A study on Investment Mechanism

 Introduction

The banking sector is one of the highly regulated sectors in our country. It is governed by the rules and regulation of central Bank of the country i.e. Bangladesh Bank and security and exchange Commission. Banking system occupies an important place in an nations economy. A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advance country.

Islami bank Bangladesh limited is a specialized financial institution in South East Asia performs most of the standard banking service and investment activities on the basis of profit-loss sharing system conforming to the principles of Islamic shariah. The bank participates in financing long-term projects on the basis of profit loss sharing instead of granting credit facilities with interest.

Carrier in banking has become very Lucrative over the last few years considering the work environment and remuneration package. I choose IBBL It has a good reputation in the banking community.

My internship program specially based on Islami Bank Bangladesh Limited and I want to focus the convergence in lending (Investment) performance between IBBL vs. Other conventional bank in Bangladesh. For my study purpose I choose Dutch Bangla Bank Limited as an example of conventional bank.

 History Behind the report

For Internship report each student has to prepare a report on his or her choice. According to this requirement, I have already completed my Internship report on the A study on Investment Mechanism of Islami Bank Bangladesh Limited; because I am a Muslim I should know the Islamic Banking system, On the basis of my practical experience as well as theoretical knowledge, I have completed the report regarding Performance of Modes of Investment of Islami Bank Bangladesh Limited. The main focus of my study is to analyze the investment procedure of IBBL. Islami Bank dose not lend money of issue securities with fixed interest.

 Objectives of the study

 The main objective of the study is to gather practical knowledge regarding banking system and operation. This practical orientation gives us a chance to coordinate out theoretical knowledge with the practical experience. The following are the specific objectives.

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.

  Rationale of the study

They are nationalized commercial banks, local private commercial banks and foreign private commercial banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different general banking, Investments Foreign Exchange banking system. So I have decided to study on the topic A study on Investment Mechanism of Islami Bank Bangladesh Limited. Because the internship report of the university is an integral part of the BBA program. So it is obligatory to undertake such task by the students who desirous to complete and successfully end up their BBA degree. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. That is way I have prepared this report.

 Methodology of the study

For smooth and accurate study every one have to follow some rules & regulation. The study impute were collected from two sources.

 Primary Sources.

(a)      Practical desk work

(b)      Direct Observations

 Secondary sources

1. Annual report of IBBL 2011
2. Brushers
3. Various publications on Bank
4. Websites
5. Different circulars sent by Head Office and Bangladesh Bank

 Limitations of the report

There were some problems while I conducting the orientation A wholehearted effort was applied to conduct the wholehearted effort, there exit some limitations. This acted as a barrier to conduct the program. The limitations were….

1. Sometimes I was assigned to do some official jobs out of my office. This situation has created a lot of problems to understand why a specific function is being performed.
2. Lack of experience.
3. Lack of in depth knowledge and analytical ability for writing such report.
4. All the branches of the sample bank were not physically visited.
5. All the concerned personal of the bank have not been interviewed.

Time Schedule of the report

 Time schedule for internship work has been set up by supervisor form November 11, 2012 to December 24, 2012.

 For Data collection                      :        20 days

Data Analysis                                       :        25 days

Visit at the IBBL                         :        15 days

Clarification                               :        05 days

Report preparing                        :        10 days

Printing & binding                      :        15 days

 Total                                         :        90 days

Profile of the IBBL

 Introduction

Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur’an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh.

 What is Islamic Banking

 Islamic banking has been defined in a number of ways. The definition of Islamic bank, as approved by the General Secretariat of the OIC, is stated in the following manner.“An 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”(Ali & Sarkar 1995, pp.20-25).

 Aims and objectives

·   To conduct interest-free banking.

·   To establish participatory banking instead of banking on debtor-creditor relationship.

·   To invest on profit and risk sharing basis.

·   To accept deposits on Mudaraba & Al-Wadeah basis.

·   To establish a welfare-oriented banking system.

·   To extend co-operation to the poor, the helpless and the low-income group for their economic upliftment.

·   To play a vital role in human development and employment generation.

·   To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.

• To contribute in achieving the ultimate goal of Islamic economic system.

 Objectives of Islamic Banking

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

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

 Historical Background of IBBL

  Islami Bank Bangladesh Limited (IBBL) is considered 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.

IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by the Islamic Development Bank and financial institutions like-Al-Rajhi Company for Currency Exchange and Commerce, Saudi Arabia, Kuwait Finance House, Kuwait, Jordan Islamic Bank, Jordan, Islamic Investment and Exchange Corporation, Qatar, Bahrain Islamic Bank, Bahrain, Islamic Banking System International Holding S. A., Luxembourg, Dubai Islamic Bank, Dubai, Public Institution for Social Security, Kuwait Ministry of Awqaf and Islamic Affairs, Kuwait and Ministry of Justice, Department of Minors Affairs, Kuwait. In addition, two eminent personalities of Saudi Arabia namely, Fouad Abdul Hameed Al-Khateeb and Ahmed Salah Jamjoom are also the sponsors of IBBL. The total number of branches as of December 2001 stood at 121. The authorized capital of the bank is Tk. 500 million and subscribed capital is Tk. 160 million.

Mission

To establish Islami banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balance 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, be considered a leading Islamic by reputation and performance.

1. Our goal is to establish and maintain the modern banking technologies, 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 the people, based upon accountability, transparency and integrity in order to ensure stability of financial system.
2. We will try to encourage savings in the form of direct investment.
3. We will also try to encourage investment particularly in projects which are more likely lead to higher employment.

  Features of IBBL

The bank is committed to all its activities as per Islami Shariah. IBBL through its steady progress and continuous success has earned the reputation of being one of the leading private sector banks of the country. The distinguishing features of IBBL are as follow:

All its activities are conducted on interest-free banking system according to Islamic shariah.

Establishment of participatory banking instead of banking on debtor-creditor relationship.

Investment is made through different modes permitted under Islami shariah investment income of the bank is shared with the Mudaraba depositors according to a ratio to ensure a reasonable fair rate of return on their depositors.

Its aims are to introduce a welfare oriented banking system and also establish equity and justice in the field of economic activities.

It extends socio economic and financial services to the poor, helpless and low income group of the people for their economic up liftmen particularly in the rural areas.

It plays a vital role in human resource development and employment generation particularly for the unemployed youths.

It extends co-operation to the poor, the helpless and the low income group for their economic development.

  Functions of IBBL

The operation of Islamic bank Bangladesh limited can be divided into three major categories:  functions of Islami Bank Bangladesh Ltd. are as under:

 General Banking

1. Mobilization of deposits
2. Receipts and payment of cash.
3. Handling transfer transaction.
4. Operations of clearing house.
5. Maintenance of accounts with Bangladesh Bank and other bank.
6. Collection of cheque and bill.
7. Issue and payment of D.D, T.T and P.O.
8. Executing customers standing instructions.
9. Maintenance of safe deposit lockers.
10. Maintenance of internal accounts of the bank.

 Foreign Exchange Business

Foreign Exchange business plays a vital role in providing substantial revenue in the bank income pool. Like all modern banks IBBL operates in the area of the foreign Exchange business. IBBL performs the following tasks:

1. Opening letter of credit (LC) against commission for importing industrial, agricultural and other permissible items under shariah and import policy.
2. Opening letter of credit on the principle of Mudaraba sale, on the principle of Musharaka sale and under wage earner scheme.
3. Handing of export/import document.
4. Negotiation of export/import document when discrepancy occurs.
5. Financing in import under MPI (Mudaraba Post Import).
6. Financing to export on profit or loss sharing.
7. Handling inward and outward remittance..

  Others activities

The IBBL performs the following task for the welfare of the society:

Income generating scheme for the unemployed youth of the nation.

Monorom sale center for marketing homemade garments, handicrafts and other items.

Education scheme for assisting poor scholar student to case and help them to continue their study.

Health scheme for fulfillment of health needs of rural people.

Islamic bank hospital was established to extend first hand modern and contemporary medical service to the people on non profit business.

Humanitarian assistance is being provided to the poor, families affected by river erosion and for marriage of poor girls.

Energy relief operations are provided to the people affected by natural calamities. Assistance to mosque for construction, repair and renovation.

 Successful Achievement of IBBL                   

IBBL is the pioneer institution for introduction of Islamic banking in Bangladesh. The success of IBBL has embedded other sponsors at home and aborted to establish Islamic banking in Bangladesh, several existing and proposed traditional banks have also expressed their intention to introduced Islamic banking. Achievements of IBBL can be given as under:

IBBL has successfully mobilized deposits for a section of people hither to before do any deposit with interest based banks.

The Islamic banking products, which are offered by IBBL through its 266 branches, located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic banking.

  Corporate information [as on 31^st December 2010]

 Equity

Total Equity of the bank as on 31^st December 2007 increased to Tk.15,766 million (11.18% of the Risk Weighted Assets) from Tk.10,436 million (9.43% of the Risk Weighted Assets) as on 31^st December 2006. Percentage of Core Capital as on 31.12.2010 was 6.54% as against 6.95% as on 31.12.2009 against minimum requirement of 4.50%.

  Shariah council

Shariah Council of the Bank is playing a vital role in guiding and supervising the implementation and compliance of Islamic Shariah principles in all activities of the Bank since its very inception. The Council, which enjoys a high status in the structure of the Bank, consists of prominent ulema, reputed banker, renowned lawyer and eminent economist.

Members of the Shariah Council meet frequently and deliberate on different issues confronting the Bank on Shariah matters. They also conduct Shariah inspection of branches regularly so as to ensure that the Shariah principles are implemented and complied with meticulously by the branches of the Bank.

Profile of council members

The shariah council of Islamic bank generally consists of experts from the following four areas:

1. Fuqaha: Persons representing this group must be well versed in the Quran, Sunnah and fully conversant with the opinion of all schools of Islami thought and Islami law and jurisprudence. They must view Islam as a total way of life and a living relation.
2. Banker: There must be a member who is fully conversant with banking law and practices and has practical experiences in banking business including foreign trade.
3. Economist: A member from this group need not necessarily be an Islami economist to start with. But if is an Islami economist it is added advantage. What is important is that he must be really proficient in modern economies with an in depth study of the community, which a bank is going to solve. He must have up to date knowledge in the development of the contemporary.
4. Lawyer: A member responding this group should be a successful practitioner lawyer. He must be proficient in commercial law including company law. In consultation with the Fuqaha and Economist members of the council, he should be able to draft such innovating contracts, which will have the section of Islami principles and a banking law of the land.

2.13.2: Objective of Shariah Council

The function of the council are to offer views and opinions on matters related to the bank from time to time. The council may require any paper document from the bank and examine the same to see whether it is according to see whether it is according to Islamic principles. The shariah council assists the Board of Directors by advising them on matters related to shariah.

The opinion of the majority of members is taken as the opinion of the council provided that the said opinion is supported by at least three Muftis of the council.

The council maintains its secretariat and a well-equipped library as the Head office of the bank where it keeps proper records of all of its proceedings and decisions.

2.14 Management

Islami Bank Bangladesh Ltd. is being managed by a Board of Directors comprising foreigners and local. An Executive Committee is formed by the Board of Directors for efficient and smooth operation of the Bank. Besides, a Management Committee looks after the affairs of the Bank.

2.15 Human Resources Management

IBBL is always trying to play a vital role in employment sector and the last few years’ manpower position are as under:

 Introduction

 The banking sector is one of the highly regulated sectors in our country. It is governed by the rules and regulation of central Bank of the country i.e. Bangladesh Bank and security and exchange Commission. Banking system occupies an important place in an nations economy. A banking institution is indispensable in a modern society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advance country.

Islami bank Bangladesh limited is a specialized financial institution in South East Asia performs most of the standard banking service and investment activities on the basis of profit-loss sharing system conforming to the principles of Islamic shariah. The bank participates in financing long-term projects on the basis of profit loss sharing instead of granting credit facilities with interest.

Carrier in banking has become very Lucrative over the last few years considering the work environment and remuneration package. I choose IBBL It has a good reputation in the banking community.

My internship program specially based on Islami Bank Bangladesh Limited and I want to focus the convergence in lending (Investment) performance between IBBL vs. Other conventional bank in Bangladesh. For my study purpose I choose Dutch Bangla Bank Limited as an example of conventional bank.

 History Behind the report

 For Internship report each student has to prepare a report on his or her choice. According to this requirement, I have already completed my Internship report on the A study on Investment Mechanism of Islami Bank Bangladesh Limited; because I am a Muslim I should know the Islamic Banking system, On the basis of my practical experience as well as theoretical knowledge, I have completed the report regarding Performance of Modes of Investment of Islami Bank Bangladesh Limited. The main focus of my study is to analyze the investment procedure of IBBL. Islami Bank dose not lend money of issue securities with fixed interest.

 Objectives of the study

 The main objective of the study is to gather practical knowledge regarding banking system and operation. This practical orientation gives us a chance to coordinate out theoretical knowledge with the practical experience. The following are the specific objectives.

  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.

  Rationale of the study

 They are nationalized commercial banks, local private commercial banks and foreign private commercial banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different general banking, Investments Foreign Exchange banking system. So I have decided to study on the topic A study on Investment Mechanism of Islami Bank Bangladesh Limited. Because the internship report of the university is an integral part of the BBA program. So it is obligatory to undertake such task by the students who desirous to complete and successfully end up their BBA degree. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. That is way I have prepared this report.

 Methodology of the study

For smooth and accurate study every one have to follow some rules & regulation. The study impute were collected from two sources.

 Primary Sources.

(a)      Practical desk work

(b)      Direct Observations

 Secondary sources

1. Annual report of IBBL 2011
2. Brushers
3. Various publications on Bank
4. Websites
5. Different circulars sent by Head Office and Bangladesh Bank

  Limitations of the report

There were some problems while I conducting the orientation A wholehearted effort was applied to conduct the wholehearted effort, there exit some limitations. This acted as a barrier to conduct the program. The limitations were….

1. Sometimes I was assigned to do some official jobs out of my office. This situation has created a lot of problems to understand why a specific function is being performed.
2. Lack of experience.
3. Lack of in depth knowledge and analytical ability for writing such report.
4. All the branches of the sample bank were not physically visited.
5. All the concerned personal of the bank have not been interviewed.

 Time Schedule of the report

 Time schedule for internship work has been set up by supervisor form November 11, 2012 to December 24, 2012.

 For Data collection                      :        20 days

Data Analysis                                       :        25 days

Visit at the IBBL                         :        15 days

Clarification                               :        05 days

Report preparing                        :        10 days

Printing & binding                      :        15 days

 Investment funds have been defined by the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI) as follows:

 “Funds are investment vehicles, which are financially independent of the institutions that establish them. Funds take the form of equal participating shares/units, which represent the shareholders’/unit holders’ share of the assets, and entitlement to profits or losses. The funds are managed on the basis of either mudaraba or agency contract

 Modes of investment:

Bai-Mechanism:

1. Bai-Murabaha
2. Bai-Muazzal
3. Bai-Salam
4. Istishana

(1)  Leasing Ijara, Hire Purchase (HP) Hire Purchase under sherkatul Melk (HPSM)

(2)  Share Mechanism:

Musaraka

Mudaraba                                               

Jannat Ara Parveen (2007) says, The main focus of this research is to critically evaluate the sustainability issues of Interest-free Micro–Finance Institutions (MFIs) in general and a recently developed micro finance model – Rural Development Scheme (RDS) of Islamic Bank Bangladesh Limited (IBBL) in particular. Recently, in micro finance literature, the term „sustainability or self-sustainability” has been discussed and analyzed widely among the practitioners, researchers and policy makers as an important development indicator of both MFIs and its clients. It is well known that only efficient institutions can low the high cost of servicing small and irregular incomes on a sustainable basis. These lower costs can in turn be passed on to the poor/hardcore poor in the form of low finance charges, which leads to contribute their smooth income generating activities. In this context, the present study is an endeavor by the researcher to examine mainly the institutional, financial and economical sustainability of the above model by using various indicators.

Khan Md. Azizur Rahman (2005) says, Foreign Direct Investment is dramatically increasing in this age of globalization. It has played important role for economic growth in this global process. But, the distribution of FDI is uneven in all over the world. Some countries are ahead and some are lag behind to attract foreign direct investment. The poorest countries are disappointing in attracting FDI. First, the study attempts to describe the overall background, trends and definition of FDI in recent years. Second, it describes the theoretical development and extensive literature review to find out the appropriate variables to deter the Foreign Direct Investment from different reputed studies, third, it focuses on the challenges, opportunities, investment and economic environment associated with the inflow of FDI in Bangladesh. The study explores the determining factors of FDI in Bangladesh. It investigates the significant determinants of a particular country in Inflow of Foreign Direct Investment. At the end, it draws the conclusion to promote the inflow of foreign direct investment with a view to take measures to strengthen the positive impacts and reduce the negative impacts of FDI.

Abdul Awwal Sarker (2007) says, Islamic banking as a new paradigm started in Bangladesh in 1983 with the establishment of the first Islamic bank “Islami Bank Bangladesh Limited”. After that, 6 more banks have been established in the country to reach the outcome of this welfare banking to the doorsteps of the people. In the past two decades, it has shown its great robustness in achieving the goal of Islamic Shariah. Observing the success, many conventional banks have been allured to open their own Islamic branches with the traditional ones. For a continued expansion of the Islamic Banking system, however, a number of issues that pose serious problems for Islamic banks will need to be carefully addressed. This paper discusses and makes recommendations on the more pertinent of these issues, viz., the development of an Inter-Bank Islamic Money Market, activation of Shariah Supervisory Boards, enactment of a full-fledged Islamic Banking Act, development of New Financial Products in line with the Islamic Shariah, and extension of investment in line with PLS framework, especially by constituting consortium or syndication by the Islamic banks. The paper suggests that micro, small, and medium enterprises (MSMEs) should get priority in the investment decisions of the Islamic banks. The paper also observes that the performance of the Islamic banks could be further improved by upgrading the quality of manpower by enhanced R&D spending and pro-poor investment decisions.

TALAT AFZA  &  ALI RAUF (2009) says, Extensive research has evaluated mutual fund performance in different financial markets which led to mixed results (Soderlind et al., 2000; Korkeamaki and Smythe, 2004), however, limited work has been done to evaluate Pakistani mutual funds. The purpose of this study is to provide guidelines to the managers of open-ended Pakistani mutual funds and benefit small investors by pointing out the significant variables influencing the fund performance. An effort has been made to measure the fund performance by using Sharpe ratio with the help of pooled time-series and cross-sectional data and focusing on different fund attributes such as fund size, expenses, age, turnover, loads and liquidity. The quarterly sample data are collected for all the open-ended mutual funds listed on Mutual Fund Association of Pakistan (MUFAP), for the years 1999-2006. The results indicate that among various funds attributes lagged return, liquidity and 12B-1 had significant impact on fund performance.

Salma Sairally (2009) says, In order to fulfill the Shari[ah objective of promoting the welfare of society, Islamic financial institutions (IFIs) are expected to consciously align their decisions and actions so that these are  ‘socially responsible’. An integral policy approach towards corporate social responsibility (CSR) would constitute assigning explicit social objectives to IFIs over and above their economic, legal, Shari[ah, and ethical responsibilities. Alternatively, the task of undertaking socially oriented projects could be argued as being a discretionary responsibility of IFIs, with the objective of CSR being sought merely as a peripheral practice. Recent debates on the evolution of the practice of Islamic finance highlighted the profit and economic efficiency motives of IFIs rather than a concern for socio-economic equity and welfare. A divergence between the economics literature on Islamic finance and the course taken by the practical field of Islamic banking and finance has been argued to be arising over the years. An assessment of this contention motivates this study. It seeks to evaluate the Corporate Social Performance (CSP) of IFIs, thus determining how socially responsible IFIs are in their objectives, actions and commitments as a socio-economic contributor to human welfare. It also seeks to learn from the experiences of secular ‘socially responsible’ investment (SRI) funds which promote ethical finance in the West.

 HASSAN RASHID (2007) says, In the wake of meteoric growth of banking industry in Pakistan, Islamic banking has captured 2 percent market share in only three-year period. To evaluate this progress, attempt has been made to measure and analyze the performance of Islamic banks in Pakistan during the 1999 and 2006.In this compendious analysis I have evaluated intertemporal and inter bank performance of Islamic bank (Meezan bank). To actualize this objective, analysis has been made in four major areas of financial ratios i.e. profitability, liquidity, risk and solvency and community development. Mean, standard deviation, T-test and F-test has been used to test the significance of the results of the analysis. The basic source of data for this paper is annual reports of banks. This study finds out that not only Islamic banks are less profitable than the conventional banks in Pakistan, but the basic modes of Islamic banking, Mudharabah and Musharakah, are not popular in Pakistan.

SULEMAN AZIZ LODHI & RUKHSANA KALIM (2006) says, Islamic banking generally referred to as interest free banking has been gaining popularity in the recent past.  The main pillar of Islamic finance is prohibition of interest. Unlike conventional banking where interest is an integral part of the banking system, Islamic banking avoids interest in all bank transactions [Samad and Hassan (1999)]. The banking system in Pakistan is undergoing a transition from conventional model of banking to the new concept of Islamic banking, based on principles of Islamic economics. The new system should not only eliminate interest-based transactions but also introduce the concept of “Zakah” a contribution to the poor [Molla, et al. (1988)].  The prohibition of Riba is based on the arguments of social justice and equality.

Professor Sudin Haron (2004) says, investigating the determinants of profitability has been one of the more popular topics among researchers in banking studies. For the past three de-cades, researchers have managed to examine and identify various factors that have a significant influence on bank’s profitability. All previous profitability studies, however, have been of conventional banks and until now there has been no study to determine the profitability of Islamic banks. This study examines the effects of the factors that contribute towards the profitability of Islamic banks. This study finds that internal factors such as liquidity, total expenditures, funds in-vested in Islamic securities, and the percentage of the profit-sharing ratio between the bank and the borrower of funds are highly correlated with the level of total income received by the Islamic banks. Similar effects are found for external factors such as interest rates, market share and size of the bank. Other determinants such as funds deposited into current ac-counts, total capital and reserves, the percentage of profit-sharing between bank and depositors, and money sup-ply also play a major role in influencing the profitability of Islamic banks.

Muhammad Shehzad Moin (2008) says, Islamic banking and finance in Pakistan started in 1977-78 with the elimination of interest in compliance with the Principles of Islamic Shari’ah in Islamic banking practices. Since then, amendments in financial system to allow the issuance of new interest-free instrument of corporate financing, promulgation of ordinance to permit the establishment of Mudaraba companies and floatation of Mudaraba Certificates, constitution of Commission for Transformation of Financial System (CTFS), and the establishments of Islamic Banking Department by the State Bank of Pakistan are some of the key steps taken place by the governments.

Abu Umar Faruq Ahmad & Professor A. B. Rafique Ahmad (2007) says, Microfinance services are commonly viewed for those traditionally considered non bankable. Microfinance tool can be adapted in every environment, based on the local needs and economic situation. In Australia, Islamic microfinance enterprises that mostly rely on their shareholders’ savings proved to be very successful in providing microfinance to their clientele. The study offers an introduction to the emergence and development of Islamic microfinance in Australia. It also studies the current realities of the Islamic financial system of Australia from the perspective of the theories of modern financial intermediation and Islamic microfinance contracting. It explains the key role of Islamic Microfinance Services Providers (IMSPs) in Australia in fulfilling the microfinance needs of Muslim community. The study concludes that IMSPs in Australia can proliferate in microfinance if they gradually advance towards undertaking more creative microfinance techniques to suit the financial needs of their clientele to facilitate their desired contribution in microfinance.

Abdus Samad & M. Kabir Hassan (1998) says, The study evaluates intertemporal and interbank performance of Islamic bank (Bank Islam Malaysia Berhad (BIMB) in profitability, liquidity, risk and solvency; and community involvement for the period 1984-1997. Financial ratios are applied in measuring these performances. T-test and F-test are used in determining their significance. The study found that BIMB is relatively more liquid and less risky compared to a group of 8 conventional banks. Our analysis of the primary data identified reasons why the supply of loans under profit sharing and joint venture profit sharing is not popular in Malaysia. 40% to 70% bankers surveyed indicated that lack of knowledgeable bankers in selecting, evaluating and managing profitable project is a significant cause.

UHOMOIBHI TONI ABURIME (2002) says, The broad aim of this paper is to introduce knowledge of Islamic banking theories and practices to banking and finance scholars and practitioners in Nigeria, as well as draw some useful insights  on Islamic banking in Nigeria. Prohibition of interest, low consumer lending, profit and loss sharing and high real sector investing are primary characteristics of Islamic banks. Islamic banks operate the three conventional deposit accounts. They also engage in investment financing, trade financing, lending, and other financial services. Differences between Islamic and conventional banks lie in prohibition of interest, emphasis on Islamic principles of morality, emphasis on collateral, certainty of deposits and returns, liquidity risk and solvency risk; while similarities between Islamic and conventional banks lie in profit-making objective and nature of banking services. Though there is a dearth of Islamic banks in Nigeria, Islamic banking has become a fast growing concept.  The emergence of full-fledged Islamic banks in Nigeria should be expected in the near future.

Chiara Segrado (2005) says, In his famous book  Wealth of Nations, “Adam Smith argued that participation in religious sects could potentially convey  two economic advantages to adherents (Anderson 1988, Noland).The first could be seen as a reputation signal: while the poor might look alike to potential employers, lenders, and customers, membership in a specific group could convey a reduction in risk associated with the particular individual and ultimately improve the efficient allocation of resources. Second, religious groups could also provide for extra-legal means of establishing trust and sanctioning miscreants in intergroup transactions, again reducing uncertainty and improving efficiency, especially where civil remedies for failure to uphold contracts were weak ”

 Humayon A. Dar & John R. Presley (2002) says, An imbalance between management and control rights is attributed as a major cause of lack of Profit Loss Sharing (PLS) in the practice of Islamic finance. Given this dichotomy, the agency problem gets accentuated, which may put the PLS at a disadvantage vis-à-vis other modes of financing. However, there is no theoretical reason to believe that PLS is inherently inefficient. In certain circumstances, this in fact may serve some important economic function.

 M.Suyanto (2005) says, The study evaluates interbank performance of Bank Muamalat Indonesia in profitability, liquidity, risk and solvency; and community involvement for the period 2000 – 2004. Financial ratios are applied in measuring these performances. F-test is used in determining their significance. “The study found that BMI is relatively more profit and commitment to community development, but less liquid compared to the conventional banks. BMI does not show (statistically) any difference in risk performance with the conventional banks.

The end of say investment of islami bank is very easy. Investment is made through different modes as per Islamic shariah. All activities are conducted on interest free system in accordance with Islamic shariah principles.

necessary steps in order to make maximum profit through investment service. On the basis of this study there are some suggestion & recommendation as under:

 Recommendations

IBBL set plan of 5% of their total investment for public sector but they

1. The success of a financial organization is largely depending on the service quality, promotional activity, personnel effort and distribution. While conducting the research it has been found that there are some problems in these sectors. The recommendations will help the islami banking to take has no investment in this sector. They can take initiative to invest in the sector according to their plan.
2. To make investment keeping the socio-economic requirement of the country in view;
3. To increase the number of potential investors by making profit-loss sharing investment i.e. in Musaraka & Mudaraba mode of investment.
4. The existing product of investment may be modified as need of the investor.
5. To reduce overdue & classified investment, the IBBL may take necessary step effectively.
6. IBBL may give the support to denationalization industrial program of the Government.
7. To invest in the industrial sector according to national priority;
8. IBBL may invest in electricity, gas, water and sanitary service sector;
9. Some development-oriented steps can be considered to make the investment marketing system effective.
10. IBBL should to target the micro investment inn the middle income to upper-middle investment client.

  Conclusion

Islami Bank Bangladesh Limited (IBBL) is the first private Bank in Southeast Asia. It is committed to run its entire activities based on Islamic Shariah. IBBL through its steady progress and continued success has, by now, earned the reputation of being one of the leading private sectors Bank of the country.

Investment Port-folio is not only the major portfolio of the Bank, it also contributes the greatest share of the total revenue generated from all assets of the Bank.

Besides, it is the investment function where the Bank generally accepts the greatest risk. The failure of a commercial bank is usually associated with the problems in the 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 investments, the bulk of their revenue is generated by it and the maximum risk is centered in it.

As such, this portfolio not only features dominant in the asset structure of the Bank, it is also critically important to the success of the Bank.

 I express my deep gratitude to the almighty Allah who gave me chance to complete internship report. I also have to put my heartfelt respect and gratitude for the kindness and cooperation that was provided to me to complete my internship assigned report on the topic of “A study on Mechanism of Islami Bank Bangladesh Limited” in preparing my report I have taken great assistance and support from some persons of Islami Bank Training And Research Academy (IBTRA) and VIP Road branch of IBBL.

Finally, sincere thanks again to my internship supervisor Md.Ashraful Islam Associate Professor of Department of Business Administration, Bangladesh Islami University for his appropriate suggestions, moral support and invaluable co-operation from time to time in completing the internship report.

Bangladesh is one of the largest Muslims counties of the world. The people of this country are deeply committed and devoted to Islam.  Islami bank Bangladesh limited was established in March 1983. the philosophy of Islami bank is to establish an egalitarian society based on the principles of social justice and equity. It is committed to conduct all banking and investment activities on the basis of interest free profit loss sharing system.

There are 03 (Three) system of investment like, Bai Mechanism, Ijarah mechanism & Shariah mechanism. There are different types of schemes IBBL offer for different types of people like Household Durable Scheme, Housing Investment Scheme. Real State Investment program, transport investment program, car investment scheme, smell business investment scheme, agriculture, implements scheme, micro industries scheme.

Every commercial bank or Islamic commercial bank of our country has a division named investment being which is related with banks core functional activities. The internship report titled “A study on Investment Mechanism of Islami Bank Bangladesh Limited”.

In the banking world IBBL is performing well as it has acquired the assets and human resources of higher quality. IBBL will be more effective in our economy by adopting modern financial technology by extending activities in human & social welfare. IBBL is operating in a three sector banking system, such as formal, non formal and voluntary sector. General Banking and investment activities on the basis of interest free profit loss sharing system.

Internship report has been produced as a part of field study on the topic title “A study on Investment Mechanism of Islami Bank Bangladesh Limited” Is prepared as a requirement of BBA program of our respective department, Bangladesh Islami University. This report will give a clear idea about the activities and operational strategies of investment of IBBL.