features of the conventional banking and IBBL is shown below:

Shareholdings

The IBBL holds a diverse shareholding pattern with foreign and domestic sponsor shareholders. The foreign investors hold 57.88% of total shares while the local investors hold the rest 42.12%. The sponsors other than Sponsor Directors (both local and foreign) hold 39.76% and the Board of Directors (Individual and representative of institutions) were holding 11.94% of the total outstanding shares (2,764,800 ordinary shares) as on December 31, 2007. In the total ownership pattern, Arabsas Travel & Tourist Agency, K.S.A. was holding 9.999% shares, which is the highest in the total shareholdings. There are other five foreign institutional shareholders that hold more than 5% shares of the Bank.

Branch Arrangement

IBBL has the largest network of branches among PCBs. IBBL has 196 branches up-to-date located at different commercially important places. Out of these branches, 157 branches are in urban areas and 29 branches are in rural areas. With the expansion of business, the Bank created 2 more new Zones in addition to the existing 6 Zones to ensure close supervision, effective monitoring, and quick disposal of business and optimum utilization of manpower. 58 branches are located in 3 Dhaka Zones (Dhaka Central, South & North Zones), 25 branches are in Chittagong Zone, 28 branches are in Khulna Zone, 29 branches are in Bogra Zone, 18 branches are in Comilla Zone and 14 are in Sylhet Zone and the rest 4 Branches are directly controlled by Head Office.

Products & Services of the Bank

IBBL has the scope to explore the market niche through various types of IBBL instruments. IBBL offers wide range of IBBL products and services. It provides Mudaraba Savings Deposit, Mudaraba Term Deposit, Mudaraba Special Savings (Pension), Al-Wadeeah Current Account, Mudaraba Savings Bond, Mudaraba Monthly profit Deposit, Mudaraba Special Deposit, Mudaraba Hajj Savings, Mudaraba Muhor Savings, Mudaraba Foreign Currency Deposit, and Mudaraba Waqf Cash Deposit.

Chapter 3: Modes of Investment of IBBL

Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. Funds may be invested in either real assets or financial assets. When resources are used for purchasing fixed and current assets in a production process or for a trading purpose, then it can be termed as real investment. Specific examples of financial investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company. Since Islam condemns hoarding savings and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of excess savings, if he is unable to invest in real assets, has no option but to invest his savings in financial assets.

 Objectives and Principles of Investment

The objectives and principles of investment operations of the Bank are:

• To invest fund strictly in accordance with the principles of Islamic Shariah.
• To diversify its investment portfolio by the size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial, and agriculture.
• 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 thereof.
• 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 development schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and uplift of the society.
• To invest in the form of goods and commodities rather than give out cash money to the investment clients.

Investment Modes of IBBL

When money is deposited in the IBBL, the bank, in turn, makes investments in different forms approved by the Islamic Shariah with the intention to earn a profit. Not only a bank, but also an individual or organization can use Islamic modes of investment to earn profits for wealth maximization. Some popular modes of IBBL’s Investment are discussed below:

BAI-MURABAHA(Contract Sale on Profit)

  Meaning of Murabaha

“Bai-Murabaha” 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 an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit may be either a fixed sum or based on a percentage of the price of the goods.  

 Features of Murabaha

1. A client can make an offer to purchase particular goods from the bank for a specified agreed upon price, including the cost of the goods plus a profit.
2. A client can make the promise to purchase from the bank, that is, he is either to satisfy the promise or to indemnify any losses incurred from the breaking the promise without excuse.
3. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify any losses that may result.
4. Documentation of the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt is permissible. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
5. The bank must deliver the goods to the client at the date, time, and place specified in the contract.
6. The bank sells the goods at a price above the cost to obtain a profit.  The sale price that is charged by the bank is agreed upon in the Bai-Murabaha.  The profit can be stated in terms of a flat dollar amount or on a percentage of the purchase price.  If a percentage is used, the percentage shall never be expressed in terms of time, in order to avoid confusion that the price is a form of interest (Riba), which is not allowed.
7. The price agreed to in the agreement is binding on both parties.
8. It is permissible for the bank to contract with a third party to buy and receive the goods on its behalf. This agreement must be a separate contract.

Steps of Bai-Murabaha

First Step: The client submits a proposal regarding his requirements of the bank. The client sends a proposal with the specifications of the commodity to be acquired from the bank. The proposal also indicates details regarding the date, time and place of delivery as well as price and form of payment information. The bank responds by sending a counter proposal either accepting the buyer’s price or stipulating a different price.

Second Step:     The client promises to buy the commodity from the bank on a Bai–Murabaha basis, for the stipulated price. The bank accepts the order and establishes the terms and conditions of the transaction.

Third Step: The bank informs the client (ultimate buyer) of its approval of the agreement to purchase.  The bank may pay for the goods immediately or in accordance with the agreement. The seller expresses its approval to the sale and sends the invoice(s).

Fourth Step: The two parties (the bank and the client) sign the Bai–Murabaha Sale contract according to the agreement to purchase.

Fifth Step: The Bank authorizes the client or its nominee to receive the commodity.

The seller   sends the commodity to the place of delivery agreed upon. The client undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

 Rules of Bai-Murabaha

1. It is permissible for the client to offer to purchase a particular commodity, deciding its specifications and committing itself to buy it on Murabaha for the cost plus the agreed upon profit.
2. It is permissible that the mutual agreement shall contain various conditions agreed upon by the two parties, especially with respect to the place of delivery, the payment of a cash security to guarantee the implementation of the operation and the method of payment.
3. It is permissible to stipulate the binding nature of the promise to purchase.  Thus, the agreement can only be satisfied by either fulfilling the promise to purchase or by indemnifying the bank for any losses incurred if the promise to purchase is not fulfilled.
4. It is a condition that the bank purchases the requested commodity (first purchase contract) before selling it on Murabaha to the buyer. The contract in the first purchase must be settled, in principle, between the source seller and the bank.
5. It is permissible for the bank to authorize a second party including the buyer to receive the commodity on its behalf. This authorization must be in a separate contract, particularly if the buyer is going to receive the goods on behalf of the bank. This is necessary to avoid any conflicts with the ensuing Murabaha sale.
6. Once the bank takes ownership of the goods, it is responsible for any damages or defects. Thus, if the goods are damaged, the bank is liable and must repair the damage prior to delivering the goods to the purchaser.
7. It is a condition that the Bai-Murabaha contract be drawn at the last phase. That is after the promise to purchase and the purchase of the commodity in the name of the bank and receipt of the commodity directly by the bank or through an agent.
8. The legal rules of Bai-Murabaha must be observed in drawing the contract of the Murabaha sale connected with a promise to purchase.  Particularly concerning the issue of the transparency of the cost of the first purchase and the amount of profit because discrepancies lead to disputes, which may invalidate the contract.
9. It is permissible to document the debt resulting from Bai-Murabaha by a guarantor or a mortgage, like any other sale on credit. Further, it is permissible that the mortgage accompanies the contract, because it is possible to take a mortgage on actual debt as well as promised debt before it is realized.  However, the mortgage shall only be in effect if the debt is actually incurred.

1.5 Application of Bai-Murabaha

Murabaha is the most frequently used form of finance in IBBL throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finished goods, procurement of raw materials, machinery, and other required plant and equipment purchases.  It is used widely about 53%.

 BAI-MUAJJAL (Deferred Sale)

 Meaning of Bai-Muajjal

 The Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods, permissible under Shariah and law of the country, to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or in fixed installments.

Features of Bai-Muajjal

1. It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement.
2. It is permissible to make the promise binding upon the client to purchase the goods from the bank.
3. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the bank for damages caused by non-payment.
4. It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a mortgage or both, like any other debt. Mortgage/Guarantee/Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
5. All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client.
6. The bank must deliver the goods to the client at the time and place specified in the contract.
7. The bank may sell the goods at a higher price than the purchase price to earn profit.
8. The price is fixed at the time of the agreement and cannot be altered.
9. The bank is not required to disclose the profit made on the transaction.

Some Observations

The following points should receive attention before making any investment decision under Bai-Muajjal.

1. Whether the goods that the client intends to purchase are marketable and have steady demand in the market.
2. Whether the price of the goods is subject to frequent and violent changes.
3. Whether the goods are perishable in short or in long-term duration.
4. Whether the quality and other specifications of the goods as desired by the client can be ensured.
5. Whether the goods are available in the market and the bank will be in a position to purchase the Goods in time and at the negotiated price.

6. Whether the sale price of the goods is payable by the client at the specified future date in lump sum or in Installments as per the agreement.

 HIRE-PURCHASE UNDER SHIRKATUL MELK

Hire-Purchase under Shirkatul Melk has been developed through practice. Actually, it is a synthesis of three contracts: (a) Shirkat; (b) Ijarah, and (c) Sale. These may be defined as follows:

Definition of Shirkatul Melk: ‘Shrkat’ means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, IBBL purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly till the full ownership is transferred to the client.

Definition of Ijara: The term ‘Ijara’ has been defined as a contract between two parties, the lessor and the lessee, where the lessee enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the lessor. It is a lease agreement under which a certain asset is leased out by the lessor or to a lessee against specific rent or rental for a fixed period.

Definition of Sale contract: This is a contract between a buyer and a seller under which the onwnership of certain goods or asset is transferred by the seller to the buyer against agreed upon price paid by the buyer. In the case of Hire Purchase under Shirkatul Melk, the lessor bank sells or transfers its title to the asset under a sale contract on payment of sale price.

 Stages of Hire Purchase under Shirkatul Melk

Hire Purchase under Shirkatul Melk Agreement has got three stages:

1. Purchase of asset under joint ownership of the lessor and the lessee.
2. Hire, and
3. Sale and transfer of ownership by the lessor to the other partner – lessee.

 Important Features

1. In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is jointly purchased by the lessor (bank) and the lessee (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 (lessor bank and lessee client) are clearly mentioned. Under this agreement the lessor and the lessee become co-owners of the asset under transaction in proportion to their respective equity.
2. In Hire Purchase under Shirkatul Melk Agreement the exact ownership of both the lessor (bank) and lessee (client) must be recognized.  However, if the partners wish and agree the asset purchased may be registered in the name of any one of them or in the name of any third party clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement.
3. The share/part of the purchased asset owned by the lessor (bank) is put at the disposal possession of the lessee (clients) keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are clearly stated. Under this agreement the lessee (client) becomes the owner of the benefit of the asset not of the asset itself, in accordance with the specific provisions of the contract that entitles the lessor (bank) the rentals.
4. As the ownership of leased portion of asset lies with the lessor (bank) and rent is paid by the lessee against the specific benefit, the rent is not considered as price or part of price of the asset.
5. In the Hire Purchase under Shirkatul Melk agreement the Lessor (bank) does not sell or the lessee (client) does not purchase the asset but the lessor (bank) promise to sell the asset to the lessee only if the lessee only if the lessee pays the cost price/equity price of the asset as fixed and as per stipulations on which the lessee also gives undertakings.
6. The promise to transfer legal title by the lessor and undertakings given by the lessee to purchase the ownership of leased asset upon payment part by part as per stipulations are affected only when it is actually done by a separate sale contract.
7. As soon as any part of lesssor’s (bank’s) ownership of asset is transferred to the lessee (client), that becomes the property of the lessee and hire contract for that share/part and entitlement for rent thereof lapses.
8. The hire contract becomes effective from the day on which the lessor transfers the possession of the leased asset in good order and usable condition, so that the lessee may make use of the same as per provisions of the agreement.
9. Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the asset by the lessor to the lessee.

MUDARABA (Investment made by the entrepreneur)

 Definition of Mudaraba

The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital. Mudaraba is also known a Qirad and Muqaradah

Steps of Mudaraba

The bank provides the capital as a capital owner. The Mudarib provides the effort and expertise for the investment of capital in exchange for a share in profit that is agreed upon by both parties.

1. The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply.
2. Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital.
3. Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss.  In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first.

 Rules of Mudaraba

There are some legal rules that govern the business relationship Mudaraba which are as follows:

1. It is a condition in Mudaraba that the capital be specific in nature. In other words, the amount of capital must be known at the inception of the contract. The purpose of this rule is to ensure that there is no uncertainty about the amount of capital and, thus, no uncertainty about the division of profits.
2. It is a condition that capital must be in the form of currency in circulation. However, merchandise can be contributed, so long as both parties to the business arrangement agree upon its value.
3. It is a condition that the capital cannot be subject to indebtedness.
4. It is permissible for a Mudarib to mix his private capital with the capital of the Mudaraba, thus becoming a partner. In addition, it is also permissible for the Mudarib to dispose of capital on behalf of the Mudaraba.
5. It is a condition that the capital of the Mudaraba is delivered to the Mudarib.
6. It is permissible to impose restrictions on the Mudarib as long as the restriction is beneficial and does not hinder the agent’s ability to make a profit.
7. It is permissible for the Mudarib to hire an assistant to perform difficult work that he is unable to perform on his own.

MUSHARAKA (Partnership based investment)

 Meaning of Musharaka

The word Musharaka is derived from the Arabic word Sharikah meaning partnership. At an IBBL, a typical Musharaka transaction may be conducted in the following manner.

One, two or more entrepreneurs approach an IBBL to request the financing required for a project.  The bank, along with other partners, provides the necessary capital for the project. All partners, including the bank, have the right to participate in the project. They can also waive this right. The profits are to be distributed according to an agreed ratio, which need not be the same as the capital proportion. However, losses are shared in exactly the same proportion in which the different partners have provided the finance for the project.  

 BAI-SALAM (Advance payment)

 Meaning of Bai-Salam

Bai-Salam is a term used to define a sale in which the buyer makes advance payment, but the delivery is delayed until sometime in the future. Usually the seller is an individual or business and the buyer is the bank.

The Bai-Salam sales serve the interests of both parties:

1. The seller receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the Salam sale by locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses.
2. The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him from price fluctuation.

Steps of Bai-Salam

1. Cash sale or Sale on Credit – The bank pays the agreed upon price at the time of the contracts inception. The seller agrees to the delivery of the commodity some specified date in the future.
2. Delivery and Receipt of the Commodity on the Specific due Date: There are several options for delivery available to the bank

a) The bank may receive the commodity and resell it to another party for cash or credit.

b) The bank may authorize the seller to find another buyer for the commodity.

c) The bank may direct the seller to deliver the commodity directly to a third party with whom the bank has entered into another agreement.

1. The Sale Contract: The bank agrees to sell the commodity for cash or a deferred price, which is higher than the Salam purchase price.  The buyer agrees to purchase and to pay the price according to the agreement.

Rules of Bai-Salam

1. It is a condition that the commodity known by both parties to the agreement.
2. It is a condition that the quality of the commodity be monitored closely, as very little variation from specifications in the contract is allowable.
3. 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.
4. It is permissible to draw a Salam sale contract for a total to be delivered increments on different specified future dates.
5. 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.
6. Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before delivery on the due date.

Application of Bai-Salam

Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices.  In addition, the Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date.

ISTISNA’A SALE

 Definition of Istisna’a Sale

The Istisna’a sale is a contract in which the price is paid in advance at the time of the contract and the object of sale is manufactured and delivered later. It is a contract with a manufacturer to make something and it is a contract on a commodity on liability with the provision of work.  IBBL can utilize Istisna’a in two ways:

1. It is permissible for the bank to buy a commodity on Istisna’a contract then sell it after receipt for cash or deferred payment.
2. It is also permissible for the bank to enter into a Istisna’a contract in the capacity of seller to those who demand a purchase of a particular commodity and then draw a parallel Istisna’a contract in the capacity of a buyer with another party to manufacture the commodity agreed upon in the first contract.

  Steps of Istisna’a Sale

Istisna’a Sale Contract:  The Buyer expresses his desire to buy a commodity and brings a request to purchase the commodity to the bank. The method of payment, whether cash or deferred is set forth in the agreement. The bank agrees to deliver the commodity to the buyer at some agreed upon time in the future.

Delivery and Receipt of the Commodity: The seller in the parallel Istisna’a agreement, delivers the commodity to the bank on the agreed upon date. The bank, in turn, delivers the product to the buyer of the original Istisna’a contract, in accordance with the original agreement. In this way, all parties fulfill their obligations to the contract.

Application of Istisna’a Sale

The Istisna’a contract allows IBBL to finance the public needs and the vital interests of the society to develop the Islamic economy in accordance with Islamic teachings. For example Istisna’a contracts are used to finance high technology industries such as the aviation, locomotive and ship building industries. In addition, this type of business transaction is also used in the production of large machinery and equipment manufactured in factories and workshops. Finally, the Istisna’a contract is also applied in the construction industry such as apartment buildings, hospitals, schools, and universities to whatever that makes the network for modern life. One final note, the Istisna’a contract is best used in those transactions in which the product being purchased can easily be measured in terms of the specified criteria of the contract.

IJARAH

Definition of Ijarah

According to Islamic Shariah, Ijarah is a contract between two parties – the lessor and the lessee, where the lessees (Hirer or Mustajir) have the right to enjoy/reap a specific benefit against a specified consideration/rent/wages from the lessor – the owner (Muajjir).

Elements of Ijarah

According the majority of Fuqaha, there are three general and six detailed elements of Ijarah:

1. The wording: This includes offer and acceptance.
2. Contracting parties: This includes a lessor, the owner of the property, and a lessee, the party that benefits from the use of the property.
3. Subject matter of the contract: This includes the rent and the benefit.

The lessor (Mujjir) – The individual or organization who leases out/rents out the property or service is called the lessor.

The lessee: (Mustajir) – The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir).

The Benefit (Maajur) – The benefit that is leased/rented out is called the benefit (Maajur).

The rent (Aj’r or Ujrat) – The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat or Aj’r.  

Rules for Ijarah

It is condition that the subject (benefit/service) of the contract and the asset (object) should be known comprehensively.

1. It is a condition that the assets to be leased must not be a fungible one (perishable or consumable) which cannot be used more than once, or in other words the asset(s) must be a non-fungible one which can be utilized more than once, or the use/benefit/service of which can be separated from the assets itself.
2. It is a condition that the subject (benefit/service) or the contract must actually and legally be attainable/derivable. It is not permissible to lease something, the handing-over of the possession of which is impossible. If the asset is a jointly owned property, any partner, according to be majority of the jurists, may let his portion of the asset(s) to co-owner(s) or the person(s) other than the co-owners. However, it is also permissible for a partner to lease his share to the other partner(s),
3. It is a condition that the lessee shall ensure that he will make use of the asset(s) as per provisions of the Agreement or as per customs/norms/practice, if there is no expressed provision.
4. The lessor is under obligation to enable the lessee to the benefit from the assets by putting the possession of the asset(s) at his disposal in useable condition at the commencement of the lease period.
5. In a lease contract, the period of lease and the rental to be paid in terms of time, place or distance should be clearly stated.
6. It is a condition that the rental falls due from the date of handing over the asset to lessee and not from the date of contract or use of the assets.

Investment Processing of IBBL

Generally a bank takes certain steps to deliver its proposed investment to the client. But the process takes deep analysis. Because banks invest depositors fund, not banks’ own fund. If the bank fails to meet depositors demand, then it must collapse. So, each bank should take strong concentration on investment proposal. However, Islami Bank Bangladesh Limited (IBBL) makes its investment decision through successfully passing the following crucial steps:

Selection of the client

Here, investment taker (client) approaches to any of the branch of Islami Bank Bangladesh Limited (IBBL). Then, he talks with the manager or respective officer (Investment). Secondly, bank considers five C’s of the client. After successful completion of the discussion between the client and the bank, bank selects the client for its proposed investment. It is to be noted that the client/customer must agree with the bank’s rules & regulations before availing investment. Generally, bank analyses the following five C’s of the client:

• Character;
• Capacity;
• Capital;
• Collateral; and
• Condition.

Application stage

At this stage, the bank will collect necessary information about the prospective client. For this reason, bank informs the prospective client to provide and/or fill duly respective information which is crucial for the initiation of investment proposal. Generally, here, all the required documents for taking investment have to prepare by the client himself. Documents that are necessary for getting investment of IBBL is prescribed below:

            I.            Trade License photocopy (for proprietorship);

         II.            Abridged pro forma income statement;

      III.            Attested copy of partnership deed (for partnership business);

      IV.            Prior three (03) years’ audited balance sheet (for joint stock company);

         V.            Prior three (03) years’ business transactions statement for the musharaka/mudaraba investment;

      VI.            Abridged pro forma income statement for the musharaka/mudaraba investment;

   VII.            Attested copy of the Memorandum of Association (MOA) & Articles of Association (AOA) for the joint stock company;

1. Attested copy of the Tax IProfessortification Number (TIN)- including final assessment;

      IX.            Tenders of the proposed assets (in case of HPSM);

         X.            Detailed summary of the sundry debtors and creditors (including both time & schedule);

      XI.            Summary of the personal movable & immovable assets; and others.

Appraisal stage

At this stage, the bank evaluates the client and his/her business. It is the most important stage. Because, on the basis of this stage, bank usually goes for sanctioning the proposed investment limit/proposal. If anything goes wrong here, the bank sudProfessorly stops to make payment of investment.

In order to appraise the client, Islami Bank Bangladesh Limited (IBBL) provides a standard

F-167B Form (Appraisal Report) to the client for gathering all the information. The original copy of the appraisal report is enclosed in the appendix chapter. However, the following contents are presented from that appraisal report:

1. Company’s/Client’s Information.
2.   Owner’s Information.
3.   List of Partners/Directors.
4. Purpose of Investment/Facilities.
5.   Details of Proposed Facilities/Investment.
6.   Break up of Present Outstanding.
7. Other Liabilities of the Client/Group.
8. Previous Banker’s Information.
9.   Details of Sister/Allied Concerns.
10.   Allied Deposit as on.
11. Business/Industry Analysis.
12.   Relationship Analysis.
13. Asset-Liability position of the client as per Audited Balance Sheet.
14. Working Capital Assessment.
15. Risk Grade.
16.   Particulars of the godown for storing MPI/Murabaha goods.
17. Insurance Coverage.
18.   Audit Observation.
19.   Security Analysis.

Sanctioning stage

At this stage, the bank officially approves the investment proposal of the respective client. In this case client receives bank’s sanction letter. Islami Bank Bangladesh Limited (IBBL)’s sanction letter contains the following elements:

1.      Investment Limit in million.

2.      Mode & amount of investment.
3.      Purpose of investment.
4.      Period of investment.
5.      Rate of return.
6.      Securities:

a.      Primary- Stock of goods is the primary security.

                                                                i.      LC/Bills: Related Documents.

                                                              ii.      Murabaha Post Investment (MPI)/Bai-Murabaha: Pledge of MPI/Bai-Murabaha goods.

                                                            iii.      MPI/Bai-Bai Murabaha-TR: Lien on goods to be released.

 b.      *Cash/Goods–

                                                                i.      Bai-Murabaha: 25% cash security on cost price to be subsequently converted to goods security.

                                                              ii.      TR (Trust Receipt): Without cash security.

 c.       Collateral: Immovable properties.

Cash/Goods security

In allowing Murabaha investment and amount of cash security is generally realized from the client (amount depends on the nature of goods, creditworthiness of the client, collateral security obtained etc.) which is converted to goods security after purchase of goods purchased out of bank’s investment and client’s cash security is pledged to the bank, kept under bank’s custody before its delivery to the client on payment. Example: If, for a Murabaha investment cash security is fixed at 25% Bank’s investment stands at 75% on the total goods purchased. For example, if cost of total goods purchased is Tk.100000 Bank’s investment will be Tk.75000 and client’s cash security will be Tk.25000.

Documentation stage

At this stage, usually the bank analyses whether required documents are in order. In the documentation stage, Islami Bank Bangladesh Limited (IBBL) checks the following documents of the client:

       I.            Tax Payment Certificate.

    II.            Stock Report.

 III.            Trade License (renewal).

 IV.            VAT certificate

    V.            Liability statement from different parties.

 VI.            Receivable from different clients.

1. Other assets statement.
2. Aungykar Nama.

 IX.            Ghosona Potra.

    X.            Three (03) years net income & business transactions.

 XI.            Performance report with the bank.

1. Account Statement Form of the bank.
2. Valuation Certificate
   1. Particulars of the Proposal.
   2. Particulars of the Mortgagor.
   3. Particulars of the Properties.
   4. Outstanding liability position of the bank.
   5. CIB (Credit Information Bureau) Report.

 Disbursement stage

At this stage, bank decides to pay out money. Here, the client gets his/her desired fund or goods. It is to be noted that before disbursement a “site plan” showing the exact location of each mortgage property needs to be physically verified.

Monitoring & Recovery stage

At this final stage of investment processing of the Islami Bank Bangladesh Limited (IBBL), bank will contact with the client continually, for example- bank can obtain monthly stock report from the client in case of micro investment. Here, the bank will keep his eye on over the investment taker. If needed, bank will physically verify the client’s operations. Also if bank feels that anything is going wrong then it tries to recover its investment fund from the client.

Investment Schemes of IBBL

The salient features of the investment policy of Islami Bank Bangladesh Limited are to invest on the basis of profit and loss sharing system in accordance with the tenets and principles of Islamic Shariah. Profit earning is not the only motive and objective of the bank’s investment policy rather emphasis is given in attaining social good and in creation employment opportunities.

In fact, the bank since its inception has been working for the uplifter and emancipation of the unprivileged, downtrodProfessor, and neglected section of the people 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 awareness for self employment.

Household Durable Scheme

In a developing country like Bangladesh people of middle and lower middle class specially service holders with limited income find it difficult to purchase articles like refrigerator, television, cot, almirah, wardrobe, sofa-set, pressure cooker, sewing machine etc. which are part of modern and decent living. They can not enhance the standard and quality of life to the desired level due to the constrain of their limited income.

Islami Bank Bangladesh Limited has, therefore, introduced Household Durables Investment Scheme which has already created great enthusiasm among the people and received tremendous response from them. 

 Objectives

• To assist the service holders with limited income in purchasing household durables.
• To assist the fixed income group in raising the standard of living.  
• To create opportunity for the service holders to enjoy the benefit of modern and sophisticated living and at the time 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 appliances like oven, toaster, blender, pressure cooker etc.
k.       Electronic generator: IPS, UPS etc.
l.       Power generator, motor pump/power pump etc.
m.     CI sheet, Rod, Wood etc.
n.       Gold ornaments
o.       Tube-wells
p.       Mobile telephone set
q.       Medical/Engineering Equipment/Machinery
r.        Educational equipment/Machinery, books etc.
s.       Any other item 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 Ansars.
e.       Teachers of Universities, Government Colleges and Schools and Senior
Madrashas.
f.        Officers of International Financial & Relief Organization.
g.       Officers of the multinational companies.
h.       Officers of the local established and renowned public limited companies.
i.         Permanent Teachers & Officers of established & prominent Private Universities,
Medical Colleges & University Colleges.

• House Owners
• Doctors, Engineers, Architects, Chartered Accountants/FCMA and other important professionals.
• Investment Clients of IBBL
• Deposit Clients of IBBL
• Shopkeepers and businessmen
• Wage earners, Panel lawyers of IBBL, C&F Agents enlisted in IBBL etc.
• Graduate & Post-Graduate StuProfessorts of Universities, MedicalColleges,     EngineeringColleges, UniversityColleges for purchase of PC, Medical/Engineering Equipment/Machinery, Books etc.
• In case of Government, Semi-Government and Autonomous Organisations the age of the investment clients must be 25 and above with at least three years of service and he must have at least three years of service prior to his retirement. In case of private organisations, teachers of school, collage and madrashas the age of investment clients must be in between 30-50, with at least five years of service and he must have five years of confirm service prior to his retirement in the same organisation.
• In case of others except service holders the age limit must be within 27-60 years.
• In case of stuProfessorts the minimum age must be 18 years and maximum 25 years.

 Amount

• For doctors, Engineers, Architects, Chartered Accountants, FCMAs the Ceiling of the investment of the Bank will be –
  a. Dhaka City: Maximum Tk.3,00,000.00
  b. Other Metropolitan Cities: Maximum Tk.2,00,000.00
  c. Other Municipal Areas: Maximum Tk.1,00,000.00
• For Depositors Tk. 2,00,000.00
•  For others: Tk.1,00,000.00
• NCOs of Bangladesh Armed Forces, Teachers of Primary Schools, Private School & Colleges and other professionals: Maximum Tk. 35,000.00
• For StuProfessorts : Maximum Tk. 40,000.00

Rate of Return: 15%

Period of Investment: Maximum two years

Mode of Investment: Bai-Muajjal

Equity

Minimum 25% of the total value of the articles. The client shall have to deposit the amount of equity in his Mudaraba Savings/Investment Account with the concerned branch before the disbursement of investment.

 Disbursement

• After sanction of investment and deposit of required equity by the client, the Branch shall supply to the concerned investment client the desired articles within seven days by procuring them by way of pay-order/cheque/draft etc. favouring the supplier.
• For ensuring the ownership of the Bank over the goods, all papers and documents related to the procurement of the goods shall remain in the name of the Bank and Bank’s sticker shall remain affixed over the same. The ownership shall be transferred in favor of the client after full adjustment of the dues to the Bank.

Mode of Recovery

The Bank’s investments and profit thereon shall be recovered in 24 monthly instalments within a period of 2 (two) years.

The monthly installment shall be payable by the first week of every month.

The first instalment shall be due for payment in the first week of the subsequent month of the disbursement/delivery of goods/articles.

 Dues payable to the Bank shall be recovered in the following manner depending on the nature of the organization and the status of the client:

i.     On request of the employee, the employer shall deduct the monthly installment from his salary and remit the amount to the Bank. In this connection, the client shall have to furnish a letter of consent from the employer.
ii.     Before the delivery of goods, the client shall deposit to the Bank 24 post-dated cheques giving specific dates against each monthly installment. The cheques shall be presented to the concerned bank on due dates for encashment and adjustment of proceeds towards repayment of installment.

 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 undertaking to the effect that the monthly installments shall be paid regularly.
• Personal guarantee of an official of the same rank or of superior rank. The guarantee shall have to be duly authenticated by the competent authority of the concerned organization.
• Personal guarantee of another person, preferably family member

 Procedure for Application

Interested clients shall apply in prescribed form to the concerned Branch. The application shall have to be duly recommended by the Divisional Chief of the organisation where the applicant serves. Form and booklet outlining the rules and procedures of the Scheme may be obtained from the selected Branches of the Bank on payment of Tk. 25.00 only.

Supervision of Investment

Under this Scheme, the Bank, at the initial stage, has engaged M/s. Anudip Services Private Ltd., Ibn Sina Group Investment Company Ltd., Faisal Investment Foundation and Crescent Consultants on commission basis for selection of client, disbursement and recovery of investment and for overall supervision of the Scheme. The concerned investment client shall pay the commission of the supervising agency at the rate of 2% per annum over the investment.

Risk Fund

A risk fund shall be created under this Scheme by charging the investment account @ 2% at a time against the total investment at the rate of 1% per annum for 2 years. In case of any genuine damage or if the concerned client is totally incapable to the Bank, then the amount shall be covered or adjusted from the risk fund.  

Housing Investment Scheme              

One of the basic human needs is to have a house to live in. A house is an abode of peace and happiness. Housing has now become an acute problem in the country, specially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy living. The Bank has introduced ‘Housing Investment Scheme’ with the objective to ease and minimize the housing problem and assist service holders and professionals with limited income in materializing their dream of becoming owner of houses.

Objectives

• To extend the benefits of the investment of the Bank under the Scheme to different sections of the people.
• To assist in solving the existing housing problem of the country.
• To assist the service holders and professionals with fixed income to arrange for houses of their own.
• To extend the investment facilities of the Bank to every nook and corner of the country, by size of investment, by sector of investment and on the basis of geographical area.
• To make investment facilities easily available under Islamic Shariah to those people who do not want to avail investment facilities from interest-based financial institutions.

Eligibility

• Initially the following categories of people shall be eligible to apply for availing investment facilities under this Scheme:

1.       Officials of the Defense Forces.
2.       Permanent Officials of Government, Semi-Government and Autonomous
Organizations.
3.       Teachers of the established Universities, University Colleges & Medical   Colleges.

4.       Graduate Engineers, Doctors and established professionals.
5.       Bangladeshi Officials of reputed Multinational Companies, International Financial     Organizations, Donor Agencies, Foreign Embassies etc., and Officials of local established & reputed Public Limited Companies
6.       Wage earner professionals like Doctors, Engineers, Accountants, Teachers and any other profession doing good job abroad with hand-some pay-package.

• The client must have exclusive and undisputed possession and ownership title over the land on which the proposed house will be constructed. The leased property must be on lease for 99 years and must be legally acceptable for mortgage to the Bank. If the investment client is a service holder then he must have at least 5 years un-expired service prior to retirement.

• Bank will select the client on the basis of the following criteria: Percentage of Bank’s investment is less than the client’s investment; amount of Bank’s investment is comparatively smaller in size, quality of construction & value of the property; constructed house/apartment is in good location & the price is reasonable; return from the property (rented income) & other known sources of income of the applicant; investment servicing capacity of the client is quite satisfactory.

Target Area: At the initial stage, the Scheme is being implemented in:

• Dhaka metropolitan area.
• Chittagong metropolitan area.
• Rajshahi metropolitan area.
• Khulna metropolitan area.
• Sylhet metropolitan area.

Scope of Investment

• Investment is to be extended to build new houses on the client’s own land, to purchase built houses/ apartments/flats and for extension/ completion of the house constructed/under construction.
• The building to be constructed on the land must be as per approved plan of the competent authority of that area, viz. RAZUK, CDA, RDA, KDA etc.

The amount of investment will be limited to the following:

a) In case of construction on land owned by the client: maximum 60% of the total cost of the construction of the building. Maximum ceiling of the Bank’s investment will be Tk. 30.00 lac
b) In case of purchase of apartment/flat/ready-made house: maximum 50% of the value including purchase related cost. Maximum ceiling of the Bank’s investment will be Tk. 20.00 lac.

c) If any client intends to provide the following securities to the Bank duly discharged/ completing necessary formalities by him, Bank may allow further or additional investment in excess of the aforesaid ceiling to the extent of 100% of the value of the securities: TDR & Mudaraba Savings Bond of Islami Bank Bangladesh Limited, TDR/Fixed Deposit of any scheduled Bank, Wage Earners Bond, ICB Unit Certificates, National/Defence Savings Bonds/ Sanchaypatra etc., Bank Guarantee from any scheduled Bank.

Rate of Return: 14.5%

Mode of Investment

Hire Purchase under Shirkatul Melk (HPSM)  

Period of Investment

• The maximum period of investment shall be generally 15 years. However, the period of investment shall be determined on the basis of the proposal of the client, the amount of investment (for which the client has applied) and the ability of the project or client to repay the dues.
• Reasonable gestation period for construction be allowed considering the size of construction and Bank’s investment.

Bank’s Rent

The Bank, in accordance with its normal practice shall decide rent on the investment. The clients, who will repay the entire dues in time or before the stipulated time by way of payment of all due installments regularly, they will be allowed rebate on the rent.

Disbursement Procedure of Investment:  

Bank will pay the sanctioned money through Pay-Order directly or through investment client to the supplier of construction materials/owner of the apartment/owner of the built house. However, the following points shall be taken into consideration in disbursing the investment:

• In case of purchase of apartment/flat/built house, the client shall have to deposit the equity money in the Branch or produce documentary eviProfessorce in support of his investment upto the satisfaction of the concerned Branch.
• In case of construction of house on the client’s own land or for extension of the existing house, the valuation of the Bank as regards client’s investment shall be considered final.
• The client shall have to submit to the Bank, the construction plan approved by the competent authority and also the required permission to mortgage the property, where necessary.
• The client must execute all necessary documents including mortgage deed and complete all necessary documentation formalities to avail the investment. Related documents of mortgage, agreement of sale and other documents must be vetted by the penal lawyer of the Bank.

Recovery of Bank’s Investment

• The client shall have to pay the Bank’s dues by monthly instalment immediately after the expiry of the period of construction. To ensure payment as per stipulation of sanction the client, shall have to deposit post-dated cheques to the Bank for the amount of each monthly instalments covering the entire period of investment. The Bank shall realise the amount of monthly instalment by depositing the cheque of a particular month on the first week of every month.
• The client shall have to execute irrevocable power of attorney in favour of the Bank authorising the Bank to collect monthly rent from the tenants in case of failure of the client to pay the monthly instalment.

Security

• Personal guarantee of the clients, his/her spouse, adult son(s) and daughter(s) shall have to be obtained.
• Mortgage of land and building to be constructed thereon, apartment/flat/house in favor of the Bank till the full payment of dues to the Bank.
• An undertaking from the client as well as from the dependants (nominees) to the effect that the retirement benefits including ProviProfessort Fund will be appropriated towards adjustment of the house building investment liability of the client prior to any other appropriation, if the liability relating thereto or any part of it remains unadjusted at the time of getting the retirement benefits.

Procedure for Application:

Interested persons shall have to apply in prescribed form of the Bank through the Branch of the concerned area. The Bank shall sanction investment if the proposal is found acceptable after examination of its viability and profitability. The Bank reserves the right to sanction or reject any investment proposal.

Real Estate Investment Program                                             

Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under this programme. Investment is to be extended to build new houses and for extension/ completion of the house already constructed, commercial building, shopping complex, flat/apartment etc.

Rate of Return: 14.5%

Mode of Investment: HPSM

Investment Limit: No specific limit

Duration: 10 years

Transport Investment Program                                          

The role of modern communication is most vital for the socio-economic growth and uplift of a developing country like Bangladesh. A sound and efficient communication network is the pre-requisite for sustained development through the expansion of trade, commerce and industry. In this backdrop the demand for road and water transports has increased manifold throughout the country. Moreover, the use of modern transports has increased keeping pace with the rise of the standard of living of the professionals. Considering all these facts, Islami Bank Bangladesh Limited has introduced ‘Transport Investment Scheme’. Under this scheme investment on easy terms is being extended to the existing successful businessmen in road and water transports and potential entrepreneurs in this sector for different types of road and water transports. Besides, Multinational companies, established business houses and well to do officials and professionals can become owner of various kinds of transports through Hire Purchase under this scheme.

Mode of Transports

• Road Transports

            >      Private car, microbus, jeep, pick-up van.

            >      Bus, truck, minibus.

            >      Auto-rickshaw, tempo.

            >      Ambulance.

• Water Transports

            >      Cargo vessel of maximum 500 ton capacity.

            >      Ocean going vessel of maximum 800 ton capacity.  

Target Group

• Bus/Truck/Minibus

>      Successful individual/businessman/firm engaged in transport business and potential individual/ businessman/firm who intends to take-up transport as business.

• Private Car/Microbus/Jeep

>      Permanent Officials of Government, Semi-government, Autonomous Bodies, Corporations, Banks and Financial Institutions.

            >      Established Businessman and Business Establishments.

            >      Officials of Defence Forces.

            >      Professionals: University Teachers, Doctors and Engineers.

      Experienced Person/Firm engaged or interested in transport business (Rent-a-car). Preference will be given to those person and firms who are already engaged in transport business.

• Auto Rickshaw/Tempo/Pick-up van

      Persons/Businessmen/Firms who have already proved themselves successful in the transport business and those efficient and potential persons/businessmen/firms who are interested to take small transport as business, may apply for investment to purchase auto-rickshaw, tempo and pick-up van.

• Ambulance

                  Established Clinics and Hospitals.

• Water Transport

         Experienced and successful Persons and Businessmen engaged in water transport business.

Rate of Return: 14.5%

Mode of Investment: Hire-Purchase Shirkatul Meelk(HPSM).  

Amount of Bank’s Investment and Client’s Down Payment  

Type of Transport                    Bank’s Maximum Investment      Client’s

Down Payment

1.       Private Car/Jeep                                                70%                             30%

2.       Bus/Truck/Mini-bus                                          60%                             40%

3.       Water Transport                                                50%                             50%

4.       Auto Rickshaw/Tempo/

Pick-up van/Ambulance                                              50%                             50%

While ascertaining Bank’s investment to service holders it should be kept in view that the amount of monthly instalment does not exceed 40% of his total salary.

Period of Investment:

• Maximum 3 years from the date of delivery of the vehicle.

Rent of Investment

The Bank as per existing rules shall charge rent on investment. Clients who will repay the entire investments within the stipulated period or earlier by way of regular payment of instalments, shall be given rebate over the rent.

Security

• The ownership of the vehicle shall remain in Bank’s name till full repayment of investment including rent.
• The client shall have to mortgage immovable properties as collateral security.
• In case of Officials of Government, Semi-Government and Autonomous Bodies, personal guarantee of the officer of the same grade or of superior grade and in case of officials of public limited company or business houses, corporate guarantee of the employer/ chairman/managing director shall have to be provided.

Mode of disbursement

• Bank’s sanctioned amount shall be disbursed directly to the supplier of the vehicle.
• The client shall have to complete all documentation formalities including mortgage of property before disbursement of the Bank’s investment.
• The cost of chassis and bodybuilding shall be taken into consideration in ascertaining the price.

Supervision

Bank officials or appointed agents of the Bank reserve the right to inspect the vehicle at any time in any place where it is kept or found in order to ascertain its overall condition.

Recovery of Bank’s investment

• The client shall have to repay the dues to the Bank in monthly instalment starting immediately after the expiry of the gestation period fixed by the Bank.
• Required number of post-dated cheques for the whole period of investment mentioning the amount of monthly instalments shall have to be deposited to the Bank. The Bank shall collect the monthly instalment of a particular month through encashment of the cheque in the first week of the concerned month.
• If a client fails to pay 3 consecutive instalments, the Bank can take back the possession of the vehicle from the client and sell or transfer it to another client as per the rules of the Bank. If any amount remains outstanding after sale or transfer of the vehicle, the client shall remain liable to repay the same to the Bank.

Car Investment Scheme        

Car is considered as an essential mode of transport in the modern society, particularly by a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. Many of these categories of people cannot purchase a car on payment of entire purchase value at a time out of their own sources. To meet this need Islami Bank has introduced the ‘Car Investment Scheme’ for the mid and high ranking officials of government and semi-government organizations, corporations, executives and directors of big business houses and companies and also for persons of different professional groups on easy payment terms and conditions.  

Objectives

• To meet the demand of senior officials of different organizations, established business houses and companies and persons of various professional groups who essentially need a car but cannot afford to purchase on payment at a time.
• To assist in minimizing transport problem in the private sector and help the mid and high ranking officials and professionals with fixed income in the improvement of their standard of living.
• To extend the range of Bank’s investment facilities to various sections of people in line with the ideals of the Bank.
• To diversify the investment portfolio of the Bank by size, sector and volume.

Eligibility

Permanent senior officers/executives of the following organizations:

Category-A

• Government Organisations.
• Semi-Government Organisations/Autonomous Bodies/Corporations.
• Banks.
• Commissioned Officer of Armed Forces, BDR, Police and Ansars.
• Teachers of the Universities, Government Colleges.  

Category-B

• Executives/Directors of big companies and business houses of repute.
• Members of all other professional groups having good income.

The clients, in both the categories, must be within age group of 27-50 years with minimum 6 (six) years unexpired service in case of service holders. In all cases the clients must have sufficient capacity to pay the installments in due time to the satisfaction of the Bank. The Bank reserves the right to regret the sanction of any proposal not found suitable.

Ceiling of Bank’s Investment

Bank’s 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.

Client’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 Bank’s investment.

Rate of Return: 14.5%

Period of Investment

Period of investment is maximum 4 (four) years from the date of disbursement or delivery of the vehicle to the client, whichever is earlier.

Mode of Investment

a.       Hire Purchase

b.       Hire Purchase Shirkatul Meelk.

Security Requirements

The following shall be obtained as security against bank’s investment under this Scheme:

a.       In case of clients falling under category-A of eligibility criteria:

• Personal guarantee of the investment client.
• Personal guarantee of any of the officers of the rank and status equal to the client or an officer of higher rank.
• The guarantee shall have to be duly authenticated by the competent authority of the organization/institution where the client serves.
• Employer’s certificate to the effect that the client is in permanent service of the organization. The net pay and pay scale of the client is to be mentioned in the certificate.
• An undertaking from the client to the effect that in case of his failure to pay regular installments, the amount is to be deducted from his salary at source for adjustment of dues to the Bank.

1. In case of clients falling under category B of eligibility criteria, any of the following additional collateral/securities are required:

• Mortgage of land
• Bank Guarantee
• Deposit of ICB Unit Certificates/National Savings Certificates/TDR/Share Certificates of reputed companies duly discharged/transferred in favor of the bank and/or completing required formalities.

Mode of Disbursement:

Bank’s sanctioned amount shall be disbursed directly to the supplier of the vehicle as mentioned in the quotation/in Professor submitted and accepted for the purpose on completion of the following requirements:

• Deposit of the equity amount by the client with the concerned Branch.
• Completion of all formalities including documentation for the investment.
• Obtaining of securities/collateral as per sanction requirements.

Supervision

Bank may engage supervising agent(s) to supervise, monitor and recover the investments under the Scheme. The cost of the supervision charge shall be recovered from the client along with rent.

Mode of Recovery

Dues to the Bank shall recover in the following manner:

• In equal monthly installment along with monthly rent, starting from the first week of the month, following the month of disbursement of delivery of the car whichever is earlier.
• The monthly installment shall be payable by the first week of every month.
• Post-dated cheques for the whole period of investment mentioning the amount of monthly installment shall have to be deposited by the client. In the first week of every month, the cheque(s) shall be presented for clearance/collection for the adjustment of the monthly installment.

• The amount of monthly installment shall not exceed 50% of the total income of the client taking into account the take-home salary and other disclosed sources of income of the client.
• The Branch shall have the right to take possession of the vehicle in case of failure of the client to pay 3 (three) consecutive monthly installment.

Insurance  

The vehicle shall be covered by first party (comprehensive) insurance covering all possible risks throughout the investment period at the cost of the client. The client shall have to ensure timely renewal of insurance and payment of premium.

Registration  

The car shall have to be registered in the name of the Bank only. After payment of the entire investment of the Bank including the charges etc., the car shall be transferred in the name of the client.

Maintenance  

The client shall have to maintain the vehicle properly for ensuring its normal operation and shall be solely responsible for loss/damage, if any, as long as it is in his possession irrespective of risk covered by insurance policy. Accordingly, repairing and maintenance cost of operation during investment period, renewal of blue book, tax token, fitness and insurance shall have to be borne by the client.

Inspection

For the purpose of inspecting the status, operation and custody of the vehicle, the Bank or its authorized agent has the right, at all reasonable time, to enter into the house, office, factory, garage or the premise of the client where the vehicle is kept.  

Investment Scheme for Doctors                                             

Islami Bank Bangladesh Limited has taken the initiative an introduced the “Doctors Investment Scheme” to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and at the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment.

Objectives

1.  To provide investment facilities for establishment of chambers, clinics, pharmacies and procurement of medical equipment by the unemployed medical graduates and thus to provide self- employment.

2.   To assist newly passed unemployed medical graduates to establish clinics by way of formation of groups by 5 doctors.

3.   To assist specialists and consultant physicians to procure specialised medical equipment for extending improved treatment to the people.

Rate of Return: 14.5%

Investment Ceiling and Period:

Category                                                        Maximum Ceiling                  Maximum Period

1.   Self employed doctors settled                  Tk. 5.00 Lacs                                      5 years

in district town

2.   Self employed doctors settled                  Tk. 5.00 Lacs                                      5 years

in Thana towns

3.   Specialists/Consultant physicians             Tk. 10.00 Lacs                                                5 years

for modern and sophisticated

medical equipment

4.   Newly graduate unemployed Doctors      Tk. 5 lacs to every doctor and                        5 years

Group for establishment of clinics,     maximum        Tk. 25 lacs to a group

Purchase of machinery, equipment,    of 5 doctors

accessories and other goods.

The maximum period of investment is 4 years.

Mode of Investment

     Hire Purchase Shirkatul Melk      : For purchase/procurement of medical equipment                                                             and appliances, motor cycle and other items.

     Bai-Muajjal                                  : For establishment of Chambers, Clinics and                                                              purchase of medicines etc.

Equity

• Newly graduated doctors under self-employment scheme    :           10%
• Established doctors                                                                 :           20%
• Established Clinics                                                                  :           30%

Security

1.   The ownership of the medical equipment, appliances etc. and the motor cycle supplied by the bank on Hire Purchase-Shirkatul Melk basis, shall remain with the bank.

2.   Against Bank’s investment, the clients shall have to mortgage property at least equal to the value of investment by the Bank. However, in case of investment (other than clinic) for self-employment of the newly graduated doctors the condition of mortgage of property may be relaxed, if they are unable to offer mortgage of property as security against investment. The investment clients shall have to provide personal guarantee of person(s) acceptable to the bank, in such cases.

3.   Original copy of the graduation and post-graduation certificates shall have to be deposited with the bank, in case of investments for self-employment of unemployed doctors.

Mode of Repayment

• Investment of the Bank is to be repaid on monthly instalment basis.
• Re-payment of the 1^st instalment will start after three months from the date of investment.
• If any investment client under the scheme fails to pay back three consecutive instalments without satisfactory reasons acceptable to the bank for such failure, the bank may take possession and control of the machinery and equipment etc. supplied by the Bank.

Small Business Investment Scheme                                      

Islami Bank, as welfare oriented financial institution, is committed to generate employment and bring about an overall improvement in the socio-economic condition of the people and the quality of their life. The Bank, to make effective contribution in this respect, has taken-up a special programme and introduced ‘Small Business Investment Scheme’ to make the small traders, entrepreneurs and neglected unemployed youths of urban and rural areas self-reliant by providing them required financial support.

The following benefits will be achieved through implementation of this Scheme.

• Gradually it will help to alleviate poverty and minimize unemployment.
• It will help small traders and entrepreneurs to become self-reliant and to improve their quality of life through capital formation.
• It will create opportunity for the unemployed youths to engage themselves in in-come generating activities.
• It will help to expand the market for locally produced goods by increasing productivity of small traders and entrepreneurs.

Eligibility of the Clients

• Investment clients must be permanent resiProfessorts of the command area of the branch through which they intend to avail investment facilities and they must have valid trade license and shops or selling centres.
• Small business and entrepreneurs, who are already engaged in trade and business but cannot run their operations smoothly for shortage of fund/capital, will also be eligible to avail investment facilities under the Scheme.
• Investment shall also be extended to those poor and asset-less unemployed youths who are honest, efficient, physically and mentally capable with drive and initiative, especially those who have ability to run business.
• Besides the above categories, investment facilities under this Scheme shall also be extended to small and cottage industries and service sector.

Sectors of Investment

a)     Livestock
b)     Fishery
c)      Agro-processing
d)      Manufacturing
e)      Trading/shop keeping
f)        Transport
g)      Services
h)      Agriculture Implements and Forestry

i)        Others.

Rate of Return: 13%

Ceiling of Amount

• For Dhaka & Chittagong                    :Maximum upto Tk. 1,00,000/- per client Metropolitan Branches depending upon their requirements.
• Branches in other Divisional               :Maximum upto Tk. 75,000/- per client

District Head Quarters depending upon their requirements.

• Branches other than Divisional           :Maximum upto Tk. 50,000/- per client & District Head Quarters     depending upon their requirements. 

Mode of Investment

A. Hire Purchase Shirkatul Meelk      :For all kinds of machineries i.e.equipments &
transport sector.
B. Bai-muajjal-TR                               :For trading shop keeping, agro-processing and
raw materials for manufacturing purposes. Period of Investment

• In case of HPSM                                : Maximum 24 months.
• In case of Bai-muajjal-TR                   : Maximum 12 months.  

Client’s Equity

• For HPSM investment            :Maximum 20% on cost price of the Machineries/vehicles.
• For Bai-muajjal-TR                 : Nil.

For Investment up to Tk. 30,000.00

• Hypothecation of existing and future stock of goods. Ownership of machines & equipments shall remain in Bank’s name.
• Personal guarantee of financially sound respectable 2 (two) persons/prominent businessmen acceptable to the Bank shall have to be given.
• Collateral security may be relaxed considering the feasibility of investment and client’s ability and sincerity.

For Investment over Tk. 30,000.00

• Hypothecation of existing/future stock of goods. Ownership of machines & equipments shall remain in the Bank’s name.
• The client shall have to give mortgage of immovable properties to the Bank.

Recovery Procedure

• For HPSM investment            :  Monthly installment basis

• For Bai-muajjal-TR                 : Monthly/Quarterly/Half-yearly installment/lump-sum/ at a time – within the date of expiry (which ever is deemed suitable by the Branch depending on the nature of business of payment capacity of the client.)  

Risk Fund

The Risk Fund shall be 1% per annum. This shall be debited on Bank’s principal investment at the time of disbursement. In case of investment for 2 years, it shall be 2% i.e. 1% per year.

Mudaraba Savings Account

It is compulsory that every client must open a Mudaraba Savings account. Each client should built savings by way of deposit in this account a sum of Tk. 10.00 each month for every Tk. 1,000.00 of investment. No chequebook shall be issued against this account. Money can be withdrawn from this account if there is no liability against the client.  

Supervision

For effective supervision and smooth operation of the scheme, required number of supervisors shall be engaged at the field level. For this purpose the investment client shall have to pay at the time of investment a sum at the rate of 2% per annum of investment as supervision fee. In case of investment for 2 years, supervision charge shall be 4% i.e. 2% per year.  

Review and Evaluation

The concerned branch shall arrange meetings of the investment clients occasionally and evaluate the performance of the scheme and discuss problems and take steps to solve those problems. 

Agriculture Implements Investment Scheme        

In order to bring revolutionary changes in the agricultural sector by adopting modern agricultural technology replacing the age-old traditional way of cultivation and increasing the use of fertilizer. This can only be done by collective efforts of both public and private sectors.

Islami Bank Bangladesh Limited is a welfare oriented Bank. It can play positive and important role in the economic development, progress and uplift of the country by investing in the agricultural sector. The Bank has, therefore, introduced “Agriculture Implements Investment Scheme” to provide power tillers, power pumps, shallow tubewells, thrasher machine etc. on easy terms to the unemployed youths for self-employment and to the farmers to help augment production in agricultural sector.

Types of Agriculture Implements

• Power tillers
• Thrasher Machine
• Any other agricultural implements proposed by the branch and which has local demand.

These implements may be of any popular brand. Any locally manufactured brand, which has large demand, is also acceptable. The choice of investment clients shall be given preference in this regard.

Eligibility of Investment Clients

• Educated or half-educated rural youths, educated or illiterate farmers and any person ready to accept agriculture as business may apply for investment facilities under this scheme. Preference shall be given to those applicants who have passed S.S.C. or above.
• The applicant farmer should posses sound health and his age must be minimum 18 years and maximum 50 years. Person who is willing to take agriculture as business, his age must be between 18 to 45 years. If the applicant is educated or half educated youth than his age must be between 18 to 35 years.
• The applicant must be physically and mentally fit and willing to operate the machine himself.
• Applicant must be a permanent resiProfessort of the concerned area and be willing to stay and work there.

Rate of Return: 14%

Period of Investment: Two Years

Mode of Investment: Hire Purchase Shirkatul Melk.

Client’s Equity

Generally the investment client shall have to pay 20% of the cost of agriculture implements/ equipment as equity. Equity shall be 10% if the Bank undertakes any special project under the supervision of any registered NGO approved by the Bank. The client shall have to bear the cost of installation of the agriculture implements/equipment and related expenses.

Security

• The agricultural implements to be supplied to the investment client shall remain in the name of the bank till the repayment/adjustment of the dues to the bank.
• Collateral security of immovable property equal to the amount of Bank’s investment backed by irrecoverable general power of attorney.
• Client, who is unable to offer collateral security of immovable property, shall have to provide personal guarantee of two respectable persons acceptable to the Bank. Guarantors should preferably be client’s father/guardian or teacher.  

Repayment Procedure

The investment shall have to be repaid in 4 instalments within a year. The instalment shall be fixed on the basis of the sowing/transplantation and harvesting seasons of the crop. The branch Manager shall decide both the amount and time of the repayment of instalment.

Risk Fund

Under this scheme a risk fund shall be created by debiting the concerned investment account an amount equal to 2% of the Bank’s investment at a time at the rate of 1% per annum for 2 years.

The risk fund will be utilized for the following purposes:

1. For meeting the cost of repair of the implements supplied if there is any damage of the implements due to acciProfessorts during operations.
2.  To cover the loss if any against the investment subject to approval from the head office.

Supervision

1.  The overall supervision of the investment shall be the responsibility of the concerned branch.

2.    For supervision at the field level the Bank, may engage educated

unemployed youths of the concerned area as per rules of the Bank.

Supervision fee at the rate 2% over investment may be charged from the

investment client for this purpose.

Mirpur Silk Weavers Investment Scheme 

The Scheme has been taken up to assist the silk weavers of Mirpur area particularly in respect of requirement of working capital, BMRE of existing unit by adding further machineries, to develop new entrepreneurs and to assist the workers for getting further training for producing products of various modern design and for modernisation of the Silk Sector.

Rate of Return: 14.5%

Mode of Investment: Bai-Muajjal

Rural Development Scheme

Islami Bank Bangladesh Limited was founded with the major objective of establishing Islamic economy for balanced economic growth by ensuring reduction of rural-urban disparity and equitable distribution of income.

In view of the above, Branches of the Bank have been encouraged to invest their deposits in their respective areas and in particular for the economic upliftment of the rural people.

Accordingly, a Scheme in the name and style of ‘Rural Development Scheme’ has been introduced to cater to the investment needs of the agriculture and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty.

Objectives

The main objectives of the Scheme are:

a. To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.

b. To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.

c. To alleviate rural poverty through integrated rural development approach.

d. To extend investment facilities for rural housing, keeping in view the needs of housing facilities of the rural dwellers.

e.       To provide educational services and safe drinking water, sanitation & medicare facilities to the down trodProfessor people.

 Target Group:

a.       Farmers having land holding of maximum 0.50 acres.

b.       Sharecroppers with consent from the landowners.

c.       Persons engaged in off-farm activities having no land or land up-to-maximum

0.50 acres.

d.       Persons/farmers permanently residing in the selected villages.

e.       Persons having derelict pond will be eligible for investment for re-excavation

and fish cultivation.

f.         Destitute women and distressed people will be provided investment for milch

cows/poultry birds/ducks/goats etc. and other suitable off-farm activities for raising

their supplementary income.

1. Persons having liabilities with other banks/institutions including defaulters will not be eligible for investment under the Scheme.

Purpose, Period and Ceiling of investment:

d.  Live Stocks

2 years

Tk.30,000.00

e.  Poultry & Duckery

1 year

Tk.20,000.00

f.   Fisheries

2 years

Tk.30,000.00

g.  Rickshaw/ Rickshaw-van and other rural transport.

1 years

Tk. 10,000.00

h. 343 kinds of off- farm activities

1 year

Tk. 30,000.00

i.  Construction materials for Rural  Housing

5 years

Tk.20,000.00

The clients are provided investment maximum Tk.10,000/- at the first time and the good performers are given enhancement, upon his requirement, by Tk.2000 to Tk.5000 in every next term up to the ceiling of a particular sector.

 Rate of Return: 11.5%

Security Requirements

No security is required against investment under the Scheme as entire Scheme has been drawn taking into account the social welfare objective of the Bank for upliftment of the socially down-trodProfessor and economically backward and weaker section of the population of the society. However, Group discipline should be strictly followed and complied with so that only the right persons are selected and included as members of the Group.

Besides, each member of the Group gives personal guarantee for other members of the same Group and the members are jointly and severally liable and responsible for payment of investment.

Modes of Investment

The Branch selects any of the following modes depending upon the sector and purpose of investment:

a.   Bai-Muajjal

b.   Hire-Purchase Shirkatul Meelk (HPSM)  or Leasing

c.   Mudaraba

d.   Musharaka

e.    Bai-Salam

f.    Murabaha TR

Recovery of Investment

To ensure recovery of the investment in time, the Branch determines the instalments judiciously. Instalments should be fixed in the following manner, keeping in view the income generation capacity of the investment and time thereof:

a. In case of “off-farm activities,” instalments should be fixed on weekly basis.

b. In case of agricultural/crop production, instalments should be fixed on quarterly basis

or on the basis of harvesting period of the crop in each of the investment area. A token

instalment may be realised on weekly basis.

Savings Plan

* The members of the Group have to open Mudaraba Savings Account (RDS) in their

individual names with the Branch from the very inception of the Group activity.

* This Mudaraba Savings Account is non-chequing which induces the clients to make

a habit of compulsory savings.

* This savings may, however, be withdrawn by the member if he does not have any

other liability with the Branch in any way.

* The weekly compulsory savings is minimum Tk.10.00 per member.

Supervision, Follow-up and Monitoring

The investment under the Scheme is fully supervised. The Branch must take the responsibility for the investment as well as recovery. To ensure this the Branch must ensure systematic and continuous relationship with the clients. To achieve this close relationship, the Branch has to work together and meet closely and regularly with the clients.

The Field Officers under-take the following functions under the overall supervision of the Project Officers and Managers of the concerned Branch:

a. To conduct base-line survey of the Project area.

b. To organise the target Group people and induce them to form Group(s).

c. To conduct General meetings, elect Leader and Deputy Leader of the Groups.

d. To form Centre and elect Centre Leader & Deputy Centre Leader.

e. To conduct weekly Centre meeting and ensure collection of weekly personal savings, centre fund and investment instalments and enter them in the ledgers/computer.

f. To make entries of the Pass Book of respective clients. The Pass Books must be verified with the respective Ledgers/computer by the Project Officer every month.

Application and Processing

The Branch receives investment applications and accord approval in the following manner as soon as the Investment Committee of the Branch is satisfied that the Group members conform

to the principles of Group activities and it is ensured that such Group activities are carried out without any hindrances in future.

a. The application as per Bank’s approved format is distributed among the eligible members of the Group. The Bank officials help in filling the forms.

b. The application after properly filled-in is submitted to the Branch.

c. Upon receipt of the applications from the members, the Bank officials verify them and discuss in the weekly meeting with other members and ascertain whether the Group will take responsibility in recovery of the instalments. Applicant’s past behaviour in the Group meetings is also taken in to consideration to provide him investment facilities. The Group Leaders recommend the application along with Bank’s Field Officer and Project Officer of the Branch for sanction.

d. The application, thereafter, is presented to the Branch for sanction of the investment.

e. The Investment Committee of the Branch gives its observation and sanction of the investment if found suitable.

Documentation

To secure Bank’s investment, the following documents have to be executed:

• Group guarantee form.
• Deed of Agreement.
• Usual charge documents.

 Investment under MEIS

To satisfy the graduated clients who already availed highest limit of investment under RDS, a new Scheme has been introduced under the name & style of ‘Micro Enterprise Investment Scheme (MEIS)’. Small entrepreneurs of the area, other than RDS members, are also provided with investment facilities under this Scheme. At present, the clients under this Scheme are extended investment up to a maximum limit of Tk. 200,000/- individually against third party guarantee or collateral security.

The investment requirements of the deserving and investment worthy clients of the area who are not covered under the Scheme may be accommodated under other existing Schemes of the Bank like:

I.         Agriculture Implements Investment Scheme.

II.       Micro Industries Investment Scheme.

III.     Others

The Field Officers and the Project Officer explore the possibilities of investment in the area under the afore-said Schemes and recommend to the Branch for sanction. The Schemes have been chalked out in such a way so that all the persons within the command/ target area may be brought within the fold of Bank’s Investment for productive economic activities.

Micro Industries Investment Scheme

Islami Bank Bangladesh Ltd. has been appreciably participating in the direction by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch “Micro Industries Investment Scheme” through its Branches. This scheme has been devised to cater to the investment needs of those persons who intend to set-up new micro industrial ventures or to restructure their old units by way of BMRE involving a total cost of Tk.5.00 lac. This is intended mainly to create new jobs for the educated, skilled & semi skilled unemployed and also to encourage those who remain outside the purview of investment due to shortage of funds and insufficient collaterals. The scheme has been prepared with easy terms and conditions to encourage the small entrepreneurs, educated unemployed youths and skilled /semi skilled persons to come forward for establishment of micro industries commensurate with the local demand.

Eligibility:

The eligibility criteria for the selection of the entrepreneurs under the scheme will be as under:

1. Engineering diploma or degree holders, or persons having diploma or certificate from any Technical /Vocational Training Institutes and willing to set-up micro industries.
2. Educated unemployed youths having initiative and knowledge regarding the proposed industry.
3. Skilled and semiskilled persons having practical knowledge and experience in industrial perations.
4. Persons already engaged in micro-industries as owners and willing for BMRE of their enterprises.
5. Wage Earners who want to establish micro industries having work experience/training in the particular field of industry.
6. The proposed enterprise must be exclusively owned by Bangladeshi Nationals which use indigenous raw materials or imported raw materials not exceeding 25% of the total requirement of raw materials.
7. Defaulters and persons/enterprises having outstanding liabilities with other Banks and Financial Institutions will not be eligible for availing investment under the scheme.

Sectors of investment:

Different sectors including food and agriculture based industries, plastic & rubber industries, forestry and furniture industries, engineering industries, leather industries, chemical industries, textile industries, recycling industries, service industries, electrical accessories industries, computer technology industries, paper products industries, handicrafts industries, fishery & live stock farming, hollow bricks, roof tiles and any other viable micro-industries have been iProfessortified for financing under the Scheme.

A detailed list of enterprises in each sector is given at Annexure-A. Any other item(s)/sector(s) that has not been included in the list but there is scope for investment, the Branch may approach Head Office through their respective Zonal Office for inclusion thereof.

Purpose of Investment:

• To procure capital Machinery
• To purchase raw materials
• To meet a portion of working capital requirement.

While selecting enterprises(s)/project(s) for financing, Branch must ascertain the market demand of the product of such enterprise(s)/project(s). Also care should be taken so that local machineries & raw materials are used to keep cost of the project at a minimum level and to develop supporting job opportunities.

Bank’s investment & ceiling there of:

The extent of Bank’s investment will depend upon the actual requirement of a particular industry/enterprise, its nature of production, model & origin of machineries, the working capital requirements etc. The Branch should ascertain the cost of the project taking into account all the above issues.

Bank’s investment shall not be more than 60% of the cost of machineries or 50% of the total cost of the project (both machinery & working capital), whichever is less, within the maximum total investment ceiling of TK.5.00 lac per project/enterprise.The client’s equity shall be calculated taking into account cash investment plus the  cost of the project land & building if owned.

Security Requirements:

To secure Bank’s investment, collateral security of immovable properties backed by Irrevocable  General Power of Attorny shall have to be obtained.

In case of technically qualified persons and educated unemployed youths, the original educational certificates shall have to be deposited with the Bank.

The ownership of machineries/equipments shall remain in the  name of  the Bank till full adjustment of Bank’s dues.

The stock (existing & future) shall remain hypothecated with the Bank till full adjustment of Bank’s investment.

In case of exceptionally deserving candidates, such as educated, experienced, sincere, hardworking young-men with good reputation who intend to set-up & run the industries fulfilling all the terms & conditions except that of collaterals they may be allowed an investment up to a maximum ceiling of TK.2.00 lac without collateral but on personal guarantee of 2(two) reputable persons having good financial means and social standing acceptable to the Bank.

Period of Investment:

Capital Machinery                   :           5(five) years including reasonable gestation period.

Raw Materials                         :           One year from the date of 1st disbursement.

Rate of Return

The Rate of Return will be @ 14% per annum.

Risk Fund:

The client will contribute in the risk fund @ 2% of the total Bank’s investment for the project/enterprise at the time of disbursement in order to meet any loss caused by genuine/ and unforeseen risks & hazards.

Mode of Investment:

Capital Machinery                   :Hire-Purchase Shirkatul Melk (HPSM)

Raw Materials                         :Bai- Muajjal

Recovery of Bank’s dues:

The Mode of payment shall be determined considering the cash flow of the particular project enterprise within the investment period. The Branch in consultation with the client will determine the instalment and payment period. However, the following may be considered in fixing the mode of payment.

a.         Hire Purchase              : In monthly/fortnightly/weekly instalment basis.

b.         Bai-Muajjal                 : In Lumpsum at the end of the tenure of Investment

In order to encourage regular payment of Bank’s dues, Branch should encourage instalment payment in both the modes. This will reduce the risk of overdues & diversion of funds.

Supervision:

Close supervision is ensured by the branch for proper implementation of the project and recovery of installments in time. For this purpose supervisors (technical hands) shall have to be appointed for each of the designated branches.

Review & Evaluation:  

Branch must ensure constant and close supervision of end-use of investment. Close monitoring of performance of the client and the enterprise is vital for the success of the Scheme.

Chapter 4: Investment Performance of IBBL

Sources of Funds

The financial resources of the IBBL consist of ordinary capital resources comprising paid-up capital and reserves, and funds rose through borrowings from the central bank and other banks (inter-bank borrowing), and issue of Islamic financial instruments. The major part of their operational funds is, however, derived from the different categories of deposits accepted on the Islamic principles of Al-Wadiah (safe custodianship) and Mudaraba (trust financing). For the sake of ease of understanding we call these two sources as ‘Primary’ and ‘Secondary’. These are discussed as under.

PRIMARY SOURCES

Paid-Up Capital

IBBL is public limited companies incorporated under the companies Act, which are listed on the Stock Exchange. Individuals and institutions, local and foreign, have subscribed their capital. For example, the First IBBL of Bangladesh – Islami Bank Bangladesh Limited (IBBL)- is a joint venture of Bangladesh and overseas capital in the ratio of 38:62. Its local capital is owned by the Government of Bangladesh and private individuals and institutions. The overseas capital (62%) of the bank is owned by the institutions and individuals as follows.

i)         Islamic Development Bank, Jeddah, Saudi Arabia

ii)        Kuwait Finance House, Kuwait

iii)       Bahrain IBL, Bahrain

iv)       Jordan IBL, Jordan

v)        Al-Rajhi Company for Currency Exchange and Commerce, Saudi Arabia

vi)       Dubai Islami Bank, UAE

vii)      Islamid Investment and Exchange Corporation, Qatar

viii)     Ministry of Awqaf and Islamic Affairs, Kuwait

ix)       The Public Authority for Minor Affairs, Ministry of Justice, Kuwait

x)        Public Institution for Social Security, Kuwait

xi)       Ahmed Salah Jamjoom, Saudi Arabia

xii)      Fouad Abdul Hameed Al-Khateeb, Saudi Arabia

xiii)     IBL System International holding S. A. Luxembarg

The capital resources of the IBBL is mobilized through the issue of shares for which negotiable share certificate are used. With prior permission from the Government, shares are issued from time to time. Laws governing the shares correspond to the Musharaka laws of Shariah.  The holders of shares have management (voting) right and participate in the profit/loss of the bank. The shares are transferable. In the case of the IBBL, its entire capital is Professorominated in the local currency – i.e. Taka, though the foreign shareholders had to pay for their shares in US Dollars.

Reserves

The central bank also requires that every IBBL shall maintain a reserve fund. Before any diviProfessord is declared, IBBL transfers to the reserve fund out of the net profits of each year, after due provision has been made for Zakat and taxation, a certain percentage of the net profits in order to build up adequate reserves. If the central bank is satisfied that the aggregate reserve fund of an IBBL is adequate for its business, it may by order in writing exempt the bank from this requirement for a period of one year. In Bangladesh, the IBBL besides maintaining the statutory reserve, has built up an Investment Loss Offsetting Reserve (ILOR) by appropriating 10 (ten) percent of the bank’s annual investment profits.

Liquid Assets

IBBL is further required to keep at all times minimum amount of liquid assets against its deposit liabilities expressed as certain percentage of the deposits, as may be prescribed from time to time by notice in writing by the central bank. For this purpose, liquid assets mean (i) cash in bank, (ii) balances with the central bank/other designated banks, (iii) Government Investment Certificates, and (iv) such other assets as may be approved by the central bank. Failure to keep the minimum liquid assets invokes penalty for each day of deficiency.

Borrowing From Central Bank

To tide over temporary liquidity shortages IBBL, as member bank, is entitled to borrow from the central bank, as the lender of last resort. In such cases, IBBL does not pay interest like the conventional banks. Such borrowing from the central bank is treated as a PLS deposit with the IBBL and profit is paid at the rate payable on corresponding PLS deposit of the bank.  

Inter-Bank Borrowing

The IBBL has established interest-free fund arrangements with local and foreign banks on the basis of reciprocity. Normally, under prior arrangement, the IBBL keep surplus funds with selected banks. When needed, these banks also place interest-free compensating balance with the IBBL. If balances are not equal, then periods for which funds placed are adjusted.

SECONDARY SOURCES

    (MOBILIZATION OF DEPOSITS)

Like interest-based conventional banks, the main function of IBBL is to mobilize savings and provide financial support to the entrepreneurs. Yet there are differences in techniques applied in the process of savings mobilization and financing investment by the two banking systems. Depositors receive interest in a predetermined rate for their deposits made with an interest-based bank. Similarly, the investors are to pay a predetermined rate of interest to the bank. The technique, thus, involves each and every partner in the transaction process (i.e. the depositor, the investor and the bank) with the element of interest. IBBL, on the other hand, neither pays nor receives interest from any of its transactions thereby saving everybody from the curse of interest.

Islam disapproves hoarding of savings and encourages its productive investment. It puts emphasis on savings and the productive use of savings. Thus, the bank assembles the small deposits and savings of individuals into a common pool and makes these deposits available for large investment opportunities, ensuring the productive use of society’s savings.

IBBL is a response to such demand. It mobilizes savings of the common people in line with Islamic Shariah. Techniques employed by IBBL for saving mobilization are as follows.

Al–Wadiah Account

IBBL receives deposit in their Al-Wadiah account. The term Al-Wadiah means deposit of money allowing somebody to claim the funds in the account. The bank as trustee preserves and safe keeps the funds deposited. Thus, depositors feel safe keeping their money with the bank because the bank provides assurance of returning their money on demand.

General Mudaraba Account

General Mudaraba account, which does not have a specified term and is not restricted to being invested in specific project. In addition, deposits may be taken out of the General Mudaraba account on relatively short notice.

Term Mudaraba Account

Term Mudaraba account. Just as the name suggests, this account is a time like deposits with a specified maturity, but is similar to the General account in that it is not restricted to specific projects.

Special Mudaraba Account

These accounts can either be readily liquid like the General accounts or fixed for a specific term like the Term accounts. In addition, these accounts are invested into specific projects or industry, which is stipulated in the contract.

Five Years Performance of IBBL                                    

(Amount in million Taka)

Outstanding amount of investment as at the yearend under different schemes are as under:

(Amount in Million Taka)

Sector-wise distribution of investment as on June 30, 2008 vis-à-vis the corresponProfessort period of last year is given below:

 (Amount in Million Taka)

 Mode-wise Investment

(Amount in Million Taka)

 Chapter-5: Findings and Analysis

IBBL Market Share

The IBBL holds the highest market share of deposits and investments among Private Commercial Banks (PCBs). The banking industry of Bangladesh had a deposit of Tk. 1440.16 billion and loans & advances of Tk. 1319.60 billion as on June 30, 2008, shared among 49 banks consisted of 04 Nationalized Commercial Banks (NCBs), 05 specialized banks, 10 foreign banks, 24 conventional PCBs, and 06 Islamic banks. The IBBL’s customer deposits stood at Tk. 107.76 billion and Tk. 87.82 billion in YE 2006 and YE 2007 respectively. The investments (loans & advances) of IBBL stood at Tk. 93.64 billion and Tk. 75.86 billion respectively during the same period. The IBBL held 7.48% of total market deposits and 7.10% of total market investment (loans & advances) as on June 30, 2008. However, the growth rate of IBBL is higher than the overall market growth. The IBBL’s customer deposits were increased by 22.70% compared to the industry growth of 16.56% and PCBs growth of 20.00% in YE 2008. During the same year, the investments (loans & advances) of IBBL were increased by 23.44% compared to the industry and PCBS growth of 19.08% and 30.00% respectively. Being a first generation bank in the private sector, IBBL has been maintaining commendable growth of deposits and investments, which is better than the growth trends in the industry mainly due to the huge customer participation.

 IBBL’s Private Sector Focus

The focus of Bangladesh industrial policy is to consider the private sector as the engine of growth. The IBBL has been financing and promoting private sector very extensively. The IBBL shariah based products such as Bai-Murabaha, Bai-Muajjal, Hire Purchase under Shirkatul Melk, all are basically meant for private sector business financing. Therefore, IBBL as the leader of private sector financing has been contributing substantially in the private sector development. The IBBL by this time has developed a base of loyal customers who are paying regularly and enjoying the services of the bank. A Bank of IBBL stature needs this customer base to maintain its growth.

Market Leader in Shariah Based Banking

Islamic Banking in Bangladesh was started in the year 1983 with the establishment of Islami Bank Bangladesh Limited as the first Islamic Bank. There were 308 branches of 6(six) Islamic banks in Bangladesh out of which Islami Bank Bangladesh Limited had 196 branches as on June 30, 2008, 7(seven) Bangladeshi conventional banks and 3(three) foreign commercial banks had 21 Islamic Banking branches as on June 30, 2008. Over the last 25 years, Islami Bank Bangladesh Limited has been providing shariah based Islamic Banking services across the country through introducing a lot of Islamic banking.

 SWOT ANALYSIS

SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats.  It is a careful evaluation of an organization’s internal strengths and weaknesses as well as its environmental opportunities and threats. In SWOT analysis, Islami Bank Bangladesh Limited would get the best strategies accomplish its mission by (1) exploiting its opportunities and strengths while (2) neutralizing its threats and (3) avoiding (or correcting) its weaknesses.

qSatisfactory business growth

qExperienced top management

qDiversified product lines

qLow cost of fund

qStable source of fund

qStrong networking of branches

qStrong market share

Weaknesses:

qModerate Asset quality

qModerate liquidity position

qMIS at initial stage

qModerate Risk Management   System

qAverage operational performance

qLimited delegation of powerOpportunities:

qSME and Agro based industry investment

qReal time online banking

qCredit card in dual currency

qIncreasing awareness of Islamic banking

qBasel-II compliance to tap advantages from RM SystemThreats:

qIncreased competition in the market

qMarket pressure for increasing the SLR

qOverall liquidity crisis in money market

Chapter-6: Conclusion and Recommendation

 Conclusion

Islami Bank Bangladesh Limited (IBBL) is trying to establish the maximum welfare of the society by maintaining the principles of Islamic Shariah which is based on “Quran” and “Sunnah”. Since 1983, IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shariah. Profit earning is not the only motive and objective of the bank’s investment policy rather emphasis is given in attaining social good and in creation employment opportunities.

IBBL does not finance any project which conflicts with the moral value system of Islam. IBBL does not strictly consider the credit worthiness of the entrepreneur. IBBL receives a return only if the project succeeds and produces a profit. IBBL considers the soundness of the project and business acumen and managerial competency of the entrepreneur. Therefore, the rate of return of investment of IBBL is greater comparing to that of conventional banks.

Finally, Islami Bank Bangladesh Limited (IBBL) has been established with a view to conduct interest free banking to establish participatory banking instead of debtor-creditor relationship and finally to establish welfare oriented banking through its investment operations that would lead to a just society.

 Recommendation

1. Though Islami Bank Bangladesh Ltd. (IBBL) is performing well but it has some crucial areas to improve which are prescribed below:
2. IBBL’s investment processing should become more easier than other conventional banks.
3. IBBL should make its investment schemes more attractive for availing high-return projects.
4. The bank should offer facilities such as Credit card, Visa card.
5. It is a modern banking era. Each and every commercial bank is properly utilizing technological innovations. So, IBBL needs to utilize these modern technologies.
6. IBBL needs to recruit skilled human resources which can turn the bank ahead.
7. IBBL should consider utilization of rural potentials from both efficiency and equity grounds in the context of the present-day socio-economic conditions of Bangladesh. Strong commitments and stepping up through experiment and implementation of innovative ideas are the appropriate ways to do that.
8. IBBL deserves immediate attention in the promotion of the image of Shariah based banks as PLS (Profit-loss-sharing)-banks.