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Chapter-One

Introduction

1.1 Introduction
Banking system occupies an important place in a nations economy. A banking institution is
indispensable in a modern society. It plays a pivotal role in the economic development of a
country and forms the core of the money market in an advanced country. In recent times the
banking sector over the world has been undergoing a lot of changes due to deregulation,
technological innovation, globalization etc. Bangladesh banking sector is lagging far behind in
adopting these changes. To thrive well in this changing environment, not only development of
appropriate infrastructure is necessary but also infusion of professionalism in to banking service
is essential. The Banking sector is one of the highly regulated sectors in our country. It is
governed by the rules and regulation of Central Bank of the country i.e. Bangladesh Bank and
Security and Exchange Commission. The bank companies are forced to comply the best
accounting practices. It strictly follows International Accounting Standard (IAS) norms. It
publishes the financial statement every year getting it duly audited by recognized audit firms.
Every bank of our country has a division named Financial Administration Division (FAD) which
takes care of the accounting issues of the Bank. Most of the personnel who lead these divisions
are of accounting background. Among the accounting based FAD personnel who know the
banking operation better can contribute more in the banks.
Islami bank Bangladesh Limited is an unconditional and specialized financial institution which is
first of its kind in South East Asia performs most of the standard banking service and investment
activities on the basis of profit-loss sharing system conforming to the principles of Islamic
Shariah. Islami Bank does not pay interest to depositor. Instead depositors participate in the
profitability of the bank. The Bank participates in financing long-term projects on the basis of
profit-loss sharing instead of granting credit facilities with interest. IBBL also performs various
social welfare activities through its subsidiary organ named Islami Bank Foundation (IBF).
Career in Banking has become very lucrative over the last few years considering the work
environment and remuneration package. As a student of BBA, I cherish to be a banker and that is
why I had chosen a banking organization for my internship. I chose IBBL because it has a good
reputation in the banking community.

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

1.1 Origin of the report


This report is done as partial requirement of the 2 months internship program for the BBA
students of ASA University Bangladesh (ASAUB). During my internship period I joined Islami
Bank Bangladesh Limited at Shyamoli Branch. My University supervisor Abdullah-al Masum
suggest me that the topic of my report would be Investment Mechanism of Islami Bank
Bangladesh Limited and prepare this report in the organization.

1.2 Significance of the study


Islami Bank Bangladesh Ltd. is the biggest Bank in Bangladesh in private sector. There are a few
numbers of private Banks that can compete with IBBL. A Banking system is aiming to gain the
goal of Islamic economy through setting a well-designed Islamic Monitory system. Regarding
use of money Islam has its clear-cut instruction through some distinctive guidelines. Avoiding
interest (Riba), restricting exploitation & speculation etc. are major guideline in this process. So
Islamic Banking system is doing banking business under Islamic guide lines.

1.3 Scope of the study


The scope of the organizational part covers the organizational structure, background, products
and services and the financial performance of Islami Bank Bangladesh Limited as a whole and
the main part covers investment risk management of IBBL. This report helps us to understand
the clear real-time experience about the investment business operations of IBBL.
In this report I have focused on all the qualitative which include profiles of IBBL, Investment
mechanism like Bai mechanism, Partnership or Share mechanism and Leasing or Ijara

mechanism, different schemes of investment such as household durable schemes, housing


investment scheme, transport investment scheme, car investment scheme, investment scheme for
doctors, small business investment schemes, rural development scheme etc.

1.4 Objective of the study


1.4.1 Primary Objective:
The primary objectives of this report are to represent the Investment Mechanism of
Islami Bank Bangladesh Limited and to have a clear conception about all of the essential
parts of the internship program.

1.4.2 Secondary Objective:


To apply theoretical knowledge in the practical field.
To know the investment procedures of IBBL.
To analyze sector wise and geographical location wise investment of IBBL
To analyze different mode wise investment of IBBL through trend analysis.
To identify strength and weakness of lending and investments of overall banking system.
To identify the problems related to investments faced by IBBL and other conventional
banks.

1.5 Methodology of the study


Methodology is the process or a system through which a study is being carried out for the
purpose of collection of information that is required is collection with the study for reaching a
conclusion on that study. For smooth and accurate study everyone have to follow some rules &
regulation. The study impute were collected from two sources:
1.5.1 Primary Sources of Data: I discussed with the officials and executives of the IBBL,
Shyamoli Branch and found the approximate data which has been used and presented in this
report. The study has been conducted through the assistance of Investment Department,
Shyamoli Branch as per their operating and maintaining an investment business through applying

modern and technological means. I have also physically observed the effectiveness of the efforts
relating investment business effectively and efficiently managed by Islami Bank Bangladesh
Limited, Shyamoli Branch. Primary sources of data include the following:
Practical work experience,
Direct Interviews & Conversation
Official records
Observation of various organizational procedures
Expert opinion
Practical desk work
Direct observations
1.5.2 Secondary Sources Data: I have collected secondary data from the following sources:
Annual report of Islami Bank Bangladesh Limited.
Training sheets which are provided by Islami Bank Training and Research Academy
(IBTRA).
IBTRA Library.
Files & Folders of IBBL
Memos & Circulars of IBBL
Various publications on Bank,
Manuals of IBBL regarding investment business.
IBBLs website (www.islamibankbd.com).
Different circulars sent by Head Office and Bangladesh Bank.

1.6 Limitation of the Report


Although I have obtained the whole hearted co-operation from the employees of Islami Bank
Bangladesh Limited, Shyamoli Branch and Islami Bank Training and Research Academy but in
the way of my study, I have faced the following problems, which may be termed as the
limitations of the study. Some limitations are as under:

The main constraint of the study was insufficiency of information, which was required
for the study. There are various information the bank employee cant provide due to
security and other corporate obligations.
All the branches of the bank were not physically visited and all the concerned personnel
of the bank have not been interviewed.
Lack of in-depth knowledge and analytical ability for writing such report.
Lack of experience.
Learning all the banking functions about the investment mechanism within just 60 days
was really tough.
Data and information used in this study are mostly from secondary sources.
Large scale research was not possible due to the constraints and restrictions posed by the
bank.
The report has encountered these limitations that may hinder the progress of the study but with
constant effort, I try to minimize the negative effects of these limitations.

Chapter-Two

An Overview of the
IBBL

2.1 An overview of Islami Bank


The interest based banking system and mechanism is very familiar to us. At the time of
independence Bangladesh inherited an interest-based banking system introduced by the British
government during the colonial period. At present four nationalized banks, four specialized
banks, nine foreign banks and thirty one private commercial banks are operating in the financial
market of Bangladesh. But the Islamic banking in Bangladesh dates back to 1983 when the
Islami Bank Bangladesh Limited was established with a view to conducting its banking activities
based on the principle of Islamic Shariah.
Islamic banking was successfully tries in Egypt. After establishing the MitGhamar Model, Naser
Social Bank was in the process of establishment. During the seventies, Islamic Development
Bank (IDB) and a number of Islamic banks at national levels were established in the Islamic
world. At home the Islamic groups were vigorously working for adoption of Islam as the
complete code of life. They found Islamic banking in ready form of immediate introduction. Two
professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic
Bankers Association (BIBA) were taking practical steps for imparting training on Islamic
Economics and banking to a group of bankers and arranging some national and international
seminars/workshops to mobilize local and foreign people and attract investors to come forward
to establish Islamic bank in Bangladesh. Their professional and right-thought activities were
reinforces by a number of Muslim entrepreneurs working under the aegis of Muslim
Businessman Society. The body concentrated mainly in mobilizing equity capital for the
emerging Islamic bank. Due to continuous and dedicated work of the above groups and
individuals and active support from the government, Islamic banking could be established in
early eighties.
Islamic banks have been operating in Bangladesh alongside with the traditional banks. Like any
other traditional commercial banks, they do mobilize deposits and produce loans. But there
modes of operation, based on Shariah, are different from the other traditional commercial banks.
However the eight Islamic banks operating in Bangladesh are:
1) Al-ArafahIslami Bank Limited
2) Export Import Bank of Bangladesh Limited

3) First Security Islami Bank Limited


4) ICB Islami Bank
5) Islami Bank Bangladesh Limited
6) ShahjalalIslami Bank Limited
7) Social Islami Bank Limited
8) Union Bank Limited
The Organization of Islamic Conference (OIC) defined an Islamic Bank as a financial
institution whose statutes, rules and procedures expressly state its commitment to the principles
of Islamic Shariah and to the banking of the receipt and payment of interest on any of its
operation.
According to Islamic banking Act 1983 of Malaysia, and Islamic Bank is a company which
carries on Islamic Banking Business Islamic Banding business means banking business whole
aims and operations do not involve any element which is not approved by the religion Islam.
From those definitions, we can find some characteristics of Islami Banking as:
It is a financial institution.
It is a business institution.
It operates its business activities free from interest.
It is run according to rules and regulations formed and amended by Shariah Council.
Islamic bank means not business product but running business through money.
It is profit loss sharing business organization.
The main objective of Islamic Banking is not only to earn profit, but also to do good and welfare
to the people. Islam upholds the concept that money, income and property belong to Allah and
this wealth is to be used for the good of the society.

2.2 History of Islami Bank of Bangladesh Limited


Establishment of Islamic Development Bank (IDB) by the OIC member states in the year 1975
has been proved to be a breakthrough in the expansion of Islamic Shariah based finance and
specially banking throughout the world. As a founder member of IDB, the Government of

Bangladesh also had the commitment to establish Islamic banks which was reflected in different
steps taken by the governments of the country. The OIC members consented to the proposals to
introduce Islamic economy and banking in their respective countries held in the foreign
ministers conferences in 1978 and 1980 in Dakar and Islamabad respectively. In the year 1981,
OIC in its 3rd summit held in Makkah approved the proposition submitted by Bangladesh to
introduce separate banking system following Islamic ideology. As per decision, the GOB sent
representatives to the Middle Eastern countries to learn the existing banking systems in those
countries.
In the private sector, the Islamic Economics Research Bureau (IERB) was the first organization
that took active initiative in this regard. They arranged a national seminar on Islamic Economics
and Banking in the year 1979 and inspired by the discussion and the papers presented in the
seminars, some local bankers formed Islami Bank Working Group. The IERB again arranged
an international seminar in 1980. After the seminar, Dhaka based Muslim Businessman Society
(later renamed as Industrialist and Businessmen Association) under the leadership of renowned
industrialist Abdur Razzaque Lasker, took initiative to establish an Islamic bank and applied to
the government for permission. At this stage, the GOB provided necessary permission in the year
1983 and at last Islami Bank Bangladesh was registered under Company Act in which 19
Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and
government bodies of the Middle East and Europe including IDB and two eminent personalities
of the Kingdom of Saudi Arabia joined hands to make the dream a reality.

2.3 Concept of Islamic Banking


A banking system is based on the principles of Islamic law (also known Shariah) and guided by
Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and
loss and, significantly, the prohibition of the collection and payment of interest. Collecting
interest is not permitted under Islamic law.
Since this system of banking is grounded in Islamic principles, all the undertakings of the banks
follow Islamic morals. Therefore, it could be said that financial transactions within Islamic
banking are a culturally distinct form of ethical investing (for example, investments involving

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alcohol, gambling, pork, etc. are prohibited). The Dubai Islamic Bank has the distinction of
being the world's first full-fledged Islamic bank, formed in 1975.

2.4 What is Islamic Banking?


Islamic bank is a financial institution whose status, rules and procedures expressly state its
commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of
interest on any of its operations. -OIC
Ziauddin Ahmed says, Islamic bank is essentially a normative concept and could be defined as
conduct of banking in consonance with the ethos of the value system of Islam.
It appears from the above definitions that Islamic bank is systems of financial intermediation that
avoids receipt and payment of interest in its transactions and conducts its operations in a way that
it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system
whose operation is based on Islamic principles of transactions of which profit and loss sharing
(PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic bank is
often known as PLS-banks.

2.5 Objective of Islamic Banking


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

To offer contemporary financial services in conformity with Islamic Shariah;

To contribute towards economic development and prosperity within the principles of


Islamic justice;

Optimum allocation of scarce financial resources

To help ensure equitable distribution of income.

To conduct interest-free banking.

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

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To accept deposits on profit-loss sharing basis.

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

These objectives are discussed below.


Offer Financial Services: Interest-based banking, which is considered a practice of
Riba in financial transactions, is unanimously identified as anti-Islamic. That means all
transactions made under conventional banking are unlawful according to Islamic
Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for
Shariah approved financial transactions.
Islamic Banking for Development: Islamic banking is claimed to be more
development- oriented than its conventional counterpart. 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.
Optimum Allocation of Resources: Another important objective of Islamic banking is
the optimum allocation of scarce resources. 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.
Islamic Banking for Equitable Distribution of Resources: Perhaps they must
important objective of Islamic banking is to ensure equitable distribution of income and
resources among the participating parties: the bank, the depositors and the entrepreneurs.

2.6 Features of 'Islamic Banking


Islami Bank Bangladesh Limited (IBBL) was incorporated on 13.03.1983 as a public company
with limited liability under the companies act, 1913. The bank started functioning with effect
from 30.03.1983 as the first Shariah based interest-free bank in South-East Asia.
The bank is committed to run all its activities as per Islamic Shariah. IBBL through its steady

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progress and continuous success has, by now, earned the reputation of being one of the leading
private sector banks of the country. The distinguishing features of IBBL are as under:

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

Investment is made through different modes permitted under Islamic Shariah.

Investment-income of the bank is shared with the Mudaraba depositors according to a


ratio to ensure a reasonably fair rate of return on their deposits.

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

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

It plays a vital role in human resource development and employment generation


particularly for the unemployed youths.

Its aim is to achieve balance growth & equitable development of the country through diversified
investment operations particularly in the priority sectors and in the less developed areas.

2.7 Vision of IBBL


IBBL vision is to always strive to achieve superior financial performance, be considered a
leading Islamic bank by reputation and performance. To accomplish our aims, we have identified
a series of strategic goals:
Our goal is to establish and maintain the modern banking techniques, to ensure the
soundness and development of the financial system based on Islamic principles and to
become the strong and efficient organization with highly motivated professionals,
working for the benefit of people, based upon accountability, transparency and integrity
in order to ensure stability of financial systems.
IBBL will try to encourage savings in the form of direct investment.

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

2.8 Mission of IBBL


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

2.9Shariah Council of IBBL


2.9.1 Profile of Council Members: The Shariah Council of Islamic Bank generally consists of
experts from the following four areas:
1. Fuqaha: Persons representing this group must be well versed in the Quran, Sunnah and
fully conversant with the opinion of all schools of islami thought and Islami law and
jurisprudence. They must view Islam as a total way of life and a living religion.
2. Banker: There must be a member who is fully conversant with banking law and practices
and has practical experiences in Banking business including foreign trade.
3. Economist: A member from this group need not necessarily be an Islami economist to
start with. But if he is an Islami Economist it is an added advantage. What is important is
that he must be really proficient in modern economies with an in depth study of the
community, which a bank is going to solve. He must have up to date knowledge in the
development of the contemporary world.
4. Lawyer: A member representing this group should be a successful practitioner lawyer.
He must be proficient in commercial law including company law. In consultation with the

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Fuqaha and Economist members of the council, he should be able to draft such
innovating contracts, which will have the sanction of Islami principles and a banking law
of the land.
2.9.2Objectives of Shariah Council: The functions of the council are to offer views and
opinions on matters related to the bank from time to time. The council may require any paper
document from the bank and examine the same to see whether it is according to see whether it is
according to Islamic principles.
The shariah council assists the Board of Directors by advising them on matters related to
shariah.
The opinion of the majority of members is taken as the opinion of the council provided
that the said opinion is supported by at least three Muftis of the council.
The council maintains its secretariat and a well-equipped library as the Head Office of the
bank where it keeps proper records of all of its proceedings and decisions.
The council may whenever it thinks necessary, constitutes a subcommittee to help the
council.

2.10Strategic Objectives
To ensure customers' satisfaction.
To ensure welfare oriented banking.
To establish a set of managerial succession and adopting technological changes to ensure
successful development of an Islamic Bank as a stable financial institution.
To prioritize the clients welfare.
To ensure diversification by Sector, Size, Economic purpose & geographical location
wise Investment and expansion need based Retail and SME/Women entrepreneur
financing.
To invest in the thrust and priority sectors of the economy.
To strive hard to become an employer of choice and nurturing & developing talent in a
performance-driven culture.

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To pay more importance in human resources as well as financial capital.


To ensure zero tolerance on negligence in compliance issues both Shariah and regulatory
issues.
To train & develop human resources continuously & provide adequate logistics to satisfy
customers need.
To be excellent in serving the cause of least developed community and area.
To motivate team members to take the ownership of every job.
To ensure development of devoted and satisfied human resources.
To encourage sound and pro-active future generation.
To achieve global standard.
To strengthen corporate culture.

2.11 Present Program of IBBL

Islami Bank Bangladesh Limited


(IBBL)

General Banking

Investment

Foreign Exchange

Figure 2.1: Present Program of the Organization

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2.12 Difference between Conventional Banking and Islamic Banking


For the interest of readers, the distinguishing features of the Conventional banking and Islamic
banking are shown it term of a box diagram as shown below:
SL NO
01

Conventional Banks

Islamic Banks

The functions and operating modes of The functions and operating modes of Islamic banks
conventional banks based on manmade based on the principles of Islamic Shariah.
principles.

02

The investor assured of a predetermined rate In contrast, it promotes risk sharing between provider
of interest.

03

of capital and the user of funds.

It aims at maximizing profit without any It also aims at maximizing profit but subject to
restriction.

04

Shariah restrictions.

It does not deal with zakat and does not pay In the modern Islamic banking system, it has become
any zakat.

one of the service-oriented functions of the Islamic


banks to collect and distribute Zakat.

05

Leading money and getting it back with Participation

in

partnership

business

is

the

interest is the fundamental function of the fundamental function of the Islamic banks.
conventional banks.
06

It can charge additional money (compound The Islamic banks have no provision to charge any
rate of interest) in case of defaulters.

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extra money from the defaulters.

In it very often, banks own interest It gives due importance to the public interest. Its
becomes prominent. It makes no effort to ultimate aim is to ensure growth with equity.
ensure growth with equity.

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For

interest-based

commercial

banks, For the Islamic banks, it is comparatively difficult to

borrowing from the money market.


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borrow money from the money market.

The relationship of client is creditor and The relationship of client is partners, investors and
debtors.

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traders.

A conventional bank has to guarantee all its Strictly speaking, an Islamic bank cannot guarantee all

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deposits.

its deposits

2.13 Difference between Riba and Profit


Some of people think there is a common interest and profits. In fact, interest and profit are not
the same. There are two differences between the theoretical and the practical. Now I discuss the
riba and profit in the given below:

Riba:
Dictionary Meaning: Arabic word Riba means increase, excess, expansion, addition, growth,
superior, increase of anything from its original amount.

Technical Meaning: It means interest, usury, sud etc. Riba is an increasing which is without
an equal counter value.

Definition of Riba: In Short sense Riba is a predetermined, fixed and time-related excess
over the above the principal of loan. In Broad sense, Riba technically refers to the premium
that must be paid by the borrower to the lender along with the principal amount as a condition for
the loan or for an extension in its maturity.

Profit:
Dictionary Meaning: Arabic word for profit means Ribhun. This means growth, surplus,
residual, addition to capital.

Definition of Profit: Profit is the difference between the value of production and the cost of
production which is Halal according to Islami Shariah. Profit on loss comes from investment in
business activities. Profit is the result of ownership transaction and risk following the four stages:

Transformation through Bai /Buying Selling of goods.

Risk of Transformation and Ownership.

Other Condition of Shariah.

Result-Profit on loss

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Comparison between Riba and Profit:


SL No
01

Riba

Profit

In case of riba the lender of capital The entrepreneurial profit of capital, labor
labor and time investment and risk- and the result of the investment and taking a
taking not only lend money.

risk.

02

Riba has a loan-ownership retained

Profit has Ownership Exchanged

03

Riba is an excess-without exchange Profit is an Equity of Value


value.

04

Riba has no transformation.

Profit has transformation.

05

Riba cannot take risk in the ownership.

Profit takes always risk in the business.

06

Riba has no relation with result Profit has the result.


imposed.

07

Riba is Predetermined and Fixed.

Profit ambiguous and uncertain.

2.14 Core Values


Trust in Almighty Allah
Strict observance of Islamic Shariah
Highest standard of Honesty, Integrity & Morale
Welfare Banking
Equity and Justice
Environmental Consciousness
Personalized Service
Adoption of Changed Technology
Proper Delegation, Transparency & Accountability

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2.15Corporate Information
Name of the Company

Islami Bank Bangladesh Limited

Legal Status

Public Limited Company

Company Registration No.

Dated March 13, 1983

Bangladesh Bank License No.

BL/DA/4290/83

Tax Payer Identification Number (TIN)

376764873732

VAT Registration Number

19011032134

Employees

13349

Total Branches

301

ATM Booth (own)

414

ATM Booth (shared)

2000

Off-Shore banking Unit

03

Directors

15

Sponsors

36

Shareholders

60,857

MPB holders

23,272

Local Shareholders

32.49%

Foreign Shareholders

67.51%

Foreign Correspondents

723

Chairman

Prof. Abu Nasser Muhammad Abduz Zaher

Managing Director& CEO

Mohammad Abdul Mannan

Company Secretary

Abu Reza Md. Yeahia

Head of Internal Control & Compliance

Md. Habibur Rahman Bhuiyan, FCA

Chief Financial Officer

Mohammad ShahidUllah, ACA, CIB, CDCS

Credit Rating Agency

Credit Rating Information and Services Ltd.

Registered Office

40, Dilkusha C/A, Dhaka-1000, Bangladesh

Phone

PABX: 9551105, 9551062, 9550415, 9563040

Mobile

88-01711435638-9

FAX

88-029564532, 9568634

SWIFT

IBBLBDDH

E-mail

info@islamibankbd.com

Website

www.islamibankbd.com

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2.16 Corporate Structure


Islami Bank
Bangladesh Limited

Shariah Supervisory
Committee

Risk Management
Committee

Board of Directors
Chairman

Review Committee

Executive
Committee

Audit
Committee

Islami Bank
Securities Limited

Islami Bank Capital


Management Limited

Islami Bank
Foundation

MANAGING
DIRECTOR
Shariah Secretariat

Board Secretariat
Division

Management
Committee (MC)

Asset Liability
Committee (ALCO)

Human Resources
Division

Islami Bank Training


& Research Academy

Operations
Wing

Corporate
Investment
Wing

Retail
Investment
Wing

Research & Development


Division

Internationa
l BANKING
Wing

Development
Wing

Internal Control
& C compliance
Wing

ICT Wing

MDs Secretariat

VIGILANCE Squad

Zones & Corporate


Branches

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Risk
Management
Wing

2.17 IBBL Networks


As a Bank of the mass people and to deliver its banking services to every possible doorstep,
IBBL has a vast banking network across the country by mean of setting up its branches at almost
all the suitable places of the country. Alternative Delivery Channel (ADC) with 450owned &
4000 shared ATM booths has expanded the network. As a part of gradual coverage to the
important commercial places both in urban & rural areas, the Bank has successfully opened 8
Branches in 2014 raising the total number of Branches to 294 from 286 of the previous year.
Aiming to achieve a balanced development in economic movement of the country as well as to
uplift the socio economic conditions at rural areas, IBBL has the highest number of the rural
branches among the first generation private banks. Out of 301 Branches, 73.35%, i.e. 216 are
urban Branches and 27%, i.e. 84 are Rural Branches.

Year

1985

1990

1995

2000

2005

2010

2013

2014

2015

13

49

90

116

169

251

286

294

301

2.18 Products and Services of Islami Bank Bangladesh Limited


2.18.1. Deposit Schemes:

Al-Wadeah Current Account (AWCA)

Mudaraba Savings Account (MSA)

Mudaraba Term Deposit Account (MTDR)

Mudaraba Special Notice Account (MSNA)

Mudaraba Special Savings (Pension) Account (MSSA)

Mudaraba Hajj Savings Account (MHSA)

Mudaraba Savings Bond Account (MSBA)

Mudaraba Waqf Cash Deposit Account (MWCDA)

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Mudaraba Monthly Profit Deposit Account (MMPDA)

Mudaraba Muhor Savings Deposit Account (MMSA)

Students Mudaraba Savings Account (SMSA)

Mudaraba Farmers Saving Account (MFSA)

Mudaraba NRB Savings Bond (MSNB)

Mudaraba Foreign Currency Deposit Account (MFCD).

2.18.2. Investment Scheme:

Household Durables Scheme (HDS)

Investment Scheme for Doctors (ISD)

Transport Investment Scheme (TIS)

Car Investment Scheme (CIS)

Small Business Investment Scheme (SBIS)

Micro Industries Investment Scheme (MIIS)

Agricultural Implement Investment Scheme (AIIS)

Real Estate Investment Program (REIP)

Real Estate Investment (Commercial & Working Capital)

Agricultural Investment of IBBL

NRB (Non Resident Bangladesh) Entrepreneurs Investment Scheme (NEIS)

Women Entrepreneurs Investment Scheme (WEIS)

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2.18.3. Rural Development Scheme


2.18.4. Foreign Exchange Scheme:

Central Crediting of Remittances,

Payment of 3rd Bank Remittance through TT & PO,

Payment of Spot Cash Remittances - Online and Web-based,

Centralized NRB Account Opening,

SMS Notification, SMS Push Pull Service,

Maintaining of NRD & NRT Accounts.

2.18.5. Special Service:

Locker Services

ATM Services

M cash

I Banking

Online services.

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Chapter-Three

Theoretical
Background

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3.1 Introduction
The overall investment mechanism of islami bank Bangladesh limited is presented through an
overview of 3P of investment of IBBl. Here the three P stands for the Policy of investment, the
process of investment and finally the principles on which the investment is made. The diagram
below will clarify the concept.

Investment
Mechanism
of IBBL
Principles of
Investment
of IBBL

Policy of
investment
of IBBL
Process of
investment
of IBBL

Figure 3.1: Investment Mechanism of IBBL (Source-Self)

What do we mean by Policy: -A policy is a deliberate system of principles to guide


decisions and achieve rational outcomes? It is a statement of intent and is implemented as
a procedure of protocol.
What to do we mean by Process: -A process is a series of systematic steps or actions to
be taken to attain a specific goal. Or in simple words, the way or the combined activity to
do something.
What to do we mean by principle: - A fundamental, primary or general law on truth
from which others are derived. A law or rule that has to e followed or can be desirably
followed.

26

3.2 Investment Policy of Islami Bank Bangladesh Limited (IBBL)


Generally Islami Bank as the name implies runs its business based on Islamic shariah. Whatever
the policy it imposes over its management; is justified in the light of The Holy Quran and Islamic
shariah. The policy of investment of IBBL is listed below:
Strict observance of Islamic shariah.
Investment to national priority sectors.
Diversified investment portfolio:

Diversified by size, sector, geographical area, economical purpose,


securities and mode of investment.

Preference to short term investment.


Preference to investment of small size
To insure the safety and security of investment.
To look profitability of investment
To give support to Govt. denationalization industrial program.
Investment to trade and commerce sector.
Investment to industrial sectors.
Investment to foreign trade (Import & Export)
Prohibition of investment in sectors that are Haram in the light of shariah.
All of this policy mentioned is strictly supervised by an Authority named The Shariah
Supervisory Committee (SSC)

SHARIAH
HONESTY

ACCOUNT
-ABILITY

TRANSPER
-ANCY

Figure 3.2: Policy of Investment (Source-Self)

27

JUSTICE

3.3 Deposit Products of IBBL


Generally a bank takes certain steps to deliver its proposed investment to the client. But the
process takes deep analysis. Because banks invest depositors fund, not banks own fund. If the
bank fails to meet its depositors demand, then it must collapse. So, each bank should take strong
concentration on investment proposal. However Islami Bank Bangladesh Limited (IBBL) makes
its investment decision through successfully passing the following crucial steps.
Where the money came from: The deposit mobilization function IBBL is represented in the
following diagram. It collects money from the general people (people of every class and age
cycle) under.
AWCA

MSA

MTDRA

NITA

MSNA

MFSA

MUDA

MHSA

SMSA

MSSA

FUND
MFCD

MSB

MMPDA

MNSB

MWCD
A

Figure 3.3: Deposit products of IBBL (Source-Self)

28

MIESA

Islami bank has several deposit schemes mentioned in the above diagram (Short forms).The bank
collects money from the general mass through this deposit accounts and accumulate the whole
fund to invest in the market. Currently IBBL has accumulated fund of 56 thousand cores.

3.4 Investment Process of final disbursement


IBBL has an 8 stage investment process. These steps are co related with one another in
sequential manner. Successful implementation of the preceding step is followed by the next one,
which start from selection of the appropriate client for the project and ending on monitoring and
recovering stage.

(1)
SELECTION
OF THE
CLIENT

(2)
APPLICATION STAGE

(3)

(5)DOCUME
N-TATION
STAGE

APPRAISAL
STAGE

Process

(4)

(6)

SANCTION
STAGE

DISBURSEM
-ENT STAGE

(7)

(8)

MONITORING

RECOVERY
STAGE

STAGE

Figure 3.4: Investment Process of final disbursement (Source-Self)

29

3.4.1 Selection of the client: First of the all client will approach the any branch of the IBBL and
will notify the manager that he wants to take a loan from the bank. Secondly the bank will
consider the five C of the client. After successful discussion between the client and bank, bank
selects the client for its proposed investment. It is to be noted that, neither the client nor the
customer must agree with the banks rules & regulation before availing investment. Generally,
Banks analyses the following five Cs of the client
COLLATERAL

CAPACITY

CAPITAL

CONDITION

CHARACTER

Figure 3.5: Client Selection Process (Source-Self)

3.4.2 Application Stage: At this stage the bank will collect necessary information about the
prospective client. For this reason, bank informs the perspective client to provide and or fill duly
respective information which is crucial for the initiation of the investment proposal. Generally
here all the required documents for taking investment have to prepare by the client himself.
Documents that are necessary for getting investment of IBBL are prescribed below:
Trade license photocopy (For proprietorship).
Abridged pro forma income statement.
Attested copy of partnership deed.
Prior three years audited balance sheet for (joint stock Company).
Prior three years business transaction statement for the musharaka / mudaraba
investment.
Abridged pro forma income statement for the musharaka / mudaraba investment.
Attested copy of the memorandum of Association (MOA) & Article of Association
(AOA) for the joint stock company.
Attested copy of the Tax Identification Number (TIN)- including final assessment;

30

Tenders of the proposed assets (in case of HPSM)


Detailed summary of the study debtors and creditors (including both time & schedule)
Summary of the personal moveable & immovable assets; and others.
3.4.3 Appraisal Stage: At this stage, the bank evaluates the client and his or her business. It is
the most important stage. On the basis of this stage the bank goes for sanctioning the proposed
investment limit/proposal. If anything goes wrong here, the bank suddenly stops to make
payment of investment.
In order to appraise a client, Islami Bank Bangladesh Limited (IBBL) provides a standard F167B form (Appraisal report) to the client for gathering all the information. The original copy of
the appraisal report is enclosing in the appendix chapter. However, the following contents are
presented from that appraisal report:
Company / client information.
Owner information.
List of partners or directors.
Purpose of investment facility.
Details of proposed Facilities / Investment.
Break up of present outstanding.
Other liabilities of the client / group.
Previous Bankers information
Details of sister / Allied concerns.
Allied Deposit as on
Business or industry analysis
Relationship Analysis.
Asset liability position of the client as per audited balance sheet.
Working capital assessment
Risk grade
Particulars of the go down for storing MPI/ Murabaha goods.
Insurance coverage
Audit observation
Security Analysis.

31

3.4.4 Sanctioning Stage: At this stage the bank officially approves the investment proposal of
the respective client .In this case client receives banks sanction letter. Islami bank Bangladesh
limited (IBBL) sanction letter contains the following elements.
Investment limits in million
Mode & amount of investment
Purpose of investment
Period of investment
Rate of Return
Securities.

Primary : stock of goods is the primary security


o LC / Bills : related documents
o Murabaha Post investment (MPI) / Bai-Murabaha: pledge of MPI /
Bai-Murabaha goods.
o MPI/Bai-Bai-Murabaha-TR; Lien on goods to be released.

Cash/Goods :
o Bai-Murabaha: 25% cash security on cost price to be subsequently
converted to goods security.
o TR (Trust Receipt): Without cash security.

Collateral: Immovable Properties

Cash / Goods securities: In allowing Murabaha investment and amount of cash security is
generally realized from the client (amount depends on the nature of goods, creditworthiness of
the client, collateral security obtained etc.) Which is converted to goods security after purchase
of goods purchased out of banks investment and clients cash security is pledged to the bank,
kept under banks custody before its delivery to the client on payment. If for a Murabaha
investment cash security is fixed at 25% Banks investment stands 75% on the total goods

32

purchased. For example, if cost of total goods purchased is tk. 100000 bank investment will be
tk. 75000 and clients cash security will be tk. 25000.
Bank

Client

Total Cost of Goods

Tk. 75000 (75%)

Tk. 25000 (25%)

Tk. 100000 (100%)

3.4.5 Documentation Stage: At this stage, usually the bank analyses whether required
documents are in order. In the documentation stage, Islami Bank Bangladesh limited (IBBL)
checks the following documents of the client:
Tax Payment Certificate
Stock Report
Trade License (Renewal)
VAT Certificate
Liability statement from different parties
Receivable from different clients
Other asset statement
AungykarNama
GhosonaPatra
Three (03) years net income & Business transactions
Performance report with the Bank
Account statement of from the bank
Valuation Certificate :
o Particulars of the proposal
o Particulars of the mortgage
o Particulars of the properties
Outstanding liability position of the bank
CIB (Credit Information Bureau) report.

33

3.4.6 Disbursement Stage: At this stage, bank decides tom pay out the money. Here the client
gets his/ her desired fund or goods. It is to be noted that before disbursement a site plan showing
the exact location of each mortgage property need to be physically verified.
3.4.7 Monitoring & recovering Stage: At this stage of investment processing of islami bank
Bangladesh limited (IBBL), bank will contact with the client continually, for example- bank can
obtain monthly stock report of the client in case of micro investment. Here the bank will keep his
eye on over the investment taker. If needed, bank will physically verify the clients operations.
Also if bank feels that anything is going wrong it tries to recover its investment fund from the
client.

Cash
Disbursement

Stage of
Documentation

Monitoring

Recording

Figure 3.6: Stage of Documentation (Source-Self)

34

3.5 Principles or Modes of Investment of IBBL


The special features of the investment policy of the bank is to invest on the basis of profit loss
sharing system in accordance with the tenants and principles of the Islamic shariah which is
already mentioned in the Policy of investment of IBBL part. Earning of profit is not the only
goal an objective of the Banks investment policy rather emphasizes is given on attaining social
goal and objective in creating employment opportunity. The Islami Bank Bangladesh Limited
follows the modes of investment presented in the following diagram.

BAI
MECHANISM

BAI
MURABAHA

BAIMUAJJAL

BAISALAM
SHARE
MECHANISM

ISTISNAA

IJARA
MECHANISM

MUDARABA
MUSHARAKA

HPSM

MECHANISM OF
INVESTMENT

Figure 3.7: Mechanism of Investment (Source- Self)

35

3.6 Bai-Mechanism of investment


Bai means trading. Bai-mechanism means purchase and sale of goods in cash or on credit or in
advance at an agreed upon profit, which may or may not be disclosed to the client. Majority of
investment of Islami Bank Bangladesh Limited (IBBL) are extended through this mechanism. A
good number of investment products have been designed to facilitate mainly working capital
financing. This mechanism can be further drawn into 6 categories as follows:3.6.1 Bai-Murabaha: The term Bai- Murabaha has been derived from the Arabic word Baiun
and Ribhun means Purchase and sales. Bai-Murabaha means sale on agreed upon profit.It is
contract between a buyer and a seller under which the seller sells certain specific goods
permissible under the Islamic shariah and law of the land, to the buyer at a cost plus agreed upon
profit.
Important Features of Bai-Murabaha:
Profit is shared as per agreement
Loss is beard by the client
Amount can be paid in installment
Usual duration 1-2 years
Rebate may be given on early adjustments.
It is permissible for the client to offer an order to purchase by the bank particular goods
deciding its specification and committing him to buy the same from the bank on
Murabaha, i.e., cost plus agreed upon profit.
It is permissible to make type promise binding upon the client to purchase from the bank
that is he is to either satisfy the promise or to indemnify the damages caused by breaking
the promise without excuse.
Cash / collateral security can be taken to guarantee the implementation.
Permissible to document the debt resulting from Bai-Murabaha by a guarantor, or a
mortgage, or both like any other debt. This may be taken on the time of signing of the
agreement.

36

Stock and availability of the goods is a basic condition for signing the agreement.
Therefore the bank must purchase the goods as per specification of the client to acquire
ownership of the same before signing the agreement with the client.
The bank must deliver the specific goods to the client on specific place time and date as
per the contact.

3.6.2 Bai-Muajjal: The term Bai- Muajjal has been derived from the Arabic words (Baiun and
Ajalun) meaning purchase and sale and a fixed period or fixed time respectively. It is contract
between a buyer and a seller under which the seller sells certain specific goods permissible under
the Islamic shariah and law of the land, to the buyer at an agreed fixed price payable at a fixed
future date in lump sum or within a fixed period by fixed installments. The seller may also sell
the goods purchased by him as per order and specification of the buyer.
Important Features of Bai-Muajjal:
It is permissible by the client to offer an order tom purchase by the bank particular goods
deciding its specification and committing himself to buy the same from the bank on BaiMuajjal i.e., deferred payment sale at fixed price.
It is permissible to make type promise binding upon the client to purchase from the bank
that is he is to either satisfy the promise or to indemnify the damages caused by breaking
the promise without excuse.
Cash / collateral security can be taken to guarantee the implementation.
Permissible to document the debt resulting from Bai-Murabaha by a guarantor, or a
mortgage, or both like any other debt. This may be taken on the time of signing of the
agreement.
Stock and availability of the goods is a basic condition for signing the agreement.
Therefore the bank must purchase the goods as per specification of the client to acquire
ownership of the same before signing the agreement with the client.
The bank must deliver the specific goods to the client on specific place time and date as
per the contact.
The price once fixed as per agreement and deferred cannot be further increased.

37

The Bank may sell the goods at one agreed price which will include both the cost price
and the profit.

Unlike Bai-Murabaha; the bank may not disclose the cost price and the mark up
separately to the client.

3.6.3 Bai Salam: The term Bai Salam has been derived from the Arabic words (Baiun and
Salamun).The word Baiun means purchase and sale and the word Salamun means advance. So
the word Bai Salam combindly means the purchase and sale or trading in advance payment. It is
contract between a buyer and a seller under which the seller sells in advance certain specific
goods permissible under the Islamic shariah and law of the land, to the buyer at an agreed price
payable on execution of the said contract and the commodities/ Products is / are delivered as per
specification, size, quality, quantity at a future time in a particular place.
Important Features of Bai-Salam:
In other words, Bai Salam is a sale whereby the seller undertakes to supply some
specific commodities / Products to the buyer at a future time in exchange of an advanced
price fully paid on the spot.
Here the price is paid in cash, but the delivery of the goods is deferred.
Bai Salam is a mode of investment allowed by Islamic shariah inn which the
commodities Products can be sold without having physical existence or the
physical/constructive possession of the seller. If the commodities or products is ready
for sale

Bai-salam is not allowed in shariah, and then the sale may be done either in BaiMuajjal or in Bai-Murabaha mode of investment.

Generally, Industrial and agricultural products are purchased / sold in advance under the
Bai Salam mode of investment to infuse finance so that production is not hindered due
to shortage of fund / cash.
It is permissible to obtain collateral security from the seller client to secure the
investment from any hazards of production. Non supply / partial supply of commodities
/ products etc.

38

It is also permissible to obtain mortgage and or personal guarantee from a third party as
a security before signing the agreement or at the time of signing the agreement.
Bai-salam on a particular commodities / products or on product of a particular field or
farm cannot be affected. For Agricultural product only.
The seller (manufacturer) client may be made agent of the bank to sell the goods
delivered to the bank by him provided a separate agency agreement is executed between
the bank and the client (Agent).

3.6.4 Bai-Istisna: Istisna is a contact between a manufacturer /seller and a buyer under which the
manufacturer/seller sells specific goods products after having manufactured, permissible under
Islamic shariah and the law of the land after having manufactured at an agreed price payable in
advance or by installments within a fixed period or on within a fixed future date on the basis of
the order placed by the buyer. some specific features of the Bai-istisna is given below.
Important Features of Bai-Istisna:
Istisna is an exceptional mode of investment allowed by Islamic shariah in which
products can be sold without having the same in existence. If the products are ready for
sale, istisna is not allowed in shariah. Then the sale may be done either in Bai-Murabaha
or in Bai-Muajjal mode of investment. In this mode, deliveries of goods are deferred and
payment of price may also be deferred.
It facilitates the manufacturer sometimes to get the price of the goods in advance, which
he may use as capital for producing the goods.
It gives the buyer opportunity to pay the price in some future dates or by installments.
It is a binding contact and no party is allowed to cancel the istisna contact after the price
is paid and received in full or in part or the manufacturer starts the work.
Istisna is specially practiced in manufacturing and Industrial sectors. However, it can be
practiced in agricultural and construction sectors also.

39

3.7 Share Mechanism of Investment


The share mode of investment is practiced quite more than before now a days. The share mode of
investment implies the practice of investment based on shared liability and possibilities of return
and loss. The share mode of investment of IBBL is basically divided in two ways. Those are
Mudaraba and Musharaka modes of investment.
3.7.1 Mudaraba Mode of Investment: The term mudaraba has been
derived from the Arabic word which means travel. Thus the word
mudaraba means travel for undertaking business.
Mudaraba is a partnership in profit whereby one party provides capital and the other
party provides skill and labor. The provider of capital is called Sahib- al- mal , and
the provider of skill and labor is called Mudarib
So, Mudaraba may be defined as a contract of partnership where the sahib-al-mal
provides capital to the mudarib for investing it in a commercial enterprise by applying
his labor and endeavor. Both the parties share the profit as per agreed ratio and the
loss, if any, being Bourne by the provider of the capital or the sahib al mal except
if it is due to breach of trust i.e., misconduct, negliance or violation of the conditions
agreed upon by the mudarib. If there is any loss incurred due to the mentioned above
reasons, the Mudarib will be liable for that.
There are two types of mudaraba contact practiced by the Islami bank Bangladesh Limited
(IBBL) as follows:o Al mudaraba al Muqayadah: Rabbul mal (The financer) may specify particular
business or a particular place for the mudarib in which case he will invest the
money in that particular business or place. This is called Al Mudaraba al
Muqayadah.

40

o Al Mudaraba al Mutlaqah: However if Rabbul Mal gives full freedom to


mudarib to undertake whatever business he dreams fit, this is called al Mudaraba al
Mutlaqah.

3.7.2 Musharaka Mode of investment: The word Musharaka has been


derived from the Arabic word Shirkat or Sharikat (Shirk).In Arabic, Shirkat or
Sharikat or Shirk means partnership or sharing. Thus the literal meaning of
Musharaka is sharing, though the connotation of this term is limited than the
term Shirkat. The term Musharaka has been introduced recently in Islamic banking literature to
mean a particular type of Shirkat.
Musharaka may be defined as a contract of partnership between two or more
individuals or bodies in which all the partners contribute the capital, participate in the
management, and share the profit in proportion to their capital or as per pre-agreed
ratio and bear the loss, if any, in proportion to their capital or in proportion to equity.
In Islami Bank Bangladesh Limited (IBBL), the bank may take part in a business with
its clients, where both the clients and the bank provide capital in fixed proportions,
take part in the management of the business and share the profit in proportion to their
respective capital ratio or pr-agreed ratio and bear the loss if any in proportion to their
equity capital.

3.8 Ijara Mechanism of Investment


Under this mode the bank supplies implements /equipments/ goods on rental basis. The
ownership of the implements /equipments goods will be with the bank and the client jointly and
portion of the client will be authorized to possess the equipment for certain period. The client,
after competition of the installments, will be the owner of the implements/equipments/goods.

41

Hire purchase under shirkatul melk is a special type of contact which has been developed
through practice. Actually; it is a synthesis of three contacts.
Shirkat
Ijarah
Sale
This may be defined as follows: Shirkat: Shirkat means partnership. Shirkatul Melk means share in ownership. When
two or more persons supply equity, purchases an asset, own the same jointly, share the
benefit as per agreement and bear the loss in proportion to their respective equity, the
contract is called Shirkatul melk contract.
Ijarah: Ijarahas been derived from the Arabic word Air and Ujrat which means
consideration, return, wages or rent. This is really the exchange value or consideration,
return, wages, rent of service of an asset. Ijarah has been defined as a contract between
two parties, the Hire and the Hirer where the hirer enjoys or reaps a specific service or
benefit against a specific consideration or rent from the asset owned by the hire. It is a
hire agreement under which a certain asset is hired out by the hire to a hirer against fixed
rent or rentals for a specified period.

According to the majority of Fuqaha, there are three general and six detailed
elements of Ijara.
The wording
Contracting parties
Subject matter of the content
The hire (Muajjir)
The hirer (Mustajir)
The rent (Ajr or Ujrat)

42

Sale: This is a sale contract between a buyer and as seller under which the ownership of
certain goods or asset is transferred by seller to the buyer against agreed upon price paid /
to be paid by the buyer. Thus in hire purchase under shirkatul melk mode both the bank
and supplier provide equity in equal or unequal proportion for purchase of an Asset like
land building, machinery, transport etc. Purchase the asset with that equity money, own
the same jointly, share benefit as per agreement and bear the loss in proportion to their
respective equity. The share part or portion of the asset owned by the bank is hired out to
the client partner for a fixed rent per unit of time for a fixed period. Lastly the cells and
transferees the ownership of its share / part/ portion to the client against payment of price
fixed for that part either gradually part by part or in lump sum within the hire period or
after the expiracy of the hire agreement.
Stages of Hire Purchase Under Shirkatul Melk:

Purchase under joint ownership

Hire and

Sale / transfer of ownership to the other partner Hirer.

Types of sale contact under the Hire Purchase under the Shirkatul Melk

HPSM through gradually transfer of legal title or ownership of the hired asset

HPSM through transfer of title by gift.

HPSM through transfer of legal title (sale at the end of hire period for a token
consideration.)

HPSM through transfer of legal title (sale) at the end of Hire Period for
payment of a specified amount to the hire by the hirer.

HPSM through transfer of legal title (sale) period at the end of the hire term
for a price that is equivalent to the remaining Ijarah/rental instruction.

43

3.9 The Objectives of Investment Operations of the Bank


To invest fund strictly in accordance with the principles of Islamic Shariah.
To diversify its investment portfolio by the size of investment, by sectors (public &
private). By economic purpose, by securities and by geographical area including
industrial, commercial, and agricultural.

3.10 Welfare-oriented Investment Schemes of IBBL


In addition to the normal commercial and industrial investment operations, IBBL has 12 Special
Investment Schemes targeting different economic groups. The schemes are implemented and
expanded to meet the specific and welfare oriented needs of different groups of people
particularly the under-privileged downtrodden and the neglected section of the population of the
country. To uplift the lifestyle of these people, some welfare-oriented special investment
schemes as under have been undertaken:

Household Durable Investment Scheme: Low-income people involved in diverse


professions get benefit out of this scheme. They are provided with household products like
refrigerator, TV, motor-cycle, furniture, ornaments, computer etc. under this financing
scheme
Housing Investment Scheme: The bank has introduced this scheme to ease the serious
housing problem in the urban areas and to make arrangement for comfortable
accommodation of the fixed income group such as: officials of the defense services,
permanent officials of government, semi-government and autonomous organizations,
faculty members of the established universities, university colleges & medical colleges,
graduate engineers, doctors and established professionals, international financial
organizations, donor agencies, foreign embassies etc. officials of reputed local public
limited companies.
Transport Investment Scheme: To ease the existing transportation problem and to
accelerate the pace of economic growth and development of the country, particularly
through expansion of trade, commerce and industry, the bank has taken up this scheme.

44

Real Estate Investment Scheme: Real Estate Finance plays a pivotal role in improving
standard of living, empowering the middle-income and lower-income groups and thereby
promoting equitable growth in the society. It does not only provide physical shelter but also
upgrade the lives of the dwellers in terms of skills enhancement, income generation,
increased security, health, self-confidence and human dignity. IBBL has steady growth in
the Real Estate Sector.
Car Investment Scheme: To enable officials, business houses and business executives
and professionals to move by transports in discharging their responsibilities punctually,
IBBL has introduced car investment scheme for the mid and high ranking officials of the
government and semi-government organizations, corporations, executives and directors of
big business houses and companies and also for persons of different professional groups on
easy payment terms and conditions.
Investment Scheme for Doctors: The scheme is meant for fresh medical graduates
intending to meet up medical centers. IBBL comes forward to their aid to help them
procure medical equipment or to set up diagnostic laboratory, pharmacy, clinic etc.
Small Business Investment Scheme: Small business persons and entrepreneurs of
different cities and villages get investment facilities from this scheme which is contributing
greatly to generate income and employment and to develop standard of life of different
segments of low income people. This bank provides different types of agricultural
instruments, equipment for operating small trade and finance, small shop, light transport,
photocopy machine, tailoring machine, machinery for small and cottage industry etc. under
this scheme.
Agricultural Implements Investment Scheme: Keeping the view of the peopleorientation and welfare objectives of the Bank, this scheme has been introduced to provide
powers tillers, power pumps, shallow tube-wells, thresher machines etc. on easy terms to
the unemployed rural youths for self-employment and to farmers to help them augment
production in the agriculture sector.

45

Micro-Industries Investment Scheme: To create a wider base for industries and to


encourage the establishment of micro-industries in different areas of the country by the
potential entrepreneurs and to diversify the Banks investment portfolio, the bank has
introduced Micro Industries investment Scheme. Different sectors including food and
agriculture based industries, plastic & rubber industries, forestry and furniture industries,
engineering industries, service industries, electrical accessories industries, computer
technology industries, paper products industries, handicraft industries, fishery & livestock
farming, hollow bricks, roof tiles and any other viable micro-industries have been
identified for financing under the scheme.
Rural Housing Investment Scheme: This scheme was launched to extend housing
facility to the rural people living within 5 kilometers area of an IBBL branch. Employees of
the public, semipublic or autonomous institutions, non-resident Bangladeshis and business
persons are preferred for this investment. Easy term investment is given for constructing
new houses, repair of old houses and purchasing ready-made flats and houses etc.
Women Entrepreneurs Scheme: IBBL has introduced Women Entrepreneurs
Investment Scheme to help women contribute to GDP, generate income & employment
and to develop their socioeconomic condition. Under this scheme Bangladeshi nationals
aged between 18-50 years, genuine women entrepreneurs, women already engaged in
business, self-employment activities as owners, skilled and semi-skilled female persons
having practical experience in the respective field may apply for investment.
NRB Investment Scheme: For promoting investment among non-resident Bangladeshis
and for encouraging them to remit money through banking channel, IBBL has launched
NRB Entrepreneurs Scheme. Expatriates aged between 18 to 60 years or their family
members who run account with IBBL for remitting money are eligible for this investment.

46

3.11 Investment Classification


After the date of expiry, if the borrowers do not adjust their loan, IBBL at first gives a notice to
them. The period of giving notice depends on the nature of the loan. For continuous loan, IBBL
gives notice for three months. For five-year term loan, IBBL gives notice for six months. And for
more than five-year term loan, IBBL gives notice for more than 12 months.
After giving notice, if the borrower does not repay the loan, the loan will be considered as
classified. Pursuant to Bangladesh Bank's Banking Regulation and policy Department's Circular
No. 16 (1998), loans and advances are classified both on aging and functional criteria as follows:

Investment
Classification

Unclassified
Investment

Classified
Investment

Figure 3.8: Investment Classification (Source-Self)

3.11.1 Unclassified Investment:


The loan account is performing satisfactorily in the terms of its installments and no overdue is
occurred. This type of loan and advances are fall into this class.

Classification Status

Length of Overdue

Rate of Provision

Unclassified

Below 3 months

1%

3.11.2 Classified Investment


These are the loans which the bank finds overdue after the due date. The bank applies its
predefined policy and procedures, after a loan becomes classified.

47

Special Mention Account (SMA)


When loan installment is first missed by the borrower, the loan account is classified as a special
mention account (SMA). The tenure of SMA varies with the category of loans.

Sub-Standard
If a loan is not repaid of reschedule within the SMA period, it becomes sub-standard
loan. From this stage the loan is treated as defaulted. Interest is treated the same way as in
SMA. This classification contains where irregularities have occurred but such irregularities.
The main criterion for a substandard advance is that despite these technicalities or irregularities
no loss is expected to rise for the bank. These accounts will require close supervision by
management to ensure that the situation does not deteriorate further.

Doubtful
This classification contains where doubt exists on the full recovery of the loan and advance along
with a loss is anticipated but cannot be quantifiable at this stage.
If a loan is not repaid or reschedule within the sub-standard period, it becomes a doubtful loan
interest will be treated as before in this stage.

Bad and Loss


A particular loan and advance fall in this class when it seems that this loan and advance is not
collectable or worthless even after all the security has been exhausted.
If a loan is not repaid or reschedule within the doubtful stage, it is termed as bad and loss.
Serious doubts exist as to the recovery of such loans.

48

Chapter-Four

Analysis of
Investment Activities

49

4.1 Year Wise deposit and growth rate of Deposit of IBBL


Year
Amount (TK
in Millions)
Growth Rate
(%)

2009
244,292

2010
291,935

2011
341,854

2012
417,844

2013
473,141

2014
560,696

19.5%

17.1%

22.23%

13.23%

18.51%

Table 4.1: Year Wise Trend of Deposits (Source: Annual report of IBBL)

TK in Million

Deposits

Year

Figure 4.1: Year wise Deposit of IBBL

Growth Rate of Year Eise Deposit

Figure 4.2: Year wise Deposit Growth rate of IBBL

50

Interpretation: There is an increasing trend of deposit of IBBL. From the above chart we can
see the graph (Figure 4.1) that the lowest deposit was TK 291,935 million in 2010and the
highest amount is TK 560,696 million in 2014 that year increased the deposit trend line and not
decreased. Because Customers are satisfied there service and IBBL has many branches and it
also rules follow to Islamic Shariah and then IBBL cant provide interest, so many customer
satisfy and trusted then they deposit the bank.
However, we can see the graph(Figure 4.2) that the growth rates of deposit of IBBL were
fluctuating. Growth rate of deposit 19.50% to 17.10% in 2010 to 2011 and this trend line was
decreased and also decreased 22.23% to 13.23% in 2012 to 2013 because in this year to
occurrence political instability, economic terminate and then break down the capital market so
the deposit growth rate decreased from 13.23% but in the next year 2014 the growth rate of
deposit increased 18.51%. But in the others year increased the growth rate of deposit 17.10% to
22.23% in 2011 to 2012 and also increased 13.23% to18.51% in 2013 to 2014. Because that year
some political instability and economic unrest so clients mental satisfaction about job which
helps to provide better customer service.

4.2 Year Wise Investment & Growth Rate of Investment of IBBL


Year
Amount (TK in
Millions)
Growth Rate %

2009
214,615

2010
263,225

2011
305,841

2012
406,817

2013
403,195

2014
463,475

22.65%

16.19%

21.93%

9.09%

13.93%

Table 4.2: Year Wise Investment & Growth Rate (Source: Annual report of IBBL)

51

In Million TK

Trend of Investment

Year

Figure 4.3: Year wise Investment of IBBL

Investment Growth Rate of IBBL

Figure 4.4: Investment Growth Rate of IBBL

Interpretation: There is an increasing trend of investment of IBBL. From the above chart we
can see the graph (Figure 4.3) that the lowest deposit was TK 263,225 million in 2010 and the
highest amount is TK 463,475 million in 2014 that year increased the deposit trend line and 2013
year some decreased TK 406,817 to 403,195 million. The reason of increasing trend of
investment because IBBL invest in diversified (including microcredit to large).The reason of
decreasing trend of investment in 2012 to 2013 the amount was TK 406,817 to 403,195 million

52

because that time IBBL faces many problems like as politically instability, economic unrest, lack
of proper utility facility.
However, we can see the graph (Figure 4.4) that the growth rates of deposit of IBBL were
fluctuating. Growth rate of deposit 22.65% to 13.93% in 2010 to 2014 and this trend line was
decreased. We can see in 2011 to 2012 the growth rate investment was increased in 16.19% to
21.93% and also increased in 2013 to 2014 the growth rate was 9.09% to 13.93%. The reasons of
increasing the growth rate investment are that year IBBL properly invested because economic
condition was good could not faces political problem. The reasons of decreasing in trend in this
year to occurrence political instability, economic terminate and then break down the capital
market so the investment growth rate decreased and also many new industry and factory came in
the market so the trend line decreased in the growth of investment.

4.3Year Wise Investment to Deposit Ratio Analysis


Investment to Deposit Ratio:
Investment to deposit ratio measures the portion of deposit used for investment in loan products.
The more the ratio the more the bank is using its deposit as investment.

Year

2010

2011

2012

2013

2014

Ratio

90.17%

89.47%

85.18%

82.35%

79.88%

Table 4.3: Year wise Investment to deposit ratio (Source: Annual report of IBBL)

53

Investment to Deposit Ratio

Figure 4.5: Investment to Deposit Ratio of IBBL

Interpretation: The graph shows that investment to deposit ratio has fluctuated over the years.
In the graph (Figure 4.5) we have seen that the ratio has decreased from 90.17% in 2010 to
79.88% in 2014. The reasons of decreased because IBBL has hold deposits amount year by year
and then they have now surplus of money but they cant properly invested the money because
some of political unrest, economic terminate faces every year and then the IBBL securities are
strong all the investment documents. So, they cant find the good business holder to invest them.
We know if Investment increase and on the other hand total investment increased than ultimately
investment ratio decreased.

54

4.4 Mode Wise Investment in 2014


Sl
No:
1
2
3
4
5
6
7
8

Mode

Bai-Murabaha
HPSM
Bai-Muajjal
Bill Purchased &
Negotiation
Quard
Bai-Salam
Mudaraba
Musharaka
Total

2013
Amount % to Total
(Million Investment
TK)
225,876
55.52%
95,481
23.47%
24,053
5.91%
29,686
7.30%

2014
Amount
% to Total
(Million
Investment
TK)
281,556
60.75%
109,941
23.72%
15,443
3.33%
30,424
6.56%

13,670
4,200
13,838
406,805

15,478
4,808
3,000
2,825
463,475

3.36%
1.03%
0%
3.40%
100%

3.34%
1.04%
0.65%
0.61%
100%

Table 4.4: Mode Wise Investment in 2014 (Source: Annual report of IBBL)

Mode Wise Investment in 2013


Bai-Murabaha
HPSM
Bai Muajjal
Bill Purchased & Negotiation
Quard
Bai-Salam
Musharaka

1%
7%

3%

3%

6%
56%
24%

Figure 4.6: Mode Wise Investment in 2013 of IBBL

55

Mode Wise Investment in 2014


1%
1% 1%
3%

24%

7%

3%

61%

Bai-Murabaha
HPSM
Bai Muajjal
Bill Purchased & Negotiation
Quard
Bai-Salam
Mudaraba
Musharaka

Figure 4.7: Mode Wise Investment in 2014 of IBBL

Interpretation: From the above graph (Figure 4.6 & 4.7) we can see that in the year 2013 and
2014, IBBL invested their maximum portion in Bai-Murabaha mode (56% and 61%) which is
amount of TK 225,876 and 281,556 million that means sale for which payment is made at a
future fixed date or within a fixed period in short, it is a sale on credit. The main reason is the
clients choose the Bai-Murabaha because it cant faces many documentation problem so clients
freely select the Bai-Murabaha. The second maximum portion of investment is in HPSM mode
which percentage are 24% both the year in 2013 and 2014.The HPSM mainly used in Ijara
mechanism so clients choose secondly the HPSM. The bank invests in other modes at lower
percentage. The lowest portion was invested in Bai-salam at 1%.Bai-salam cant choose many
clients because it uses export in outside country so clients face many problems in the documents.

56

4.5 Trend of Mode Wise Investment in Bai-Murabaha from 2010 to 2014


Year
Investment in Bai-Murabaha (Million
TK)
Percentage of Total Investment

2010

2011

2012

2013

2014

117,180

177,136

221,632

225876

281,556

54.60%

57.92%

59.43%

55.52% 60.75%

Table 4.5: Year Wise Investment in Bai-Murabaha (Source: Annual report of IBBL)

TK in Million

Investment in Bai-Murabaha

Year

Figure 4.8: Year wise Investment in Bai-Murabaha

Percentage of Total Investment in BaiMurabaha

Figure 4.9: Percentage of Investment in Bai-Murabaha

57

Interpretation: There is an increasing trend of investment in Bai-Murabaha of IBBL. From the


above chart we can see the graph (Figure 4.8) that the lowest deposit was TK 117,180 million in
2010 and the highest amount is TK 281,556 million in 2014 that year increased the deposit trend
line and not decreased. Because Customers are satisfied there service and then they cannot faces
many problem because Bai-Murabaha documents some of papers and it also rules follow to
Islamic Shariah and then IBBL cant provide interest, so many customer satisfy and trusted then
they deposit the bank.
However, we can see the graph (Figure 4.9) that the percentage rates of total investment in BaiMurabaha of IBBL were fluctuating. Percentage rate of total investment are 54.60% to 60.75%
in 2010 to 2014 and other years trend line was decreased in 2012 to 2013 the percentage are
59.43% to 55.52% because in this year to occurrence political instability, economic terminate
and then break down the capital market so they properly cannot invest the Bai-Murabaha. In the
other all years the trend line percentage rates of total investment are increased, So clients mental
satisfaction about job which helps to provide better customer service.

58

4.6 Investment in Hire Purchase under Shirkatul Melk (HPSM)


Year

2010

2011

2012

2013

2014

Investment in HPSM (Million TK)

73,871

89,070

96,056

96,481

109,941

Percentage of Total Investment

34.42%

29.12%

25.76%

23.47%

23.72%

Table 4.6: Year Wise Investment in HPSM (Source: Annual report of IBBL)

Tk in Million

Investment in HPSM

Year

Figure 4.10: Year Wise Investment in HPSM

Percentage of Total Investment in HPSM

Figure 4.11: Percentage of Investment in HPSM

59

Interpretation: There is an increasing trend of investment in HPSM of IBBL. From the above
chart we can see the graph (Figure 4.10) that the lowest deposit was TK 73,871 million in 2010
and the highest amount is TK 109,141 million in 2014 that year increased the deposit trend line
and not decreased. Because Customers are satisfied there service and then they cannot faces
many problem because HPSM documents some of papers are strong secured. So many customers
satisfy and trusted then they deposit the bank.
However, we can see the graph (Figure 4.11) that the percentage rates of total investment in
HPSM of IBBL were fluctuating. Percentage rate of total investment in HPSM are 34.42% to
23.72% in 2010 to 2014 and this trend line was decreased because in this year to occurrence
political instability, economic terminate and then break down the capital market so they properly
cannot invest the HPSM.

4.7 Investment in Bai-Muajjal


Year
Investment in Bai-Muajjal (Million TK)

2010
7,318

2011
15,912

2012
18,295

2013
24,053

2014
15,443

Percentage of Total Investment

3.41%

5.20%

4.91%

5.91%

3.33%

Table 4.7: Year Wise Investment in Bai-Muajjal (Source: Annual report of IBBL)

Tk in Million

Investment in Bai Muajjal

Year

Figure 4.12: Year Wise Investment in Bai-Muajjal

60

Percentage of Total Investment in Bai


Muajjal

Figure 4.13: Percentage of Investment in Bai-Muajjal

Interpretation: There is an increasing trend of investment in Bai-Muajjal of IBBL. From the


above chart we can see the graph (Figure 4.12) that the lowest deposit was TK 7,318 million in
2010 and the highest amount is TK 15,443 million in 2014 that year increased the deposit trend
line and in the 2013 from 2014 the trend line of total investment are decreased in TK 24,053 to
15,443 million. Because Customers are afraid and that year political unrest and client business
cant run properly they are also loss project in that year so they withdraw the deposit in the fund
and that reason IBBL cant invest. But another year the trend line increased because clients are
satisfied there service and then they cannot faces many problem. So many customers satisfy and
trusted then they deposit the bank.
However, we can see the graph (Figure 4.13) that the percentage rates of total investment in BaiMuajjal of IBBL were fluctuating. Percentage rate of total investment in Bai-Muajjal are 3.41%
to 3.33% in 2010 to 2014 and this trend line was decreased because in this year to occurrence
political instability, economic terminate and then break down the capital market so they properly
cannot invest the Bai-Muajjal.

61

4.8 Investment in Quard E Hasana


Year

2010

2011

2012

2013

2014

Investment in Quard E Hasana (Million

2,095

5,614

9,156

13,670

15,478

0.80%

1.83%

2.46%

3.36%

3.34%

TK)
Percentage of Total Investment

Table 4.8: Year Wise Investment in Quard E Hasana (Source: Annual report of IBBL)

Investment in Quard E Hasana

Figure 4.14: Year Wise Investment in Quard E Hasana

Percentage of Investment in Quard E Hasana

Figure 4.15: Percentage of Investment in Quard E Hasana

62

Interpretation: There is an increasing trend of investment in Quard E Hasana of IBBL. From


the above chart we can see the graph (Figure 4.14) that the lowest deposit was TK 2,095 million
in 2010 and the highest amount is TK 15,478 million in 2014 that year increased the deposit
trend line and not decreased. Because Customers are satisfied there service and then they cannot
faces many problem because Quard E Hasana are strong secured Quard. so many customer
satisfy and trusted then they deposit the bank.
However, we can see the graph (Figure 4.15) that the percentage rates of total investment in
Quard E Hasana of IBBL was increased. Percentage rate of total investment in Quard E Hasana
are 0.80% to 3.34% in 2010 to 2014 and this trend line was increased because clients need strong
security so IBBL provide the Quard clients and then clients.

4.9 Investment in Bai Salam


Year

2010

2011

2012

2013

2014

Investment in Bai Salam (Million TK)

3,624

3,528

4,532

4,200

4,808

Percentage of Total Investment

1.38%

1.15%

1.22%

1.03%

1.04%

Table 4.9: Year Wise Investment in Bai Salam (Source: Annual report of IBBL)

Investment in Bai Salam

Figure 4.16: Year Wise Investment in Bai Salam

63

Percentage of Investment in Bai Salam

Figure 4.17: Percentage of Investment in Bai Salam

Interpretation: There is an increasing trend of investment in Bai-Salam of IBBL. From the


above chart we can see the graph (Figure 4.16) that the lowest deposit was TK 3,624 million in
2010 and the highest amount is TK 4,808 million in 2014 that year increased the deposit trend
line and in the 2010 from 2011 the amount was TK 3624 to 3528 million and 2012 from 2013
the trend line of total investment are decreased in TK 4532 to 4200million. Because Customers
are afraid and that year political unrest and client business cant run properly they are also loss
project in that year so they withdraw the deposit in the fund and that reason IBBL cant invest.
But another year the trend line increased because clients are satisfied there service and then they
cannot faces many problem. So many customers satisfy and trusted then they deposit the bank.
However, we can see the graph (Figure 4.17) that the percentage rates of total investment in BaiSalam of IBBL were fluctuating. Percentage rate of total investment in Bai-Salam are 1.38% to
1.04% in 2010 to 2014 and this trend line was decreased because in this year to occurrence
political instability, economic terminate and then break down the capital market so they properly
cannot invest the Bai-Salam.

64

4.10 Investment in Musharaka

Year
Investment in Musharaka (Million TK)

2010
12,244

2011
9,571

2012
13,719

2013
13,838

2014
2825

Percentage of Total Investment

4.65%

3.13%

3.68%

3.40%

.61%

Table 4.10: Year Wise Investment in Musharaka (Source: Annual report of IBBL)

Investment in Musharaka

Figure 4.18: Year Wise Investment in Musharaka

Percentage of Total Investment in Musharaka

Figure 4.19: Percentage of Investment in Musharaka

Interpretation: The graph (Figure 4.18 & 4.19) shows an upward trend in investment under
Musharaka. The graph shows fluctuating trend in investment under Musharaka, The investment
under Musharaka was 4.65% in 2010. However, the Musharaka investment as a percentage of
total investment has fluctuated from 2011 to 2014. Investment in Musharaka mode was 3.13% in
2011 and in 2014 it was decreased 0.61%. The reasons of decreased because in 2013 and 2014

65

situated have many problem like as political unrest, economic terminate, businessman are
withdraw their deposit so that year decreased the trend line.

4.11 Sector Wise Investment in 2014


Sector

Industry

Commerc
e

Real
Estate

Agriculture

Transport

SME

Others

247,350.99
Amount
(TK in
millions)
34%
In
Percentage

129,544.05

37,680.39

11,131.09

6,435.45

201,127

31,333.50

9%

8%

2%

1%

42%

4%

Table 4.11: Sector Wise Investment (Source: Annual report of IBBL)

Sector Wise Investment in 2014

4%
34%

Industry
Commercial
Real Estate
Agriculture
Transport
SME
Others

42%
2%
1%

9%
8%

Figure 4.20: Sector Wise Investment of IBBL in 2014

Interpretation: From above graph (Figure 4.20) we can see that in 2014, IBBL invested their
maximum amount in the sector of SME TK 201,127 million which is 42% of total investment,
TK 247,350.99 million in Industry sector which is 34% of total investment and comparatively
very poor investment in Real Estate 8%, Agriculture 2% than Transport 1% and Others 4%
respectively.

66

4.12 Division wise distribution of Investment


Divisions
Dhaka
Chittagong
Khulna
Rajshahi
Barishal
Sylhet
Rangpur
Total

2013
Taka in
Million
238,916.31
82,622.00
27,662.71
33,602.06
4,963.02
8,298.81
10,739.64
406,804.55

Percentage

Divisions

2014
Taka in
Million

58%
20%
7%
9%
2%
2%
2%
100%

Dhaka
Chittagong
Khulna
Rajshahi
Barishal
Sylhet
Rangpur
Total

272,135.19
92,698.69
29,491.57
40,518.23
6,194.63
9,364.33
13,072.83
463,475.47

Percentage
59%
20%
6%
9%
1%
2%
3%
100%

Table 4.12: Division wise distribution of Investment

2%
2% 2%
7%

9%
58%

20%

Dhaka
Chittagong
Khulna
Rajshahi
Barishal
Rangpur
Sylhet

6%

1%
2%
9% 3%

20%

2013

59%

Dhaka
Chittagong
Khulna
Rajshahi
Barishal
Rangpur
Sylhet

2014
Figure 4.21: Division Wise Investment

Interpretation: The above diagram shows that IBBL distribute a large portion of investment in
Dhaka Division both the Year in 2013 & 2014. In Dhaka Division IBBL distribute 58% & 59%
where bank distribute 20% in Chittagong both the year. Except Dhaka and Chittagong Division
the bank does not concern other division.

67

4.13 Geographical Location Wise Investment


Geographical Location

2013

2014

In Rural Areas

13%

5%

In Urban Areas

87%

95%

Table 4.13: Geographical Location Wise Investment (Source: Annual report of IBBL)

Area Wise Investment

Area Wise Investment


5%

13%
Rural Area
Urban Area

87%

95%

2013

2014
Figure 4.22: Geographical Wise Investment

Interpretation: The above diagram shows that IBBL distribute large portion of investment in
urban areas both the year 2013 & 2014. But the bank does not concern in rural areas to distribute
the investment.

68

4.14 Analysis of Classified Investment


These are the loans which the bank finds overdue after the due date. The bank applies its
predefined policy and procedures, after a loan becomes classified.

4.14.1 Amount of Classified Investment


Year
Amount in Million Taka

2010

2011

4,655.63

8,292.32

2012

2013

14,212.80 14,941.90

2014
22,807.24

Table 4.14: Classified Investment (Source: Annual report of IBBL)

Amount of Classified Investment

Figure 4.23: Amount of Classified Investment of IBBL

Interpretation: From the above graph (Figure 4.23) it has been seen that, the amount of
classified investment are increasing over the years 2010 to 2014. Bank should try to give more
concentration to reduce their classified investment and to become more efficient in managing its
classified investment.

69

4.14.2 Percentage of Classified Investment to Total Investment


Year
Percentage

2010

2011

2012

2013

2014

1.77%

2.71%

3.81%

3.67%

4.92%

Table 4.15: Percentage of Classified Investment (Source: Annual report of IBBL)

Percentage of Classified Investment

Figure 4.24: Percentage of Classified Investment

Interpretation: From the above figure it has been seen that, the percentage of classified
investment are increasing over the years. But it has slowly increased from 2010 to 2014. Bank
should try to give more concentration to reduce their classified investment and to become more
efficient in managing its classified investment.

70

4.14.3 Bad or Loss as a percentage of Total Classified Investment


Year

2010

2011

2012

2013

2014

Bad and Loss

2,735

3,238

10,823

12,581

19,059

Total Classified Investment

4,655.63 8,292.32 14,212.8 14,941.9 22,807.2

Bad or Loss as a % of Total

58.74%

39.04%

76.15%

84.20%

90%

Investment
Table 4.16: Bad or Loss as a percentage of Total Classified Investment

Bad or Loss as a percentage of Total Classified


Investment

Figure 4.25: Bad or Loss as a percentage of Total Classified Investment

Interpretation: The above graph shows that bad or loss as a percentage of total classified
investment of IBBL is fluctuating from the year 2010 to 2014. From 2011 to 2014 the bad or loss
as a percentage of classified loans and advances has increased from 39.04% to 84.20%. The
reasons of increasing trend line because clients are satisfied and trusted the IBBL they cant
faces many problem on the other hand many new industry and factory comes in the market and
IBBL invested their company. The reasons of decreasing trend line in 2010 to 2011 because that
time political unrest, economic terminate and clients cant trusted the IBBL.

71

4.14.4 Provision kept against classified Investment:


Year
Amount in

2010

2011

2012

2013

2014

1,840.00

3,054.00

6,054.35

9,037.80

13,354.72

Million Taka
Table 4.17: Provision kept against classified (Source: Annual report of IBBL)

Provision Classified Investment

Figure 4.26: Provision kept against classified

Interpretation: The above figure shows the provision against classified investment of IBBL
from the year 2010 to 2014. The provision against classified investment has increased over the
year except 2010. It can be said that overall trend of provision is increasing.

72

4.15 Income from Investment


Year
Amount in

2010

2011

2012

2013

2014

24,766.26

32,019.53

43,672.23

48,145.46

49,109.96

Million Taka
Table 4.18: Year Wise Income from Investment (Source: Annual report of IBBL)

Income from Investment

Figure 4.27: Amount of Income from Investment

Interpretation: The graph shows that the income from Investment has upward trend over the
years. The income from investment has increased from 24,766.26 in 2010 to 49,109.96 in 2014.
This indicates the efficiency of the investment of IBBL. The reason of increased the trend line
because IBBL has many clients they believe in Islam. So, they are deposits huge of money and
IBBL used their assets to invest and get a profit. So this reason amount of income from
investment was increased day by day.

73

4.16 Return on Investment (ROI) of IBBL


ROI primarily an indicator of managerial efficiency; It indicates how capable management has
been in converting assets into net earnings. Higher the firms return on total assets is better. The
ROI of IBBL has given below:
Year

2010

2011

2012

2013

2014

Percentage

10.08%

10.87%

12.21%

11.49%

9.86%

Table 4.19: Return on Investment (ROI) of IBBL(Source: Annual report of IBBL)

Percentage of Return on Investment

Figure 4.28: Percentage of Return on Investment

Interpretation: The above graph shows the return on investment of the total investment from
the year 2010 to 2014. The ROI of IBBL has decreased from 2012 to 2014. However, now The
ROI has decreased over the last three years. So this is a bad sign for the bank. The reason of
decreased the trend line because last three years IBBL faces many problem like as political
unrest, economic terminate and many businessman afraid some of reason so this reason the
percentage of ROI was decreased.

74

4.17 SME Investment


Year

2010

2011

2012

2013

2014

Investment in SME (TK in Millions)

49,337

100,991

176,107

173,660

201,127

Percentage of Total Investment

22.99%

33.02%

47.22%

41.25%

42%

Table 4.20: Year Wise SME Investment (Source: Annual report of IBBL)

TK in Million

Investment of SME

Year

Figure 4.28: Amount of Investment in SME

Percentage of Investment in SME

Table 4.30: Percentage of Investment in SME

Interpretation: The graph shows that the investment in SME has upward trend over the years.
However, the investment in SME as percentage of total investment increased rapidly from 2010
to 2014.In 2013 percentage of investment in SME decreased 41.25% but the next year 2014 has
increased from 42.00%. The reason of decreased the trend line because last three years IBBL
faces many problem like as political unrest, economic terminate and many businessman afraid
some of reason so this reason the percentage of investment SME was decreased.

75

Chapter-Five

Major Findings,
Recommendations &
Conclusion

76

5.1 Findings
The main objective of the report is to analysis the investment activities of Islami Bank
Bangladesh Limited (IBBL). The study of investment activities of Islami Bank Bangladesh
Limited reveals the following major findings:
There is an upward trend in total deposit of Islami Bank Bangladesh Limited from 2010
to 2014 and the deposit of IBBL as growth rate has increased over the years from 13.23%
to 18.51% in 2013 to 2014 but in 2012 to 2013 the growth rate deposit was decreased
22.23% to 13.23%
There is an increasing trend of investment of IBBL. But the investment as percentage of
growth tare of total Investment has decreased over the years from 22.65% in 2010 to
13.93% in 2014. But the growth rate of investment was increased the year from 9.09% in
2013 to 13.93% in 2014. This upward trend of invest is positive sign for the bank.
There is a decreasing trend in investment to deposit ratio of IBBL is decreasing from
2011 to 2014. In 2014, investment to deposit ratio of IBBL is 79.88% and industry
average is 90.17%. So the bank should increase its investment from its deposit.
IBBL invested their major portion in Bai-Murabaha that is 56% in 2013 and 61% in
2014.
There is an increasing trend of investment in SME from 2010 to 2014. IBBL invested
major portion in SME.
IBBL invested their maximum portion in Dhaka division which percentage is 59%. The
second maximum portion of investment is in Chittagong division which percentage is
20%.
The classified investment as percentage of total investment has increased from 2010 to
2014. This increased trend line indicates that the recovery performance of IBBL is good.
From 2011 to 2014 the bad or loss as a percentage of classified loans and advances has
increased from 39.04% to 90%.

77

Also from the report, it is observed that IBBL has some problems as:
IBBL does not charge interest to invest in agriculture sector.
IBBL has a research division but not so strong.
The internal audit section of IBBL is very poor.
Lots of new banks are coming in the scenario with new service.
Local competitors can capture huge market share by offering similar products.
IBBL lacks well-trained human resource in some area.
IBBL lacks aggressive advertising
The procedure of credit facility is to long compare to other banks.
Employees are not motivated in some areas.

5.2 Recommendations
Putting recommendation is very complex for me with my short experience & knowledge but with
my shallow knowledge. Though Islami Bank Bangladesh Ltd. (IBBL) is performing well but it
has some crucial areas to improve which are prescribed below:
The growth rate of deposit of IBBL has increased over the years. Bank should give more
effort to maintain and improve its growth of deposit by increasing their branches,
providing more customer services like-prompt service, developing new savings scheme.
The growth rate of investment of Islami Bank Bangladesh Limited has increased in 2014
but Bank should try more to increase investment by enlarging its investment sectors.
In 2014, investment to deposit ratio of IBBL is 79.88% and industry average 90.17%. So,
the bank should increase its investment from its deposit.
Islami Banks in Bangladesh may expand their network in other division by expanding
branches.
As the major portion of classified investment is in bad and loss category and the portion
of bad and loss increased in recent years, the bank should try to reduce his portion.

78

5.3 Conclusion
Islam is a relation of peace and also a complete code of life. Allahsguidance extends into all
areas of our lives. Islam has given detail guidelines for our economic life. Therefore, Islami Bank
Bangladesh Limited (IBBL) is trying to set up the maximum happiness of the society by
maintaining the morality of Islamic Shariah which is based on Quran and Sunnah. Since
1983, IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do all its
activities for the betterment of its depositors. For the greater interest of the depositors the
investment policy of IBBL is to invest on the basis of profit and loss sharing in accordance with
the tents and principles of Islamic Shariah. Profit earning is not the only motive and objective of
the banks investment policy rather emphasis is given in attaining social good and in creation
employment opportunities.
Investment mechanism and modes is recognized the world over as the main engine that runs the
economy, creating work not only for masons and managers, accountants & architects, but also
for makers and sellers of building materials. It means work for maintenances, security, cleaning
and other services work for makers and sellers of appliances, furniture and vehicles; work for
bankers and bureaucrats, lenders and lawyer. May suggest the following recommendations for
sound and success investment in the by Islami Bank Bangladesh Limited.
Everyday IBBL do their banking work with other conventional bank. In Bangladesh there is no
Islamic environment. It is one kind of problem to maintain Shariah base banking activity for
IBBL. Although IBBL facing some problems. It has bright future day by day. It is enhancing its
financial modes of over the country.
Finally, Islami Bank Bangladesh Limited (IBBL) has been established with a view to conduct
interest free banking to establish participatory banking instead of debtor-creditor relationship and
finally to establish welfare oriented banking through its investment operations that would lead to
a just society.

79

5.4 Bibliography
Books
Lawrence, J Gitman, Principle of Managerial Finance 12th edition.

Prospectors
Annual Report (2010-2014)
Handout Provided by IBTRA
Investment MECHANISM BOOK OF IBBL

Website

http://www.islamibankbd.com/
http://www.islamibankbd.com/
http://www.google.com.bd/
http://www.wikipedia.org/
http://www.assignmentpoint.com/

80

5.5 Performance at a glance


Five Years Financial Summary
Sl
Particulars
No.

2010

2011

2012

2013

2014

10000.00
7413.12
1.99
16,081.14
2,594.59
28,400.03
291,934.60
275,493.94

20000.00
10007.71
1.99
17,792.50
3,202.47
33,716.73
341,853.67
322,772.83

20000.00
12509.64
1.99
24,116.47
3,152.25
39,780.35
417,844.14
399,930.79

20000.00
14636.28
1.99
26,512.48
2,634.53
43,760.68
473,140.96
474,015.95

20000.00
16099.91
1.99
28,.097.92
2,414.99
46,612.81
560,696.30
564,332.00

263,225.13

305,840.56

372,920.72

403,194.80

463,475.47

90.17%

89.47%

85.18%

82.35%

79,88%

443,684.79
330,586.12
6,748.44

502,613.05
389,192.12
7,100.19

592,580.50
482,536.32
14,808.23

664,554.96
547,229.63
15,732.81

765,241.27
652,422.04
15,926.36

256,804.90
18,559.80
9,840.20
28,400.00
15,348.08

257,564,30
23,401.24
10,315.49
33,716.73
20,012.14

311,511.60
28,249.95
13,803.20
42,053.16
24,933.30

319,215.90
32,222.40
13,189.60
45,487.38
29,274.89

378,742.72
35,025.95
13,543.92
48,569.86
32,199.82

5,287.58
11.06%

7,960.24
13.09%

10,901.96
13.49%

13,599.40
14.26%

10,695.59
12.83%

4,655.63
1.77%

8,292.32
2.71%

14,212.80
3.81%

14,941.9
3.71%

22,807.24
4.92%

1,840.00

3,054.00

6,054.35

9,037.80

13,354.72

3,443.00

3,996.00

3,935.90

3,371.60

3,625.48

930.00

1,120.00

1,100.45

1,137.20

1,128.20

24,766.26

32,019.53

43,672.23

48,145.46

49,109.96

Balance Sheet (Financial Position)


1
2
3
4
5
6
7
8

10
11
12
13

Authorized Capital
Paid up Capital
Share Premium
Reserve Fund
Retained Earnings
Shareholders Equity
Deposits (including Bills Payable)
Investments (including Investment in
Shares
and Securities)
Investments (excluding Investment
in Shares
and Securities)
Investment Deposit Ratio (as per BB
guidelines)
Total Assets (including Contra)
Total Assets (excluding Contra)
Fixed Assets

Capital Measures
14
15
16
17
18

19
20

Total Risk Weighted Assets (RWA)


Corer Capital- Tier- I
Supplementary Capital (Tier- II)
Regulatory Capital (Tier I, II & III)
Statutory Capital (Paid up Capital &
Statutory
Reserve)
Equity/Capital Surplus/Deficit
Capital Adequacy Ratio

Assets Quality
21
22

Classified Investment
Classified Investment to Total
Investment
23
Provision against Classified
Investment
24
General Provision against
Unclassified
Investment
25
General Provision on Off Balance
Sheet Items
Operating Performance (Income
Statement)
26
Investment Income

81

27
28

Sl.
No
29
30
31
32
33
34
35
36
37

Profit Paid on deposit


Net Investment Income

Particulars
Non-Investment Income
Total Income
Administrative & other Exp.
Total Expenditure Excluding
Provision
Provision for Investment, Off
Balance Sheet Items & Other Assets
Total Expenditure Including
Provision
Net Profit before Tax
Net Profit after Tax
Provision for Income Tax

14,471.89
10,294.37

18,401.22
13,618.31

25,870.43
17,801.80

30,975.19
17,170.27

30,650.27
18,459.69

2010

2011

2012

2013

2014

5,362.64
30,128.90
7,202.31
21,674.20

6,381.76
38,401.29
9,652.76
28,053.98

6,345.56
50,017.79
8,724.65
34,595.09

7,972.88
56,093.75
11,039.15
42,014.33

8,937.07
58,047.03
12,074.13
42,724.40

1,114.99

2,384.31

3,512.07

3,029.26

4,790.91

21,674.20

28,053.98

38,107.16

45,043.59

47,515.31

8,454.71
4,463.47
4,108.98

10,347.31
4,841.45
5,515.56

11,910.65
5,338.91
6,571.74

11,074.76
4,948.58
6,101.57

10,531.71
3,999.06
6532.65

246,281.00
148,421.00
214,629.00
609,331.00

301,207.00
178,244.00
236,607.00
716,058.00

284,588.00
197,095.00
300,915.00
782,598.00

285,890.00
205,269.00
286,956.00
778,115.00

316,971.00
222,753.00
308,722.00
848,447.00

295
919
58,923
10,349
251*

313
935
60,550
11,465
266*

320
676
60,302
12,188
276*

331
690
62,772
12,980
286*

597
723
60,857
13,574
294*

35%
6.02
3.57
90.00

7%
25%
4.84
3.87
83.98

8%
17%
4.42
3.65
59.00

8%
10%
3.40
3.07
45.00

15%
2.48
2.48
36.80

23.48

27.78

27.18

27.18

28.95

51.97%
8.65%
0.72
19.00%
1.47%
13.29
4.87%

52.08%
8.86%
0.73
17.42%
1.35%
11.27
4.03%

48.28%
9.32%
0.76
13.42%
1.27%
12.21
4.10%

44.80%
9.45%
0.75
11.36%
0.96%
12.35
3.79%

47.20%
8.55%
0.74
8.85%
0.67%
11.24
4.27%

Foreign Exchange Business


38
39
40
41

Import
Export
Remittance
Total Foreign Exchange Business

Distribution Network
42
43
44
45
46

Number of Correspondent Banks


Number of Foreign Correspondents
Number of Shareholders
Number of Employees
Number of Branches

Shareholders Information
47
48
49
50
51
52

Cash Dividend
Stock Dividend
Earnings per Share (Taka) (original)
Earnings per Share (Taka) (restated)
Market Value per Share (Taka)
(Highest)
Net Assets Value (NAV) per Share
(Taka)

Efficiency Ratio
53
54
55
56
57
58
59

Gross Profit Ratio


Cost of Fund
Cost Income Ratio ( Per Taka)
Return on Equity (ROE)
Return on Assets (ROA)
Price Earnings Ratio (Times)
Spread

Table 4.19: Performances at a glance

82