Report on Activities of IBBL Basically in Islamic Banking

Main purpose of this report is to analysis Report on Activities of Islami bank Bangladesh Limited, basically in Islamic Banking system. Other objectives are get an overall knowledge about Islamic banking operation and Conventional Banking system. Report also focus on to know about the product and the investment mechanism of IBBL. Finally highlight the problems and necessary recommendations to overcome the problems.

Introduction

At present, the banking sector is uprising and it is playing a vital role in our economy. In introduction chapter, we need to define ‘Bank’ before going to make differences between Islamic Banking systems with conventional Banking system. In a nut shell Bank can be defined as a financial institution which collects deposits from the surplus unit and makes investment to the deficit unit. In this process bank’s income is the difference between the lending and deposit rate. The nature of income may have 2 types:

Interest income: It is the earning of Conventional banking following the system of interest. Interest income is prefixed and not allowed to give or take in accordance with the Islamic system. Mention that it is the source of exploitation.

Profit: it is the earning of “Islami bank” following the Islamic system. Profit generated from buying and selling process which has been made ‘halal’ in Islam. According to the principle of Islamic Shari’ah, interest is strictly prohibited. Thus, no muslin is allowed to take or give interest as per the Islamic system. Since Islami Bank is conducted based on profit & loss sharing approach rather than interest basis, it has more acceptability to the Muslim mankind.

But basic principle of Islamic banking being PLS (Profit Loss sharing system)-based Shariah financing and thereby having been exposed to interest rate risk .Because most of the investment of Islamic Bank are on Bai-Mode. In this mode bank sell specified goods to the clients on cost plus agreed upon profit or at a negotiable price payable after a certain fixed period. If, the client fail to pay the price within the fixed period the Islamic Bank cannot imposed or realized additional amount as income of the bank .But , the Conventional banks can continue to charge interest even they can charge & realize penal interest as income of the bank. Therefore, Conventional banking system which is based on prefixed interest rate are exposed to less interest rate risk .So how can Islamic banking system can survive with their huge interest rate risk in a economy ? That’s why my topic of the report is to identify the basic differences between the Islamic Banking systems with conventional Banking system

Objectives of the study:

The objective of the study is to fulfill the requirement of BBA program as well as to test whether the activities of IBBL are unequal to the conventional Banking system. Other   objectives are –

• To gather the overall knowledge about Islamic banking operation & Conventional Banking system.
• To acquire the insights of IBBL To know about the product of IBBL
• To highlight the problems and necessary recommendations to overcome the problems.
• To know the investment mechanism of IBBL.
• To know the project investment scenario of IBBL & Prime Bank & impact of project investment on the profitability of IBBL & Other Conventional Bank.

Methodology: 

I have adopted both mathematical and descriptive analysis to find out the basic differences between the Islamic Banking system & Conventional Banking system. There are a lot of descriptive analyses that also played a significant role in detecting my target finding.

The methodology of the report includes direct observation, oral communication with the employees of all departments of Local Branch and Head Office, studying files, circulars etc and practical experience. This report is basically qualitative in nature. But the report includes both quantitative as well as qualitative data. In this report no hypothesis is considered.

Conceptual Background

Definition of Islamic Banking

An Islamic bank is a financial institution which operates with the objective to implement and materialized the economic and financial principles of Islam in the arena of banking. “ An Islamic Bank is a financial institution whose status, rules and procedure expressly state its commitment to the principle of Islamic shariah and to the banking of the receipt and payment of interest on any of its operations” –O/C

The organization of (Ali & Shaskar 1995, pp20-25) Islamic bank is a “company which carries on Islamic banking business? Islamic banking means banking business whose aims and operation do not involve any element which is not approved by the religion Islam”

Ziauddin Ahmed (SVP) Says, “Islamic banking is essentially a normative concept and could be defined as conduct of banking is consonance with the ethos of the value system of Islam” (Ibid).

Movement of Islamic banking through-out the world

The expansion of Islamic banking along with traditional interest based is a recent phenomenon. During the fifties it was only subject matter of research but during the sixties actual experiments were made and in the seventies Islamic banking institutions started to gain strength. The eighties and nineties are the period of consolidation and now Islamic banking is coming up as the only welfare banking system of the modern world.

The First Attempt: The concept of Islamic banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950s with the establishment of a local Islamic banking in a rural area (wilson1983). Some pious landlords who deposited funds at no interest, and then loaned to small landowners for agricultural development initiated the experiment. The borrower did not pay interest on the credit advanced, but a small charge was levied to cover the bank’s operational expresses. The charge was far lower than the rate of interest.

The second attempt: The second pioneer experiment of putting principle of Islamic banking and finance into practice was conducted in Egypt from 1963 to 1967 through the establishment of the Mit Gramar saving in a rural area of the Nile Delta. The experiment combined the idea of Grammars saving with the principle of rural banking within the general framework of Islamic value (Ahmed 1992). The banks operation was based on the same Islamic principle i.e. no- interest to the depositors or from the borrower. This was the first Islamic bank in an urban setting based in Cairo. The bank is a public authority with an autonomous status (Ahmed1992).  The principles of operations of the Naser Social Bank are very similar to those of the mitt Grammars Saving bank. However, the latter offers a full range baking services and a wide range of investment activities though equity participation.

Taunq Hajji: A successful attempt- Islamic banking, contemporary to that in Egypt, emerged in Malaysia. It was a financial institution developed for the pilgrims of Malaysia. These institutions were establish in response to what the contention of the Malaysia Muslims that money spent on pilgrimage must be Halal and free from ‘riba’ consequently, Pilgrims Saving Corporation was established in 1963, which was later on incorporation into the Pilgirims Management Fund Board in 1969.

Other attempts: Next the Dubai Islamic bank was established in 1975. Since then, a number Islamic and financial institution have been established of different parts of the world and have functioning successfully.

A significant development in Islamic banking has been the grating of an Islamic bank license in Saudi Arabia to the fifty-year old “Al- Rajhi Company” a firm noted for its currency, exchange and commercial activity, whose assets exceed $ 5bilion. The firm began in operation in 1985 under the name of “Al Rajhi banking Investment Corporation”

In the August 1974, Bangladesh signed the Charter of Islamic Development bank and committed itself to reorganize its economic and financial system according to Islamic Shariah.

Earlier in November 1980, a delegation of IDB came to Bangladesh and showed their keen interest in establishing a joint venture Islamic bank in the private sector. Two professional bodies Islamic Economics Research Bureau (ERB) and Bangladesh Islamic Bankers Association (BIBA) made significant contributions towards introduction of Islamic banking in the country. They came forward to provide training in Islamic banking to top bankers and economist to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking.

Objective of Islamic banking

• Islamic banks operate on Islamic principle of profit sharing and strictly avoided interest.
• The objectives of Islamic banking are not only to earn profit, but to do good and welfare to the people.
• An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infrastructure and create employment opportunities.

Historical Background of IBBL 

Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah. The signed year was 1974. In January 1981, The then President of People’s Republic of Bangladesh while addressing the third 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. This statement creates a favorable situation towards establishing Islamic bank and financial institution in Bangladesh.

Earlier in November 1980, Bangladesh Bank, the country’s Central Bank sent a representative to study the working of several Islamic banks abroad. In November 1982, a delegation of IDB visited Bangladesh and showed keen interests of participate in establishing a joint venture Islamic bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies      of Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA) made significant contribution towards introduction of Islamic banking in Bangladesh.

They came forward to provide training on Islamic banking to top bankers and economists to fill up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposiums and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking. Their professional activities were reinforced by a number of Muslim entrepreneurs working under the agency of the Muslim Business society. (Now recognized as industrialist & Businessmen Association). The body concerned mainly in mobilizing equity capital for the emerging Islamic bank.

At last, the long drawn struggle to establish the first interest free Islamic Shariah based bank in Bangladesh incorporated on 13 March 1983 as a public limited company under the Companies Act 1913 in which 19 Bangladeshi nationals, 4 Bangladeshi institutions and financial institutions and movement bodies of the middle east and Europe including IDB and two eminent personalities of the kingdom of Saudi Arabia joined hands to make the dream a reality. The bank obtained license from Bangladesh bank on 28 March 1983 and started banking operations on 30 March 1983 through its main branch at Dhaka, which was formally inaugurated later, on 12 August 1983. The bank is a joint-venture enterprise of 22 private sponsors of Bangladesh, the government of Bangladesh, Islamic Development Bank, and 13 banks and financial institutions of the oil-rich Middle Eastern Muslim Countries.

IBBL started its banking operations with an authorized and paid up capital of Tk 500 million and Tk 67.50 million respectively. The capital is divided into ordinary shares of Tk 1,000 each. The paid up capital of the bank was enhanced to Tk 640 million in 2001. Of the 79,500 ordinary shares of the bank in 1985, foreign sponsors, including the Islamic Development Bank (IDB), owned 56,000, while 23,500 shares were owned by local sponsors and the general public. investment corporation of Bangladesh was allocated 20% of bank’s issued capital, but the corporation subscribed shares of Tk 0.5 million only. The bank is listed with both Dhaka and Chittagong Stock Exchanges.

Business Philosophy of IBBL

The philosophy of IBBL is to the principle of Islamic Shariah. The organization of Islamic conference (OIC) defines an Islamic bank as “ a financial institution whose status, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operations. The sponsor perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than a follower. The leadership will be in the area of service, constant being effort being made to add new dimensions so that clients can get “Additional” in the matter of services commensurate with the needs and requirements of the country growing society developing economy.

Objectives of IBBL

•  To conduct interest free banking.
• To establish participatory banking instead of banking on debtor creditor relationship.
• To invest through different modes permitted under Islamic Sharah.
• To accept deposits on profit -loss sharing basis.
• To establish welfare – oriented banking system.
• To extent co-operation to the poor, the helpless and the low- income group for their economic uplift.
• To play a vital role in human development and employment and employment generation.
• To contribute towards balanced growth and development of the country through investment operations particularly in the developed area.
• To contribute in achieving the ultimate goal of Islamic economic system.

Goals of IBBL

• To establish Ihsan (gracious conduct of kindness) in economic affairs.
• Establish of Maroof (proper and good acts) in the economic life.
•  Elimination of Munkar (Evil, wrong of injurious practices) from economic life.
• Achieve maximum economic growth.
• Maximize employment to ensure maximum distribution of wealth in society.
• Achieve universal education.
• Encourage Co-operation in society.

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 enlistment and financial services to the low-income community particularly in the rural area.

Vision

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

• IBBL  goal is to establish and maintain the modern banking techniques, to ensure soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems.
• IBBL will try to encourage savings in the form of direct investment.

• IBBL will also try to encourage investment particularly in projects, which are more likely to lead to higher employment.

At a glance of IBBL

Date of incorporation                               : 13^th March 1983

Inauguration of 1^st Branch                      : 30^th March 1983

Formal inauguration                                 : 12^th August 1983

Authorized Capital                                     : 10,000.00 Million

Paid up Capital                                            :  4752.00 Million

Number of Branch                                      : 206

Equity                                                            : 18,572.08 Million

Deposit                                                          : 200,343.41 Million

Investment                                                   : 187,586.55 Million

Foreign exchange business                       : 402,695.00 Million

Manpower                                                    : 9,397

Number of share holder                            : 33,686

IBBL through its steady progress and continued success has by now, earned the reputation of being one of the leading private sector Banks of the country.

INVESTMENT SYSTEM OF IBBL

Investment

The special feature of the investment policy of the Islamic banking is to invest on the basis of profit loss sharing system in accordance with the tents and principle of Islamic sharah. Earning profit is not only motive and objective of the banks investment policy rather emphasis is given in attaining social welfare and in creating employment opportunity.

Pursuant to the investment policy adopted by the bank a 7 years perspective investment plans aims at diversification of the investment portfolio by size, sector, geographical area, economic purpose and securities to bring in phased all sectors of the economy and all types of economic groups of the society within the fold of banks investment operations.

According the plan envisages composition of the investment portfolio with for agriculture and rural investment, 16% for industrial term investment,14% for industrial working capital 6%  for  housing and real estate, 6% for transport and communication, 2% for electricity, gas, water and sanitation services, 2 % for storage’s 40% for import and local trade related activates and 1% for other productive purposes by the end of the plan period i.e. the year 2002.

Investment Policy of IBBL

Investment operation of a bank is very important as the greatest share of total income generates from it. Maximum risk is centered in it and the existence of a bank mostly depends on prudent management of its investment port folio.

For efficient deployment of mobilized resources in profitable, safe and liquid sector a sound, well- defined and appropriate investment policy in necessary.

Investment objective of IBBL

The objectives and principles of investment operation of the bank are:

• The investment fund strictly in accordance with the principle of Islamic Shariah.
•   To diversify its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural.
• To ensure mutual benefit both for the bank the investment client by professional appraisal of investment proposals, judicious of investment, close and constant supervision and monitoring therefore.
• To make investment keeping the social- economic requirement of the country in view.
• To increase the number of potential investors by making participatory and productive investment.
• To do away with disparity and establish justice in trade, commerce and Industry.
• To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and enlistment of the society.
• To invest in the form of goods and commodities rather than give out cash money to the investment clients.
• To contribute to social enlistment and sustained economic growth of the country.
•  To ensure to avoid all the investment forbidden by the Islamic Shariah.
• Investment to trade, commerce, Industry, Foreign trade, IT, small scale industry, transportation, service sector.

Salient feature of investment of IBBL

• Observing of the legal investment limit of the bank.
• Observance of the legal investment limit of the client.
• Optimum utilization of investable fund.
• Profitable of the investments.
• Safety and security of the investments.
• Investment at minimum possible risk.
• Liquidity of investments.
• Conform to central bank’s investment restrictions.
• Preference to short term investment restrictions.
• Preference to the investments for small size.
• Satisfactory return on investments.

Composition of the port- folio

Following may be the compositions of the investment port- folio of the bank:

1. Money Market Port-Folio (Having Ten or Up To The Year)
2. Capital Market Port Folio ( Having Ten or Above One Year)
3. General Investment Port Folio

Money / Capital Market Port- Folio

The bank is required to maintain as statutory cash reserve and liability requirement, a portion of its deposit liability in account with the central bank and in approved securities. Beside, the bank, at bank, at its own discretion, may also invest in securities a portion of list mobilized with a view to:

1. Ensure regular return.
2. Avoid investable surplus.
3. Diversify the overall port-folio.

General market port folio

General investment port-folio is not only the major port- folio of the bank; it also contributes the greatest share of the total revenue generates   from all assets of the bank. Besides, it is the general investment function where the bank \generally accepts the greatest risk. The failure of a commercial bank is usually associated with the problem in the general investment port- folio and is less often the result of shrinkage in the value of other assets. Precisely speaking most of the banks resources are committed to general investments the bulk of their revenue is generated by it and the maximum risk is centered in it. As such this port folio not only fractures dominants in the asset structure of the bank, it is also critically important to the success of the bank.

Importance of assessing investment needs

Assessment of investment needs is necessary for the following:-

• To detect actual investment limit of bank.
• To assess the quality, quantity, price, and marketability of the commodities.
• To ensures proper follow up supervision and monitoring of the investment.
• To ensure capacity of the client in handing investment activities.
• To ensure payment against delivery of goods.
• To ensure actual buying and selling of goods.
• To select proper and genuine investment client.
• To ensure viability/ profitability of the project.
• To ensure compliance of Shariah principle.
• To secure the investment.
• To allow investment for appropriate period.
• To ensure investment for productive purpose.
• To know the objective of investment
• To ensure welfare of the society.
• To ensure Business ethics.
• To minimize the risk of investment.
• To ensure recovery of investment in time.

Strategies

Risk of the investment and return there on are interrelated. An investment policy that emphasizes a high return must accept relatively high risk. Conversely an investment policy that will tolerate only small amount of risk must be prepared to accept a relatively low return.

As such it is really difficult whether to select a high return port folio where high risk or low risk port- folio with a low return.

Nevertheless, considering all aspects following guidelines shall be followed as strategy for banks investments.

1. If two port-folios have the same risk but different returns, the port folio having higher return shall be preferred.
2. If the two port- folios have the same expected returns, but different degree of risk the portfolio with lower risk shall gets preference.
3. If one port folio has both a higher return and a lower risk than another, the first portfolio shall be referred.
4. Keeping in view the risk factor, the bank shall maintain flexibility in determination of rate of return on investment.
5. Emphasis is given for expansion and strengthening cottage and small industries sector and rural industries. This immensely potential industrial sub sector shall create employment opportunities to rural and semi urban population and shall have positive contribution in employment and income generation and poverty alleviation of the low income group.
6. Investment facilities shall be extended for establish and expansion of exports oriented forward/ backward linkage and import substitution industries.
7. Safety, security, profitability, and liquidity of bank investment.
8.  Each branch invests at least 50% of its deposit locality.
9. Enhance of extending limit of good investment clients.
10. Adopting of modem technology.

So banks investment policy investment planning and investment budgeting till a situation change improves shall aim at promotion of quality general investment.

Evaluation of the bank’s investment portfolio

1. The bank should go for investment in large scale dairy farming and other milk processing project and poultry farming which is not worth mentioning at present.
2. The quantum of bank’s investment against fishing is very negligible. There is scope for investment in :

• Shrimp culture
• Sweet water fishing including pond fishery.
• Marine fishing.

1. The banks investment for construction purpose shall continue to be made within the ceiling prescribed in the plan.
2. Presently the banks export investment is mostly is mostly centered in readymade garments and the bank is the bank is yet to centre onto the area of investment in major traditional exportable items like jute and jute goods, frozen foods, hosiery products, tea lather and leather product lit knitwear, basis chemical product, electric goods, electronic goods, handicraft, fruit juice concentration project other.

Beside the existing item of import, the bank should go for investment in the following  areas:

• CDSO being imported by edible refineries.
• Cotton yarn.
• Coal and hand coke.
• Fresh fruit.
• Dry fruits.
• Pulses
• Bitumen

Other items.

1. Investment against real estate of the bank shall continue to be made within the ceiling prescribed in the plan.
2. The banks investment against agriculture, fishery, and working capital investment are not significant compared to other private commercial banks. As such the banks shall make attempt for extension of investment in these sectors.

Investment Mechanism of IBBL

IBBL invests its money in various sectors of the economy through different modes permitted by shariah and approved by the Bangladesh Bank. The modes of investment are as follows:

1) Bai-Mechanism (Trading Mood):

• Bai- Murabaha
• Bai- Muajjal
• Bai- Salam
• Bai- Istishna
• Bai as Sarf

2) Ijarah Mechanism (Leasing Mode)

• Leasing/ Ijarah / Hire Purchase (HP).
• Hire purchase under shirkatul Melk (HPSM)

3) Shirkat Meechanism:

• Musharaka
• Mudaraba
• Bai-Mechanism (Trading mode):

Bai-Murabaha: The word Bai means purchase and sales and the word Ribhun means an agreed upon profit. Bai- murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic shariah and the law of the land) to the buyer at a cost plus agreed profit payable in cash or on any fixed future data in lump sum or by installments. The marked up profit may be fixed in lump sum or in percentage of the cost price of the goods.

Bai-Muajjal

Bai-Muajjal 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 country), to the buyer at an agreed fixed price payable at a certain fixed future date in lump-sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the buyer

The terms “Bai “and” Muajjal ”   have been derived from Arabic words ﻊﻴﺒ and ﻝﺟﺍ . The word ﻊﻴﺒ means purchase and sale and the word ﻝﺟﺍ means a fixed time or a fixed period. “Bai-Muajjal ” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit.

In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installments.  Thus it is a Credit sale of goods by which ownership of the goods is transferred by the Bank to the Client but the payment of sale price by the Client is deferred for a fixed period.

It may be noted here that in case of  Bai-Muajjal and Bai-Murabaha, the Islamic Bank is a financier to the Client not in the sense that the Bank finances  the purchase of goods by the Client, rather it is a financier by deferring the receipt of  the sale price of goods, it sells to the Client. If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the Client from the seller under Bai-Muajjal / Bai-Murabaha Agreement, that will be a remittance/payment of the amount on behalf of the Client, which shall be nothing but a loan to the Client and any profit on this amount shall be nothing but Interest.

Therefore, purchase of goods by the Bank should be for and on behalf of the Bank and the payment of price of goods by the Bank must be made for and on behalf of the Bank. If in any way the payment of price of goods is turned into a payment for and on behalf of the Client or it is paid to the Client any profit on it will be Riba.

Bai-salam

Under this mode Bank will execute purchase contract with the client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit is to be negotiated. In this mode the payment as the price of the goods is made at the time of Agreement and the delivery of the goods is deferred.

Leasing Mode (Ijarah Mechanism)

(1) Hire Purchase /Ijarah 

The term Ijarah has been derived from the Arabic works Ajr and Ujrat which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service on benefit gainst a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

Hire purchase under Sirkatul Meelk

Under this mode Bank may supply instruments/ equipment/goods on rental basis. The ownership of the instruments /equipment/goods will be with the Bank and the client jointly and the portion of the client will remain to the Bank as mortgage until the closure of the investment account, but the client will be authorized to possess the equipment for certain period. The client, after completion of the installments, will be the owner of the implements/ equipment/goods.

Meaning and Definition

Hire Purchase under Shirkatul Melk is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:

• Shirkat
• Ijarah
• Sale

Shirkatul Melk

Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract.

Ijarh

The term Ijarah has been derived from the Arabic works (Air) and (Ujrat) which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period.

Stages of Hire Purchase Under  Shirkatul Melk

Thus Hire Purchase under Shirkatul Melk Agreement has got three stages:

• Purchase under joint ownership.
• Hire and
• Sale and /or transfer of ownership to the other partner Hirer.

Share Mechanism

Mudarabah

It is a form of partnership where one party provides the funds while the other provides the expertise and management. The first party is called the Sahib-Al-Maal and the latter is referred to as the Mudarib. Any profits accrued are shared between the two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital.

Important features:

• Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience.
• Administration and management is maintained by the client.
• Profit is divided as per management.
• Bank bears the actual loss alone.
• Client cannot take another investment for that specific business without the permission of the Bank (Class, Notes, Hussain, Abul).

 Musharaka

An Islamic financial technique that adopts “equity sharing” as a means of financing projects. Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, bankers) etc.) Share both capital and management of a project so that profits will be distributed among them as per rations, where loss is shared according to ratios of their equity participation.

Important feature:

• The investment client will normally run and manage the
• The Bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operations of the business of the client. The Bank may appoint suitable person(s) to run the manage the business and to maintain books of accounts of the business property.
• As the investment client shall manage the enterprise, the Bank may pay more share of profit to him than that of his proportionate capital contribution.
• Loss, if any, sha/r be shared on the basis of capital ratio (Class Notes, Abul Hussain).

There are two other special modes of investment which have limited impact in our country

Quard

The word “Quard” is Arabic word which means loan or credit on advance. The literal meaning of Quard is giving “Fungible Goods” for use without any extra value returning those goods. It must follow the principle of equal for return with homogeneous goods. Fungible goods may be rice, oil, salt, money etc. in banking sector, money is used as quard. Quard is halal by islam for not to pay any extra or interest in return.

Quard- E- Hasana

Quard- E- hasana is also one kind of Quard which is given with  the expectation of return or not.

Investment Pricing Techniques

The pricing of investment products shall be judiciously and appropriately made taking in view the bank rate, cost of fund, risk factor involved, ruling investment prices of  the banking sector, demand/ supply interaction of the investment products, socioeconomic impact of investment product, and national priority. Flexibility and competitiveness shall also be taken into consideration to ensure that the pricing is appropriate and competitive for easy marketing of the products, to yield fair rate of return on investment as well as to uphold the social welfare objective of the special investment schemes. The pricing shall be received and evaluated from time to time and be adjusted as per privalification situation and experiment.

• The price of an investment is the “resume profit” that the buyers (investment client) must pay to the seller (bank): in addition,to the amount principle.
• The price of the “profit” of an investment is determined by the true cost of invest to the bank (base rate) plus profit / risk premium for the bank’s service land acceptance of the risk.

The components of the True cost of an investment are:

• Administration cost
• Cost of capital

These two components add- up- to the banks cost

Administration cost = Administration cost ( godawon rent, transport cost and godawon staff salary).

Cost of capital = purchase price (cost) + administration cost+ agreed Profit

(Fixed in lumsum or in percentage of the cost price of goods)

Rebate

Rebate may be allowed to the investment account ( at the calculated rate of profit) in lumsum, but very nearest to the rate of return for earlier adjustment of the concerned amount within due date.

• Compensation

Bank may charge compensation on the overdue investment accounts for the overdue period at the calculated rate of profit. But no compensation be charged without the approval of the Review committee. The branches must send R.C memo to head office immediately after the account become overdue. Preferably within 7 days from the date of overdue of the account. Against review committees specific approval the compensation may only be charged on the concerned overdue account at the calculation rate of profit.

Profit/ compensation charged on investment classified as substandard and doubtful be kept in suspense and not be taken as income.

Imposition of profit / compensation is stop on investment classified as bad/ loss. In case of filling suit profit/ compensation may be charges up to the date of filling suit and suit to be field for principle and profit compensation amount. But profit compensation to be kept in suspense account profit compensation charged for any reason on investment classified as bad/ loss also to be kept in suspense account.

• Loan Classification and provisioning

Loan classification is required to have a real picture of the loan an advances provided by the bank. It helps to monitor and take appropriate decision regarding each loan account like other banks, all types of loans of BA fall into following four scales:

• Unclassified : repayment is regular
• Substandard: repayment is stopped or irregular but has reasonable prospect of improvement.
• Doubtful debt: unlikely to be repaid but special collection efforts may result in partial recover
• Bad/Loss: Very little chance of recovery.

Classification Statement

• Loan Provisioning

A client amount of money is kept for the purpose of provisioning. This percentage is set following Bangladesh bank rules.

• Eligible Security

1. Lien market term Deposit-100%
2. Lien market Govt. bond/ sanchay patra-100% of face value.
3. B.B. guarantee-100%
4. Gold/ ornaments -100% market value
5. Easily saleable pledged goods kept under bank’s control – 50% of the market value.
6. Mortgaged land and building -50% of market value.

• Differences between Profit and interest

Problems Regarding investment of IBBL

• Most of the people in our country have a bad impression of IBBL,s operations regarding indirect generation of investment which meaning no difference between investment of IBBL loan / credit /advance of conventional banks for this reason, they are not too much interested to make investment with IBBL.
• Islamic banking is a new phenomenon in our country during last two decades. So majority of our people have no proper knowledge about the activities of Islamic banking as well as its investment mechanism hamper large scope of investment of IBBL.
• IBBL which is committed to avoid interest cants invest the permissible part of its satisfactory liquidity Reserve and short term liquidity surplus in those securities.
• This bank can’t invest in all economic sectors which are prohibited by the law of Islam.
• Because of improper insufficient application of Islamic banking rule in our country, the investment operations of IBBL can’t run smoothly.
• Profitable investment portfolio of IBBL requires forsightment and clear investment knowledge according to Islamic Shariah. But sometimes IBBL cants invest its assets in proper portfolio due to insufficient an unskilled manpower in these regard. As a result, there is a large amount of money being idle and thus potential profit is not increasing.
• IBBL has no strong promotional activities to motivate its present and potential investment client.
• This bank revalues its investment operation within limited number of investment modes and does not initiate investment modes according to changing / diverse needs of people.
• Some time investment operations of IBL are hampered due to, dishonest, indiscreet, hypocritical nature of the people.

In general –

• There are limited scopes to deal women enterprise and professionals for making investment by women enterpreners.
• In rural areas for low income community, this banks grants investment a group not individual, as a result, the mission, using invested money in income generating activity so the poor needy population can become self reliant- is failed. Moreover it enhances group dependence.
• IBBL does not grant investment portfolio for new entrepreneurs new businessmen new companies etc.
• In some sectors like housing, real estate, project, (industry) etc, this bank disburses total investment money in times according to banks pre-determine proportion as a result, client are failed to gain full benefits of investment disbursement at once.

Investment system of Conventional banking

Definition of Credit

The world ‘credit’ is derived from the Latin word ‘Credo’ meaning I believe. It is usually defined as one’s ability to buy with a promise to pay. From the banker’s point of view, credit is the confident of the lender on the ability and willingness of the borrower to repay the debt as per schedule of repayment.

Offering credit to borrowers is one of the most important 7 critical functions of commercial bank are crucial because poor lending may severely out the profitability of a bank. Conventional commercial bank is responsible for processing different types of loans and advances.

Credit Planning

The term credit planning implies estimating first the total loanable fund that are likely to be available within the given period and then allocating the same among various alternative uses in conformity with the plan and priorities.

At branch level the credit planning are expected to perform following tasks while planning:

• Adhere to the policy guidelines of the HO.
• Analyze the command area, a geographical area where target market resides.
• Determine requirement of incremental loan able funds.
• Allocate the same funds to the different sectors and client groups during the budget period.

Functions of credit department at the branch level

• Preparation and submission of credit proposal to head office for approval.
• Carrying out necessary investigation and evaluation loan proposal at branch level.
• Disbursement of fund after approval of appropriate authority.
• Ensuring proper documentation of all loans/ advances.
• Monitoring and recovery of loan/advances.
• Classification loans in case of non-payment.

Credit Management process in Commercial Banks

The credit management process in commercial banks involves several steps. The steps are as under.

• Initial screening of application

Initial screening describes the effort by credit personal to make quick, cost-effective checks to see if an application meets the basic criteria for opening a credit account. Most credit department uses various internal screening activities to determine if a more in-depth, more costly credit investigation is suggested.

• Credit Investigation

Credit investigation involves a series of steps undertaken to verify the information on the credit application required for sound decision making. The challenge for credit manager at this stage is to gather enough information without spending too much time and money.

• Credit Decision

The credit decision is judgment made by the credit manager to accept or reject an application for credit.

• Control of Account

Control function are used to monitor and account to ensure that total indebtedness is appropriate for an individual customer. It involves ‘watching’ the accounts to verify in a timely manner.

• Collections

Collection activities include any effort to get the credit consumers to pay their payments in a timely manner.

Different types of credit of Commercial banks:

• Funded Credit

Any type of credit facility which involves direct outflow of banks fund. Funded credit may be classified into four major groups as under:

• Loans (Demand and Terms Loans)
• Cash Credit (CC Pledge and CC Hypothecation)
• Overdraft (OD)
• Bill Purchase and Discount
• Non Funded Credit

Any type of credit facility which does not involves direct outflow of banks fund.

Non funded credit includes:

• Letter of Credit(L/C)
• Performance Bond
• Advance / Payment Guarantee etc.

Besides the above, credit facilities offered by banks can also be classified in the following ways:

On the Basis of Purpose:

• Business Credit: The credit relationship involves in purchasing goods for resale, or obtain fund to operate, using credit as the medium of exchange.
• Consumer Credit: The use of credit as the medium of exchange for the purchase of finished goods and services by ultimate user.

On the basis of Security Obtained:

• Clean
• Secured

On the Basis of Term:

• Short term
• Mid term
• Long term

On the Basis of Sectors:

• Private
• Public
• Agriculture
• Transport etc.

Descriptions of different types of Loans:

Loans allowed to individual /firm / industries for a specific purpose but for a definite period and generally repayable by institution by installment fall under this head. These types of lending include loans offered to following:

• Large & Medium Scale Industry
• Small & Cottage industry
• Agriculture

House Building Loan (General)

Loans allowed to individual/ enterprises for construction for house (residential or commercial) fall under this types of advance. The amount is repayable be monthly installment within a specified period. Such advances are known as House building loan (General)

House Building Loan ( Staff )

Loans allowed to employees for purchase / construction of house / flat is known as House building Loan (staff). These loans are also repaid by monthly installments.

Other Loans to staff

Loans allowed to employees other than for house Building is grouped under staff Loans (General) head.

Cash Credit (CC Loan)

Advanced allowed to individual / firm for trading as well as wholesale purpose or to industries to meet up the working capital requirement against hypothecation of goods as primary sectors fall under this type of lending.

Hire – Purchase

Hire – purchase is a type of installment of installment credit under which the borrowing agrees to take the goods on at a stated rental, which is inclusive of the repayment of principle as well as interest for adjustment of the loan within a specification period.

Lease finance

Lease finance is one of the most convenient sources of acquiring capital machinery and equipment. A client is given the opportunity to have an exclusive right to use an asset, usually for an agreed period of time against payment of rent. It is a term financing repayable by installment.

Consumers Credit Scheme

It is a special credit scheme of the bank offered to the fixed income group to raise their standard of living by financing purpose of consumer’s durable. The loan is offered on soft terms against customer personal guarantee and deposit of a specified percentage of equity. The loan is repayable by monthly installment within a fixed period.

Secured Overdraft ( SOD)

These are advances allowed to individual/ firms against financial obligation (i.e. lien on FDR/PSP/BSP/Insurance policy/ Share etc) advances are also allowed against L/C and Work Order.

Letter of Credit (L/C)

A letter of credit is credit line given by a bank to an importer to facilitate both foreign and inland transaction. This is a contingent liability which can be converted to a funded facility incase bank makes the payment on behalf of the importer. A letter of credit can be revocable or irrevocable, restricted or negotiable son on.

Guarantee

Conventional banks offer guarantee for its reliable and valuable customer as per requirements. This is also a Credit facility in contingent liabilities from extended for participation in development works like supply of goods and services.

Features of bank Guarantee:

• It is a written document on non-judicial stamp.
• Expiry date is mentioned specification with other terms and conditions
• A conventional bank receives commission quarterly @ 0.50% of the guaranteed amount.
• Syndicate Loan

Bank can lend up to 15% of its paid up capital without any approval by Bangladesh bank. If the loan amount is more than 50% of its paid up capital bank goes for syndicate loan.. Head office makes facility agreement by banks lawyer. All terms and condition such as security sharing, Mode of repayment, covenants of the loan is written on this facility agreement.

Overall Credit Decision –Making Framework

Credit decision – making is an important part of credit management. It is a judgment either to accept or reject a credit proposal arrived after an evaluation of the credit proposal. Following paragraphs are intended to give a comprehensive picture of overall credit decision –making framework.

Credit Evaluation Principles

Conventional banks given more emphasis on refund of loans and advances out of funds generates by the borrowers from their business activities ( cash flow) rather than realizing it by disposing of the securities held against the advance which is much uncertain and time consuming. This credit evaluation principle is adhered to at every level before approving a credit proposal to optimize the returns from funds deployed in different kinds of lending.

Delegation of Lending Authority

To ensure proper and orderly conduct of the business of the bank, the Board of Directors has empowered the Managing Director and other Executive of convention at their discretion.

Responsibilities at Different Level Relating To Credit

The responsibilities for credit policy, procedure, approval and review are vested in the following groups as under:

• Board of Directors
• Executive Committee
• Policy Committee
• Credit committee

Documentation of Credit

The credit officer ensures completion of necessary documentation formalities before disbursement of the credit. Important documentation required by bank for CCS is as under:

• P. Note
• Letter of arrangement
• Letter of disbursement
• Letter of hypothecation ( in case of hypothecation of goods)
• Supplementary agreement for letter of hypothecation
• Letter of guarantee
• Letter of continuity
• Letter of undertaking
• Letter of installment
• Letter of authority
• Letter of revival

Disbursement of Credit

After documentations, the bank makes payment directly to the recipient’s account from where the item is purchased under CCS credit.

Monitoring / Control of Account

Monitoring of the account of the borrower is done by the credit officer to verify that installment payments are made as planned.  Borrowers of CCS loan need to pay monthly installment by 10^th of every month.

Collections

As mentioned before, collection activities including any effort to get the credit consumers to pay their payment in a timely manner. The credit department takes necessary steps to recover the money as per the policies and regulations that may even lead to litigation.

Loan Classification and Provisioning

Loan Classifications:

Loan classification is required to have a real picture of the loan and advances provided by the bank. It helps to monitor and take appropriate decision regarding each loan accounting like other banks, all types of loans of Conventional fall into following four scales:

• Unclassified: Repayment is regular.
• Substandard: Repayment is stooped or irregular but has reasonable prospect of improvement.
• Doubtful debt: unlikely to be repaid but special collection efforts may result in partial recover.
• Bad/Loss: Very little chance of recovery.

CL Statement

Loan Provisioning:

A certain amount of money is kept for the purpose of provisioning. This percentage is set following Bangladesh bank rules.

Specimen Credit Appraisal Format

Management Appraisal

• Overall background of the promoters.
• Academic qualifications.
• Business and industrial experience.
• Past performance & market reputation.

Market Appraisal

• Consumption trend in the past and the present consumption level
• Target market and Marketing strategy
• Industry and competitor Analysis
• Past and present supply position
• Production possibilities and constraints
• Imports and exports
• Structure of competition
• Cost structure
• Elasticity of demand
• Consumer behavior, intentions, motivations, attitudes, performance and requirements
• Distribution channel and marketing policies in use.

Technical Appraisal

• Location and site
• Raw material supplies
• Transport facilities
• Power and fuel supply
• Water
• Manpower
• Adequacy and suitability of the plant and equipment
• Plant layout
• Balancing of different sections of the plant
• Building and layout: The operative efficiency of an industrial project also depends on the layout refers to the arrangement of physical facilities.

Financial appraisal

• Investment outlay and cost of the project
• Means of financing
• Cost of capital
• Projected profitability
• Break – even point
• Cash flows of the project

Economic Appraisal

• Generation of employment
• Income distribution
• Self- reliance
• Development of small scale and ancillary industries.
• Development of infrastructure.
• Improvement of lining standard.

Comparison in the view of Islamic Shariah

Last but not least, we can mentioned the some following differences

• All sorts of exploitation in any nature is prohibited in Islam. In banking, exploitation may occur depriving the majority people from their legal dhare of earrings. Generation by a bank. Conventional banks pays pre fixed interest to its depositors which may not tally with the earning of the bank. In the Islamic banking the mechanism stipulated under Mudaraba Modes ensure the depositors to earn as per agreed ratio.
• “Banking deal with document not with goods” – the statement amy not necessarily be applicable at all times in Islamic banking. Islamic bank buy and sale goods to the client as per its requirement. The buying- selling is ensured by adopting the mechanism of bai modes that include Mudaraba, Muajjal and Salam. Concept of buying and selling is absolutely absent in conventional banking.
• Profit is not the only objective of Islamic banking system. Balanced welfare/ development / growth of the entire economy ( development of the people of all sphere of life) is to be taken into account by a banking system run under Islamic banking framework as Allah  asked to mobilized the resources not only to the haves. On the other hand, conventional banking is designed to earn more and more interest by any means.
• Practice of Islamic banking derived from Quran and sunnah. Practices include contract among the parties, writings, and evidence etc but conventional banks practices man made laws.
• Without taking risk, financial transactions are not allowed Islam. Under Islamic frame work, depositors are taking risk as sahib al mal. Therefore, the earring of depositor is uncertain while conventional banks offer prefixed interest.
• Under Islamic banking, access of everybody as depositor / entrepreneur ensured to share the resource mobilization. It contributed to build more national saving resulting in more investment, more employment, more income and more savings. As conventional banks impose different barriers against small savers/micro entrepreneurs therefore national growth is hampered for unutilized recourses.

Investment Scenario of  IBBL

Trend of IBBL Deposit

TABLE: 1-

TREND OF DEPOSITE 2004 TO 2008

Trend of IBBL Investment

Table two:-

Table -3: Sector wise Investment 2007-2008

Trend of sector wise Investment in 2008

Different special Investment Scheme

Trend of investment in SBIS, MIS, & HIS

Trend of investment in RDS & HDS

Trend of foreign exchange busines of IBBL

Growth of foreign exchange business

Total diposit, investment and overdue position : 2004 to 2008

 Total deposit and investment postion: 2004-2008

Operation rejsult of IBBL: 2004-2008

Data analysis and interpretation (For Conventional Banking Vs Islamic Bank)

Q1. What is the motivation behind maintaining account at conventional bank?

Factor of  Motivation

• Interpretation :

Here number of appearances are 28 but total respondents are 20 people who were asked with open ended question. The number of appearance has been considered to interpret the outcome of the curve. Out of total appearances 36% respondents are motivated maintaining accounting at conventional bank due to its better service offered to the valued customers. On the other hand 29% respondents are motivated by higher interest rate offered by the conventional banks. Also killed manpower, customer friendly attitude, technological advancement and various attractive products are the important factors which are attract the customer’s attention to the conventional bank.

Q2. Do you find any difference between Islami banking and conventional banking?

Table 2: Frequency of total respondents

• INTERPRETATION :

The survey has been done on 20 persons to the client of convention bank. Out of total respondent 80% believe there are differences between Islamic banking and conventional banking. On the other hand 20% respondents do not believe there are any differences between Islamic banking and conventional bank.

Q3. If yes then what are the differences?

Table 3: The differences between and Islamic banking and conventional banking.

• Interpretation:

Here number of appearances are 20 but total respondents are 16 people who said “YES”. The number of appearances, 20% respondents believes that concept of in interest is the main yard stick of the total differences between Islamic bank and conventional bank. On the other hand 20% respondents think that in case of services there is a difference these two different types of banks. And also 60% respondents think that investment policy is the one of the factor which differs conventional bank from Islamic bank.

Q4. If no. why do you think there are no differences between Islamic banking and conventional bank?

Table – 4 Differences between Islami bank and Conventional bank.

The resons of similarity between islamic banking & conventionalbanking

• Interpretation :

Here total respondent are 20 people there 18 person are said “NO” in the answer of question 90% of the total respondent think that there is no difference between interest and profit and power which is considered and  another 2 person means 10% are thing that the there are no difference of conventional bank and Islami Bank

Q5. What kind of Quality of services you are getting from conventional bank?

Table 5: Quality of service at the conventional banks

• Interpertation :

The servy has been done  on 20% percentage of  client of convetional banks. Out of total respondent, among 80% respondents fully satisfied with the services of the conventional bank.

Q6. What is your view about the different  service charges taken by the bank conventional banks?

Table 6: The view of the clients about service charges at the conventional banks

• Interpretation :

The servey has been done on 20 percent of the client of convetnionl bank. Out of total respondents 65% respondents think that the charges taken by the conventional bank is excessive while 25 % respondents thing  charges taken ate justified, 10% respondents thing the charges are very excessive.

Q7. What is the motivation behind maintain account at islamic bank?

• Interpretation:

The survey has been done on 20 person of the  client of IBBL. Out of total respondents 80% respondents are motivation mantaining accounts at IBBL due to its Shariah Based banking system. On the banking hand 15% respondents are motivated by interest free attractive profit provided IBBL. And 5% respondents think that now –a – days islamic banking is the new phenomenon not only in Bangladesh but also in world wild. So they are motivated by this factor.

Findings From Questionnaires (From IBBL Clients Response)

1. 80% respondents are moitvated maintaining accounts at IBBL due to its shariah based banking system. On the other hand 15% respondents are motivat by interest free attrative profit provided by IBBL. And 5% respondents think that now a days islamic banking is the new phenomenon not only in Bangladesh but also in worldwide. So they are also motivatedby this factor.
2. 100% respondents believe there are differences between islamic banking and conventionl banking.
3. 39% respondents belive that concept of intersest is the main yard stick of differences between islamic bank and conventional bank. On the other hand 27% respondents think that in case of investment policy there is a difference in these two different types of banks. And also 20% respondents think that services are one of the factors which differs IBBL from conventional bank.
4. More then 80% respondents satisfied with the services of the islamic bank.
5. 85% respondents think that IBBL exactly follows all kinds of Shariahs law. But another 15% respondents think that there is some lapse in case of following the shariah law.
6. 100% respondent think that the charges are not excessive at IBBL.

Finding From Questionnaires ( From Cinventional Bank’s Clients Resonse)

1. 36% respondents are motivated maintaining accounts at conventional bank due to its better service offered to the valued customers. On the other hand 29% respondents are motivated by higher interest rate offered by the conventionl banks. Also skilled manpower, customer friendly attitude, tecnological advancement and various attractive products are the important factors which are able to attrct the customer’s atttention to the conventional bank.
2. 80% respondents believe there ate differnces between islami banking and conventionl banking. On the other hand 20% respondents do not believe there are any differences between islami bank and conventionl bank.
3. 90% respondents believe that concept of interest is the main yard stick of the differences between islami bank and conventional bank. On the other hand 19.04% respondents think that in case of services there is a difference these two different types of banks. And also 14.28% respondents think that investment policy is the one of the factor which differs conventional bank from islami bank.
4. 100% of the respondents think that there is no difference between interest and profit .
5. Almost 80% respondents fully satisfied with the sertvices of the conventionl bank.
6. 65% respondents think that the charges taken by the conventional bank is excessive while 25% respondents think the charges taken are justified 10% respondents think the charges are very excessive.

Overall Findings from the study

The key finding from the study is.

The bank, since its inception, has been working for the uplift and emancipation of the under- privileged downtrodden and neglected sections of the population and has taken up various financing schemes for their well being. IBBL is raising the standard of living of low- income groups.

Problems Regarding investment of IBBL

• Most of the people in our country have a bad impression of IBBL,s operations regarding indirect generation of investment which meaning no difference between investment of IBBL loan / credit /advance of conventional banks for this reason, they are not too much interested to make investment with IBBL.
• Islamic banking is a new phenomenon in our country during last two decades. So majority of our people have no proper knowledge about the activities of Islamic banking as well as its investment mechanism hamper large scope of investment of IBBL.
• IBBL which is committed to avoid interest cants invest the permissible part of its satisfactory liquidity Reserve and short term liquidity surplus in those securities.
• This bank can’t invest in all economic sectors which are prohibited by the law of Islam.
• Because of improper insufficient application of Islamic banking rule in our country, the investment operations of IBBL can’t run smoothly.
• Profitable investment portfolio of IBBL requires forsightment and clear investment knowledge according to Islamic Shariah. But sometimes IBBL cants invest its assets in proper portfolio due to insufficient an unskilled manpower in these regard. As a result, there is a large amount of money being idle and thus potential profit is not increasing.
• IBBL has no strong promotional activities to motivate its present and potential investment client.
• This bank revalues its investment operation within limited number of investment modes and does not initiate investment modes according to changing / diverse needs of people.
• Some time investment operations of IBL are hampered due to, dishonest, indiscreet, hypocritical nature of the people.

In general –

• There are limited scopes to deal women enterprise and professionals for making investment by women enterpreners.
• In rural areas for low income community, this banks grants investment a group not individual, as a result, the mission, using invested money in income generating activity so the poor needy population can become self reliant- is failed. Moreover it enhances group dependence.
• IBBL does not grant investment portfolio for new entrepreneurs new businessmen new companies etc.
• In some sectors like housing, real estate, project, (industry) etc, this bank disburses total investment money in times according to banks pre-determine proportion as a result, client are failed to gain full benefits of investment disbursement at once.

Recommendation

• IBBL can diffuse its scope of investment through focusing Shariah concept regarding investment among the bank officers, employer and the client by strong training, workshop and client get- together.
• The authority of IBBL should convey pressure on Government bodies to run proper and sufficient application of Islamic banking law in Bangladesh.
• IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals and understand their needs and thus create demand for investment.
• To fulfill the vision of “mass banking” this bank should grants investment portfolio to new entrepreneurs’ / new businessmen, new companies etc.
• IBBL should utilize “internship Program” as one kind of promotion policy to encourage its present and potential investment clients. Because young generation is the vital post of our economy. To do so this bank should provides facilities to the internees though proper placement and practical operations as well as job certainty to those who bring introduce themselves the best performers in doing their particulars.
• To gain success in the programs like “Poverty Alleviation and” “Self Reliant” especially in rural areas, this bank should provides investment facilities on the basis of individual.
• IBBL should give more emphasize on their marketing effort and try to increase their sales force.
• IBBL should appoint a Customer Relation Officer at branch level.
• IBBL should make their credit approval and monitoring effort and try to increases their sales force.
• IBBL should try to reduce their loan issuing and disbursement timing.
• IBBL should increase their profit rate on different deposit scheme.
• IBBL should try to attend different type of target customer.
• IBBL should introduce long – term credit scheme like different types of 5 years of ten years credit scheme.
• IBBL should offer more credit scheme like.
  • Marriage Loan
  • Multi Purpose Loan
  • Education loan
• IBBL should introduce Islami Credit as soon as possible.
• Maximum client do not know about IBBL’s Loan schemes. They should carry out more promotional activities to make clients aware about their offers.
• It was observed that, IBBL is absent in TV, print media, Bill Boards, and Sponsorships etc. Bank should advertise about itself so that it can attract more clients. That will increase the business volume of the bank.
• To avoid bad debts IBBL should give more emphasize on Lending Risk Analysis (LRA) an try to conduct sensitivity analysis.
• IBBL should give highest attention on recovery of Bad debts. This concerns the image of the bank to the clients.
• The Shariah council should give emphasis on introduction of Mudaraba and Musharaka Modes of investment under various investment schemes including Rural Development Scheme.

Conclusions

Islami bank Bangladesh Limited is one of the largest banks in the financial sectors in Bangladesh, which commenced in 1983 when the bank started growing fast and in size. The study concentrated on the investment. As of beginning of the form it has passed tremendous success in business operation. The fact that is has continuous growth in deposit ad investment volume; at the same time it has been experiencing increased in profit position.

The study was based on the trend analysis with particular reference to the deposits, investment, overdue, recovery, profitability, and liquidity. The analysis revels that investment of IBBL is sound and it can improve day by day.

IBBL’s capital adequacy, deposits, reserves, earning per share, export, import and remittances are also increasing.

So undoubtfully IBBL is a growing profitable financial institute and its strengths are high.