Internship Report On General Banking, Investment & Foreign

Exchange operations of Islami Bank Bangladesh Ltd.

Submitted To

Mrs. Mahmuda Sultana Course-Coordinator (Training) SPO & Faculty member, IBTRA

Submitted By:

Nazma Haque Snigdha Rajbongshi Jasmin Akhter

University of Dhaka University of Dhaka International Islamic University of Chittagong Stamford University

Shanzida Rahman


Date of Submission: 27.12.2010

Letter of Transmittal
27th December 2010


Mrs. Mahmuda Sultana

Course-Coordinator (Training)

SPO & Faculty member, IBTRA

Due to various constraints. Nazma Haque Snigdha Rajbongshi Jasmin Akhter Shanzida Rahman . Sincerely yours. Investment & Foreign Exchange operations of Islami Bank Bangladesh Ltd. With due respect we do hereby submit our Internship Report titled “General Banking. We have tried our best to make this report as comprehensive and informative as possible within the time allowed for us. there may be some mistakes for which we beg your apology. as well as. Jatrabari Branch.” Honorable Madam. Investment & Foreign Exchange operations of Islami Bank Bangladesh Ltd.”.Subject: Submission of report on “General Banking. We would like to express our deepest gratitude to you for providing us with such an opportunity. interesting and rewarding experience.B.A program. Dhaka. application of theoretical knowledge. which was assigned to us as an integral part of our course requirements in B. As we have been working in IBBL. Preparing this report has been extremely challenging. Now we are able to understand and utilize the key terms of Islamic Banking in banking sector. thus. Now it is very easy for us to interpret any impact and its effect on bank. it is a very good opportunity for us to prepare the report properly out of practical experiences & empirical data.

Senior vice President of IBBL and Branch Manager. SPO & Faculty member IBTRA for giving us the opportunity to know about the Islamic Banking in Bangladesh. who kindly provided us the information and other handouts. Jatrabari Branch. We express a deep debt of appreciation & gratefulness to the employees of IBBL. Nasiruddin.Md. voucher etc. Mahmuda Sultana. Jatrabari Branch. who gave us necessary information and excellent guidance to prepare this internship report. SPO & Jb. . The management of this Branch had been extremely helpful in providing necessary documents. At the very outset. SVP & Course Director (Training) IBTRA. Course-Coordinator. Hedayet Ullah. We also express our heart full thanks to all the faculty members of Islami Bank Training and Research Academy (IBTRA) specially Dr.Monowarul Islam Chowdhury. which helped us to prepare this Internship report.Acknowledgement First of all we remember Almighty Allah for making us successful to prepare this report. we would like to thank Mrs. Senior Officer of this branch. We are grateful to the Islami Bank Bangladesh Limited authority that has helped us by updating desired information at their website.Md. AD (Training) and other faculty members as well as the employees from top to bottom of IBTRA. Janab Md. and her support and direction it would never be possible for us to make this report. Especially we cannot but mention Rana Mohammad Raihan. Jb. statements. Mahmood Ahmed. annual report. We talked all the concerned officers of the Islami Bank Bangladesh Limited.

TABLE OF CONTENTS Executive Summary Page No.Serial No. 1-2 3 4 4 5 6 6 7 8-10 11-13 Chapter 1 Introduction of the Report • • • • • • • Rational of the study Objective of Report Methodology Scope of the study Limitation Objective of Islamic Banking Basic properties of Islamic Banking Islamic Banking In Bangladesh Chapter 2 About the organization • • • • • • Corporate Information Vision of IBBL Mission of IBBL Special feature of IBBL Management of IBBL Financial Performance of IBBL 14 15 16 16 16 18 19-20 Chapter 3 Analytical Part of IBBL 21 .

• • PEST Analysis SWOT Analysis 22-23 23-26 Chapter 4 Functions of IBBL • • • • General Banking Operations Modes of Investment of IBBL Foreign Exchange Operations Welfare Activities of IBBL 27 28-42 43-49 50-53 54-56 Chapter 5 Difference banking between Conventional & Islamic 57-64 Chapter 6 Findings. Recommendation& Conclusion • • • • • Findings Recommendations Conclusion Bibliography Appendix 65 66-67 68-69 70 71 72-74 Executive Summary .

IBBL has some special mission & vision to establish interest free Banking in the country. articles related to Banking activities. Dilkusha Commercial Area. 1913 (At present the companies Act. Meanwhile. Islamic Banking is an integral part of Islamic Economics and thereby an Islamic way of life. Islamic money market and also general people have no idea about Islamic mode of investment. Investments and Foreign Exchange banking system. We have prepared the internship report on “General Banking. IBBL has already introduced on-line banking services.1000. 1994) with its Head Office at 40. For this specific purpose we have collected data & information from various sources like published materials such as the annual report. Islamic Banking is a special nature of financial intermediary which has not involve in any way with interest. From the very beginning since inception the Bank it has been facing different kinds of problem due to lack of Islamic Banking Act. IBBL is a banking company registered under the Companies Act. IBBL is the private commercial bank that is a brain child of some successful local entrepreneurs. Five more Branches are placed to be opened in 2010. IBBL has already achieved tremendous progress within only 8 years. Investment & Foreign Exchange operations of Islami Bank Bangladesh Ltd. Here I provide information about Islamic Banks in Bangladesh. We concentrated on arranging . IBBL is a third generation bank in the private sector banking of Bangladesh.” as a partial fulfillment for the BBA program of the university based on primary & secondary data & information. Bangladesh. Islami Bank has discovered a new horizon in the field of banking area which offers different General Banking. Modern trade and commerce would almost be impossible without the availability of suitable banking services. The introduction of interest-free and equitybased financing by the Islamic banking system is based on the principles of Islamic economics. In a developing country like Bangladesh the banking systems as a whole play a vital role in the progress of economic development.Banking system plays a very important role in the economic life of the nation. Now it has as many as 234 Branch throughout the country. The bank started its historical operation on the 30th March 1983. The health of the economy is closely related to the soundness of its banking system. Now IBBL is offering about to all modern banking service with modern technology. Dhaka.

& putting the data in such a way that the report progressively anchors to a desired destination of understanding. We have also shown the differences with conventional banking regarding different aspects as well as identified strength and weakness of IBBL & recommend actions that may be necessary to redesign functions of IBBL. In this report we have tried to show overall activities & performance of Islami Bank Bangladesh Ltd. .

In this regard our internship program started at 27th October at Islami Bank Bangladesh Limited. In the modern society commercial Banks occupy a position of economic importance.Chapter One Introduction of the Report 1.B.A student is appointed to learn some practical knowledge within the pre-stipulated period by observing the organization day to day activities.1 Rationale of study: Internship program of University is a partial requirement for the graduation of BBA/M. Every B.B.B. They play a significant .A students.A/M.

investment related activities & foreign exchange operations of Islami Bank Bangladesh Ltd. Manager and Senior Level Employees.2 Objectives of report The first objective of writing the report is fulfilling the partial requirements of the BBA program. we have attempted to give an overview of Islami Bank Bangladesh Limited in general. Islamic banks are unconditional and specialized financial institutions that perform most of the standard banking services and investment activities on the basis of profit and loss sharing system conforming to the principles of Islamic Shari’ah. we have collected the required data from both primary and secondary sources. however attempts to appraise performance and dictate the overall scenario of Islami Bank Bangladesh Limited performing beneath the umbrella of Islamic shari’ah and approved welfare oriented principles. We focused on taking the interviews of the personnel involved in the different departments. 1. . To show the investment mechanism and product offerings in different modes of IBBL. To learn about the overall general banking operations of IBBL. Business Clients and Account Holders. To identify strength and weakness of IBBL. To recommend actions that may be necessary to redesign the investments of IBBL • • • • • 1. The primary objective of this report is to observe the general banking.role to meet the needs of the society such as capital formation. To learn about the shari’ah aspects followed for foreign exchange operations. After collecting information the data were used to analyze information. growth of trade and economy etc.3 Methodology In order to carry out the report. To learn about the welfare activities of IBBL. 7 banks are backed by Islamic mechanism and worldwide accepted Islamic morality and established code of conduct. To show the differences with conventional banking regarding different aspects. This paper. The other objectives include: Following are the main objectives • • • • To familiar the history of Islami Banking in Bangladesh. To find problems or lacking that IBBL is facing. In this report. Out of 50 banking institutions. large-scale production. industrialization. Graphical tools were used to get clear picture of the situation.

Published financial statement & Website of Islami bank Bangladesh Limited. Primary sources of data: Direct interview process in bank employees.a) Nature of the study: Exploratory b) Sources of information: Both primary and secondary information sources were used to complete this report. Secondary sources of data: Manuals provided by Islami Bank Training & Research Academy. Analytical Review: • • • PEST Analysis SWOT Analysis Graphical Analysis .

1.6 Objectives of Islamic Banking .4 Scope of the Study Islami Bank is the pioneer of welfare driven economy and promoter of balanced growth in a country like Bangladesh which has a poverty stricken contemporary economic background.5 Limitations During preparing this report I have faced these following limitations:  Inadequate published information about bank  Financial constraints to collect information  Insufficient information in websites of bank  Confused definition about products and services of Islamic bank  Unsound database about Islamic banks in Bangladesh Bank  Busy working environment  Lack of sufficient well informed officials  Data could not been collected for confidentiality or secrecy of management 1. 1. To address the ongoing condition of IB and their bright prospects is a vital issue to be explored.

More specifically. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy. the emergence of Islamic banking is clearly intended to provide for Shari’ah approved financial transactions. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs. That means all transactions made under conventional banking are unlawful according to Islamic Shari’ah.   These objectives are discussed below: Offer Financial Services: Interest-based banking. Thus. Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. Islamic Banking for Equitable Distribution of Resources: . foster and develop the application of Islamic principles in the business sector. To contribute towards economic development and prosperity within the principles of Islamic justice. is unanimously identified as anti-Islamic.The primary objective of establishing Islamic banks all over the world is to promote. and to help ensure equitable distribution of income. Optimum allocation of scarce financial resources.oriented than its conventional counterpart. which is considered a practice of Riba in financial transactions. 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 Shari’ah. Islamic Banking for Development: Islamic banking is claimed to be more development.

the operating results of an enterprise and the magnitudes of profit and loss. The vagaries of protectionism and regionalism are transforming the economy to free trade and globalize. such as: • Supportive Legal Framework and Swift Judicial System: An effective legal framework ensuring speedy justice is essential for a good society. the Islamic banks generally limit themselves to being inactive partners for their credit risk only. because its investment risk is more than that of a conventional interest-based bank as its dealings are on profit and loss basis. 1. a banker must extend from being merely a financier to a role-player in business. the depositors and the entrepreneurs. therefore. • Disciplined Entrepreneurship: It would minimize cases of malfeasance and mismanagement. Although a Murabaha transaction in Islamic banking does provide an opportunity to a banker to share in business. being an integral part of an Islamic economic system can be practiced more effectively in an environment. an Islamic banker has not only to focus on credit risk but also to view all the business risks of the enterprises in which he has invested the bank money. all the same. it seems unjust if the party providing the capital is guaranteed a fixed and predetermined rate of return.7 Basic Properties of Islamic Banking Islamic banking is emerging in an era when the world is settling down to a free market economy and when phenomenal changes are taking place in the global economy. Under the circumstances. Besides. with any degree of certainty. Thus there are some essential requirements for a successful Islamic banking.Perhaps the must important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties: the bank. A free-market economy visualizes three essential features . to be trade. open capital market and minimum governmental intervention. • Conceptual Management: Change from Credit Risk to Overall Risk While it is difficult to predict. • Strong Ethical Values: . which conforms to the doctrine of Islam. Islamic banking. The real entrepreneurial role of an Islamic bank needs. and the other party undertaking the enterprise is made to bear the uncertainty alone. The changes could provide ample scope for the Islamic banking to grow and work in competitive environment. it is more so for the success of Islamic banking.

information resources. • Progressive and Modern outlook: In order to ensure successful management in Islamic banks. formulate a plan for a specific time . there is need to apply all the available modern tools of managing corporate business. There is. marketing etc. • Body to Evaluate Islamic Financial Institutions: .The Islamic economic system offers a balance between the two extremes of public or social and private or individual ownership of property. Committed Management: If the management of a bank is determined to step into the business of Islamic banking. including management of human assets. • Supreme Shari’ah Council: The function of Shariah Council in maintaining Islamic banking activities in a country within the orbit of Islamic injunctions is dependent on its legal status and the extent of implementation of its opinion. Appropriate and sufficient disclosures regarding the quality of banks assets is of much concern to the depositors. Saudi Arabia under the auspices of the Organization of Islamic Conference (OIC) but its role has to be augmented.frame and implement it accordingly. • Uniform Accounting Standards: There is need for harmonization of financial reporting of Islamic banks in respect. The opinions of Shari’ah Councils of different countries may not necessarily be uniform. offices. of the following. Additional disclosure of the nature of the financial contingencies and commitments of the banks in their financial statements. The success of Islamic banking in a society is related to the extent of acceptability of the doctrine of trusteeship and transformation of the self-interested and profit-oriented behavior of people into an altruistic and value-oriented behavior. a need for a Supreme Shari’ah Council representing Muslim community all over the world to decide about various issues con fronted by Islamic banks. A beginning has been made in this direction by establishing the Council of the Islamic Fiqh Academy at Jeddah. particularly.     • The significant accounting policies on which the statements are based should be fully and clearly declared. therefore. it can easily evolve a strategy for the same. The methods of translating foreign currency transactions would be appropriately disclosed.

there is a clear difference between lending and investing lending can be done only on the basis of zero interest and capital guarantee. They do the investment through profit & loss sharing. • Treatment in case of Loan default: In time of loan default these banks don’t take any penalty for default which is one of the major differences between Islamic & conventional banks. there is need to establish some professional body responsible to define professional standards and ethics and other aspects of Islamic financial institutions. 1. It may also certify the level of financial health of such institutions. • Lending and investing: In Islam.In order to ensure quality and standard in management of Islamic financial institutions and to build confidence of the general public in Islamic banking. and investing only on the basis of Mudaraba (profit-and-loss-sharing).7 Islamic Banking in Bangladesh . Their investment modes depend on mudaraba & murabaha principles which require participatory financing of both the parties. • Participatory financing: Islamic banks believe in participatory financing.

As a result. There is also a trend of conversion of conventional banks into Islamic bank. Incase of any point not covered under this Guideline as also in case of any contradiction. this guideline should be treated as supplementary. the instructions issued under the Banking Companies Act and Companies Act will prevail. maintenance of books of accounts and preparation of financial statements and other related issues. rules and regulations. which follows the Islamic Shariah in all its principles and modes of operations and avoids receiving and paying of interest at all levels. therefore. • "Islamic Banking Business" means such banking business. Based on the recommendations of the Focus group this guideline embodying different terminologies used in Islamic Banking operations. Bangladesh Bank constituted a Focus group comprising representatives of the central Bank. Definitions of Terms used in Islamic Banking Operations The following terms as used in this guideline. shall have the following meaning: • "Shari’ah" means such rules and regulations as have their origin in the holy Qur'an and Sunnah to govern all aspects of human life. a number of full-fledged Islamic Banks has been established.Islamic Banking has experienced a phenomenal growth and expansion in Bangladesh in the backdrop of strong public demand and support for the system along with its gradually increasing popularity across the world. . • "Islamic bank" means such a banking company or an Islamic banking branch (es) of a banking company licensed by Bangladesh Bank. It also dwelt upon the issues of liquidity. However. It has. the goals. Companies Act 1994 and Prudential Regulations of Bangladesh Bank. become necessary to ensure that activities of the fast growing Islamic Banks are carried out properly and uniformly according to the principles of Islamic Shari’ah. if not repugnant to the subject or affairs. This guideline has been prepared mainly on the basis of Banking Companies Act 1991. to the existing banking laws. a number of Islamic Banks and the Central Shari’ah Board for Islamic Banks of Bangladesh to formulate an integrated guideline for conducting banking business of the Islamic Bank/Islamic bank branches of conventional banks. With this end in view. • "Branch or Branch Office" means any branch or Branch Office of Islamic Bank Company or office or Branch of such interest based conventional Banks which run Islamic banking business. definitions of the terminologies. objectives and activities of which is to conduct banking business/activities according to the principles of Islamic Shari’ah and no part of the business either in form and substance has any elements not approved by Islamic Shari’ah. the principles and modes of deposits and investments has been prepared. not a substitute. while a good number of conventional banks have come forward to offer services compliant with Islamic Shari’ah through opening of Islamic branches along with conventional ones.

Savings or long and short term deposit accounts under Mudaraba principles. Lease.• "Depositor" means some one who holds with any Islamic Banking Company any account namely Current account based on Al-Wadiah principles. Naturally it remains a deep cry in their hearts to direct and design their economic lives in accordance with the precepts of Islam. etc. • "Client" means such a person or institution who/which has any business relationship with Islamic Banking Company. Other players in the market are: • • • • • • EXIM Bank SJBL First Security Islami Bank Ltd Al-Arafah Islami Bank Ltd Social Islami bank Ltd ICB Islamic Bank . Bai-Muajjal. • "Compensation" means such financial penalty as is imposed by a Islamic Banking Company over and above the amount of installment when a client fails to repay Bank's investment on due dates as per the agreement executed by him Bangladesh is one of the largest Muslim countries in the world. Bai-Murabaha. This was in fact the one of a kind bank in the Southeast Asia. • "Investment" means any such modes of financing which Islamic Bank Company does bin accordance with principles of Shari’ah or as per the Shari’ah approved modes like Mudaraba. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur’an and the Sunnah. First Islamic bank is IBBL which is established in 1983. is the true reflection of this inner urge of its people. The establishment and commencement of Islamic banks in Bangladesh. Hire-purchase under Shirkatul Melk. Musharaka. Istisna. In our banking sector there operates 7 banks which are backed by Islamic Shari’ah and approved principles according to Quran and Sunnah.

ICB Islami Bank . IBBL Fair: Al-Arafah Islam Bank. First Security Islami Bank i Marginal: Social Islami Bank.CAME SR L atingS tatusof Is ic Banks Operatingin Bang lam lades h Strong: Shahjalal Islami Bank Satisfactory: EXIM Bank .

Chapter Two About the Organization 2.1 Islami Bank Bangladesh Limited .

government bodies and eminent personalities of the Middle East and the Gulf countries.178.77% 58.00 million Tk. financial institutions. 1983.193.23% Tk. It is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. which started functioning with effect from March 30. 1983.413.000. is the true reflection of this inner urge of its people.00 million Tk.00 million Tk. Dhaka) Formal Inauguration Share of Capital Local Shareholders Foreign Shareholders Authorized Capital Paid-up Capital Deposits Investments (including Investment in Shares) Foreign Exchange Business Number of Branches Number of SME Service Centers Number of Shareholders Manpower 13th March 1983 30th March 1983 12th August 1983 41.The establishment of Islamic Bank Bangladesh Limited on March 13. 7. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks. Islamic Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh.00 million 211 20 52164 9588 . 265. Corporate information: (As on Diary 2009 of IBBL) Date of Incorporation Inauguration of 1st Branch (Local office. 255. This Bank is the first of its kind in Southeast Asia.739.00 million Tk. 277. 10.

2. working for the benefit of people. Encourage savings in the form of direct investment. based upon Accountability. To encourage investment particularly in projects which are more likely to lead higher employment • • • 2.3 MISSION OF IBBL .2 VISION OF IBBL The vision of Islami Bank Bangladesh limited is to strive to achieve superior financial performance be considered a leading Islamic bank by reputation and performance. • • To establish and maintain the modern banking techniques To ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals. transparency and integrity in order to ensure stability of financial systems.

Investment is made through different modes permitted under Islami Shari’ah. Its aims are to introduce a welfare-oriented banking system and also to establish equity and justice in the field of all economic activities. to encourage socio-economic uplift and financial services to the low income community particularly in the rural areas. 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.To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities. The distinguishing features of IBBL are as follows: • • All activities are conducted on interest-free banking system in accordance with Islamic Shari’ah. Establishment of participatory banking instead of banking on debtor-creditor relationship. It extends co-operation to the poor.4 Special features of The bank is committed to run all its activities as per Islamic Shariah. 2. IBBL through its steady progress and continuous success has earned the reputation of being one of the leading Private Sector Banks’ of the country. It extends Socio-economic and financial services to the poor. the helpless and the low-income group for their economic development • • • • • • • . It plays a vital role in human resource development and employment generation particularly for the unemployment youths. Its aim is to achieve balanced growth and equitable development of the county through diversified investment operations particularly in the priority sectors and in the less developed areas. helpless and low-income group of the people for their economic enlistment particularly in the rural areas. achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country.

2. Besides a management committee looks after the affairs of the bank. Organizational Structure of the Company .5 MANAGEMENT OF IBBL Islami Bank Bangladesh limited 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.

00 9.424.43% 84.962.456. Of Branches 8.49 244.32 87.60 23.00 6.870.331.143.37.77% 51.086.65% 2009 10.88.1 9 202.764.87.00 2006 5.13% 66.115.2 7 1.44% 53.45 1.80 8.89% 36.586.169.88.638.292.00 *10 SME / Agriculture Branch for year 2008 *20 SME / Agriculture Branch for year 2009 .00 161.Financial Performance of IBBL at a glance Table-2.017.572.0 0 10.012.948.65286.132.00 9.76% *231 36.00 1.752.178.50.435.41 87.819.14 1.56% *206 8.00 10.177.42 97.0 0 Remittance Capital Adequacy ratio Cost of fund No.00 1.5 5 89.4 0 1.779.7 9 1.00 4.00 3.61% 2008 10.000.00 3.00 11.000.60 14.0 0 1.72% 194.85% 106.2 9 1.00 96.325.133.959.525.690.000.50.00 2.619.74 2.801.230.329.66.96 1.716.17.957.000.00 74.58% 169 9.00 2007 10.08% 93.34% 176 9.752.115.40.14 225.81 340.404.1 2005 Authorized capital Paid-up capital Shareholde r’s equity Total Assets Total deposit Total investment Investment to deposit Export Import 5.06% 186 9.419.31 86.07.08 2.8 3 85.00 18.66 1.

Chapter Three Analytical Part of IBBL 3.1 PEST Analysis of Islami Banking System Political > Economical > Social > Technological .

Media support. Eid festivals and Hajj saving propensity also stimulate the advancement of Islamic banking. corporate income tax provision and distribution channels. Principles directed by the regulatory authority and international bodies’ impact the banking performance of our country. • Economical: GDP. life style. . law and order of a country influence the banking mechanism to a greater extent. market routes and customer base are components of economical factor. major events like RAMADAN. legal procedure.PEST analysis: Bangladesh Perspective PEST analysis is a comprehensive analytical process to trace the competitive position in the general business environment of any country. • Societal factors: The biggest proposition of Islamic banking system is the religious perception in minds of people since most of the residents of our country are Muslims. The countrywide various factors under the four terms specified above categorize the status of any business concern. Our provision is more or less friendly towards the banking sector. • Political factors: Regional legislation. Our country background and increasing customer demand raise the importance and evolution of Islamic banking system.

3. revolutionary online transaction system. innovative potentials. Environmental factors internal to the firm usually can be classified as strengths. or weaknesses. It is the scanning of the internal and external environment is an important part of the strategic planning process. It helps to detect the possible threats and opportunities in the market and viability. research methodology. . and those external to the firm can be classified as opportunities or threats.• Technological aspect: Technological factors involve competitive development. It is the first stage of planning and helps marketers to focus on key issues.2 SWOT ANALYSIS STRENGTH WEAKNESS OPPORTUNITY THREATS SWOT analysis is a tool for screening an organization and its environment. It helps recognize internal strength and overcome weaknesses. one stop service delivery system manipulate the Islamic shari’ah powered banks operating in our country.

but also in other developed markets such as the United Kingdom. and HSBC are operating interest free windows in several West Asian countries. Islamic banking helps the weaker and hapless section of the society through various financial products. • Moreover. to circumvent any chance of further bankruptcy. There is a huge potential market in Bangladesh for Islamic banking products. and other risks to be borne by the borrower. Reputed banks like Standard Chartered. • Commercial banks cannot raise deposits without promising a specified rate of return to depositors. Citibank. but under Shari’ah. returns can only be determined post-facto depending on profit. skilled hands and specialized art to attract the financier. Therefore. Islamic banking finances (through its Joint ventures. Since Islamic banking adheres to strict credit rating . Therefore. gold or in government securities.STRENGTHS • Islamic Banking will explicitly reorganize the deplorable condition of the poor and marginalized segments of society. partnerships and leasing)are provided by investors or banks to the borrowers with a condition that financial risk is to be borne by the investors. not only in the Gulf countries and far eastern states like Malaysia. it is of paramount importance to be strict about credit rating system. Also banks have to maintain a Statutory Liquidity Ratio (SLR). but definitely requires other credits like strong business proposal. Europe and USA. Such inclusive growth will aggrandize the Bangladeshi economy. • We have seen the fall of giants in the world of financial sector like Lehman Brothers in the aftermath of the US sub-prime mortgage crisis. keeping it in gold is risky as it could depreciate and government securities come with interest. • There is no room for diversion of funds. which involves locking up a substantial portion of funds either as cash. Such cash will not get any return. This helps even the indigent and vulnerable to get finance at a no risk and cost basis. investment in consonance with Islamic banking principles will surely boost the engine of economic growth in our country. Better business proposals succeed in fetching funds as opposed to the projects with comparatively poor propositions. rational planning. Banking products which comply with Islamic law are becoming increasingly popular.

many small-time businessmen do not keep any accounts. It needs to perform detailed evaluation before embarking Profit Loss Sharing Scheme. Widely acceptable and reliable techniques are yet to be devised. • It is observed that inability to evaluate a projects' profitability has tended to act against investment financing. leave alone proper accounts. However. Detailed principles are still to be laid down and techniques and procedures evolved to carry them out. • Religious appeal.• system and prohibits indebted economic agents to avail more debt finance. Limited appeal outside core customer base. which demand a pool of highly trained professionals.  Banking Regulations Act requires payment of Interest which is against Shari’ah. Adverse selection has been one of the major impediments in the world of Islamic banking. Like: •  Banking Regulations Act prohibits bank to use any sort of immovable property apart from private use –this is against Ijarah for home finance. WEAKNESS • Islamic banking needs to introduce corporate governance with transparent accounting standards. The imparting of professional training is costly. But Islamic banking operations sometimes contradict with the set laws. And large conglomerates do not like to disclose their real accounts to • • • • . Some borrowers are frustrated to the banks appraisal efforts as they are reluctant to provide full disclosures of their business. Banks in Bangladesh are governed through some Regulatory Acts. Among the other disincentives from the borrower's point of view are the needs to disclose his accounts to the bank if he were to borrow on the Profit Loss Sharing basis. The financial institutions in Bangladesh comprises of Banks and Non Banking Financial Institutions. it could save our financial and economic enterprises from bankruptcy.

the inadequate labor capital ratio. Bai mu'ajjal (sale with deferred payment) and Murabaha (cost-plus financing) are permitted in the Shari’ah under certain conditions. • Islamic banking is an effective mechanism to defeat the liquidity and inflation problems along with allowing comprehensive growth. we have to ensure increase in income and employment status of workers in all segments. A growing Bangladeshi economy has created a huge enthusiasm among Islamic nations as it sees the unlimited opportunities it can avail. And it is feasible to have a parallel banking system based on Shari’ah along with a conventional one. people are looking for interest free banking and finance. • The size of the market will be very large if it can be targeted properly. It is significant to mention here that Islamic banking is not meant for Muslims only but non Muslims may also avail the benefit of it. Thus Islamic Banking may financially empower majority of our work force. What are being done in many countries are fictitious deals which ensure a predetermined profit to the bank without actually dealing in goods or sharing any real risk. for informal sector workers associated with agriculture and manufacturing industries could be resolved through equity finance. most of the countries started pulling out their investments from the US and Europe because of the fear of freezing of assets. Opportunity • Fastest growing religion in the world.anybody. our vulnerable workers associated with agriculture and unorganized sector might be able to compete effectively with the formal sector workers. The widespread lack of business ethics among certain business community will be another major hurdle in the path of Islamic banking in Bangladesh. This is against the letter and spirit of Shariah. • If Islamic banking is introduced. which might be a revolution in our agriculture and unorganized sector. . • After 4/5. With improved labor capital ratio. Another reason could be the slowdown in the economies of western countries. • In the name of religious faith. • The practices in use by the Islamic banks have evoked questions of morality. For real inclusive growth.

but could be profitably used to resolve our issues pertaining to economy. The compartmentalization of Shari’ah compliant and Non Shari’ah Compliant banking might be dangerous for the stability of our financial environment. Chapter Four . It may bring financial segregation in the economy. Threats • • Moving towards more Shari’ah compliant services offered by mainstream banks.• Islamic banking should not be a religion based banking business.

Usually the following sections/departments are involved to perform the general banking operations:     Cash Section Bills & Remittance Section Clearing and Collection Section Accounts Section . This is the busiest department and the daily transactions of concerned to the customers for drawing or depository money . collection of their instruments providing other services to them and keep customer section busy. Investment & Foreign Exchange Operations of IBBL General Banking Operations General banking provides the foundation of banker – customer relation ship through opening account. selling of the instrument to them for remittance purpose.Functions of IBBL General Banking.

receipt & dispatch.  Maintenance of Vault and Strong Room under  Joint custody for safe keeping cash and vouchers. amalgamate the said fund with their/other funds and return the same within banking hour on demand. Bank/any other person/institution can not use.  Maintenance of security in transaction hour by armed security guard. Electronic Funds Transfer. Internet Banking. Phone Banking etc.  Handling transfer transactions.  Operations of Clearing House. maintenance of Books and Records and Computer (eIBS Software)  Maintenance of ATM.The major general banking operations of IBBL are  Mobilizing deposits through opening different  types of account. Phone Banking etc. Al-Wadeah The word 'Al-Wadeah' has been derived from the Arabic word 'Wada'yun' which means to keep/to deposit/to give up/Amanat.  Passing.  Receipts and payments of cash. Thus. Current account is operated on Al-Wadeah principle and all other deposit accounts on Mudaraba principle of Islamic Shari’ah. Proper house keeping .  Maintenance of security in transaction hour by armed security guard.  Personal administration Mobilizing Deposits Islami Bank accepts deposits under two principles viz. and amalgamate the funds of Amanat with the banks/his/its other funds without prior permission of the owner of the Amanat. Internet Banking. Electronic Funds Transfer. invest. receipt & dispatch.  Correspondence. Al-Wadeah principle and Mudaraba principle. issuance and payment of cheque. invest.  Personal administration  Proper house keeping . Bank is here ‘Muaddah Elaihe’ and depositor is ‘Muaddi . cancellation. In case of Amanat. maintenance of Books and Records and Computer (eIBS Software)  Maintenance of ATM.  Correspondence. in Al-Wadeah account there is a provision to obtain prior permission from the owner of the fund to use.

Mudaraba is a form of partnership in profit whereby one party provides capital and the other party provides skill and labour. trade. . He is to work with honesty and sincerity and to exercise the maximum possible care and precaution in the exercise of his functions. ‘Shahib-al-Mal’ except if it is due to breach of trust. The Mudarib is in the nature of a trustee as well as an agent of the business. negligence or violation of the conditions agreed upon by the Mudarib becomes liable for that. being borne by the provider of capital i. Both the parties share the profit as per pre-agreed ratio and the losses.e. industry or service with the objectives of earning profits. Deposit Products of IBBL            Al-Wadeah Current Account Mudaraba Savings Account Mudaraba Special Notice Account Mudaraba Term Deposit Account Mudaraba Hajj Savings Scheme Mudaraba Savings Bond Scheme Mudaraba Special Savings (Pension) Account Mudaraba Monthly Profit Deposit Scheme Mudaraba Muhor Savings Account Mudaraba Waqf Cash Deposit Account Mudaraba Foreign Currency Deposit (Savings) Account Al-Wadeah Current Account The major features of this account are as follows:  The depositor can deposit any amount in this account and the bank receives money from the clients for safe-custody with the condition to return the money on demand. The provider of capital is called ‘Shahib-al-Mal’ or the ‘Rabb-ul-Mal’ (the financier or owner of the fund) and acts like a sleeping or dormant partner while the provider of skill and labour is called ‘Mudarib’ (entrepreneur/organizer) who provides the entrepreneurship and management for carrying on any venture. Thus the word ‘Mudaraba’ means travel for undertaking business. if any.Mudaraba The word 'Mudaraba' has been derived from Arabic word 'Darb'/'Darbun' which means “Travel”. misconduct.

The very special character of this account is to serve seven days prior notice for any withdrawal. may be collected in this account. Mudaraba Special Notice Account This account is also conducted under Mudaraba principle. However. The depositor can withdraw any amount at any time through cheque or any other acceptable means retaining the minimum balance in the account. If the clients encash the MTDR before 3 months. bills etc. Mudaraba Term Deposit Account  Mudaraba Term Deposit Account is also conducted under Mudaraba principle of Islamic Shari’ah.  Cheques. it is to be borne by the depositors.  As the depositors do not take the risk of losses with Al-Wadeah account they are not entitled to any profit from use of their deposits by the investors. excise and incidental charges for safe keeping of the depositors’ money or for services rendered to them can be realized from the account as per rule.  The accountholders are generally allowed to deposit several times as they require but in case of withdrawal of money there are some restrictions as per rules and practices of the commercial banks.6.1000. Mudaraba Savings Account The major features of this account are as follows:  This account may be opened in single or joint name of the person (s) or any organization acceptable to the Bank.  The Bank will arrange proper deployment of funds without any intervention of the depositors.  Total profit resulting from such investment will be distributed between the Bank and the depositors as per agreed ratio.  However the depositors may enjoy premature encashment facility or may avail ‘Quard’ against the lien of MTDR as per norms of the Bank.  Govt.  No withdrawal facility is allowed here.  If any loss is incurred.  The Bank is authorized to invest the Mudaraba funds at the risk of the depositors.24 & 36 months of minimum Tk.  Generally deposit is accepted in different tenure of 3. in IBBL a reserve fund named as ‘Investment Loss Offsetting Reserve (ILOR)’ has been created to meet up such losses and other purposes. no profit is allowed. .12.

 It is opened in the name of single person.  If MTDR is not encash within 1(one) month of its maturity date. Tk. Educational Institutions. Associations and other non-trading and non-profit socio-economic institutions shall also be eligible to purchase Bond(s) in the name of the institutions.35 for above 10 years term and 1. Tk. Clubs. Tk. it is automatically renewed for a further same period. The profit of Bond may be withdrawn by the bondholder once in a year. Present weightages are 1. & Tk. Mudaraba Savings Bond Scheme Mudaraba Savings Bond Scheme • • • • • • • The person (s) aged 18 years and above shall be eligible to purchase Bond (s) in single name or in joint name. Available denominations are Tk.  The Bank accepts deposits on installment basis under Mudaraba principle.  Premature encashment is allowed. To avail the highest weightage which is 1. if not encashed on maturity.000.00. The terms of Bond are 5-year & 8-year.10. Tk.50. Mudaraba Hajj Savings Scheme  Any Muslim intending to perform Hajj can open this account for accumulating savings with a view to meeting Hajj expenses and may select 25 alternative choices based on duration from 1 year to 25 years.5. MTDR holders can withdraw profit yearly basis against 1(one) year and above MTDR.5. the accountholder has to show the proof of performing Hajj.  Considering the religious aspects and to inspire the individual to perform Hajj.10 & 1.000. No profit shall be paid for the period after maturing of the Bond.000.000. Mudaraba Special Savings (Pension) Scheme .25. Guardian(s) shall be allowed to purchase Bond(s) jointly with a Minor mentioning the age of the Minor. the Bank gives here the highest weightage in distribution of profit in compare to other accounts.00.25 respectively.000. the same to be considered principal amount for further period.000.1.30 up to 10 years term.000. Tk. In case of no withdrawal of profit.00.10.

 The profit amount shall be adjusted after completion of each accounting year after declaration of final rate of profit.  The depositors may issue written standing instruction for monthly transfer of installment from any other account maintained with the same Branch for credit to his MSS account.  The applicant shall have to introduce by a bonafide account holder of the Branch where he intends to open account or any client of any Branch of IBBL or any respectable person known to the Bank. Tk. Under this scheme. The client has to pay a charge of Tk.  In case of premature encash/withdrawn after 1(one) year.000 only.1. MSS) so that a person can get the opportunity to build-up savings by contributing small monthly installments for getting an attractive amount at the end of a specific term of maturity.000 upto Tk. IBBL has introduced such Scheme (viz.000 and multiple of Tk. profit shall be payable at the rate applicable for Mudaraba Savings Deposits.  Under this scheme one may create Cash Waqf at a time or may start with a minimum deposits of Tk. account may be opened for monthly deposits of Tk.  The MSS account can be transferred from one Branch to another Branch.only and the subsequent deposit shall be made by installment(s) in Thousand Taka or in multiple of thousand Taka.500.000 and multiples thereof at a time for 3 or 5 years.year.5/= only for each such transfer. Mudaraba Monthly Profit Deposit Scheme  Any individual may open an account under this Scheme by depositing a minimum amount of Tk.200. Tk.  Any bonafide citizen of Bangladesh of 18 years and above can open this account in his own name or in the name of Minor. educational and social services. profit shall be payable at the rate applicable to 5 years term MSS account for 5 years and at the rate of Mudaraba Savings Deposit for the subsequent period. The highest weightage is given here . No profit shall accrue if the account is closed within 1(one) year.20.100. The income to be generated thereon may be spent for different benevolent purposes including various religious. Tk.  Generally the terms of maturity are 5-year & 10.1.  Monthly provisional profit is given to the account just after completion of 30 days from the date of opening of the account. Mudaraba Waqf Cash Deposit Account  IBBL has introduced Mudaraba Waqf Cash Deposit Account through which fund is pooled for the purpose of Waqf from the well-off and the rich people of the society. In case of 10 years term MSS account encashed after 5 years but before 10 years.1. 00.  Benefits of full weightage with yearly cumulating of profit shall become payable if withdrawn on maturity.000/.10.

16. 2% 2. 7% 9. 19% .12. 2% 6. and  Foreign missions and their expatriate employees. working and earning abroad. 0.75. Chart 4. The following categories of people can open this account.  Bangladeshi nationals residing.92.67.8. 0% 4% 1.32. 18% 18.12. 9% 38.35.25. Mudaraba Foreign Currency Deposit (Savings) Account Mudaraba Foreign Currency Deposit Account has been introduced by IBBL under Mudaraba principle.01.for encouraging Waqf system of Islam which is now 1. Profit from this account is utilized as per instruction of the Accountholders.2009 4.1 Types of Account in 31. 39% MSA MSS MTA AWCA MSBA MMPA MSNA FCA Other 18.  Foreign nationals residing in Bangladesh and also foreign companies registered abroad but operating in Bangladesh.

42 2006 132419. And at the same time this never faces any type of liquidity crisis in spite of maintaining this huge amount of deposits. For this reason the bank has the great opportunity to invest its huge amount of money.40 2007 166325.45 In Million 2009 244292.Trend of Deposits over years: Deposits Table-4. From 2005 to 2009 the amount of deposits is just doubled. No one can compete with this bank. 2 lac million as deposit. Local Remittance .2 IBBL is the bank which is able to collect highest amount of deposits among the whole banks.14 Chart-4.29 2008 202115. Now IBBL maintains more than TK.1 Year Deposits 2005 107779.

Payment of Draft The drawee branch should exercise proper care while paying drafts. Modes of Local Remittance: There are four modes of remittances which are as under: (a) DD . a demand draft is “an order to pay money drawn by one office of the bank upon other office/branch of the same bank for a sum of money payable to order on demand”. F-20 is required for effecting remittance through D-D and the following columns should be filled in properly: • • • • • • • • • • • Name and address of the applicant.15%. At present min.Demand Draft (b) TT . 1/thousand and vat @ 0. Local remittance represents remittance that takes place within the territory of a country. 20+Vat 3). Telephone No. the particulars of the draft is/are checked with the advice and signature (s) therein to be verified.Telegraphic Transfer (c) PO .Remittance represents transmission/transfer of money from one place to another. (if any). Commission is to be realized /charged as per Head Office circular. Issuance of DD A prescribed Application Form bearing No.000 (Com. Date Signature of the applicant Name of the payee Drawee branch Amount in figure and words.001 and above Tk. 1-20. .Payment Order (d) Online banking Demand Draft According to Section 85 (A) of the Negotiable Instruments Act. but for Tk. 23/For Tk. 20. • When the draft is presented to the drawee branch for payment. Banks have a wide network of branches all over the country and offer various types of remittance facilities to the public/customer/client etc. Tk.

The drawee branch should ensure that the payment of the instrument is made in due course. As a matter of fact. • If the DD is presented through a bank. Section 46 of the NI Act states that the making. This is because the post office is taken as the agent of the payee of the draft. if it is found that the draft has been delivered to the payee. DD Advice should be sent on the same day. the bank should do so after taking the following precautions:Bank should satisfy itself that the draft has not been delivered to the payee.• • • • • Payment of the DD has not been stopped is to be ensured Verification of Test no. the endorsement(s) appearing on the instrument should be prima-facie in order of certification by the collecting banker. • As the demand draft is payable to order it is duty of the paying branch to obtain identification of the payee if payment is desired over counter. the purchaser losses the right of getting the draft cancelled as soon as he sends the drafts to the payee. If the draft is sent by post. TT (Telegraphic Transfer) Telegraphic transfer is so far the quickest method of transferring funds from one place to another. is to be done If the DD issued for cash payment ‘A/c. accepting and endorsement of a negotiable instrument is completed only when it is delivered to the person concerned. if the purchaser of the draft makes a request to cancel the draft and refund him the amount of draft. the remitter of the funds requires the money to be available to the payee immediately. In that case the banker is requested by the remitter to remit the funds over telephone. Issuance of TT . that the draft was issued by him and is not a fake one and that he has not already issued a duplicate thereof. Some times. It is an instruction conveyed by telegraph/telex/telephone to the drawee branch for paying certain amount of money to a specified person. if any. a banker should refuse to cancel the draft. In such case we must make sure that the request is from the genuine purchaser. If the purchaser wants to get the draft cancelled after delivering it to the payee he can do so only with the consent of payee. Thus. the act of posting itself proves the delivery of the draft to the payee. Cancellation of Draft • • • Some times the purchaser returns the draft to the issuing branch and requests for payment by cancellation thereof. However. Payee' rubber stamp’ should be cancelled and a letter requesting the drawee branch to pay the DD in cash should be issued under sealed cover and signature of the payee should be attested.

Telegram followed by IBCA for confirmation. Telephone. 10.upto Tk.upto Tk. 5. Cash is paid to the beneficiary on proper identification. or paid by means of a TT payment order if he/she does not maintain an account. 10.001/.000/. 20/- From Tk.Tk. 50/- . Commission to be realised as per bank’s circular: From Tk. 5.TT application form (F-22) is to be filled in by the remitter with full particulars signature of the remitter is to verify by the bank's officials.00.000/.upto Tk. Money to be received in cash or by debiting remitters account with commission and Telex/Telephone charges.00.00. Issue and Payment of Payment Order F-19.00. should be filled in properly by the customer.00. 15/Tk.00. Entry should be given in B44 branch wise serially under supervision of authorised official.001/.000/Tk. 1/. Total amount should be deposited through cheques/cash.000/From Tk. 10. In a sense.001/. Payment of TT The amount transferred by TT is either credited to the account of the beneficiary.001/. Message to be passed immediately to the drawee branch under secret test by Telex. 30/From Tk. Cost memo F-23 to be issued and handed over to the client. 1.and above Tk.Tk. 10. if he/she maintains an account.upto Tk. 1. Payment Order Payment order is meant for making payment of the banker’s own or of the customer’s dues locally and not for affecting any remittance to an out station. if he/she has no account. the payment order is used for making a remittance to the local creditors. 40/From Tk.

Telephonic Transfer (TT).• • • Printed Payment Order leaf should be filled in as per F-19 and signed by two authorised officers. where applicable on revenue stamp of appropriate value against in cash or through account. They receive a . Islamic banks are the most effective method of selling the shares to the public. Online banking: IBBL is the only bank in Bangladesh that has developed and implemented core banking software eIBS having online features by its own software engineers based on open source technology and oracle. • Transfer of Money: Islamic banks transfer money from one place to another place as per the order of its customers through Mail Transfer (MT). The online banking section of IBBL does the following activities: • • • • • Post all kinds of online related vouchers Post all kinds of deposits accounts Issue balance confirmation letter to the A/C holder Check daily computer transaction list Prepare IBCA/IBDA vouchers etc. The instrument should be handed over to the purchaser. and Pay Order (PO). Demand Draft (DD). Companies make arrangements with Islamic Banks to issue shares for public subscriptions. Payment Orders are required to be discharged by the beneficiary. Other general banking operations of IBBL •Sale of Share: Islamic banks sell primary shares of a company registered with the Stock Exchange in exchange for a commission. This contributes to the raising of capital for a company. These are known as “new issues” which a company intends to sell to the public.

Laborers. on the client’s behalf. Only the Al Wadiah Current account and Mudaraba Savings account holders can maintain budget accounts with Islamic banks. In some cases the bank can act as a guarantor taking a partial mortgage on an unsecured basis. • Settlement of Transactions: Islamic banks pay Bills of Exchange. and the customer and any third party (the Beneficiary) of the bill or check are maintained. The bank pays the client’s bills such as: taxes and donations for example. who earn regular monthly wage. which must be signed by the customer who wishes to deal with the bank concerned. among the services rendered. Some Islamic Banks receive a commission based on the lower of 2% or 3% of the amount guaranteed or simply incidental expenses. Thus. Thus. payment of checks drawn on the bank and the execution of bank transfers and payment orders. may deposit money into a budget account. and Checks of their customers to settle transactions with third parties. In exchange the bank receives a fee for providing this service. This box is adjoined to other boxes belonging to other customers of the bank. if the customer fails to perform in the capacity stipulated. . the bank is held responsible for ensuring performance or payment of debt. such as the receipt of deposits into the account. • Safe Custody: A safe custody account is a small box. The banker has a key and the customer has a key.fee or commission for performing such services. • Maintenance of Budget Accounts: Islamic banks can maintain budget accounts for their customers. the bank must prepare and communicate to its customer periodic statements of the account. Under the agreement. • Providing Bank Guarantee: A bank guarantee is a written agreement that guarantees the performance or payment of debt by a bank client to a third party. A number of subsidiary operations are related to the account opening operation. Thus the client benefits because his financial affairs are handled automatically and his monies are set-aside on a monthly basis to handle bills that are due quarterly or annually. Both keys must be used simultaneously to open the safe custody box. as it helps them to fulfill their financial needs timely. • Account Maintenance Activities: The opening of an account is the beginning of the relationship between a banker and a customer within the framework of banking deposits. Customers benefit from these services. Islamic Banks provide this guarantee based upon cash held on deposit by taking a mortgage on other assets. Furthermore. financial relations between the bank and its customer. The account is established with a standard proforma contract. Each box has two keys. which is maintained in a secured area within the bank.

booklets. Mudaraba. marketing and other important business information to industrial entrepreneurs of small and medium sized business of any nature. he will conduct an extensive survey of the customer’s business. The bank offers counseling on technological issues. A banker should be an expert in banking as well as in business to provide BAS. This certificate is required for business purposes. commerce and industry are published in these forums to address the needs of the banks customers. they facilitate business relationships between importers and exporters through this service. organizations and individuals pertaining to the credit worthiness of its customers. Clients may access their box during normal business hours and can step into a private room in order to add items of value to the safe custody box or remove items from the safe custody box. Moreover. banks seek this information prior to extending a loan to a . Thus. Today. Important information related to trade. pamphlets to advertise the bank’s services. • Business Advising Service: Islamic Banks can provide business-advising services (BAS) to its clients as well. • Transaction of Foreign Currency: Islamic banks buy and sell foreign currencies. they also know the special features of the Islamic Economy. • Islamic Banks charge a relatively low fee for this service. • Exchange of Information: Islamic banks exchange information with other banks. The main objective of offering this service is one of convenience which the bank hopes will attract additional customers. • Publication Works: Islamic banks publish books. more people are familiar with the terms of Islamic banking like Bai-Murabaha. In addition. • Opening of L/C: Islamic Banks also offer Letters of Credit (L/C) for domestic and international trade on a commission basis. and Musharaka. journals. • Issue of Solvency Certificate: Islamic banks issue solvency certificates to their customers as per an order received. Such services have created social awareness about Islamic banking in the economy. In addition. or to go abroad for study.the client is assured his assets are safe in the custody box due to the dual control. They allow their customers to draw local currency against foreign currency deposited in a foreign currency account with the bank. to acquire assets on an installment basis.

The issuing bank guarantees the payment of these cheques. the customer then has a variety of services offered by the ATM. the Cardholder presents his card to the merchant who runs the card through a special machine. account balances to be obtained and statements to be ordered. a customer can make his purchase without having to pay cash on the spot. • Issue of Qard Cards: Islamic banks can issue Qard Cards (QC) unto certain limits to their valued customers. In addition. At the point of purchase. which imprints account information on a form to be signed by the Cardholder. in addition. and seven days a week. • Financial help: Islamic banks provide financial help to different organizations through paid advertisements describing various services that the bank offers. The customer inserts the card into a machine and on a keyboard he taps out his personal identification number (PIN). Thus. Cash dispensing is the most important but. • It is electronically imprinted with the customer’s branch and account number. Normally a passport is required as proper identification when the check is being used for payment. most machines allow check books to be ordered. The card will enable a holder of it to purchase goods from the market without cash or a check. Having inserted the card and keyed in the correct PIN. When the item is presented for payment. the person to whom it was issued needs to countersign it. The small and medium sized business houses benefit from this service of Islamic banks. the (QC) can also be used like an ATM card at participating banks. • Issue of Travelers Cheques: Islamic banks also issue Travelers Cheques (TC). If a TC is lost or stolen it can be replaced again through a local branch/agent of the issuing bank subject to verification of the signature. it is accepted worldwide without a question. The card will only operate if the correct PIN is keyed in thus safeguarding the customer and the bank in the event of loss or theft of the card. The merchants indicate clearly which cards they will accept. The signature should be similar to the one that already appears on the cheque.prospective customer. These are special types of cheques drawn on the issuing bank and signed by the person to whom they are issued. Thus the bank can be assured it has made a good decision on whether or not to make the loan to the customer. These advertisements increase the competitiveness of Islamic banking products in the market by creating awareness among the people. • Use of Automatic Teller Machine: Islamic banks offer Automatic Teller Machines (ATMs) to allow customers access to their accounts after the banks are closed. • Factoring Service: The factoring agreement covers assessment of creditworthiness of all potential buyers and provides complete protection against bad debt. The ATM provides service twenty-four hours a day. In exchange for this . provided the credit limits are not exceeded. Thus.

these businesses pay a service charge or commission to the bank. As part of this service. .service. This makes business easier for the wholesalers. and control the finances of the client’s business house. the bank will maintain sales ledger records.

To finance various development schemes for poverty alleviation. Since Islam condemns hoarding savings and a 2. Specific examples of financial investments are: deposits of money in a bank account. has no option but to invest his savings in financial assets. Objectives and principles of investment The objectives and principles of investment operations of the Bank are: • • • • • • • To invest fund strictly in accordance with the principles of Islamic Shari’ah. To increase the number of potential investors by making participatory and productive investment. by economic purpose. judicious sanction of investment. the purchase of Mudaraba Savings Bonds or stock in a company. Investment is one of the important functions of IBBL. commercial & agricultural. To invest in the form of goods and commodities rather than give out cash money to the investment clients. income and employment generation with a view to accelerating sustainable socio-economic growth and uplift of the society. When resources are used for purchasing fixed and current assets in a production process or for a trading purpose. close and constant supervision and monitoring thereof. IBBL collect Deposits on Al-wadeah and Mudaraba principles and deploy the collected fund using shari’ah-based Mechanism & Modes of Investment.Modes of Investment of IBBL Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. To make investment keeping the socio-economic requirement of the country in view. if he is unable to invest in real assets. by sectors (public & private). by securities and by geographical area including industrial. the owner of excess savings. To ensure mutual benefit both for the Bank and the investment-client by professional appraisal of investment proposals. then it can be termed as real investment. Funds may be invested in either real assets or financial assets. .5 percent annual tax (Zakat) is imposed on savings. To diversify its investment portfolio by size of investment.

size. Bai-Salam is a sale whereby the seller undertakes to supply some specific commodity (ies) product(s) to the buyer at a future time in exchange of an advance price fully paid on the spot.Istisna’a: . quantity at a future date and time in a particular place. IV) Bai.Mechanism Share Mechanism Ijara Mechanism A) Bai-Murabaha B) Bai-Muajjal C) Bai-Salam D) Bai-Istisa’a e) Bai-Asraf A) Mudaraba B) Musharaka A) Hire Purchase Under shirkatul Melk I) Bai. The seller may also sell the goods purchased by him as per order and specification of the buyer. II) Bai-Muajjal (Sale on deferred payment basis) Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shari’ah and the law of the land). to the buyer at an agreed fixed price payable at a certain fixed future date in lump-sum or within a fixed period by fixed installments. quality. In other word.Murabaha (Sale on 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 agreed profit payable in cash or on any fixed future date in lump sum or by installments.Mechanisms & Modes of Investment of IBBL Bai. III) Bai-Salam (Purchase of Goods on deferred delivery basis): Bai-salam is a contract between a buyer and a seller under which the seller sells in advance the certain commodity (ties)/product(s) (permissible under Islamic Shari’ah and the Law of the land) to the buyer at an agreed price payable on execution of the said contract and the commodity (ties)/ products(s) is/are delivered as per specification.

by installments or deferred to a specific time. participate in the management. while capital loss is exclusively borne by the supplier of the capital except the loss it is due to the breach of trust by the Mudarib. Shirkatul Melk means share in ownership. VII1) Hpsm (Hire Purchase Under Shirkatul Melk) Hire purchase under Shirkatul Melk is a special type of contract which has been developed through practice. Along with these modes there is another important mode of investment of IBBL which is Quard-al-Hasana. The First party is called the Sahib-al-Maal and the later is referred to as the Mudarib. Under this mode the bank engaged with buying and selling of foreign currency. Shirkat means partnership. and share the benefit as per agreement. V) Bai-Assarf: Related with foreign currency buying and selling. When two or more persons supply equity. Any profit accrued is shared between two parties on a pre-agreed ratio. purchase an asset. Ijara and Sale. V1) Mudaraba It is a form of partnership in profit where one party provides the funds while the other provides expertise and management. Actually. if any.  *Specially the Modes applicable to RDS . the contract is called Shirkatul Melk contract. in proportion to their capital/equity ratio.Istisna’a is a sale contract by which al-sani’ (the seller) on the basis of the order placed by almustasni’ (the buyer) after having manufactured or otherwise acquired al-masnoo’ (the goods) as per specification and sells the same to al-mustasni’ for an agreed upon price and method of settlement whether that be in advance. It is a condition of Istisna’a contract that the seller should provide either the raw material or the labour. A loan with the stipulation to return the principal sum in the future without any increase. Quard-al-Hasana: A virtuous loan. share the profit as per pre agreed ratio and bear the loss. V1I) Musharaka Musharaka is a contract of partnership between two or more individuals or bodies in which all partners contribute capital. it is a synthesis of three contracts: Shirkat. own the same jointly.

Small Business Investment Scheme 8. Car Investment Scheme 6. Women Entrepreneurs Investment Scheme 12. Housing Investment Scheme 3. Rural Development Scheme 10. Investment Scheme for Doctors 7. Equity and Entrepreneurship Fund of Bangladesh Bank . Real Estate Investment Scheme 4.Welfare Oriented Special Investment Schemes 1. Micro Industries Investment Scheme 11. Agriculture Implements Investment Scheme 9. Transport Investment Scheme 5. Mirpur Silk Weavers Investment Scheme 13. Household Durables Scheme 2.

1. 35% 53. 53% Purcha a Neg tion se nd otia K orjeHa sna B i S la a a m Musha k ra a Chart 4.44.4 . 1% 5.2009 6% 0% 3. 1% 0.08.3 Compositionof m odewiseInvestm in ent 31.02.68.Chart 4. 4% B i Mura ha a ba HPS M B i Mua l a jja 35.64.

S ectorsof Investment in 5% Indus try Com ercial m R Es eal tate 5.2009 3. 5 . 29% Ag riculture Trans port Other Trend of Investment over the years: Investment Table-4. 2% 5.65. 54% 28.06. 6% 53. 4% 2.27.2 Year investment 2005 93644 2006 113575 2007 144921 2008 180054 In Million 2009 214616 Chart-4.4.

180.054 million and in 2009 it was TK. Details of Special Investment Schemes under Investment Mode .616 million while in 2005 the investment was only TK.It shows that the amount of investment is increasing year to year.93. 644 million. In 2008 the Bank’s total investment was Tk. 214. It is in upward trend.

. semi govt. engineers etc. The foreign exchange operations can be categorized in following four areas: . etc. New. doctors. Baimuazzal HPSM HPSM.semi-govt. doctors. manufacturing.Name of Scheme Eligibility Maximum invested money 500000 Client’s equity 25% Period of investment 2 years Mode of investment Bai-Muazzal Household Durables scheme Govt. teachers. Baimuazzal HPSM. Govt. doctors. engineers. universities teachers. universities teachers. doctors. Islami Bank offers different trade products and services complying Shari’ah and law of the land. Farmer. Baimuazzal HPSM Foreign Exchange Operations IBBL is playing a very important role in foreign exchange business of the country. experienced. livestock. of City Corporations Govt. business man. semi govt. autonomous official. half educated rural youth Diploma. skilled & semi skilled youth For all Kind of land owners under City Corporation & important business places Housing Investment Scheme 3000000 50%/ 40% 15 years HPSM Transport Investment Scheme 2000000 30% 3 years HPSM Car Investment Scheme 350000 30% 4 years HPSM Investment for Doctors Small Business Agriculture Implements Micro Industries Real Estate Investment Program 1000000 100000 200000 200000 50% of cost of construction 20-30% 0-20% 20% Nil 50% 5 years 1-2 years 2 years 5 years 10-15 years HPSM. autonomous official. autonomous official. Govt. specialized doctors Fishery. business man. engineers..semi-govt. universities teachers. autonomous official. etc. engineers etc.

Export Services and Export Finance 3. Foreign Remittance Services 4.1. Import Services and Import Finance 2. Foreign Exchange Treasury operations Principles of Foreign Exchange Operations: Service Principles • Wakalah • • Scope of applications Letter of Credit Safe keeping Remittance Basis Commission basis • • Kifalah • • • Financing Principles • Bai • • Letter of Credit Performance Bond Bid Bond Advance payment Guarantee Scope of applications Murabaha Import Murabaha Import Bills Murabaha post Import Bills Mark up basis Basis Commission basis Shirkat • • • Mudaraba Musharaka Hire purchase under Shirkatul Melk Sharing basis Rental basis Ijarah .

Agency is one of the most important elements of Islamic partnership. Kifalah may relate to a person.e. Agent gets fees/commission for extending desired services from the principle. The subject of sale must be in the ownership of the seller at the time of sale. Finance kifalah means an obligation to be met in the event of the principal debtor‘s inability to honor his obligation. finance or an act. Shirkat: Partnership • • Shirkat means partnership for undertaking any lawful business.Shari’ah aspects Foreign Exchange Operations Islami Bank follows the following shari’ah aspects at the time of Foreign Exchange Operations: Wakalah: Agency service • • • Wakalah means entrusting someone to act as agent on behalf of principal.Musharaka . Bai: Buy and sell • • • Bai is defined to mean simultaneously ‘purchase and sale’. i. the exchange of a thing of value by another thing of value.Mudaraba . The subject of sale must be existing at the time of sale. Kifalah: Surety ship • • • Kifalah means an obligation that someone wants to assume in addition to its existing obligation in respect of a demand for something. There are two broad categories of partnership include: .

buildings or other facilities to a client against an agreed rental .Ijarah: Leasing It is an arrangement to lease equipments.Ijarah wa liqtina (Leasing) Trend of Export and Import and Remittance over the years: Export and Import and Remittance Table-4.Ijarah Muntahia bit Tamlik (Hirepurchase) .6 . 3 Year Import Export 2005 74525 36169 2006 96870 51133 2007 137086 66690 2008 168329 93962 In Million 2009 161230 106424 Remittance 36948 53819 84143 140404 194716 Chart-4.There are two broad categories of of Ijarah: .

In 2009 remittance collection has reached the peak. it can be said that welfare services are those which ensure conditions of having good health. Every year the remittance collection is growing at an increasing rate. comfortable living and pleasant working conditions (Hornby). Hence. comfortable living and working conditions. Welfare Activities of IBBL Welfare is a condition of having good health. Islam views work as the primary means of earning and acquiring income and wealth. But if real income is not sufficient to purchase necessities of life. The Quran states the principle that “wealth should not circulate only among the rich” [59:7]. which are generally one’s basic needs. then welfare services become essential in a society to maintain the minimum standard of living of the people. face inadequate lifestyles due to unemployment and under-employment. in every society. consequently. there are many people who lack the necessary income and. . Compared to any other banks IBBL contributes a lot in enriching foreign currency reserve. Their condition cannot improve if welfare services remain absent and concentration wealth remains in certain segments of society. In fact. And in every sector IBBL is now in the first position.

There is no fulfillment in life without interaction with others. It is a natural concomitant of trusteeship. i.e.” Helping behavior is required because of the interdependent nature of manhood life.2-3) mentioned that care for others. This is what religion teaches. deny religion. has to be. so the most beloved of people in the Sight of Allah are those who do good to His dependants. it defeats its own purpose. which might include – Care for others: Siddiqi (1995. since one serves the Master by caring for His people. Zakat: Zakat is one of the five pillars of Islam. those whose hearts are to be won over. Thus Islam calls for the meeting of the basic needs of the poverty groups through welfare services. Thus the Quran establishes the general principle of generous welfare spending while encouraging sacrificial levels of spending perhaps for social crises and for conditions demanding high financial support. It has to be granted on the grounds of compassion. those who collect the tax. peace is upon him. it would seem that there is not much scope for the . Since banks are profit-oriented organizations. and for the wayfarer: (this is) an ordinance from God and God is all-knowing. a loan without interest. Those who deny it. it is only for social welfare purposes as specified by the Quran: “The Zakat is (meant) only for the poor and the needy. The exclusive pursuit of self-interest in social relations is counter-productive. In a broad sense. Qard Hasan (benevolent loan) Since interest on all kinds of loan is prohibited in Islam. The Prophet. pp. to remove the financial distresses caused by the absence of sufficient money in the face of dire need. a loan. for the freeing of human beings from bondage. individual facility requires socialization. Wise”[9:60]. is another cardinal principle of Islamic economic behavior. or helping behavior. for the relief of those overwhelmed by debts. by definition. for the cause of God (all priority social needs).The Quran also encourages people to contribute generously to social welfare and helping the needy in society. which is to be given in accordance with the Islamic principle. said: “Mankind is God’s dependants. It tempers the self-interest that is ingrained in human nature to ensure survival. a benevolent loan (Qard Hasan). Men serve their individual and collective interest best when each individual cares for the welfare of others while striving to protect and promote his own interest.

Empowerment and Humanizing Family Credit Program: . blacksmith.g. they make provisions to provide Qard Hasan besides engaging in income generating activities. Under this program a small number of individuals. The money collected (the fund) is then given in rotation to each member of the group.21). Since Islamic banks follow the rules of The Islamic Shari’ah. op cit. form a group and select a leader who periodically collects a given amount (a share) from each member. entrepreneurs who are not qualified to get financing from other sources. Mobilization of Zakah A pioneering experiment putting the principles of Islamic banking into practice was conducted in Mit-Ghamr in Egypt from 1963 to 1967. typically six to forty. Yet. rural industries. farmers. p.application of this technique. However practices differ in this respect. and small to medium scale business enterprises. “An Islamic bank accumulates its Zakah in the Zakah fund and distributes amongst the poor as per Islamic Shari’ah”. small traders. Hence. carpenter. urban unemployed. small artisans. (e. fishermen.). At a grass root village and local level it is directed towards landless laborers. It deals with informal finance and credit packages that improves the situation of poorer families and creates local income opportunities for the people. He may also get commission. who in return may assume liability for defaults. The purpose of these interest-free loans is to assist them in becoming financially independent or to assist in raising their incomes and standard of living. However Islamic banks also play a socially useful role. Loans are interest-free. This program helps to generate economic activities among the poor in the non-corporate sector. Some other banks have the provision to provide interest free loans to needy students and other economically weaker sections of the society. they have to pay Zakah on their own resources (capital assets etc. A Zakah account was one of them. The Zakah account attracted the stipulated amount of Zakah for redistribution amongst the poor (Ausaf Ahmed. potter and handicraft producer). in which three types of accounts were operated. which paved the way for mobilization of financial resources for the needy and poor. Some banks provide the privilege of interest free loans to the holders of investment accounts at the bank. Rotating Savings and Credit Associations: This credit program is intended to alleviate poverty. marginal farmers. The leader receives no special consideration (other than possibly getting the first fund). some other banks provide interest free loans to small producers. It also discourages internal migration.

and in the health and social services sector. It could. it offers financing of consumer durable assets for the newly married couple provided marriage is dowry free. Health and Sanitation. social education fellowship program. linked to its all Formal. A waquif can choose the purpose (s) to be served by his investment from the list of some purposes identified by IB. the bank is operating with a human face.Under this program. Environmental Friendly Business Program: This credit program is directed towards small traders of Tokai (mainly street children of distressed parents) with a recovery rate of 100% Social Fund: Every IB has already established its social fund by mobilizing voluntary social saving. which are related with Family Rehabilitation. Cash Waqf Certificate: IB has already introduced the Cash Waqf Certificate Scheme intended to empower the family heritage of the rich and to benefit society as a whole. Non-formal and Voluntary Sector Banking operations. Social Utility Service. or any other purpose(s) approved by Islamic Shari’ah. Education and Culture. IB has been able to mobilize a surplus Social Fund for social investment purposes in the family empowerment action program. . For example. be the most effective and perpetual mode of deposit mobilization and use of its profit for perpetual social investment and benefits is virtually unlimited.

By the way of the definition an Islamic bank & Conventional bank can be distinguished: • “Islamic Bank is a financial institution whose statutes. This is because they are extremely different in many ways. business approach.. Thus all dealing. The key difference is that Islamic Banking is based on Shari’ah foundation. responsibility are derived from the Shari’ah law.Chapter Five Difference between Conventional & Islamic banking One must refrain from making a direct comparison between Islamic banking and Conventional banking (apple to apple comparison). investment focus. transaction. rules and procedures expressly state its commitment to the principles of Islamic Shari’ah and to the banning of the receipt and payment of interest on any of its operations”. It borrows from one party and lends to another and the difference between the terms at which it borrows and those at which it lends from the source of its profit”.Prof. which lead to the significant difference in many part of the operations with as of the conventional. Gilbert .. It is an intermediate party between the borrower and the lender. product feature.OIC • “A commercial (conventional) bank is dealer in capital or more properly a dealer in money.

. the conventional bank is based on man made principles. As a result various conflicts arise within the internal and external management systems. Cost plus agreed profit Bank 3. Cash Payment Bank Client • Supplier Foundation: The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic law or the Shari’ah in all of its actions and deeds. As a result it increases complexity in the conventional banking systems. On the other hand. The meaning of Shari’ah is the way to the source of life and is now used to refer to legal system in keeping with the code of behavior called for by the Holly Qur’an. place to place. Principle Investment 2. Pay Cash ment Islamic Bank Suppli er 4. Good 1. There many fundamental and functional differences exist in these principles. Goods 2.Conventional Bank 1. Good 4. These principles vary man to man. Loan Bank Bank Client 3.

This is so because the banks income (interest income) does not fluctuate with the fluctuations in the profit generated from the specific projects. CRR is 5. involves each and every partner in the transaction process with the element of interest.5%. • Project appraisal and evaluation: Islamic banks share profit and loss of any project financed. Every commercial Bank having Islamic bank branches shall maintain SLR/CRR for its Islamic branches at the same rate as prescribed for the Islamic banks and shall. The main function of Islamic banks is to mobilize savings and provide financial support to the entrepreneurs. The techniques. Any failure on the part of the bank to assess the soundness of the project would seriously affect the profitability of the enterprise. the collection of the deposit is on the basis of interest. as long as it receives its payments. Investors are to pay a predetermined rate of interest to the bank. As the bank’s interest is linked with the earnings capability of the enterprise. maintain a separate Current Account for the Islamic branches with Bangladesh Bank. For Islamic banks. In the conventional banking system.5%.5% & LRR is 13%. SLR is 10. CRR is 4. It mobilizes savings of the common people in line with Islamic Shari’ah.5% & LRR is 5%. it has to judge the worthiness or suitability of the project by applying suitable appraisal criteria. • Basis for collection of deposit Islamic banks collect the deposits on the basis of profit sharing. . the Islamic banks neither pay nor receive interest from any of its transactions thereby saving everybody from the course of interest. It disapproves hoarding of savings and encourages its productive investment. Here depositors receive interest in a predetermined rate of their deposits. for the purpose. But Conventional banks SLR is 18. It gives more emphasis on the viability of the project. the bank is simply a financier and is not directly concerned about the success or failure of the project for which loan was made. So the banks pay greater attention to developing project appraisal and evaluations. Since return from loan is fixed. thus. Like the conventional banks. it gives little importance to project appraisal and evaluations. But in the conventional banking system.• Maintenance of CRR/SLR: All Islamic Banking Companies shall maintain Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as per rates prescribed by Bangladesh Bank from time to time.

Since Islamic banks have a built in mechanism of risk sharing. It is customary that conventional banks evaluate applications. • Scope of the activities: An Islamic Bank has wider scope of activities compared to a conventional bank. a night club or any other activity which is prohibited by Islam or is known to be harmful for the society. It has no restriction to finance any project like Islamic banking systems. since they would have to make a greater effort to match the maturity of their liabilities with the maturity of their assets. Their main concern does not go beyond ensuring the security of their principal and interest receipts.• Moral Dimension In the Islamic banking system all economic agents have to work within moral value system of Islam. It does not follow any religious rules and regulations or does not obey any restriction. consider collateral and avoid risk as much as possible. the Islamic banks will receive a return only if the project succeeds and produces a profit. . Under profit loss sharing banking. They can not finance any project which conflicts with the moral value system of Islam. On the other hand. it would need to be more careful in how it evaluates financing requests. It emphasizes on the possibility of earning maximum profit. This should make them less crisis prone compared to their capitalist counterparts. a casino. • Emphasis on Productivity as compared to credit worthiness Islamic banks give greater emphasis on the viability and soundness of the project and the business acumen and managerial competence of the entrepreneur. investment trust and investment management institution and would offer a variety of service to their customers. It adds a healthy dimension in the whole lending business and eliminates a whole range of undesirable lending practices. A substantial distinguishing feature is that Islamic banks are universal or multipurpose banks and not purely commercial banks. A substantial part of their financing would be for specific projects or ventures. They will not finance a wine factory. conventional banks give greater emphasis on credit worthiness of the clients. Islamic banks have very careful attitude towards evaluation of applications for equity oriented financing. But the conventional banking is secular in its orientation. Their equity oriented investment would not permit them to borrow short term fund and lend to long term investment. These banks are conceived to be a crossbreed of commercial and investment banks.

conventional banks have narrower scope of activities. • Allocate Efficiency: The income distribution scheme under conventional banking works against the goal of optimum allocation of scarce financial resources. their expertise will be improving the profitability of the project as well as contribute in the management of that project. diverts funds to projects with sound collateral. This limits investment opportunity utilization capacity of the conventional bank thereby reducing productive efficiency of conventional banking. Islamic banks share a proportion of the profits accrued from a project implying an equitable distribution. depositors or Sahib-al-Mal have to bear the loss if any. They do not share any profit or loss with their clients. They only maintain a debtor-creditor relationship with their clients/depositors. this system is more efficient in allocation of resources. the productivity of the projects is more important. This is because of the fact that conventional banking. Therefore the earning of the depositors is uncertain. instead of financing in terms profitability of projects. Therefore. Without taking risk financial transactions are not allowed in Islam. they are specialized in the area of finance and investment.Compared to the Islamic banks. depositors are taking risk as Sahib-al-Mal. This system of fixed interest rate is somewhat biased against the borrower rate is determined in a way that assures profits to the other parties in the transaction. But in Islamic banking. the banks welcome profitable business ventures form all income sectors. Since. the bank and depositors in the Islamic banking system. But the conventional banking maintains a flat rate of interest regardless of the profitability of the projects financed by it. In fact. These results in loans being made to higher income borrower that can be meet the collateral requirements. In this way. Without considering the trend of income these banks have to give interest on the deposits money at predetermined rate. The main function are collecting the deposits and ending to the borrower in different purposes in exchange of rate of interest. As Islamic banks works on the basis of profit loss sharing system. On the other hand conventional banks have to guarantee all its deposits. there is no bias towards any income sector. . • Distributive justice and economic stability: Since profits are shared between the entrepreneurs. • Guarantee for deposit: There is no guarantee for deposit money in the Islamic bank system. The distributors remain unaltered since the Islamic banks receive a share of total profits accrued from different projects financed by the bank. the resources instead of going to low to higher return projects even if the creditability of the borrower is lower. Under Islamic framework.

It does not have any deterrent effect on investment which a fixed cost of capital has. educational qualification. the liabilities of the bank are on the basis of mudarabah and hence are also variable. In Islamic banking small and medium entrepreneur has a better project he has a possibility of getting it's financed. The bankers also lack equilibrium in their assets and liability side because their assets are fixed while liabilities are variable. Islamic banking model promotes innovation. reputation of the applicant. This creates instability in the entire business sector. • Growth of the banking system: From growth point of view the Islamic banking system is better than the conventional banking system. It results in a better distribution of risk. Again the bank may meet with the prospective client regarding his investment needs and business experience prior to an application/proposal is submitted. . When a client make an offer or a proposal regarding loan or investment the bank emphasizes more on the character of the applicants. The entrepreneurs of the businessman have to give a fixed interest to the banks that has no relationship to the actual return of the project. The bank must verify the character of the applicant before allowing his application. The banks deal with their client based on faith and trust. Moreover conditions of the cost of capital are more favorable under the Islamic system. it affects equally both asset and liability side of the banker's balance sheet. The bank may review the client's past performance and other financing arrangement he may have had with the bank in the past. Therefore ingenious efficient entrepreneurs will be forthcoming and innovation will be promoted. So it is necessary for the bankers to know the background. The asset and liabilities are mutually linked and this mechanism returns equilibrium between the assets and the liabilities of the Islamic banks. Here the cost of capital varies with productivity. So there is a very likelihood of bank failures. When the banks become contain that the applicant is not involved with any activities violating the Islamic Shari’ah they grant his proposal. Thus their liabilities are related with actual performance of the projects hey financed. there is lack of symmetry in the cash flow of the banks and the cash flow of the enterprise. the bank in turn makes investment in different forms approved by the Islamic Shari’ah. In case of Islamic banking system. Since risk is shared between the financer and entrepreneur. family status. business experience. If there is any stock.• Stability of banking system: The Islamic banking model is more stable than the conventional banking model. • Emphasis on the character of the loan applicant: When money is deposited with an Islamic bank. In an interest based system.

On the other hand, conventional bank emphasizes on the financial strength, collateral security, and creditworthiness of an applicant more than his character. Without considering the character the bank will grant that proposal which will certainly give a maximum profit at a predetermined fixed rate. Islamic banks perform mostly the same functions as the conventional banks but they do it in distinctly different manners. These differences make the Islamic banking system distinct from the conventional banking system. It may be mentioned that if the Islamic banking system, is to become truly liquid and efficient it must develop more standardized and universally tradable financial instrument. Islamic banks can provide more efficient banking services if they are supported with appropriate banking laws, regulations and guidelines. It would be better if Islamic banks had the opportunity to work as a sole system in an economy. That would provide Islamic banking system to fully utilize its potentials. Thus it can be free from all difficulties and problems that are in the conventional banking system. It can be hopefully expected that if the overall economic system as well as the banking system can be executed according to Quran, Sunnah and Hadit it will bring the maximum prosper in the entire economy.

Chapter Six

Findings, Recommendations, Conclusion, Bibliography & Appendix

6.1 Findings
From the above analysis we found that the overall functions and performance of IBBL over the years are quite satisfactory. Though the no of branches in not enough for this overpopulated country, the IBBL is performing well. Though it’s a profitable bank, it has some lacking which are constrains for its operations.

Devising an interest-free mechanism:

They have not yet been successful in devising an interest-free mechanism to place their funds on a short-term basis. They face the same problem in financing consumer loans and government deficits.
• Risk of profit-sharing:

The risk involved in profit-sharing seems to be so high that almost all of the Islamic banks in Bangladesh have resorted to those techniques of financing which bring them a fixed assured return. As a result, there is a lot of genuine criticism that these banks have not abolished interest but, they have, in fact, only changed the nomenclature of their transactions.

Inadequacy of legal support of the Central bank:

The Islamic banks do not have the legal support of the Central bank in Bangladesh, do not have the necessary expertise and trained manpower to appraise, monitor, evaluate an audit the projects that are required to finance. As a result, they can not expand despite huge excess financial liquidity.

Lack of risk-hedging instruments:

The prohibition against “riba” and some “fiqh” issues in the interpretation of “gharar” mean that many risk-hedging instruments based on traditional tools, such as option, futures and forwards are not available to Islamic banks in the current state of Islamic banking.
• Underdeveloped money market and government securities based on profit-loss sharing:

This may difficult to manage the liquidity in terms of mismatching the asst-liquidity and increases the liquidity shocks. Fortunately, significant progress has been made in Iran for government securities and short-term instruments such as National Participation Certificates and Central Bank Mushrakah for such issues.

Requirement of holding a large proportion of the assets in reserve accounts:

Islamic banks have historically been forced to hold a large proportion of their assets in reserve accounts in central banks or in correspondent accounts than conventional banks. This has significantly affected their profitability because Central Bank gives minimum or no return to these reserves. This in turn, has affected their competitiveness ad increases their potentiality to the external shocks with its consequences.
• Operational risks:

Operational risks may arise from various sources;  The unique activities that Islamic banks must perform.  The non-standardized nature of some Islamic products.  The lack of an efficient and reliable Shari’ah legislation system to enforce financial contracts.
• Risks involved with ‘Salam’:

Salam (purchase with deferred delivery) contracts expose Islamic banks to both credit and commodity price risk. This is because banks agree to buy the commodity on a future date against current payment and also hold the commodity until it can be converted to a cash.
• Risks involved with ‘Ijarah’:

Ijarah also contain the credit and commodity price risk because this contract do not provide Islamic banks with the ability to transfer substantial risks and rewards to the lessee as leased assets must be carried on the balance sheet of banks for the term of the issue.

6.2 Recommendations
After observing the operation procedure of IBBL, we recommend the following: IBBL should launch new financial products to attract customers as Consumer Credit Scheme, Child Education Scheme, and Plastic Money etc. IBBL can also lunch ATM as diversification.

Marketing Division: To increase the faith of people, IBBL should convince them in the best manner, so that market share can be captured. Marketing division should concentrate more on investment strategy. Diversify Assets Portfolio:

So selection of employee from business school can give proper solution. IT Facilities: IT facilities of IBBL are not satisfactory enough. Ensure Proper Maintenance of Files: . need to be equipped with adequate banking knowledge. should upgrade its website regularly and provide details information of Consumer Credit Scheme. Development of Human Resources: Human resource is another sector for the branch to be developed urgently. So. Ensure Sufficient Manpower: The number of human resources in documentation section is really insufficient to give services to huge number of customers. Bank can arrange training program on these subjects. finance and accounting. he should justify by the KYC policy. Human resources. not sufficient and moreover some of computer system not work properly when they are needed. Without proper knowledge in these subjects. So. Real judgment before sanctioning the loans: When a loan is issued for the customer. So the relevant officer must take the responsibilities to recover the loan. There is no sufficient and high bandwidth Internet connection available in the bank. Majority of the human resources must have basic knowledge regarding money. Computer system which owned by branch are not up to date. banking. It should not concentrate or give weight only in working capital financing. It is a sensitive issue for the investment division. in the branch. IBBL should develop Information Technology to ensure better service for the customer and support communication with outside Upgrading website: Islami Bank Bangladesh Ltd.Leading portfolio of IBBL should be diversified. Need Personnel having Business Knowledge: Most of the personnel have no business education. number of staff should be increased in the sections. efficiency cannot be optimized.

U. IBBL will be more effective in our economy by launching new financial products to attract deposit as Consumer Credit Scheme. by now. U. Islami Bank Bangladesh Ltd. Denmark. Islami Bank Bangladesh Ltd. So people choose their bank according to their satisfaction and need.IBBL gives personalized services. Switzerland and India have been established. Germany. Luxembourg. Banks innovate new products and services to attract their desired customer. IBBL through its steady process and continued success has. Attention should be given on proper maintenance of phone. Pension Scheme. Currently 57 Banks are operated in Bangladesh. computer. Europe. earned the reputation of being one of the leading private sector banks of the country.S.A. The banking system of Pakistan and Iran was totally remodeled on the basis of Islamic Shari’ah services. Every staff should try to reduce these irregularities. On the other hand.. while maintaining the customer files. All the Commercial banks are offering almost the same products and services. The bank is committed to run all its activities as per Islamic Shari’ah.. By following the novelty of Islamic Economics the bank is trying to make a balance development between spiritual and material life.3 Conclusion: Banks play a very vital role in the economic development of the country. The popularity of banks is increasing day by day which leads to increase competition as well. But the way they provide the services are different from each other. is one of the fast growing banks in Bangladesh because of its rapid customers’ satisfaction. America and countries like Pakistan. Africa. fax machine and photocopier. Still now hear about 301 Islamic banking and financial institutions in about 49 countries of Asia. Ensure Proper Machineries: Communication System and Maintenance of Sometimes Communication System remains out of order. 6. All the officers have to give concentration to the customers. Argentina. and Child Education Scheme and contribute more to develop the living standard of middle class people.K. . is also playing an important role in establishing Islamic Economics by combing the economic values with social and moral values.

Islamic Banking Habibur Rahman 2.Bibliography 1. Appendix Questioner 1. 4.2005-2009 3.islamibankbd. Handout provided by IBTRA . Annual Reports of Islami Bank. Does IBBL facilitate fund transfer on behalf of clients? • Yes .

Does it charge high commission for this service? • • Yes No 3. Do your branch provide any investment facility for women entrepreneurs? • • Yes No 9.• No 2. Does IBBL offers SME? • • Yes No 4. Does IBBL invest for any industry? • • Yes No 8. Do your branch have special section for RDS? • • Yes No 7. Which investment mechanism is widely used? • • • Bai Share Ijarah 5. Which Bai Mode is widely used? • • • • Bai-Murabaha Trust Receipt Bai-Muajjal Bai-Salam Bai-Istisna 6. What is the valuation process of collataralled asset? .

Do you offer both local & foreign DD/P. 80% 0f market value 10. Does IBBL participate at call money market? • • Yes No 12. Does the bank provide online services? • • Yes No . Does the bank provide MICR? • • Yes No 14.Ans.T. O. Do you offer both local & foreign T.? • • Yes No 16. Is there any locker system? • • Yes No 13. Does IBBL offer L/C? • • Yes No 15. For how many period(s) you provide investment facility a) 1 year b) 2 year c) 3year d) more than 5years 11.? • • Yes No 17.

18. Does it take long time for the bank for making payment to the customers? • • Yes No 20. Do your customers fell comfortable with your percentage on profit? • • • • • Strongly agree Agree Neutral Disagree Strongly Disagree . Does the bank charge high commission for any service? • • Yes No 21. Do you think your customers are satisfied with all of your services? • • • • • Strongly agree Agree Neutral Disagree Strongly disagree 22. What types of export section of investment do you provide? • • • • • Back to Back L/C Master L/C Pre shipment financing Post shipment financing All of them 19.

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