Study on Islami Bank Bangladesh Limited

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

Islamic banks render almost similar services to their customers conventional banks do. However, differences exist in administering incentives for deposits and charging for capital investments, in so far as techniques of calculating the incentive or the cost of the capital are concerned. Like a conventional bank, the Islami bank also accepts deposits from customers and advances investment. The bank invests its funds for short as well as long term deposits. The Islami bank also acts as a custodian of its customers and performs all foreign transactions on behalf of them. The IBBL perform mainly three different types of functions Banking services, Investment, and Foreign exchange services banking services comprise three regular types of operations related to acceptance of deposits in the different customers accounts as mentioned earlier, as well as, different transactional services to the customers, safekeeping of personal valuables and securities, collection of bills, agency services, etc. The bank lends its funds for the rapid growth and development of industrial sectors and the promotion of trade and commerce in the country. The bank also invests its funds in various socio-economic schemes such as, Rural Investment Scheme, Small Traders Investment Scheme, Doctors Investment Scheme, Small Transport Scheme, Small and Cottage Industry Project, Hawker’s Investment Scheme, Household Durable Scheme and Low Cost Housing Scheme. The third important function of the bank is to render services to customers regarding foreign exchange transactions plus services to its customers for import and export of different industrial, commercial, agricultural and other items.

 It includes: –

• Mobilization of deposits
• Receipts and payment of cash.
• Handling transfer transaction.
• Operations of clearing house
• Maintenance of accounts with Bangladesh bank and other bank.
• Collection of cheques and bill.
• Issue and payment of Demand Draft, telegraphic transfer and payment Order.
• Executing customers standing instructions.
• Maintenance of safe deposit lockers.
• Maintenance of internal accounts of the bank.

While doing all the above noted work IBBL issue cheques-book, Deposit account operating form, SS card, Ledgers, Cash book, Deposit account ledgers, preparation statement of accounts, Pass book, Balance of different accounts and calculates profits.

 IBBL offers to open the following account to the depositors:

• Al-Wadiah Current Account.
• Mudaraba Savings Account.
• Mudaraba term deposit Account. (3 month / 6 month / 12 month / 36 months term)
• Mudaraba Special notice Account
• Mudaraba Hajj Savings Account (1 year to 25 year term)
• Mudaraba Special savings (pension) Account (5 year to 10 year term)
• Mudaraba Savings bond Scheme (5 year & 8 year term)
• Mudaraba Foreign Currency Deposit Account.
• Mudaraba Monthly Deposit Account.
• Mudaraba Moharana Account.
• Mudaraba Waqf Cash Deposit Account

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

 Bai-Mechanism

• Bai-Murabaha
• Bai-Muajjal
• Bai-Salam
• Bai-Istisna

1.   Share Mechanism

• Mudaraba
• Musharaka

1. Ijara Mechanism

• Hire Purchase Under Shirkatul Melk
• Ijara Bil Bai

Islami Bank Bangladesh Ltd. being welfare oriented institution has now designed and implemented investment schemes keeping in view the needs of different sectors and various sections of people for their socio-economic uplift and to improve their quality of life. The special scheme is as follows:

• Household Durable Scheme
• Housing Investment Scheme
• Real Estate Investment Program
• Transport Investment Program
• Car Investment Program
• Investment Scheme for Doctors
• Small Business Investment Scheme
• Agriculture Implements Investment Scheme
• Micro Industries Investment Scheme
• Mirpur Silk Weavers Investment Scheme
• Rural Development Scheme

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:

• Opening letter of credit (LC) against commission for importing industrial, agricultural and other permissible items under Islamic Shariah and Import policy.
• Opening letter of credit on the principle of Mudaraba sale, on the principle of Musharaka sale and under wage earner scheme.
• Handling of export/import document.
• Negotiation of export / import document when discrepancy occurs.
• Financing in import under MPI (Mudaraba Post Import)
• Financing to export on profit or loss sharing.
• Handling Inward and outward remittance.

Automated Teller Machine (ATM), has unveiled the horizon of Electronic Banking of 21st Century. Through ATM, customers can avail non-stop online teller service without going to the specific branch of the member bank. They can withdraw or deposit cash or cheque as well as pay utility bills like BTTB, Grameen, AKTEL, City Cell Phone, DESA, WASA, TITAS etc. with the help of this modern computer controlled machine. The service is now offered by ETN and eleven member banks including Islami Bank Bangladesh Limited.

 Facilities

• ATM Card holders can withdraw cash from ATM at any time.
• Customers can make transactions from any of the machines with logo ‘E-cash’ installed at different places in the city.
• In course of time utility bills like WASA, TITAS and DESA etc can be paid through ATM.
• Now BTTB, Grameen, AKTEL, City Cell Phone bill can be paid through ATM.
• Now IBBL E-cash cardholders can be paid their monthly installment of Mudaraba Hajj Savings, MSS (Pension), Mudaraba Muhor Savings and HDS schemes of IBBL through ATM.
• The machines are located in convenient places where customers usually deal with money matters. Therefore, they can easily avoid the risk of cash carrying by using ATM Card.
• Customers may know their present balance at any time from the machine.
• In course of time, POS (Point of Sale) can be used.

Islami Bank Bangladesh Ltd. also provides some special services. These are as follows:

• Locker Service
• SWIFT
• SMS Banking
• IBBL i-Banking
• Online Banking

National and international ratings of IBBL

IBBL’s past performances have been evaluated by Bangladesh Bank, several credit rating agencies home & abroad and by the local press.

 International Press

“In the midst of a difficult Banking system known to be plagued by high non-performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm. However, IBBL provides a refreshing change and is, thus, a pleasant surprise. Although it does not command the market share as the 4 public sector banks, IBBL, which claims to have little interference in lending from the government, has nonetheless, managed to find a niche market of its own-says the ‘BANK ATCH’ a New York based international Credit Rating Agency in its January 30, 1998 issue. “As a market leader offering banking services based on the Islamic rule of Shariah, IBBL’s profitability trend has been quite impressive. The Bank’s ability to keep its return on asset (ROA) well above the industry’s average reflected its resilience to possible shocks in the banking system. Concerns over massive NPLs and under provisioning are common amongst local banks.  But this seems well resolved in IBBL. IBBL’s good performance and solid capital base have indeed provided refreshing change found within a banking system saddled and held back by huge NPLs” the above agency continued to comment in the same issue.

National Press 

“It is one of a few local banks according to CAMEL (Capital, Assets, Management, Earnings & Liquidity) rating made by the Bangladesh Bank. It holds the highest amount of liquidity among all banks and its ability to keep return on assets at 1.07 percent is well above the banking sector’s average of 0.33 percent”- The Financial Express, Dhaka commented in its issue of May 28, 1998.

“The Holiday” in its 29th August, 1997 issue carried out a report under the heading “Setting a precedence of sound banking” and commented “While the country’s banking system is burdened with bad debt portfolios and also suffers from a liquidity shortage, the Islami Bank Bangladesh Ltd. (IBBL) has created a unique precedence by improving its reserve and deposit positions substantially, making handsome profits, and offering attractive dividends to its share holders and depositors.”

 IBBL’s World rating

As per Bankers’ Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL’s world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition.

IBBL’s country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL’s Financial Statements of the year 2001.

Award and Prizes: International & National Perspective

IBBL was awarded for several times by international & national organisations. The Global Finance, a reputed London based quarterly magazine, awarded IBBL as the best bank of the country for the year 1999 and 2000.

IBBL has got the 2^nd prize of National Export Fare for its pavilion of Service Organisation in 1985.

Membership of Different Organization / Chamber

Local:

• Bangladesh Institution of Bank Management (BIBM)
• The Institution of Bankers Bangladesh (IBB)
• Bangladesh Association of Banks (BAB)
• Bangladesh Foreign Exchange Dealers’ Association (BAFEDA)
• Central Shariah Board for Islamic Banks of Bangladesh
• International Chamber of Commerce-Bangladesh

 Foreign:

• International Association of Islamic Banks (IAIB), Jeddah, K.S.A.
• Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain.
• General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain (IBBL is a member of its Executive Council)
• Society for Worldwide Inter-bank Financial Telecommunication (SWIFT)

2011   Year of the welfare and green banking

2010  Diversification of investment for achieving Islamic banking goal

2009  Diversification of investment

2008  Integrated banking for achievement

2007  Integrated banking trough online services

2006  Year of excellence in customer’ service

2005  Integrated banking with effective modern technology

2004  Promotion of quality investment and reduction of non-performing assets

2003  Quality investment for developing and growth

2002  Excellence in customer service with advance technology

2001  Effective shariah compliance and good governance

2000  Sustainable growth and development

 The Board of Directors consists of 14 non-executive members. The number of board members is within the maximum limit set by the central bank. The board is composed of experienced members with diverse professional experiences. The board members are independent who express their views and opinions free from any influence. The directors are also independent from management, business/other relationship of the bank that could materially interfere the activities of the bank. The decision making process and practices are based on free exchange of views to make effective directions for the management which is one of the key responsibilities of the board.

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

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

• To invest fund strictly in accordance with the principles of Islamic Shari’ah.
• To diversify its investment portfolio by the size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial, and agriculture.
• To ensure mutual benefit both for the bank and the investment-client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring thereof.
• To make investment keeping the socio-economic requirement of the country in view.
• To increase the number of potential investors by making participatory and productive investment.
• To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and uplift of the society.
• To invest in the form of goods and commodities rather than give out cash money to the investment clients.

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

1. Bai-Mechanism

• Bai-Murabaha
• Bai-Muajjal
• Bai-Salam
• Bai-Istisna
• Mudaraba
• Musharaka

2. Share Mechanism

3. Ijara Mechanism

• Hire Purchase Under Shirkatul Melk
• Ijara Bil Bai

Meaning of Murabaha

“Bai-Murabaha” means sale for an agreed upon profit. Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shari’ah and the Law of the land to the buyer at a cost plus an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit may be either a fixed sum or based on a percentage of the price of the goods.  

 Features of Murabaha

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

Steps of Bai-Murabaha

• First Step: The client submits a proposal regarding his requirements of the bank. The client sends a proposal with the specifications of the commodity to be acquired from the bank. The proposal also indicates details regarding the date, time and place of delivery as well as price and form of payment information. The bank responds by sending a counter proposal either accepting the buyer’s price or stipulating a different price.
• Second Step: The client promises to buy the commodity from the bank on a Bai-Murabaha basis, for the stipulated price. The bank accepts the order and establishes the terms and conditions of the transaction.
• Third Step: The bank informs the client (ultimate buyer) of its approval of the agreement to purchase.  The bank may pay for the goods immediately or in accordance with the agreement. The seller expresses its approval to the sale and sends the invoice(s).
• Fourth Step: The two parties (the bank and the client) sign the Bai-Murabaha Sale contract according to the agreement to purchase.
• Fifth Step: The Bank authorizes the client or its nominee to receive the commodity. The seller   sends the commodity to the place of delivery agreed upon. The client undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

 Rules of Bai-Murabaha

• It is permissible for the client to offer to purchase a particular commodity, deciding its specifications and committing itself to buy it on Murabaha for the cost plus the agreed upon profit.
• It is permissible that the mutual agreement shall contain various conditions agreed upon by the two parties, especially with respect to the place of delivery, the payment of a cash security to guarantee the implementation of the operation and the method of payment.
• It is permissible to stipulate the binding nature of the promise to purchase.  Thus, the agreement can only be satisfied by either fulfilling the promise to purchase or by indemnifying the bank for any losses incurred if the promise to purchase is not fulfilled.
• It is a condition that the bank purchases the requested commodity (first purchase contract) before selling it on Murabaha to the buyer. The contract in the first purchase must be settled, in principle, between the source seller and the bank.
• It is permissible for the bank to authorize a second party including the buyer to receive the commodity on its behalf. This authorization must be in a separate contract, particularly if the buyer is going to receive the goods on behalf of the bank. This is necessary to avoid any conflicts with the ensuing Murabaha sale.

Application of Bai-Murabaha

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

Meaning of Bai-Muajjal

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

Features of Bai-Muajjal

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

Some Observations

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

• Whether the goods that the client intends to purchase are marketable and have steady demand in the market.
• Whether the price of the goods is subject to frequent and violent changes.
• Whether the goods are perishable in short or in long-term duration.
• Whether the quality and other specifications of the goods as desired by the client can
• Be ensured.
• Whether the goods are available in the market and the bank will be in a position to purchase the Goods in time and at the negotiated price.
• Whether the sale price of the goods is payable by the client at the specified future 
• Date in lump sum or in Installments as per the agreement.

Meaning of Bai-Salam

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

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

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

Steps of Bai-Salam

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

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

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

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

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

 Rules of Bai-Salam

• It is a condition that the commodity known by both parties to the agreement.
• It is a condition that the quality of the commodity be monitored closely, as very little variation from specifications in the contract is allowable.
• It is a condition that the commodity be deliverable on the due date. If there is uncertainty about the ability to deliver the commodity at the due date, a Salam transaction is impermissible.
• It is permissible to draw a Salam sale contract for a total to be delivered increments on different specified future dates.
• It is a condition that the commodity is a liability debt. The seller is obliged to deliver the commodity when it is due, according to the specifications stipulated in the contract, whether or not his firm produces the commodity or obtained from other firms.
• Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before delivery on the due date.

Application of Bai-Salam

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

Definition of Istisna’a Sale

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

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

 Steps of Istisna’a Sale

• Istisna’a Sale Contract:  The Buyer expresses his desire to buy a commodity and brings a request to purchase the commodity to the bank. The method of payment, whether cash or deferred is set forth in the agreement. The bank agrees to deliver the commodity to the buyer at some agreed upon time in the future.
• Delivery and Receipt of the Commodity: The seller in the parallel Istisna’a agreement, delivers the commodity to the bank on the agreed upon date. The bank, in turn, delivers the product to the buyer of the original Istisna’a contract, in accordance with the original agreement. In this way, all parties fulfill their obligations to the contract.

Application of Istisna’a Sale

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

 Definition of Mudaraba

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

 Steps of Mudaraba

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

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

Rules of Mudaraba

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

Meaning of Musharaka

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

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

Features of Musharaka

• The capital in Musharaka comes from all the partners.
• In Musharaka, all partners can participate in the management of the business and   can work for it.
• Profit is distributed as per pre-agreed ratio.
• Loss shared as per capital ratio.
• The liability of the partners in Musharaka is normally unlimited. Therefore, if the liabilities of the business exceed its assets and the business goes in liquidation, all the liabilities exceeding liabilities shall be borne pro rata by all the partners.
• In Musharaka, as soon as the partners mix up their capital in a joint pool, all the assets of the Musharaka become jointly owned by all of them according to the proportion of their respective capital, therefore each one of them can benefit from the appreciation in the value of the assets, even if profit has not accrued through sales.

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

Definition of Shirkatul Melk

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

 Definition of Ijara

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

Definition of Sale contract

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

Stages of Hire Purchase under Shirkatul Melk

Hire Purchase under Shirkatul Melk Agreement has got three stages:

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

Important Features

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

Definition of Ijarah

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

 Elements of Ijarah

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

1)      The wording: This includes offer and acceptance.

2)      Contracting parties: This includes a lessor, the owner of the property, and a lessee, the party that benefits from the use of the property.

3)      Subject matter of the contract: This includes the rent and the benefit.

• The lessor (Mujjir) – The individual or organization who leases out/rents out the property or service is called the lessor.
• The lessee: (Mustajir) – The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir).
• The Benefit (Maajur) – The benefit that is leased/rented out is called the benefit (Maajur).
• The rent (Aj’r or Ujrat) – The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat or Aj’r.

 Rules for Ijarah

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

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

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

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

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

• Trade License photocopy (for proprietorship);
• Abridged pro forma income statement;
• Attested copy of partnership deed (for partnership business);
• Prior three (03) years’ audited balance sheet (for joint stock company);
• Prior three (03) years’ business transactions statement for the musharaka/mudaraba investment;
• Abridged pro forma income statement for the musharaka/mudaraba investment;
• Attested copy of the Memorandum of Association (MOA) & Articles of Association (AOA) for the joint stock company;
• Attested copy of the Tax Identification Number (TIN)- including final assessment;
• Tenders of the proposed assets (in case of HPSM);
• Detailed summary of the sundry debtors and creditors (including both time & schedule);
• Summary of the personal movable & immovable assets; and others.

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

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

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

• Company’s/Client’s Information.
• Owner’s Information.
• List of Partners/Directors.
• Purpose of Investment/Facilities.
• Details of Proposed Facilities/Investment.
• Break up of Present Outstanding.
• Other Liabilities of the Client/Group.
• Previous Banker’s Information.
• Details of Sister/Allied Concerns.
• Allied Deposit as on.
• Business/Industry Analysis.
• Relationship Analysis.
• Asset-Liability position of the client as per Audited Balance Sheet.
• Working Capital Assessment.
• Risk Grade.
• Particulars of the go down for storing MPI/Murabaha goods.
• Insurance Coverage.
• Audit Observation.
• Security Analysis.

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

 Investment Limit in million.

• Mode & amount of investment.
• Purpose of investment.
• Period of investment.
• Rate of return.
• Securities:
•  Primary- Stock of goods is the primary security.

          i.      LC/Bills: Related Documents.

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

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

 Cash/Goods–

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

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

   Collateral: Immovable properties.

Cash/Goods security

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

 Table 10: Cash / Good Security

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

• Tax Payment Certificate.
• Stock Report.
• Trade License (renewal).
• VAT certificate
• Liability statement from different parties.
• Receivable from different clients.
• Other assets statement.
• Aungykar Nama.
• Ghosona Potra.
• Three (03) years net income & business transactions.
• Performance report with the bank.
• Account Statement Form of the bank.
• Valuation Certificate
• Particulars of the Proposal.
• Particulars of the Mortgagor.
• Particulars of the Properties.
• Outstanding liability position of the bank.
• CIB (Credit Information Bureau) Report.

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

Monitoring & Recovery stage

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

The Bank, since its inception, has been working for the uplift and emancipation of the underprivileged, downtrodden and neglected sections of the populace and has taken up various schemes for their well being. The objectives of these schemes are to raise the standard of living of low-income group, development of human resources and creation of avenues for self-employment.

 Islami Bank Bangladesh Limited has introduced Household Durables Investment Scheme, which has already created great enthusiasm among the people and received tremendous response from them. Objectives are to assist the service holders with limited income in purchasing household articles such as:

Objectives:

• To assist the service holders with limited income in purchasing household durables.
• To assist the fixed income group in raising the standard of living.  
• To create opportunity for the service holders to enjoy the benefit of modern and sophisticated living and at the time lead a decent and honest life.

 A good number or newly graduated doctors from Medical Colleges are unemployed. Many of the medical graduates are waiting for job because the opportunity for Government service is limited. If these young doctors could be self-employed by extending investment facilities, they could make modern facilities available at the door-steps of rural people.

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

Objectives:

• To provide investment facilities for establishment of chambers, clinics, pharmacies and procurement of medical equipment by the unemployed medical graduates and thus to provide self-employment.
• To assist newly passed unemployed medical graduates to establish clinics by way of formation of groups by 5 doctors.

• To assist experienced and established physicians to procure improved and modern medical equipment and thus to improve the standard and techniques of treatment.

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

Bangladesh a third-wood developing country is rich in natural and human resources. In spite of vast possibilities, the majority people of the country live in hardship-below poverty tapped, explored and exploited. Physical labor is their only means of earning. A large segment of this populace is active youth force. Many of them are efficient, intelligent and energetic with initiative & drive and have courage to tale risks. But they cannot uplift their socio-economic condition due to poverty, lack of financial support and other required facilities.

Aims and objectives:

• To expand investment facilities for the small traders and entrepreneurs in urban and rural areas with a view to raise their level of income and to improve their quality of life.
• To inspire and encourage unemployed youths to establish small business enterprises and thereby to create opportunities for self-employment for ensuring social justice and welfare of the people in large scale.
• To extend investment facilities to those small entrepreneurs who could not avail any credit or investment facilities from any bank or financial institutions or otherwise deprived of from such investment facilities.  

 One of the basic human needs is to have a house to live in. A house is in an abode of peace and happiness. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy

Objectives:

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

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

 Under this scheme, investment in being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport with simple and easy terms and conditions. The bank is also extending investment facilities to multinational companies, established, business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.

Aims and Objectives:

• To assist in the development of communication system of the country.
• To help overcome the existing transportation problem.
• To assist solvent service-holders and professionals having fixed income for acquisition of private cars and thus to help them to improve their professional efficiency and the standard of living.

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

Objectives:

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

 Islami Bank Bangladesh limited (IBBL) envisages an economic system based on equity and justice. Taking into consideration that majority of the population below poverty line lives in rural Bangladesh, the Bank has devised a Rural Development Scheme (RDS) with a view to creating employment opportunity for them and alleviates their poverty through income generation activities.

The IBBL through its RDS project has been implementing integrated programs for the landless poor, aged laborers and marginal farmers aimed at meeting their basic needs and promoting their comprehensive development. Consciousness among the poor needs should be enhanced so that they can lift their position in the socio-economic structure of the country. In order to consolidate their economic base, invested money should be used in income generating activities so the poorer section of the population can become self-reliant. RSD works for the realization of that objective.

 Objectives:

• To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.
• To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.
• To alleviate rural poverty through integrated rural development approach.
• To extend investment facilities for rural housing, keeping in view the needs of housing facilities of the rural dwellers.
• To provide educational services and safe drinking water, sanitation & Medicare facilities to the down trodden people.

 Bangladesh is predominantly an agricultural country with vast majority of people living in rural areas. Most of our people for their living are dependent on agriculture. Agriculture still contributes the lion share of the gross domestic product. But we could not as yet become self-sufficient in food production. We still import a bulk quantity of food grains from abroad to meet the deficit. We must modernize our agriculture and establish more and more industries in order to minimize imports

The Bank has introduced “Agriculture Implements Investment Scheme” to provide power tillers, power pumps, shallow tube-wells, thrasher machine etc. On easy terms unemployed youths for self-employment and to the farmers help augment production in agricultural sector.

Objectives:           

• To create opportunities for self-employment of un-employed rural youths.
• To help farmers to augment agricultural production.
• To assist in the introduction and use of modern technology in the agricultural sector.
• To play auxiliary role in achieving self-sufficiency in food production.

Islami Bank Bangladesh Ltd. has been appreciably participating in this direction by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch “Micro Industries Investment Scheme” through its Branches.

Objectives:  

• To create income generating employment opportunities through establishment of new micro industries and BMRE of existing units by providing necessary investment facilities.
• To encourage establishment of micro industries in different areas of the country by potential entrepreneurs like educated unemployed youths, technically qualified and skilled /semi skilled persons.
• To encourage wage-earners to utilise their hard-earned money in the country by providing additional investment needs for establishment of micro -industries.
• To provide investment facilities for self -employment of the unemployed and under employed persons having education, knowledge, skill, experience and initiative to undertake micro industrial enterprises.

As 31^st December 2010, IBBL’s total deposit stood at TK 291,347 million as against TK 243,653 million on December 2009. Deposit has increased by TK 47,694 million during last one year their achievement in the year is 97% of the target of TK 300,000 million. Growth rate in 2010 is 20% over 2009 with market share of 8% in banking industry.

In 2010 they mobilize fresh deposit of TK 47,694 million and added 4, 77,464 accounts in customer base. Total deposit of the bank equals to the total deposit of 7 banks. The volume of deposit increased in the last year equals to a mid size bank meaning another new bank has added to IBBL in 2010.The table and graph of the historical performance of deposit are given below:

The entire nation experienced sluggish growth in investment in 2010 for insufficient supply of electricity, gas, volatile price level etc. investment performance of IBBL in the adverse environment, Alhhamdulillah evidenced great achievement in implementing the annual development plan, 2010 including diversification of investment and investment in priority sectors e.g. agriculture, power generation, real-estate etc. and also improving quality of investment towards attainment of Islamic banking goals i.e. Maqasid Al-Shariah in the context of the year theme “Diversification of Investment for Achieving Islamic Banking Goal.”   

As on 31^st December 2010, total investment of IBBL stood at TK 292084 million as against TK 239000 million on December, 31^st last year. Total investment has increased by 53084 million during the last one year. Their achievement in the year is 101% of the target of 288000 million. Growth rate in 2010 is 23% over 2009 with market share of 8% in banking industry.

In 2010 IBBL deployed additional investment of TK 53084 million and inducted 41369 clients in their customer base. They are confident that they could spread the plat form to diversify their investment in coming years for achieving long term goal of IBBL in line with their perspective plan. The table and graph of the historical performance of investment are given below:

As on 31 December 2010, our total overdue stood at TK.5,008 million as against TK.5,650 million on December, 31 last year i.e. our total overdue has reduced by TK.642 million during last one year. IBBL’s achievement in the year is 150% of the target of tk.7, 500 million. Net Reduction rate in 2010 is (11%) over 2009 brining the same to 1.79% of total investment. Reschedule investment reduced to 9.16% from tk.13.02% while recovery of rescheduled investment increased to 70% meaning substantial improvement of asset quality. The table and graph of the overdue in last five years to total investment are given below:

 General investment stood at TK 279,195 million as on 31^st December as against TK 227,863 million as on 31^st December 2009 i.e. net additional investment of TK 51,332 million has been deployed during the year. Achievement is 104% of the Ceiling of TK 268,000 million with 23% growth over 2009. Percentage of general investment to total deposit recorded at 95.84%. Investment up to TK 500 million stood at 44.27% in December 2010 as against 56.00% allocated in the perspective plan, which was 41.06% in 2009 showing a net increase of 3.21 recorded up to December 2010. On the other hand investment above TK500 million stood at 55.73% in December 2010 as against 44.00% allocated in the perspective plan, which was 58.94% in 2009 showing a net decrease of 3.21% recorded up to December 2010. The table and graph of the performance of general investment (last five years) are given below: 

 There are three modes of investment in IBBL. Investment under Bai, Ijara (HPSM), Share mode, purchase and negotiation and Quard stood at 60.44%, 30.49%, 1.01%, 6.59% and 1.47% as against 58.83%, 34.33%, 0.28%, 5.24% and 1.31 in 2009 respectively. Allocation as per perspective plan in mode wise is 59.00% for Bai, 34.50% for Ijara(HPSH), 1.00% for share, 4.00 for purchase & negotiation. The table and graph of the performance of mode wise investment (last five years) are given below:

Investment in Agriculture and Agro-based industry stood at 6.83% in 2010 as against 3.01% in 2009. This sector recorded a net increase by 3.82% in 2010 over 2009. Allocation for 2010 as per perspective plan in this sector is 5.70% of total investment. The table and graph of the performance of agriculture and agro-based industry (last five years) are given below:

Industrial investment stood at 49.29% in 2010 as against 52.05% in 2009. This sector recorded 2.75% decrease in 2010 over 2009. Allocation in this sector for 2010 as per perspective plan is 47.30% of total investment. The table and graph of the performance of industrial investment (last five years) are given below:

Figure: Last five year performance of Industrial investment

 Investment in trade stood at 29.71% in 2010 as against 33.07% in 2009. This sector recorded a net decrease of 3.36% in 2010 over 2009. Allocation in this sector for 2010 as per perspective plan is 31.00% of total investment. The table and graph of the performance of investment in trade (last five years) are given below:

 Real estate Investment stood at 5.23% in 2010 as against 4.01% in 2009. This sector recorded a net increase of 1.22% in 2010 over 2009. Allocation in this sector for 2010 as per perspective plan is 7.00% of total investment. The table and graph of the performance

Transport Investment stood at 1.74% in 2010 as against 1.63% in 2009. This sector recorded a net increase of 0.11% in 2010 over 2009. Allocation in this sector for 2010 as per perspective plan is 2.50% of total investment. The table and graph of the performance of transport investment (last five years) are given below:

 RDS Investment stood at 1.83% in 2010 as against 1.65% in 2009. This sector recorded a net increase of 0.18% in 2010 over 2009. Allocation in this sector for 2010 as per perspective plan is 1.60% of total investment. The table and graph of the performance of RDS investment (last five years) are given below:

 SME Investment to general investment stood at 28.10% in 2010 as against 25.08% in 2009 and 19.43% in 2008 showing a net increase of 3.02% in 2010 over 2009. This sector recorded growth of 37% in 2010, 54% in 2009 and 64% in 2008 as against overall investment growth of 23% in 2010, 19% in 2009, 24% in 2008.

Classified investment decreased by TK 553 million (10.92%) from TK 5063 million in 2009 to tk.4, 510 million in 2010. The percentage of classified investment to total general investment stood at 1.62% in 2010 as against 2.22% in 2009. The table and graph of the performance of classified investment (last five years) are given below:

 Rescheduled investment reduced by tk.3719 million (12.69%) from tk.29304 million in 2009 to tk.25585 million in 2010 representing 9.16% to total General Investment. Tk.5866 million recovered against Rescheduled investment in 2010 as against tk.3443 million in 2009  tk.1618 million in 2008  tk1066 million in 2007 and tk.1021 million in 2006.

Income from investments is accounted for on accrual basis except investments under Musharaka, Mudaraba & Bai modes of Investment. Income in case of Mudaraba, Musharaka, and Bai is accounted for on realisation basis. Besides, fees and commission income are recognized when earned. The Bank does not charge any rent during the gestation/interim period of investment against Hire Purchase under Shirkatul Melk (HPSM) mode of Investment but it fixes the sale price of the assets at a higher level in such a way to cover its expected rate of return. Such income is recognised on realisation basis. The table and graph of the income from investment (last five years) are given below:

Operating profit crossed 11,000 million.

• 20 new branches added.
• 41,369 investment clients inducted iun the year.
• Around 5 lac deposit accounts opened.
• Islamic Bank Securities Limited (IBSL) started operation since April 2010.
• Received 05 AD license & 03 offshore Banking Unit (OBU) license.
• 157 ATM were opened including IBBL’s own ATM.
• Business discretion was enhanced/upgrade substantially.
• New pay scale made effective form June 2010.
• MC, ALCO, task force & others committees have been strengthened.
• Received award from Global Finance, ICICI Bank, Bankers Forum etc.

 To enhance capacity and capability of the employees of the bank to handle investment operations through imparting training.

• To arrange training and motivational programs for investment clients and their officials on Islamic banking including legal issues.
• To develop new entrepreneurs.
• To induct best of the best investment clients, check exodus of good investment clients.
• To launch dynamic camping to hunt good investment clients from the market.
• To improve each and every employee of the bank to induct new good business. Each and every employee will induct at last one good investment clients (excluding RDS & MEIS) in each month.
• To be aware of over-financing and under financing and to give prompt decision on investment proposal.
• To have a clear picture of investment diversification and opportunities in the market in terms of size, sector, geographical area, economic purpose, security-wise.
• To maintain asset quality particular in RMG and textile sector.
• To obtain proper primary and collateral securities and ensure proper supervision, monitoring and control of investment.
• To keep our investment cost minimum to offer competitive and lower rates and facilities to the clients.
• To give due consideration to high risk, high return and low risk, low return investment proposals.
• To encourage investment involving less risk weight.
• To adopt modern technology in the investment operations.
• To deploy mobilized fund, as far as possible, locally by the concerned Branch.
• To observe strictly the single party exposure rule.
• To prefer syndication for large investment.
• To give importance to increase Agriculture and SME investment, particularly investment in various development, employment generation & poverty alleviation schemes like Real Estate, Transport, Doctors, Women Entrepreneurs, RDS, Small Business, Agriculture Implements, Rural Housing, HDS etc.
• To take effective steps to recover non-performing investments, particularly Bad & Doubtful and written of investment.
• To give due consideration to maintain a balanced investment portfolio of all branches in terms of size, economic purpose, area, mode and security.
• To increase investment at environment friendly solar energy/Bio gas, Effluent Treatment Plant (ETP), Biological Processing Plant, Wastage Refinery Plant and discourage investment in environment polluting industry.
• To enlighten the manpower with uptodate legal knowledge.
• To ensure proper documentation with the help of law Department, if necessary.
• The year theme of the bank for 2011 “Year of Welfare and Green Banking.” Which is line with the objectives of Islamic Economics, Maqasid Shariah as well as ethical & sustainable Banking? This is no doubt, a challenging task. By the Grace of Almighty Allah, concerted efforts, constant monitoring, continuous supervision of all concerned and advice & guidance of the policy makers, they shall be able to address the challenges.

Every organization has some internal Strengths and Weaknesses as well as they have also some external opportunities and threats. To survive in world competitive market, every organization should emphasize on SWOT analysis that help to take proper decision and to achieve the ultimate goal of the organization. As an internee of IBBL New Market Branch, I have tried to find out what are their Strengths and Weakness as well as opportunities and threats are stated below:

 Adequate Finance

Islami Bank Bangladesh Ltd. has adequate finance. That is why; they need not to borrow money from Bangladesh Bank or any other financial sources.

 More funds for Investment

 For adequate financial ability, they can provide more investment facility to their clients compared to other Banks.

Honest and Reliable Employees

All of the employees of Islami Bank are honest and reliable. They are always devoted to their clients for better services.

 People’s Perception About Bank

 Most of the people of Bangladesh are Muslim and they are trusted in superior performance of IBBL as a Shari’ah based-Islamic Banking.

Centralized Decision Making

The decision making of the bank is too much centralized. No decision is made without the authorization of the head office.

 Lack of up-to-date equipments

IBBL has lack of modern technologies and equipments. Most of the Branches are not well decorated. Number of ATM Booth is not sufficient compared to their vast banking operation.

Deficiency of expertise

Many of the employees are unskilled and from them, superior performance is unexpected to survive in the national economy as well as in the world economy.

 Lack of Advertising

IBBL has lack of advertising like other banks. They don’t telecast any attractive advertisement in the media.

 Most of employees from other than business background

The employees who come from business background has much sense about investment opportunity, customer perception etc.

 Innovative and modern customer service

This bank can introduce more Innovative and modern customer services to its customers to survive better in the competition market

 Retaining vast customers

IBBL has a vast opportunity to hold most of the customers by extending its banking operation all over the country as most of the people of Bangladesh are religious minded.

Special image

IBBL has a great opportunity to save the county’s poor people from being taking loan from different NGOs or few banks with higher interest rate.

 Poverty alleviation

 IBBL has created special image to the people as a more reliable bank. People believe that if they keep their money in Islami bank it will be more secured than other banks.

 SME Financing

SME financing is opening new door IBBL to invest and to comply with its mission and vision.

 Capital Market Operations

Islami Bank Securities Limited is going to be launch shortly which is a huge opportunity for IBBL to maximize its profit.

 Rules and regulations

 Rules and regulations of Bangladesh Bank defers with Islamic Banking System. So they have to face various problems to operate their activities according to the Islamic Shari’ah.

Islamic Banking operation introduced by conventional Banking

Conventional banks have started to open their Islamic Banking operation shortly.

 Absence of Shari’ah compliant Call Money Market

In the money market of Bangladesh, there is no call money market for Islamic banks. So in time of liquidity crisis they cannot borrow money from another bank.

Lower salary structure

Now many of the Banks are hiring young talent and expertise employees with higher remuneration where IBBL could not hire skilled manpower because of lower salary structure compared to other banks.

Recommendations

 Islamic banking system of Bangladesh, as a new paradigm of banking, has been able to establish its own presence with a continued expansion geared by increasing acceptance by the people. To continue this dynamic expansion, the first action that deserves immediate attention is the promotion of the image of Islamic banks as PLS banks. Strategies have to be carefully devised so that the image of Islamic character and solvency as a bank is simultaneously promoted. The following policy actions are suggested for immediate application:

• Islamic banks should clearly demonstrate by their actions that their banking practices are not guided merely by profitability criterion. They must also establish that their practices ensure efficient allocation of resources and provide true market signals through PLS modes.

• Pilot schemes in some selected areas should be started to test innovative ideas with profit-loss-sharing modes of financing as major component. This type of scheme may be experimented both in urban and rural areas. This endeavor will serve as a ready reference that Islamic banks are in the process of transforming themselves as PLS banks. Side by side, they will gain experience from real situation as to the problems that might come up while implementing profit-loss-sharing modes on trial and error basis.

• IBBL needs to recruit skilled human resources which can turn the bank ahead.

• As the Islamic banks have to promote their distributional efficiency from all dimensions together with profitability, Islamic banks, step by step, have to be converted into profit-loss-sharing banks by increasing their percentage share of investment financing though PLS modes. The Islamic banks, to do that, can be selective in choosing clients for financing under PLS modes. Islamic banks should immediately take measures to revert the trends of resource transfer from both low-income groups to high-income groups and from rural to urban areas. This is extremely important from the viewpoint of their banking philosophy as well as for their tacit commitment for distributional equity. The Islamic banks should also actively consider utilization of rural potentials from both efficiency and equity grounds in the context of the present day socio-economic conditions of Bangladesh.

• The Islamic banks can improve their allocate efficiency by satisfying social welfare conditions in the following manner. First, they should allocate a reasonable portion of their investible funds to social priority sectors such as agriculture (including poultry and fishery), MSME (micro, small and medium enterprises) sector, and export-led industries like garments, shrimp cultivation etc. Secondly, when the percentage shares of allocation of investible funds are determined among the sectors of investment financing, profitability of projects should be the criterion for allocating investment funds. The criterion would be best satisfied if more and more projects were financed under PLS modes.

• It is assumed that in the face of competition with interest-based institutions, a critical initial mass of the hybrid type is necessary not only for the survival but also ensuring efficiency of the PLS in a heterogeneous environment. The recent financial innovations may be tried to suit the need of the integrated global Islamic financial markets.

• Islamic ethics supports a poverty-alleviation strategy that is based on the principle of promoting economic growth with productive equity. Islamic banks should act as ‘Banks for Enriching the Poor’ (or as Rural Poor Bank and Urban Poor Bank), because the current collateral-based system for efficiently financing business/projects kicks the poor out of participation in economic activities. Banning interest should have the illuminating effect of allowing greater access by population to finance, and hence lead to a better income distribution, the ultimate objective of the glorious Shari’ah.

• Determination of profit and loss in profit-loss sharing arrangements and treatment of Costs and reserves in such accounting is a pertinent issue to be addressed with utmost importance and priority. It may be mentioned that if the Islamic financial system is to become truly liquid and efficient, it must develop more standardized and universally (or at least widely) tradable financial instruments. The development of a secondary financial market for Islamic financial products is crucial if the industry is to achieve true comparison with the conventional system. It must also work hard to develop more transparency in financial reporting and accounting. Development in the wholesale and especially inter-bank money markets will be the key to Islamic finance growing outside its current little sphere of influence, and becoming a truly robust and dynamic banking system alongside the traditional system.

Conclusion

Islam is a complete way of life and Allah’s guidance extents into all areas of our lives. Islam has given detail regulations for our economic life. Therefore, Islami Bank Bangladesh Limited (IBBL) is trying to establish the maximum welfare of the society by maintaining the principles of Islamic Shari’ah which is based on “Quran” and “Sunnah”. Since 1983, IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shari’ah. Profit earning is not the only motive and objective of the bank’s investment policy rather emphasis is given in attaining social good and in creation employment opportunities.

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

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

Islamic banking system of Bangladesh, as a new paradigm of banking, has been able to establish its own presence with a continued expansion geared by increasing acceptance by the people. To continue this dynamic expansion, the first action that deserves immediate attention is the promotion of the image of Islamic banks as PLS banks. Strategies have to be carefully devised so that the image of Islamic character and solvency as a bank is simultaneously promoted. The following policy actions are suggested for immediate application:

• Islamic banks should clearly demonstrate by their actions that their banking practices are not guided merely by profitability criterion. They must also establish that their practices ensure efficient allocation of resources and provide true market signals through PLS modes.

• Pilot schemes in some selected areas should be started to test innovative ideas with profit-loss-sharing modes of financing as major component. This type of scheme may be experimented both in urban and rural areas. This endeavor will serve as a ready reference that Islamic banks are in the process of transforming themselves as PLS banks. Side by side, they will gain experience from real situation as to the problems that might come up while implementing profit-loss-sharing modes on trial and error basis.

• IBBL needs to recruit skilled human resources which can turn the bank ahead.

• As the Islamic banks have to promote their distributional efficiency from all dimensions together with profitability, Islamic banks, step by step, have to be converted into profit-loss-sharing banks by increasing their percentage share of investment financing though PLS modes. The Islamic banks, to do that, can be selective in choosing clients for financing under PLS modes. Islamic banks should immediately take measures to revert the trends of resource transfer from both low-income groups to high-income groups and from rural to urban areas. This is extremely important from the viewpoint of their banking philosophy as well as for their tacit commitment for distributional equity. The Islamic banks should also actively consider utilization of rural potentials from both efficiency and equity grounds in the context of the present day socio-economic conditions of Bangladesh.

• The Islamic banks can improve their allocate efficiency by satisfying social welfare conditions in the following manner. First, they should allocate a reasonable portion of their investible funds to social priority sectors such as agriculture (including poultry and fishery), MSME (micro, small and medium enterprises) sector, and export-led industries like garments, shrimp cultivation etc. Secondly, when the percentage shares of allocation of investible funds are determined among the sectors of investment financing, profitability of projects should be the criterion for allocating investment funds. The criterion would be best satisfied if more and more projects were financed under PLS modes.

• It is assumed that in the face of competition with interest-based institutions, a critical initial mass of the hybrid type is necessary not only for the survival but also ensuring efficiency of the PLS in a heterogeneous environment. The recent financial innovations may be tried to suit the need of the integrated global Islamic financial markets.

• Islamic ethics supports a poverty-alleviation strategy that is based on the principle of promoting economic growth with productive equity. Islamic banks should act as ‘Banks for Enriching the Poor’ (or as Rural Poor Bank and Urban Poor Bank), because the current collateral-based system for efficiently financing business/projects kicks the poor out of participation in economic activities. Banning interest should have the illuminating effect of allowing greater access by population to finance, and hence lead to a better income distribution, the ultimate objective of the glorious Shari’ah.

• Determination of profit and loss in profit-loss sharing arrangements and treatment of Costs and reserves in such accounting is a pertinent issue to be addressed with utmost importance and priority. It may be mentioned that if the Islamic financial system is to become truly liquid and efficient, it must develop more standardized and universally (or at least widely) tradable financial instruments. The development of a secondary financial market for Islamic financial products is crucial if the industry is to achieve true comparison with the conventional system. It must also work hard to develop more transparency in financial reporting and accounting. Development in the wholesale and especially inter-bank money markets will be the key to Islamic finance growing outside its current little sphere of influence, and becoming a truly robust and dynamic banking system alongside the traditional system.

Islam is a complete way of life and Allah’s guidance extents into all areas of our lives. Islam has given detail regulations for our economic life. Therefore, Islami Bank Bangladesh Limited (IBBL) is trying to establish the maximum welfare of the society by maintaining the principles of Islamic Shari’ah which is based on “Quran” and “Sunnah”. Since 1983, IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shari’ah. Profit earning is not the only motive and objective of the bank’s investment policy rather emphasis is given in attaining social good and in creation employment opportunities.

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

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