PRACTICE OF SHARIAH BASED BANKING: A STUDY ON SHAHJALAL ISLAMI BANK LIMITED
CHAPTER 1: INTRODUCTION When British banking giant HSBC Group began offering mortgages carefully formulated to meet Islamic banking practices last year in Malaysia, it was surprised that more than half of its customers were nonMuslim. What drew these customers to alternative financing that conforms to the strict dictates of Islam? Bank officials say that competitive pricing makes their Muslim-friendly mortgages -- which operate more like leases than loans -- competitive with traditional interest-based financing (Businessweek, August 8, 2005). Whatever the reason is, it is now clear that Islami Banking is no longer a new thing. And no longer is this statement valid that Islam was okay only for the ages of 1400 years ago. From Jakarta to Jeddah, 265 Islamic banks and other financial institutions are now operating in some 40 countries, with total assets that top $262 billion, according to organizers of the International Islamic Finance Forum, a semi-annual industry conference. Most of the large Western financial institutions, following the example of Citibank, have their own Islamic subsidiaries or Islamic "windows" or products aimed at their Islamic clientele. As proof of how many companies are compatible with Islamic law - and not just from within the Muslim world - there is now even a Dow Jones Islamic market index (Ibrahim, 2006). Alongside the conventional interest bearing banking system, Bangladesh entered into an Islamic banking system (profitloss sharing) in 1983. At present, out of 48 banks in Bangladesh, 6 private commercial banks are operating as full-fledged Islamic banks and 10 conventional banks are partially involved in Islamic banking in a total of 20 branches. Total deposits of the Islamic banks and Islamic banking branches of the conventional banks stood at Taka 232981.00 million at end June 2006. This was 28.46 percent of the deposits of all private commercial banks and 9.67 percent of the deposits of the total banking system at the end of June, 2006. Total investment of the Islamic banks and the Islamic banking branches of the conventional banks stood at Taka 210493.80 million at end June 2006. This was 29.35 percent of all private banks and 14.88 percent of the total banking system of the country (Abdullah, 2007). Fifteen commercial banks of the country, including six full- fledged Islami banks, are the members of Central Shariah Board for Islamic Banks of Bangladesh. Excepting Islami banks, 21 branches of nine conventional banks, including Standard Chartered Bank and Hong Kong and Sanghai Bangking Corporation, are rendering Islamic banking services under the existing Islamic Banking Shariah law. According to a Bangladesh Bank Report, Islamic banking industry continued to show strong growth since its inception in 1983 to June 2007 in tandem with the growth in the economy as reflected by the increased market share of the Islamic banking industry in terms of assets, financing and deposits of the total banking system. According to the report, the total deposits of the Islamic banks and Islamic banking branches of the conventional banks stood at Tk 286.5 billion at the end of June 2007. This was 23.6 per cent of the deposits of all private commercial banks and 14.3 per cent of the deposits of the total banking system. Total investment of the Islamic banks and the Islamic banking branches stood at Tk 265.4 billion at the end of June 2007. This was 26.9 per cent of all private banks and 17.2 per cent of the total banking system of the country. Now Dhaka is being seen as the potential International Islamic Banking Center (Financial Express).
1.1 ORIGIN OF THE REPORT This report was assigned by my supervisor in the International Islamic University Chittagong as part of the requirement for successful completion of the Internship program. Exposure to the business
world and acquiring practical work experience was the primary objective of this assignment. I was attached with Shahjalal Islami Bank Limited (Dhaka Main Branch) for my internship. The report focuses on Investment division as I was attached with that division during the tenure of my internship. 1.2 OBJECTIVES General objective of this report cognates the internship purpose. The internship objective is to gather practical knowledge and experiencing the corporate working environment with the close approximation to the business firm and the experts who are leading and making strategic decisions to enhance the growth of a financial institution. To this regard this report is contemplating the knowledge and experience accumulated from internship program. Every task has its respective goals or objectives without which the work is meaningless. Keeping the following objectives in my view I have prepared this thesis paper. To acquire a general idea about the Investment modes of an Islamic Bank The MAJOR MODES of Islamic banking and finance To observe the difference between the modes of the conventional banking system and those of the Islamic Ones
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To learn about variation of products & services.
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To gain practical exposures in different banking activities
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To apply theoretical knowledge in the practical field.
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To study existing banker customer relationship.
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To gain practical exposures in different banking activities
1.3 SCOPE OF THE STUDY This report covers the organizational structure, background, and basic functions of the various divisions and the performance of Shahjalal Islamic Bank Limited. In case of the project part, the study area and observations are limited to Investment division only. The observations provided in this report are general in nature and are not representative of the total population of SJIBL, neither is it supported by formal, full-scale attitude survey.
1.4 METHODOLOGY The study requires various types of information, procedures, and method of credit management. Both primary and secondary data available have been used in preparing this report. Sources of Data -
1. Primary Sources a) Discussion with officials of Shahjalal Islami Bank Limited. b) Expert opinions comment. c) Work with them. 2. Secondary sources a) Relevant books, newspaper, journals etc. b) Monthly reports. c) Published documents. d) Office circular. e) Other published papers, documents and reports. f) Internet g) Annual report h) Journals i) Bangladesh Bank publication 1.5 Limitations of the Study Every project has some limitation. During the course of my practical orientation I faced some usual constraints. •
Unavailability of sufficient written documents as required making a comprehensive study.
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Because of the unwillingness of the busy key persons, necessary data collection became hard.
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Credit department some times is very confidential, so getting adequate relevant information was difficult.
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The report is primarily based on the data collected by interviewing concerned officers.
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In many cases, up to date information is not published.
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Limited time of internship program.
Lack of Data required for the study of the proper practice. Inaccurate or contradictory information.
Field practice varies with the standard practice that also created problem. Time provided for conducting the study is another important constraint.
CHAPTER 2: LITERATURE REVIEW 2.1 ISLAMIC BANKING CONCEPT, HISTORY & BASIC FEATURES 2.1.1 WHAT IS ISLAMIC BANKING Islam banking has been defined in a number of ways. The definition of Islamic bank as approved by the General Secretariat of the OIC is stated in the following manlier. “An Islamic bank is a financial institution whose status, rules and procedures expressly state its, commitment to the principle of Islamic Shariah and to the banning of payment of interest on any of its operations.” The original meaning of the Arabic word shariah was 'the way to the source of life' and it is now used to refer to legal system in keeping with the code of behavior called for by the Holly Qur'an (Suleiman, 2008). It has also been opined that it is natural and imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to the civilized mission of an Islamic economy (Shawki, 2005). It appears from the above definitions that Islamic banking is a. system of financial intermediation that avoids receipt- and payment of interest in its transactions and conducts its operations in a way that it helps achieving 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 an economy (Akkas, 2008). That is why Islamic banks are often known as PLS-banks. 2.1.2 THEORETICAL BASIS OF THE CONCEPT OF ISLAMIC BANKING The Conventional banking is essentially based on debtor-creditor relationship between the depositors and the bank in the one hand, and between the borrowers and the bank on the other. Interest is considered as the price of credit, reflecting the opportunity cost of money. Islam, on the other hand, considers loan to be given or taken, free of charge, to meet any contingency and that the creditor should not take any advantage of the borrower. When money is lent out on the basis of interest, more often it happens that it leads to some kind of injustice (Akkas, 2008) . The first Islamic principle underlying such kinds of transactions is that “Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums). And if you do not (deal justly), then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal [thus] you do no wrong, nor are you wronged.” (Quran: 2-279). Hence, commercial banking in an Islamic framework is not based on debtorcreditor relationship. The second principle regarding the financial transactions in Islam is that there should not be any reward without risk taking and that this principle is applicable to both labor and capital. As no payment is allowed to labour unless it is applied to work, no reward for capital should be allowed unless it is exposed to business risks (Akkas, 2008). Four rules govern investment behavior in Islam according to Suleiman (2008) :
1. The absence of interest-based (riba) transactions; 2. The avoidance of economic activities involving speculation (Gharar); 3. The introduction of an Islamic tax, zakat;
4. The discouragement of the production of goods and services which contradict the value pattern of Islamic (haram) In the following part, the four elements 7 that give Islamic Banking System its distinctive religious identity are mentioned: Riba The payment of riba and the taking as occurs in a conventional banking system is explicitly prohibited by the Holy Qur'an, and the Sunnah. So, the investors must be compensated by other means. Technically, riba refers to the addition in the amount of the principal of a loan (according to the time for which it is loaned) plus the amount of the loan. While earlier there was a debate as to whether riba relates to interest or usury, there now appears to be consensus of opinion among Islamic scholars that the term extends to all forms of interest. In banning riba, Islam seeks to establish a society based upon fairness and justice (Qur'an 2.239). A loan provides the lender with a fixed return irrespective of the outcome of the borrower's venture. It is much fairer to have a sharing of the profits and losses. Fairness in this context has two dimensions: the supplier of capital possesses a right to reward, but this reward should be commensurate with the risk and effort involved and thus be governed by the return on the individual project for which funds are supplied. Hence, what is forbidden in Islamic is a predetermined return. The sharing of profit is legitimate and that practice has provided the foundation for Islamic Banking System. Gharar Another feature condemned by Islam is economic transactions involving elements of speculation, Gharar. Buying goods or shares at low and selling them for higher price in the future is considered to be illicit. Similarly an immediate sale in order to a void a loss in the future is condemned. The reason is that speculators generate their private gains at the expense of society at large. Zakat A mechanism for the redistribution of income and wealth is inherent is Islam, so that every Muslim is guaranteed a fair standard of living, nisab. An Islamic tax, Zakat (a term derived from the Arabic zaka, meaning "pure") is the most important instrument for the redistribution of wealth. This tax is a compulsory levy, one of the five basic tenets of Islam and the generally accepted amount of the zakat is one fortieth (2.5 per cent) of Muslim's annual income in cash or kind from all forms of assessed wealth exceeding nisab. Every Islamic bank has to establish a zakat fund for collecting the tax and distributing it exclusively to the poor directly or through other religious institutions. This tax is imposed on the initial capital of the bank, on the reserves, and on the profits as described in the Handbook of Islamic Banking. Haram A strict code of 'ethical investment' operates. Hence it is forbidden for Islamic banks to finance activities or items forbidden in Islam, haram, such as trade of alcoholic beverage and pork meat. Furthermore, as the fulfillment or materials needs assures a religious freedom for Muslims, Islamic banks are required to give priority to the production of essential goods which satisfy the needs of the majority of
the Muslim community, while the production and marketing of luxury activities, israf wa traf is considered as unacceptable from a religious viewpoint. In order to ensure that the practices and activities of Islamic banks do not contradict the Islamic ethical standards, Islamic banks are expected to establish a Sharia Supervisory Board, consisting of Muslim jurisprudence, who act as advisers to the banks. 2.1.3 OBJECTIVES OF ISLAMIC BANKING The primary objective of establishing Islamic Banks all over the world is to promote, foster and develop the application of Islamic principles, law and tradition to the transaction of financial, banking and related business affairs and to promote investment companies, enterprises and concerns which shall themselves be engaged in business as are acceptable and consistent with Islamic principles, law and traditions. But the objectives of Islamic banking when viewed from the context of its role in an economy, its specific objectives may be enlisted as following (Akkas, 2008): - To offer contemporary financial services in conformity with Islamic Shari’ah; - To contribute towards economic development and prosperity within the principles of Islamic justice; - Optimum allocation of scarce financial resources; - Islamic Banking for equitable distribution of resources.
2.2 HISTORY OF ISLAMIC BANKING 2.2.1 HISTORICAL DEVELOPMENT It seems that the history of interest-free banking could be divided into two parts. First, when it still remained an idea; second, when it became a reality -- by private initiative in some countries and by law in others. We will discuss the two periods separately. The last decade has seen a marked decline in the establishment of new Islamic banks and the established banks seem to have failed to live up to the expectations. The literature of the period begins with evaluations and ends with attempts at finding ways and means of correcting and overcoming the problems encountered by the existing banks. 2.2.2 INTEREST-FREE BANKING AS AN IDEA Interest-free banking seems to be of very recent origin. The earliest references to the reorganisation of banking on the basis of profit sharing rather than interest are found in Anwar Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed by a more elaborate exposition by Mawdudi in 1950 (1961). Muhammad Hamidullah’s 1944, 1955, 1957 and 1962 writings too should be included in this category. They have all recognised the need for commercial banks and the evil of interest in that enterprise, and have proposed a banking system based on the concept of Mudarabha - profit and loss sharing. In the next two decades interest-free banking attracted more attention, partly because of the political interest it created in Pakistan and partly because of the emergence of young Muslim economists. Works specifically devoted to this subject began to appear in this period. The first such work is that of Muhammad Uzair (1955). Another set of works emerged in the late sixties and early seventies. Abdullah al-Araby (1967), Nejatullah Siddiqi (1961, 1969), al-Najjar (1971) and Baqir al-Sadr (1961, 1974) were the main contributors.
Early seventies saw the institutional involvement. Conference of the Finance Ministers of the Islamic Countries held in Karachi in 1970, the Egyptian study in 1972, First International Conference on Islamic Economics in Mecca in 1976, International Economic Conference in London in 1977 were the result of such involvement. The involvement of institutions and governments led to the application of theory to practice and resulted in the establishment of the first interest-free banks. The Islamic Development Bank, an inter-governmental bank established in 1975, was born of this process. 2.2.3 THE COMING INTO BEING OF INTEREST-FREE BANKS The first private interest-free bank, the Dubai Islamic Bank, was also set up in 1975 by a group of Muslim businessmen from several countries. Two more private banks were founded in 1977 under the name of Faisal Islamic Bank in Egypt and the Sudan. In the same year the Kuwaiti government set up the Kuwait Finance House. However, small scale limited scope interest-free banks have been tried before- one in Malaysia in the mid-forties and another in Pakistan in the late-fifties. But neither of them survived. In 1962 the Malaysian government set up the “Pilgrim’s Management Fund” to help prospective pilgrims to save and profit. The savings bank established in 1963 at Mit-Ghamr in Egypt was very popular and prospered initially and then closed down for various reasons. However this experiment led to the creation of the Nasser Social Bank in 1972. Though the bank is still active, its objectives are more social than commercial. In the ten years since the establishment of the first private commercial bank in Dubai, more than 50 interest-free banks have come into being. Though nearly all of them are in Muslim countries, there are some in Western Europe as well: in Denmark, Luxembourg, Switzerland and the UK. Many banks were established in 1983 (11) and 1984 (13). The numbers have declined considerably in the following years. In most countries the establishment of interest-free banking had been by private initiative and was confined to that bank. In Iran and Pakistan, however, it was by government initiative and covered all banks in the country. The governments in both these countries took steps in 1981 to introduce interestfree banking. In Pakistan, effective 1 January 1981 all domestic commercial banks were permitted to accept deposits on the basis of profit-and-loss sharing (PLS). New steps were introduced on 1 January 1985 to formally transform the banking system over the next six months to one based on no interest. From 1 July 1985 no banks could accept any interest bearing deposits, and all existing deposits became subject to PLS rules. Yet some operations were still allowed to continue on the old basis. In Iran, certain administrative steps were taken in February 1981 to eliminate interest from banking operations. Interest on all assets was replaced by a 4 percent maximum service charge and by a 4 to 8 percent ‘profit’ rate depending on the type of economic activity. Interest on deposits was also converted into a ‘guaranteed minimum profit.’ In August 1983 the Usury-free Banking Law was introduced and a fourteen-month change over period began in January 1984. The whole system was converted to an interest-free one in March 1985. 2.2.4 THE LAST DECADE The subject matter of writings and conferences in the eighties have changed from the concepts and possibilities of interest-free banking to the evaluation of their performance and their impact on the rest of the economy and the world. Their very titles bear testimony to this and the places indicate the worldwide interest in the subject. Conference on Islamic Banking: Its impact on world financial and commercial practices held in London in September 1984, Workshop on Industrial Financing Activities of Islamic Banks held in Vienna in June 1986, International Conference on Islamic Banking held in Tehran in June 1986, International Conference on Islamic Banking and Finance: Current issues and future prospects held in Washington, D.C. in September 1986, Islamic Banking Conference held in Geneva in October 1986, and Conference ‘Into the 1990’s with Islamic Banking’ held in London in 1988 belong to this category.
The most recent one is the Workshop on the Elimination of Riba from the Economy held in Islamabad in April 1992. Several articles, books and PhD theses have been written on Islamic Banking during this period. Special mention must be made of the work by M. Akram Khan in preparing annotated bibliographies of all published (and some unpublished) works on Islamic Economics (including Islamic Banking) from 1940 and before. It is very useful to students of Islamic Economics and Banking, especially since both English and Urdu works are included (1983, 1991, and 1992). M.N. Siddiqi’s bibliographies include early works in Arabic, English and Urdu (1980, 1988). Turkish literature is found in Sabahuddin Zaim (1980). 2.3 ISLAMIC BANKING IN BANGLADESH AND ITS GROWTH Islamic banking in Bangladesh began operation in Bangladesh in 1983, with a deposit of Tk 14 crore and investments of Tk 6 crore only. After its age 25 years, the total deposits of five major Islamic banks stand at Tk 27,000 crore and their investments exceed Tk 26,000 crore. A professor of Jahangirnagar University's economics department, Professor Anu Muhammad, attributes the loyalty of the people to their religion to the huge growth of Islamic Banks in Bangladesh. He also thinks that the Islamic banks are much more organized than other banks in the private sector. Although the interest rate on loans is higher, many people sacrifice them only because of their loyalty towards the religion. As a result, many foreign banks owned and run by non-Muslims are now showing interest in the Islamic banking system. Now in Bangladesh, six banks fully conform to the Islamic banking system in the country -Islami Bank Bangladesh, Export Import Bank Bangladesh, Shahjalal Islami Bank, Al- Arafah Islami Bank, Social Investment Bank and ICB Islamic Bank. There are also a number of non-banking Islamic financial institutions in the country. They include Islami Insurance, Islami Commercial Insurance, Tafakul Islami Insurance, Far East Islami Life Insurance, Prime Islami Life Insurance and Islamic Finance and Investment. Besides, Prime, South East, Dhaka, City Bank, HSBC, Standard Chartered, Bank Al Falah, Premier and AB Bank operate 19 Islamic banking branches, while Bank Asia told bdnews24.com that it has also received permission to open two such branches. According to Islami Bank Bangladesh, in 1983 when the bank first started its operations, total deposits were Tk 14 crore, with investments of just Tk 6 crore. Its foreign exchange business was worth Tk 1 crore at the time. At the end of 2007, the bank's deposits stood at Tk 16,676 crore, investment at Tk 17,406 crore and the foreign exchange business is worth Tk 28,792 crore. Islami Bank recorded the rate of growth of deposits at 25.57 per cent in 2007 over the previous year. The rate of investment growth of the bank was 40.42 per cent in 2007, compared with the investment growth rate of 17.24 per cent in the banking sector the same year, according to available statistics. Of Islami Bank's total investments in 2007, 51.43 per cent went into industries, 31.98 per cent into trade and commerce, 6.12 per cent into the real estate sector and 3.10 per cent into agriculture. Islami Bank's business in the import, export and remittance sector in 2007 recorded a 42.66 per cent rise from a year ago, according to data provided by the bank. In Islamic banking, the depositor takes an equal share of profit and loss. Besides, in conventional banking, there is no limit of interest. If one takes a loan and makes delays in repayment the amount of interest keeps on increasing. In Islamic banking, the system is different. Prof The aim of all banks is to collect deposits and make a profit through investment. Islamic banking is no different from conventional banking in profit making. Moreover, the profit rate charged or required on loans in Islamic banks is higher than in conventional banks. So they make more profit than interest based banks.
Al Arafah Islami Bank comes to illustrate the banking system's popularity and success in Bangladesh, with an impressive deposit growth rate of 48.30 per cent, and an investment growth rate of 36.46 per cent over the past year. Shahjalal Islami Bank started its operations on May 10, 2001. In 2007, the bank's deposits soared to Tk 2,262 crore, investments to Tk 2,062 crore, with Tk 2,835 crore in total assets. Muhammad Ali, managing director of Shahjalal Islami Bank, believes Islamic banking is necessary for balanced distribution of wealth. Islamic banking also works towards the development of economic activities. That's why people are becoming interested in this type of banking in Bangladesh.
2.4 THE MAJOR MODES OF ISLAMIC BANKING AND FINANCE Following are the main modes of Islamic banking and finance:
MURABAHA The word “Murabaha� means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance.
IJARAH Ijarah is a contract of a known and proposed usufruct against a specified and lawful return or consideration for the service or return for the benefit proposed to taken, or for the effort or work proposed to be expended. In other words, Ijarah or leasing is the transfer of usufruct for a consideration which is rent in case of hiring of assets or things and wage in case of hiring of persons. IJARAH-WAL-IQTINA A contract under which an Islamic bank provides equipment, building or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does integral part of the lease contract to make it conditional. The rentals as well as the purchase not become a price are fixed in such manner that the bank gets back its principal sum along with profit over the period of lease. MUSAWAMAH Musawamah is a general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, seller in Musawamah is not obliged to reveal his cost. Both the parties negotiate on the price. All other conditions relevant to Murabaha are valid for Musawamah as well. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of commodities that he is offering to sell. ISTISNA It is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. Istisnaa can be used for financing the manufacture or construction of houses, plants, projects and building of bridges, roads and highways.
BAI MUAJJAL Literally it means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the bank earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It gin of profit is mutually agreed. The price fixed has to expressly mention cost of the commodity and the mar for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. MUDARABAH A form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared between the two parties on a pre-agreed basis, while loss is borne only by the provider of the capital.
MUSHARAKAH Musharaka means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. BAI SALAM Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver or currencies. Barring this, Bai-Salam covers almost everything, which is capable of being definitely described as to quantity, quality and workmanship. 2.5 DIFFERENCE BETWEEN THE INVESTMENT MODES OF CONVENTIONAL BANKING SYSTEM AND THOSE OF ISLAMIC BANKING SYSTEM 2.5.1 DISTINGUISHING FEATURES OF ISLAMIC BANKING An Islamic bank has several distinctive features as compared to its conventional counterpart. 1. Abolition of (Riba): Since riba is prohibited in-the Holy Quran, and interest in all its form is included in the terminology of “RIBA� as confirmed by the authorized alims of ISLAM with few exceptions, the first distinguishing feature of an Islamic bank must be that it is interest-free, while the abolition of riba would be the first and essential difference between the conventional interest-based commercial banks and Islamic banks. 2. Adherence to Public Interest: The Islamic banks will serve public interest, not individual or group interest. The Islamic banks should use all deposits, which come from the public for serving public interest and realizing the relevant socio-economic goals of Islam. They should play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves to the different needs of the Islamic economy.
3. Multi-purpose bank: Another substantial distinguishing feature is that Islamic banks will be universal or multi-purpose banks and not purely commercial banks. These banks are conceived to be a crossbreed of commercial and investment banks, investment trusts and investment management institutions, and would offer a variety of services to their customers. A substantial part of their financing would be for specific projects or ventures. Their equity-oriented investments cannot permit them to borrow short and lend long. This should tend to make them less crisis-prone compared to their capitalist counterparts. Since the overnight call loan or very short-term inter-bank market may be available to them only to a limited extent, they may have to make a greater effort to match the maturity of their liabilities with the maturity of their assets. 4. More Careful Evaluation of Investment Demand: Another very important feature of an Islamic bank is its very careful attitude towards evaluation of applications for equity oriented financing. It is customary that conventional banks evaluate applications, considers collateral, and avoid risks as far as possible. Their main concern does not go beyond ensuring the security of their principal and interest receipts. Since Islamic bank has in built mechanism of risk sharing, it would need to be more careful. It adds a healthy dimension in the whole lend business and eliminate a whole range of undesirable lending practices. 2.5.2 SIMILARITIES & DIFFERENCES I- They are both financial intermediations. A financial intermediary is the institution that acts as a middleman between cash surplus units (savers) and deficit spending units (users of fund). It is quite obvious that the main function of conventional banks is financial intermediation. However, there are those who would like to think that there is no such thing in the Islamic economic system as financial intermediation and that an Islamic bank can only be “sufficiently” Islamic if it can operate like a trader, one who buys and sells goods and commodities. The financial intermediary in conventional banking is a “borrower-lender” institution. Since such institution will not survive unless it at least covers expenses, then an income must be generated from such arrangement. This is where interest appears. An Islamic bank, on the other hand, is based on a multi-tier Mudaraba. A Mudaraba is a partnership in profit where capital and management may joint together to create value. The income accruing to the Islamic financial intermediary is coming out of profit not from interest. The root of such a conception is the fact that Shari'ah doesn’t distinguish between a seller being a trader or a final intermediary, unlike positive law where civil law is different from commercial law. In Shari'ah all people stand against one legal code. II- A case in mind is Murabaha. There are those who say if an Islamic bank does Murabaha any other form but the traders’ way of doing things it will not be permissible from Shari'ah point of view, and an Islamic bank would be in their view a “dubious” conventional bank. They say: since it is never the intention of the bank, to own there assets and hold on to them then, such bank is not sufficiently Islamic. According to this viewpoint, an Islamic bank must have huge warehouses and elegant stores full of goodies for sale. This is not valid and those who think so miss two important points: Intention is of no consequence on the permissibility or otherwise of any exchange contract in Shari'ah. In an authentic Hadith, the Prophet (PBUH) showed one companion how to substitute a usurious transaction by another non usurious to reach the same purpose, He (PBUH) didn’t object to the intention nor that he nullified the contract on the basis of intention. Rather he corrected the form of contract. If the anatomy of the contract is in line with Shari'ah requirements, then the transaction is acceptable. Hence, if bank actually buys and then sells, with ownership passing from seller to buyer and that the subject of contract is a good or commodity then the transaction is correct. In conventional banking the subject of contract is money hence any increase is usurious.
III- The way conventional banks render financial intermediation is very simple. They borrow money and lend money. Both assets and liabilities are one form of lending. Islamic banking functions in a rather “elaborate” (not perplexing) way. They have to continuously innovate to satisfy the needs of their clients. It is because of this we see Murabaha, Musharakah, Mudarabah, Istisnaa, and Salam to name just a few Islamic modes of finance. This makes the job of an Islamic banker “not all roses”, but certainly a more interesting one. IV- A conventional banker is a risk manger. He is concerned with all kind of credit, market, interest rate, legal and other risk factors. An Islamic banker should be just as concerned. However, there is one added risk for the Islamic banker, this is what we may call “Shariah inobservance risk”. Risk analysis refers to the forces that may cause the outcome of investment to be sub optimal. Certainly an Islamic investor earning non-permissible income is an outcome that is most undesired, and it may cause the value of his investment to be reduced. V- Contrary to popular opinion, being concerned about time value of money is a similarity not a difference between Islamic and conventional banking. There is no basis for the current thinking that Shariah doesn’t allow the attachment of monetary value to time in the contracts exchange. The contracts of Salam and differed-payment sales fly in the face of this argument. It is only in loans that Shariah requires that no time value of money is considered (but replaced by great rewards in the hereafter). VI- A major difference, however, remains in the handling of delinquency and default. When a borrower delays payment of debt, interest will accrue on his delayed portion. Unless, such borrower defaults and become incapable of paying back his debt, such interest will compensate the conventional bank for lost business. This can’t be done in Islamic banking, as this is considered usurious. Clearly, this is a disadvantage from two aspects: Firstly, an Islamic bank will not have the opportunity in a Murabaha transaction for example, to be compensated for lost profit. But more importantly, it increases significantly, the Murabaha risks. Since bank clients are rational people who will seize an opportunity when they see one, they will always delay payment. One major Ijtihad of contemporary Shariah scholars is to allow the Islamic bank to impose penalties. Rather than accrue such penalties as income, and hence become usurious, they are disposed off to charity. This way the pressure will mount on the debtor to pay in time, without falling into Shariah impressibility. However, the differences are presented in a tabular format below:
Conventional Banks Islamic Banks 1. The functions and operating modes of 1. The functions and operating modes of Islamic conventional banks are based on fully banks are based on the principles of Islamic manmade principles. 2. The investor is
assured
predetermined rate of interest.
of
Shariah. a 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds
(entrepreneur). 3. It aims at maximizing profit without any 3. It also aims at maximizing profit but subject to restriction. 4. It does not deal with Zakat.
Shariah restrictions. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of
the Islamic banks to be a Zakat Collection Center and they also pay out their Zakat. 5. Lending money and getting it back with 5. Participation in partnership business is the compounding interest is the fundamental fundamental function of the Islamic banks. So we function of the conventional banks.
have to understand our customer’s business very
well. 6. It can charge additional money (penalty 6. The Islamic banks have no provision to charge and compounded interest) in case of any extra money from the defaulters. Only small defaulters.
amount of compensation and these proceeds is given to charity. Rebates are give for early
settlement at the Bank’s discretion. 7. Very often it results in the bank’s own 7. It gives due importance to the public interest. interest becoming prominent. It makes no Its ultimate aim is to ensure growth with equity. effort to ensure growth with equity. 8. For interest-based commercial banks, 8. For the Islamic banks, it must be based on a borrowing from the money market is Shariah approved underlying transaction. relatively easier. 9. Since income from the advances is fixed, 9. Since it shares profit and loss, the Islamic it gives little importance to developing banks pay greater attention to developing project expertise
in
project
appraisal
and appraisal and evaluations.
evaluations. 10. The conventional banks give greater 10. The Islamic banks, on the other hand, give emphasis on credit-worthiness of the greater emphasis on the viability of the projects. clients. 11. The status of a conventional bank, in 11. The status of Islamic bank in relation to its relation to its clients, is that of creditor and clients is that of partners, investors and trader, debtors. buyer and seller. 12. A conventional bank has to guarantee 12. Islamic bank can only guarantee deposits for all its deposits.
deposit account, which is based on the principle of al-wadiah, thus the depositors are guaranteed repayment of their funds, however if the account is based on the Mudarabah concept, client have to share in a loss position..
CHAPTER 3: PROFILE OF SHAHJALAL ISLAMI BANK LIMITED 3.1 OVERVIEW OF SHAHJALAL ISLAMI BANK LIMITED Shahjalal Islami Bank limited, a Shariah Based Commercial Bank in Bangladesh was incorporated as a Public limited company on 1st April, 2001 under Companies Act 1994. The Bank commenced commercial operation on 10 May, 2001 by opening its branch, i.e. Dhaka Main Branch at 58, Dilkusha, Dhaka obtaining the license from Bangladesh Bank, the Central Bank of Bangladesh. Its corporate Head Office is situated at 10, Dilkusha Commercial Area, Jiban Bima Bhaban, Dhaka-1000, Bangladesh. The Bank opened 2 (two) branches in 2001, 6 (six) branches in 2002, 2 (two) branches in 2003, 2 (two) branches in 2004, 4 (four) branches in 2005 and 5 (Five) Branches in 2006. Total number of branches stood at 21 (Twenty One) in 2006 and 5 (five) more branches will be opened in important business locations of the country during 2007. Shahjalal Islami Bank Limited is one of the few banks permitted by the Bangladesh bank in the early 2000s; the other banks permitted earlier were Social Investment Bank Limited, First Security Bank Limited, Eastern Bank, Bank Asia, Jamuna Bank. These banks are known as the third generation banks and fortunate to remain immune from the bad loan culture. However, the performances of these banks are not the same, The Government of Bangladesh as a Scheduled Bank in the private sector has licensed Shahjalal Islami Bank Limited in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of the above, the Bank within a period of 5 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh bank. It has been growing faster as one of the leaders of the new generation banks in the private sector in respect of business and profitability as it is evident from the financial statements for the last 2 years.
3.2 REVIEW OF OPERATIONAL PERFORMANCE During the year under review, the bank through its Twenty-one branches mobilized Deposit of Tk. 18,091 million and deployed Tk. 15,516 million in investment as on 31.12.2006. Total income of the Bank was Tk. 2,563 million and total expenditure stood at Tk. 1,718 million, resulting in Operating Profit of Tk. 845 million. The Bank handled total Foreign Exchange Business of Tk. 33,501 million in the year 2006.
3.3 SPECIAL FEATURES OF THE BANK • It has been performing Islamic commercial banking activity and striving to introduce dynamic Banking functions. •
It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the savings of the people for channel sings the same to the productive sectors of the economy.
•
For uplifting the standard of living of the limited income group of the population the Bank has introduced Consumer Credit Schemes by providing financial assistance in the form of loan to the consumers for procuring household durables, which have had encouraging responses.
•
The Bank is committed to continuous research and development so as to keep pace with Islamic banking.
•
The operations of the Bank are fully computerized so as to ensure quick, prompt flawless and services to the customers.
•
The Bank has introduced camera monitor system (CCTV) to strengthen the security services inside the Bank premises.
3.4 OBJECTIVES OF THE ORGANIZATION From time immemorial Banks principally did the functions of moneylenders or “Mohajans” but the functions and scope of modern banking are now a days very wide and different. They accept deposits and lend money like their ancestors, nevertheless, their role, as catalytic agent of economic development encompassing wide range of services is very important. Business commerce and industries in modern times cannot go without banks. There are people interested to abide by the injunctions of religions in all sphere of life including economic activities. Human being is value oriented and social science is not value-neutral. Shahjalal Islami Bank believes in moral and material development simultaneously. “Interest” or “Usury” has not been appreciated and accepted by ‘the Tawrat” of Prophet Moses, “the Bible” of Prophet Jesus and “the Quran” of Hazrat Muhammad (Sm). Efforts are there to do banking without interest Shahjalal Islami Bank Limited avoids “interest” in all its transactions and provides all available modern banking services to its clients and want to contribute in both moral and material development of human being. No sustainable material well-being is possible without spiritual development of mankind. Only material well being should not be the objective of development. Socioeconomic justice and brotherhood can be implemented well in a God fearing society. Other objectives of Shahjalal Islami Bank include: • To establish interest-free and welfare oriented banking system. • To help in poverty alleviation and employment generations. • To contribute in sustainable economic growth.
3.5 HISTORY OF THE ORGANIZATION Privatization of Banking is an outcome of the deliberate policy change by the government of Bangladesh in the late 1970. The emergence of Shahjalal Islami Bank Limited (SJIBL) was at the juncture of liberalization of global economic and Islamic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economies of the Muslim countries, in particular of South Asia, has been the driving force and the strategic operational policy option of the bank. The company philosophy - “A Bank with Shariah-Based on Banking” has been precisely an essence of the legend of success in the Muslim countries. Shahjalal Islami Bank Limited is named after the name of a saint Hajrat Shahjalal who dedicated his life for the cause of peace in this world and hereafter and served the humanity. The prime objective of Shahjalal Islami Bank is to serve the people for attainment of their economic goal and success in life here and hereafter. Shahjalal Islami Bank stands not only for material well-being but also for ethical development of its customers.
The Government of Bangladesh has licensed Shahjalal Islamic Bank Ltd. (SJIBL) as a private commercial bank, which is focused on the established and emerging markets of Bangladesh. The bank was incorporated in Bangladesh as a public limited company on April 01, 2001 under company Act 1994, and started banking operations through the “Dhaka Main Branch” at 58 Dilkusha C/A, Dhaka-1000 on May 10, 2001.
3.6 FUNCTIONS OF SHAHJALAL ISLAMI BANK LIMITED The primary function of SJIBL is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the functions of SJIBL when viewed in the context of its role in the economy are listed as follow: • Conduct interest-free banking. • Establish participatory banking instead of banking on debtor-creditor relationship. • Invest through different modes permitted under Islamic Shariah. • Accept deposits on profit-loss sharing basis. • Establish a welfare-oriented banking system. • Extended co-operation to the poor, the helpless and the low-income group for their economic upliftment. • Play a vital role in human development and employment generation. • Contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas. • Contribute in achieving the ultimate goal of Islamic economic system.
3.7 DIVISIONS OF SHAHJALAL ISLAMI BANK LTD The Head Office of Shahjalal Islami bank has nine major divisions and each comprising of various departments. The major divisions in the Head Office are as follows: 3.7.1 INVESTMENT DIVISION This division has the authority to determine the party or the client who will get the credit facility from the bank. The credit clients are selected according to the criteria of credit policy. This division has the full authority to take any decision against or favor the client and the Credit Services Division supports these divisional works. 3.7.2 FINANCIAL ADMINISTRATION DIVISION This division handles the credit proposal, disbursement, monitoring and credit recovery position that is given by all branches. Each branch has their own credit division and all branch-wise activities are reported to the head office credit services division. 3.7.3 AUDIT & INSPECTION DIVISION, H.O This division can control all the financial position, activities of overall organization. They provide the total budgetary limitation to every department for the respective year. They also carry out the financing activities with the access and operational activities.
3.7.4 MARKETING & PUBLIC RELATION DIVISION This division mainly works • To improve the marketing network through out the country • To implement the marketing strategies and the concept of Trade Marketing • To improve the procedure which is ultimately provide date regarding to competition and relative market • To arrange of several workshops and seminar which can, improve the quality of existing officers as a competitive edge position 3.7.5 COMMON SERVICES DIVISION This division handles all the general activities except the credit and financial sector. All the administration activities arc designed and implemented by this division. 3.7.6 HUMAN RESOURCE DIVISION (HRD) This division deals with the employees as the core resources of the organization. They mainly emphasize on the recruitment of employees and the employee benefits & services. And, the main philosophy is to motivate the employee to work with efficiently and effectively. 3.7.7 COMPUTER IT DIVISION (IT) This division handles the IT activities. Each branch has their own IT division and all branch-wise activities are reported to the head office IT division. 3.7.8 INTERNATIONAL DIVISION This division works internationally. The entire branch-wise international work is controlled and monitored by this division.
3.8 PERFORMANCE OF THE BANK The Shahjalal Islami Bank Limited (SJIBL) was incorporated as a public limited company on April 01, 2001 under Companies Act. 1994. The bank started commercial banking operations effective from May 10, 2001. During this short span of time the bank of time the Bank had been successful to position itself as a progressive and dynamic financial institution in the country. The Bank had been widely acclaimed by the business community from small businessmen / entrepreneurs to large traders and industrial conglomerates, including the top rated corporate borrowers for forward-looking business outlook and innovative financing solutions. The operating profit of the Bank in the year 2007 was appreciable. Total equity of the Bank as on 31.12.2005 was Tk. 848.35 million and the total equity stood to Tk. 1,362.57 million on 31.12.2006, which was 10.39% of the Risk Weighted Assets as against the requirement of 9.00%. The core capital was 9.19% of Risk Weighted Assets as on 31 December 2006 as against requirement of 4.50%. After IPO, as on 30.06.2007, total equity stands at Tk. 2,545.30 Risk Weighted Assets as against total requirement of 9%.
3.9 EQUITY OF THE BANK The Authorized Capital of the Bank is Tk. 2,000 million and paid-up capital of the Bank is Tk. 936 million as on 31.12.2006. Total equity was Tk. 1,363 million as on 31.12.2006. The Bank has already raised its paid up capital of Tk. 936 million through Initial Public Offering (IPO) in January-February
2007. After IPO Bank’s paid-up capital stands at Tk. 1,872 million in February 2007. Comparative position of Equity for the year 2006 & 2005 is given below: (Amount in million Taka):
3.10 CAPITAL ADEQUACY Total equity of the Bank as on 31.12.2005 was Tk. 848.35 million and the total equity stood to Tk. 1,362.57 million on 31.12.2006, which was 10.39% of the Risk Weighted Assets as against the requirement of 9.00%. The core capital was 9.l9% of Risk Weighted Assets as on 31 December 2006 as against requirement of 4.50%.
After IPO, as on 30.06.2007 total equity stands at Tk. 2,545.30 million, which was 17.73% of Risk Weighted Assets as against total requirement of 9%.
3.11 BASEL II PREPARATION Under the Basel II initiative, which is intended to ensure that banks have enough capital to cover their risks, a bank’s regulatory capital will be tied directly to its internal risks and its choices in managing them- the lower the risks and the better the risk management, the lower the regulatory capital requirement. Moreover, Basel II introduces an array of approaches to measuring credit and operational risk that enables banks to adopt methodologies that best suit their organization and risk profile. The Basel II framework describes a more comprehensive measure and minimum standard for capital adequacy that national supervisory authorities are now working to implement through domestic rulemaking and adoption procedures. Shahjalal Islami Bank Limited is aware of the impact on capital requirement and has taken measures on the broad related issues mention as under: A unit has been formed named “Basel-II Implementation Unit” as per the guideline of Bangladesh Bank. Training was given to the executives/officers of the Bank on the Basel II Capital Accord. Strong IT platform, which will cover the entire operation, is going to be implemented by the year 2008. Upgrading its internal rating system by 2008and improving the capital adequacy ratio so as to cover the credit risk, operational risk and market risk within the stipulated time mentioned by Bangladesh Bank are under process; Continuous and consistent oversight by the Board, Executive Committee and the Audit Committee in compliance with Basel-Il Capital Accord well ahead before adoption.
3.12 DEPOSITS Total deposit of Shahjalal Islami Bank stood at Tk. 18,090.65 million as on 31.12.2006 as against Tk 12,204.63 million of 31.12.2005 registering an increase of Tk. 5,886.02 million, i.e. 48.23% growth. Deposit is the ‘life-blood’ of a Bank. The mobilized deposits were ploughed back in economic activities through profitable and safe investments. Bank has given utmost importance in mobilization of deposits introducing some popular and innovative schemes: a) Mudaraba Monthly Income Scheme. b) Mudaraba Double/Triple Benefit Scheme.
c) Mudaraba Monthly Deposit Scheme. d) Mudaraba Millionaire Scheme. e) Mudaraba Hail Scheme. f) Mudaraba Housing Deposit Scheme. g) Mudaraba Cash waqf Deposit Scheme. The Deposit-mix of the Bank as on 31.12.2006 was as bellow:
Sl.No 1 2 3 4 5 6
Nature of Deposit Al-Wadia Current Deposit Mudaraba Savings Deposit Mudaraba Short Notice Deposit Mudaraba Term Deposit Mudaraba Schemes Deposit Other Deposits Total
Taka in million 519.69 913.16 366.76 10,252.66 5,131.30 907.08 18,090.65
Percentage of Total Deposit 2.87% 5.05% 2.03% 56.67% 28.36% 5.02% 100.00%
3.12 INVESTMENTS Total investment of the Bank stood at Tk. 15,515.79 million as on 31.12.2006 as against Tk. 10,590.27 million of 31.12.2005 registering an increase of Tk. 4,925.52 million, i.e. 46.51% growth. The Bank is careful in deployment of the fund. Mode wise investments portfolio as on 31.12.2006 is given below:
Sl. No 1 2 3 4 5 6 7 8
Mode of Investments Murabaha Bi-muajjal Hire-purchase & Ijara Investment against L/C Bill purchased/ discounted Investment against scheme deposits Quard Others
Taka in million 4,687.36 5,774.57 3,009.46 219.72 1,308.55 428.78 59.27 28.08
Percentage
of
Total Investment 30.21% 37.22% 19.40Yo 1.42째 o 8.43째 o 2.76째/o 0.38% 0.18%
The Bank entertains good investment-clients having credit-worthiness and good track record. The Bank has got a few Investment Schemes to provide financial assistance to comparatively less advantaged group of people: a) Household Durable Scheme. b) Small Business Investment Program. c) Small Entrepreneur Investment Program. d) Medium Entrepreneur Investment Program. e) Housing Investment Program. f) Rural Investment Program.
The following Two Investment Schemes are going to be introduced shortly: a) Car Investment Scheme. b) Women Entrepreneur Investment Scheme.
3.13 FOREIGN EXCHANGE BUSINESS Total Foreign Exchange Business handled during the year 2006 was Tk. 33,500.96 million as against Tk. 20,098.61 million of 2005 registering an increase of Tk. 13,402.35 million, i.e. 66.68% growth. The particulars of Foreign Exchange Business are given below: Particulars
Amount in Million Taka
Percentage of Total
Import
18,684.40
55.77%
Export
11,281.94
33.68%
Foreign Remittance
3,534.62
10.55%
Total
33,500.96
100%
During the year 2006 Bank branches opened 5,613 Import Letter of Credit as against 4,484 of 2005 and handled 6,336 Export bills in 2006 against 4,237 of 2005.
3.14 OPERATING RESULT A. Income 1. Investment Income: Total Investment Income of the Bank as at 31 December 2006 was TK. 2,158 million as against TK.1,357 million of the preceding year registering 59% growth over last year, which was 84% of the total income as also equal to 84% of 2005. 2. Non-Investment Income Total Non-Investment Income of the Bank as at 31 December 2006 was Tk. 405 million as against Tk. 263 million of the preceding year registering 54% growth over last year, which was 16% of the total income compared to 16% of 2005. B. Expenditure: 1. Profit Paid on Deposits Bank distributed Profit of Tk. 1,491 million among the Mudaraba Depositors in the year 2006 against Tk. 944 million in the year 2005 which being 700 a of the Investment income earned from deployment of Mudaraba Fund and 87% of total Expenditure of 2006 against 84% of 2005. 2. Operating Expenses
Total operating expenses as on 31.12.2006 was Tk. 227 million as against Tk.174 million of 2005, which was 13% of the total Expenditure of the year 2006 against 16% of 2005. 3. Operating Profit During the year 2006, the Bank earned an amount of Tk. 2,563 million and spent an amount of Tk. 1,718 million, resulting a total Operating Profit of Tk. 845 million which increased by Tk. 343 million over last year i.e. 2005. After deducting investment provision and income taxes net profit stood at Tk. 463 million as against Tk. 256 million of 2005. As appropriation of net profit, Tk. 158 million transferred to statutory reserve as per Bank Company Act 1991 and Remaining Tk. 306 million transfers to retained earnings to adjust previous negative balance. A summary of operating result of the bank as on December 2006 vis-àvis the position of December 2005 is shown below:
3.15 FOREIGN CORRESPONDENTS Shahjalal Islami Bank Limited has established correspondence relationship with 23 Banks in 490 locations to facilitate business with foreign countries. This correspondent relationship has immensely increased Bank’s foreign trade and foreign exchange business and simultaneously, the clients of Shahjalal Islami Bank have been receiving satisfactory service all over the world. To augment foreign remittance, the Bank concluded ‘Instant Cash Payment’ & ‘Taka/Dollar Drawing’ agreement with different exchange houses/money Transfer Company which has been contributing to the growth of foreign remittance business of the Bank. Besides, steps have been taken to establish correspondent relationship with more Banks and Exchange Houses covering important location around the world.
3.16 BRANCH NETWORK The Bank has been operating through a network of 26 (Twenty Six) branches all over the country which are fully computerized having online Banking facilities.
3.17 RELATIONSHIP WITH OTHER BODIES Shahjalal Islami Bank Limited became a member of Dhaka Stock Exchange Limited in 2007 and in the meantime, Shahjalal Islami Bank has also established relationship with the following National Bodies: a) Bangladesh Institute of Bank Management (BIBM) h) The Institute of Bankers, Bangladesh (IBB) c) The Bangladesh Foreign Exchange Dealers’ Association (BAFEDA)
d) Bangladesh Association of Banks (BAB) e) Islami Bank Consultative Forum (IBCF) f) Central Shariah Board for Islamic Banks in Bangladesh and g) Dhaka Chamber of Commerce & Industry (DCCI)
3.18 INTERNAL CONTROL AND MONITORING The Bank gives utmost importance in supervision and monitoring of banking activities. The Bank Branches are subject to the following Audit and inspections every year (i) Bangladesh Bank Inspection. (ii) Internal Audit & Inspection. (iii) External Audit. (iv) Audit Committee’s Audit & Inspection. During the year 2006, the branches have been audited & inspections have been conducted several times. This has not only improved the working norms & procedure but also regularized many lapses and irregularities.
3.19 HUMAN RESOURCES DEVELOPMENT Total number of manpower of the Bank stood at 377 as on 31 December 2006 as against 340 of 31 December, 2005. The Bank has introduced a good number of staff welfare schemes such as Contributory Provident Fund, Gratuity Fund, Benevolent Fund, Staff House Building Investment Scheme & Car Scheme etc.
3.20 TRAINING AND DEVELOPMENT The Bank has already established a training center at Head Office premises where training facilities are being provided to its New and existing staff. Through the training center 12 no of trainings, 9 no of workshops, and 2 no of seminars have been arranged on different Banking & Shariah issues in 2006. Moreover, the Bank has been sending officials to BIBM, Bangladesh Bank training institute and other training Institute for participating on various banking issues on need basis. Besides, Bank provided training facilities abroad to 7 officials during 2006.
3.21 DIVIDEND Due to the insufficient fund for distribution as dividend in the year 2006, the Board of Directors of Shahjalal Islami Bank Limited did not recommend any dividend for the shareholders.
3.22 AUTOMATION IN BANKING OPERATION For automation and up gradation of the services in the Bank, Local Area Network (LAN) and Wide Area Network (WAN) system have already been developed. In the year 2006, IT & Card Division of Head Office has arranged trainings on different issues for the employees. Following arrangements have been made for improved customer service: 3.22.1 ON-LINE BANKING SERVICES Shahjalal Islami Bank Limited has the vision to automate its all operations and functionalities. The Bank is committed to achieve the goal to be a leading Bank in the country both in service and in technical aspects and to fulfill the requirements of mass people. Shahjalal Islami Bank Limited is patterned of Islamic norms & ethics with modern technology to achieve the goal in the new century. It has started its
operation with full automation with on-line facilities. Most online banking institutions have several other advantages, allowing clients to keep track of their check book, transfer money between accounts, and even pay bills online. In other context, Electronic Fund Transfer, Centralized Banking etc arc considered as a 4 part of On-line Banking An Electronic Fund Transfer or EFT is an automated withdrawal, or debit, from client account. Transferring funds automatically saves the client the time and effort of writing and mailing checks to pay bills or make purchases. To meet the growing need for rendering prompt services to the customers, Bank has been trying best to automate all sorts of transaction in the branches. All the branches are well equipped with computers and related peripherals to meet the demand of the customers. Now all our branches have been availing “Online Banking facility� for the convenience of the customers. 3.22.2 SJIBL VISA CARD Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, the following two products are launched broadening service products of the Bank to the clients: VISA Electron (SJIBL VISA Debit Card-Local) 1. VISA Prepaid (SJIBL Prepaid Card) 2. VISA Prepaid (SJIBL VISA Prepaid Card) a) SJIBL VISA Prepaid (Prepaid Card-Local) b) SJIBL VISA Prepaid (Prepaid Card-International) c) SJIBL VISA Prepaid (Prepaid Card-Dual) d) SJIBL Souvenir Card (Gift Card-Local) 3.22.3 SMS/ PUSH PULL SERVICE: Welcome to the convenience of accessing your banking needs from anywhere anytime. Shahjalal Islami Bank again fulfilled the demand of time in the era of modern banking technology by introducing the Mobile banking i.e. SMS /Push Pull Service. We offer a range of ways for you to access and manage your money so that you are always in control of your financial transactions; it is fast secure and economical. Services: (1) Balance Inquiry, (2) Cheque Book Request, (3) Cheque Leaf status, (4) FC Rate Information, (5) Cheque stop Payment Instruction, (6) Statement Request by Courier/Post, (7) Statement request by Email, (8) Last Three Transaction Statement, (9) Help inquiry, (10) P1N Change. 3.22.4 SWIFT The Bank has already become a member of Society for Worldwide Inter Bank Financial TeleCommunication (SWIFT) to provide Secured and accurate communication network for financial transactions, i.e. Import, Export, Remittance, etc 3.22.5 REUTERS The Bank has also established liaison with the facility of REUTERS, through which the bank received regular, latest information about the exchange rate, etc and other price sensitive information to take prompt and correct decision.
3.23 SOCIAL WELFARE ACTIVITIES With a view to providing financial assistance to the poor and needy people of the society and also for the welfare of the community, to this perspective, Bank has established “Shahjalal Islami Bank Foundation” with the objective to provide health-care, relief & rehabilitation, education, humanitarian, distribution of winter clothes during the winter etc. Shahjalal Islami Bank Foundation has a planning to establish the following projects and programs: > Shahjalal Islami Bank International School & College. > Shahjalal Islami Bank Hospital The foundation has also drawn up programs to look after the education, health & Medicare requirements of the people of rural areas where the Bank has launched Rural Investment Program (RIP) with vision 2040. The foundation has a plan to give reward to the meritorious students in different level.
Chapter-Two Organizational Overview
2.1 Shahjalal Islami Bank Limited (SJIBL): The “Shahjalal Islami Bank Limited” a Shariah Based Commercial Bank in Bangladesd was incorporated as a public limited company as on 1st day of April 2001 under the Companies Act. 1994. The Bank started its commercial operation on May 10, 2001. The Bank has made a significant progress within a very short period of its existence and occupied an enviable position among its competitors after achieving remarkable success in all areas of business operation. The authorized capital of the Bank is Tk. 4000 million and Paid up capital of the Bank stood at Tk. 2740 million as on 31 December 2009. The total equity (capital and reserves) of the Bank as on December 31, 2009 stood at Tk. 5430 million. Managing Director: Muhammed Ali Phone: +880 2 9570807, Mobile: 880 187031674 Contact Person: Md. Jillur Rahman, Deputy Managing Director Phone: +880 2 9568800 Contact Address: Shahjalal Islami Bank Limited
Jiban Bima Bhaban Front Block (4th floor) 10, Dilkusha Commercial Area Dhaka-1000, Bangladesh Phone: +880 2 9570812, 7160591, 9561473 Fax: +880 2 9570809, 9553562 E-mail: sblho@shahjalalbank.com.bd, shahjalajislamibank@gmail.com, sblho@aitlbd.net. Web: www.shahjalalbank.com.bd
2.2 Overview Shahjalal Islami Bank Ltd With a view to materialize the dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam, a group of highly successful entrepreneurs conceived an idea of floating a commercial bank styled as “Shahjalal Islami Bank Limited” which is named after the name of the renowned saint Hajrat Shahjalal (R) who dedicated his life for the cause of peace in this world and hereafter and for the service of humanity. The sponsors are reputed personalities in the field of trade & commerce, industry and finance. “Shahjalal Islami Bank Limited” offers the full range of banking services for personal and corporate customers, covering all segments of society within the framework of Banking Company Act and rules and regulations laid down by our central bank. Diversification of products and services include Corporate Banking, Retail Banking and Consumer Banking right from industry to agriculture, real estate to software and is backed by the latest technology. The Bank is being managed by a group of highly experienced professionals with diversified experience in finance and banking. The Management of the bank constantly looks after customers’ satisfaction and believes that a satisfied customer is a great Ambassador. The Bank has already achieved tremendous progress within only ten years. The bank has already ranked as one of the quality service providers & is known for its reputation. Offers the full range of banking services for personal and corporate customers, covering all segments of society within
the framework of Banking Company Act and rules and regulations laid down by our central bank. By now, the Bank established correspondent Banking relationship with 18 Banks covering their global network of 385 branches/units of International repute at different important locations. It also established accounting relationship with 10 Banks and maintaining 22 NOSTRO Accounts in 8 (eight) major Currencies at different convenient locations. The Board of Directors of our Bank consists of reputed Industrialists and Businessmen who are successful in their respective fields headed by Mr. Sajjatuz Jumma, the Chairman of the Board who is an eminent Industrialist & reputed businessman in Bangladesh and current Chairman of Islamic Banks Consultative Forum (IBCF). The Board generally deals with policy matters relating to management of Business and sets goal for the growth & development of the Bank as a whole, review of the same from time to time and gives necessary guidance to the management. The Bank is managed by a Team of professional Executives and Officials having profound banking knowledge & expertise in different areas of management and operation of Banks. The Team is headed by the immediate past Executive President and CEO of Islami Bank Bangladesh Ltd. (IBBL) for about 7 years. During his Incumbency, IBBL attained a remarkable growth & development. Above all, he had the opportunity to hold the position of Chairman of the Board of Directors of Islami General Insurance Company & then he Joined Shahjalal Islami Bank Ltd on February 25, 2004 as the Managing Director and Chief Executive Officer (CEO) to enrich Islamic Banking methodology in the Country. During the short span of time, Shahjalal Islami Bank so far introduced a good number of attractive deposit products to broaden the resource base and also Investment products to deploy the deposit resources so mobilized. Some more schemes covering the deposits, Investments & Services will be introduced gradually in near future suiting to the taste and requirement of the clients. The Bank has a strong Shariah Council consisting of prominent Ulama, Fuquah & Economists who meet periodically to confer decisions on different Shariah issues relating to Banking Operation & to address them and to give necessary guidance to the management on Shariah Principle. Since inception, Bank has been performing in all the sectors i.e. general
Banking, Remittance, Import, Export and Investment. All our branches are fully computerized having on line Banking facility for the clients. All activities of the Bank including its products and services are mainly for different economic groups of Bangladesh at home & abroad. Bangladeshi expatriates living abroad in different countries form a strong economic group who contribute greatly towards the economic development of the country.
2.3 Vision of SJIBL To be the unique modern Islami Bank in Bangladesh and to make significant contribution to the national economy and enhance customer’s trust and wealth, quality investment, employee’s value and rapid growth in shareholders equity.
2.4 Mission of SJIBL
To provide quality services to customers
To set high standards of integrity
To make quality investment
To ensure sustainable growth in business
To ensure maximization of shareholders wealth
To expand the customer’s innovative service acquiring state-of the-art technology blended with Islamic principles.
To ensure human resource development to meet the challenges of the time.
2.5 Objectives of SJBL From time immemorial Banks principally did the functions of moneylenders or "Mohajans" but the functions and scope of modern banking are now a days, very wide and different. They accept deposits and lend money like their ancestors, nevertheless, their role as catalytic agent of economic development encompassing wide range of services is very important. Business commerce and industries in modern times cannot go without banks. There are people interested to abide by the injunctions of religions in all sphere of life including economic activities. Human being is value oriented and social science is not value-neutral.
Shahjalal Islami Bank believes in moral and material development simultaneously. "Interest" or "Usury" has not been appreciated and accepted by "the Tawrat" of prophet Moses, "the Bible" of prophet Jesus and "the Quran" of Hazrat Muhammad (sm). Efforts are there to do banking without interest Shahjalal Islami Bank Limited avoids "interest" in all its transactions and provides all available modern banking services to its clients and wants to contribute in both moral and material development of human being. No sustainable material well-being is possible without spiritual development of mankind. Only material well-being should not be the objective of development. Socio-economic justice and brotherhood can be implemented well in a Godfearing society. The other objectives of Shahjalal Islami Bank include: •
To conduct interest-free and welfare oriented banking business based on Islamic Shariah.
•
To implement and materialize the economic and financial principles of Islam in the banking arena.
•
To contribute in sustainable economic growth.
•
To help in poverty alleviation and employment generations.
•
To remain one of the best banks in Bangladesh in terms of profitability and assets quality.
•
To earn and maintain a 'Strong' CAMEL Rating.
•
To introduce fully automated systems through integration of information technology.
•
To ensure an adequate rate of return on investment.
•
To maintain adequate liquidity to meet maturing obligations and commitments.
•
To play a vital role in human development and employment generation.
•
To develop and retain a quality work force through an effective Human Resources Management System.
•
To ensure optimum utilization of all available resources.
•
To pursue an effective system of management by ensuring compliance to ethical norms, transparency and accountability at all levels.
2.6 STRATEGIES OF SJIBL:
THE STRATEGIES OF SHAHJALAL ISLAMI BANK INCLUDE: •
To raise capital.
•
To strive for customers’ best satisfaction and earn their confidence.
•
To manage and operate the Bank in the most effective manner.
•
To identify customers’ needs and monitor their perception towards meeting those requirements.
•
To review and update policies, procedures and practices to enhance the ability to extend better service to customers.
•
To train and develop all employees and provide them adequate resources so that customers' needs are reasonably addressed.
•
To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to employees in a timely fashion.
•
To cultivate a congenial working environment.
•
To diversify portfolio both in the retail and wholesale markets.
•
To increase direct contact with customers in order to cultivate a closer relationship between the bank and its customers.
2.7 Equity of the Bank: Total equity of the Bank as on 31th December 2008 was Tk. 4069 million and the total equity stood at Tk. 5430 million on 31th December 2009.
Particulars Equity Fund (Capital & Reserve)
2009 5430
(Figure in milloin) 2008 4069
Equity Fund (Capital & Reserve) 7000 6000 5000 4000 3000 2000 1000 0 2008
2009
Source: Annual Report 2008-9 2.8 Deposits: The Bank mobilized a total deposit of Tk. 47,459 million as on December 31, 2009 as against Tk. 34,280 million as on December 31, 2009 showing an increase of 38% The combination of competitive interest rates that offered sustained deposit raising efforts of the Bank and confidence reposed by customers in the Bank resulted in this growth of deposits. Steps are being taken to further increase the deposit base continuously at a reduced average cost of funds.
50,000
40,000
Particulars Deposit
30,000
2009 47,459
(Figure in million) 2008 34,280
Deposit
20,000 10,000 0
2008
2009
2009
2008
Source: Annual Report 2008-9 2.9 PERFORMANCE OF SHAHJALAL ISLAMI BANK LIMITED AT A GLANCE: Balance Sheet As At 31 December’2009 (with compare 2008) PROPERTY AND ASSETS
2009 Taka
2008 Taka
Cash Cash In Hand (Including Foreign Currencies)
562,922561,
449,615,577
3,515,663,193 4,078,585,754
2,773,858,394 3,223,473,971
Institutions
1,729,470,208
546,298,93248
Inside Bangladesh
404,441,115 2,133,911,323
168,432,590 714,731,522
Balance with Bangladesh Bank & Sonali Bank(Including Foreign Currencies) Balance with other Bank and Financial
Outside Bangladesh Investments in securities Government Investments
3,483,146,682 3,483,146,682
1,144,189,400 1,144,189,400
40,369,639,045
29,197,016,442
3,588,621,666 43,958,260,711
3,721,757,226 32,918,773,668
620,466,461
338,806,004
358,743,429
499,438,757
-
-
58,920,895,401
44,109,502,922
2009 Taka
2008 Taka
Murabaha, Bai-Muajjal etc. Bills Purchased & Discounted Fixed Assets Including Premises Furniture and Fixtures etc. Other Assets Non Banking Assets Total Assets
LIABILITIES AND CAPITAL Liabilities Financial (Borrowings) from other Banks, Financial Institutions and Agents
4,500,000,000 4,654,500,000
Deposits and other Accounts: Al-Wadiah Current Deposit & Other Accounts Bills Payable Mudaraba Saving Deposits Mudaraba Term Deposits Other Mudaraba Deposits Other Liabilities Total Liabilities Capital/Shareholders’ Equity
3,966,538,988
2,975,717,377
351,419,391
263,o76,409
3,072,788,942
1,863,522,467
27,578,741,808 18,985,664,403 12,489,742,364 10,191,759,337 47,459,231,493 34,279.739993 2,035,030,640
1,569,822,257
53,994,262,133 40,504,062,248
Paid-up Capital Statutory Reverse Retained Earnings Asset Revaluation Reseerve Total Shareholders’ Equity Total Liabilities & Shareholders’ Equity
2,740,095,600 1,142,585,039 753,328,328 250,624,301
2,245,980,000 823,552,175 535,908,499
4,926,633,268 3,605,440,674 58,920,895,401 44,109,502,922
2.10 Departments of SJIBL All branches of Shahjalal Islami Bank Limited are divided into three departments: General Banking Department. Foreign Exchange Department. Investment Department. 2.10.1 GENERAL BANKING DEPARTMENT: General banking department is one of the most important departments of Shahjalal Islami Bank Limited. Basically bank provides the main services to the customer through this department. In general this section of the Shahjalal Islami Bank Limited is divided into five sections.
•
Accounts opening section
•
Cash section
•
Remittance section
•
Bills and clearing section
•
Accounts section
2.10.2 FOREIGN EXCHANGE DEPARTMENT: Banks play a very important role in effecting foreign exchange transaction of a country. Mainly transactions with overseas countries are in respect of imports; exports and foreign remittance come under the purview of foreign exchange department. Banks are the vital sectors by which such transactions are effected/settled. Central Bank records all sorts of foreign exchange transactions. The other banks dealing with foreign exchange are to report to Bangladesh Bank regularly (viz. daily, monthly, quarterly, yearly etc.). The foreign exchange department consists of three sections. They are:
•
Import section
•
Export section
•
Foreign remittance section
2.10.3 INVESTMENT DEPARTMENT: Banking business consists of borrowing and lending, Bank act as an intermediary between surplus and deficit economic units. Thus a banker is a dealer in money and credit. Banks accept deposit from large number of customers and then lend a major portion of the accumulated money to those who wish to borrow. In this process banks secure reasonable return to the savers, make funds available to the borrowers at a cost and earn a profit after covering the cost of funds. Banks, besides their role of intermediation between savers and borrowers and providing an effective payment mechanism, have been allowed to diversify into many new areas of better paying business activities.
2.11 Credit Rating Report: Entity Rating Date of Rating
Long Term AA+ April 03, 2009
Short Term ST- 2
Credit Rating Information and Services Limited (CRISL) upgrades the rating of Shahjalal Islami Bank Limited(SJIBL) to A+ (pronounced as single A plus) from A (pronounced as single A) in the Long Term and reaffirms short term rating to ST-2.
2.12
ORGANOGRAM OF THE MANAGEMENT
Chairman Shariah Council
Board of Directors
Audit Committee
Sponsors
Executive Committee Managing Director Deputy Managing Director
Deputy Managing Director Executive Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Vice President
Senior Assistant Vice President
Firs Asst Vice President
Assistant Vice President
Executive Officer
Senior Officer
Abbreviation GSD-General Service Division CAD-Central Account Division ASI- Audit &Inspect CB-Central Bank D&M- Developing &Marketing ID-International Division R&P-Research & Planning
Trainee Senior officer Trainee Officer
2.13 Social Welfare Activities: With a view to providing financial assistance to the poor and needy people of the society and also for the welfare of the community, to this perspective, bank has established “Shahjalal Islami bank Foundation� with the objective to provide health care, relief and rehabilitation, education, humanitarian of winter clothes during the winter etc. Shahjalal Islami Bank Foundation has a planning to establish the following projects and programs:
Trainee
Staff
•
Shahjalal Islami Bank International School and College
•
Shahjalal Islami Bank Hospital
The foundation have also drawn up programs to look after the education, health and medical requirements of all the people of rural areas where the bank has launched Rural Investment Programs with vision 2020. The foundation already introduced a program to reward poor student who passes SSC and HSC exam. Students who are not financially sound, the foundation gives financial assistance to them. The bank has started it from 2006 under these project 111 poor and meritorious students awarded by monthly scholarship and lump sum money at yearly basis. This will motivate students to do better in future. The bank appreciates the good things in the society. Chapter - Three Conceptual Framework
3.1 Concepts of Islami Bank: Islami 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 operation. For millions of Muslims, banks were institution to be avoided. Islam is a religion, which keeps Believers from the tellers’ window. Their Islamic beliefs prevent them from dealings that involve usury or interest (Riba). Yet Muslim needs banking services as much as anyone and for many purposes: to finance new business ventures, to buy a house, to facilitate capital Investment to undertake trading activities and to offer safe place for saving. Muslims are not averse to legitimate profit as Islam encourages people to use money in Islamic ally legitimate ventures not just to keep their funds idle.
However in this fast moving world more than 1400 years after the Prophet (S.A.W) can Muslims find room for the principles of their religion? The answer comes with the fact that a global network of Islamic banks investment house and other financial institution have started to take shape based on the principals of Islamic finance laid down in the Quran and the Prophet’s traditions some 14 centuries ago. Islamic banking based on the Quranic prohibition of changing interest has moved from a theoretical concept to embrace more than 100 banks operating in 40 countries with multibillion-dollar deposits worldwide. Islamic banking is widely regarded as the fastest growing sector in the Middle Eastern financial services market. Exploding onto the
financial scene barely thirty years ago an estimated $US100 billion worth of funds are now managed according to Shariah. The best-known feature of Islamic Banking is the prohibition on interest. The Holy Quran forbids the charging of ‘Riba’ on money lent. It is important to understand certain principles of Islam that underpin Islamic finance. Muslim scholars accepted the word ‘Riba’ to mean any fixed or guaranteed interest payment on cash advances or on deposits. The rules regarding Islamic finance are quite simple and can be summed up as follows:
a) The predetermined payment over and above the actual amount of principal is prohibited. b) The lender must share in the profits or losses arising out of the enterprise for which the money was lent. c) Making money from is not Islamically acceptable d) Ggharar (Uncertainty, Risk or Speculation) is also prohibited. e) Investment should only support practices or products that are not forbidden.
3.2 Objectives of Islamic Banking The 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. The main objectives of Islamic Banking are as follows: 1. To conduct interest free banking. 2. To establish participatory Banking instead of Banking on debtor-creditor relationship. 3. To invest through different modes permitted under Islamic Shariah. 4. To accept deposits on profit-loss sharing basis. 5. To establish welfare oriented Banking System. 6. To extend operation to the poor, helpless and low income group for their economic enlistment. 7. To contribute in achieving the ultimate goal of Islamic economic system. 8. To facilitate the Islamic banking system in the country.
9. To create new entrepreneurs and to arrange required finance them.
3.3 Evolution of Islamic Banking Islamic Banking comes into reality through a long theoretical exercise of several renowned Islamic scholars and economists. The first attempt to establish an Islamic financial institution took place in Pakistan in 1950. In the modern world, the pioneering role in establishing the first Islamic Bank in 1963 named ‘Mit- Ghamar’ Saving Bank in Egypt at rural area of Nile Delta. As on today, there are many Islamic financial institutions operating through out the world covering both Muslim and non-Muslim countries of various socio-economic environment. The first Islamic bank in Malaysia was established in 1983. In 1993, commercial banks, merchant banks and finance companies were allowed to offer Islamic banking products and services under the Islamic Banking Scheme (IBS). These institutions however, are required to separate the funds and activities of Islamic banking transactions from that of the conventional banking business to ensure that there would not be any co-mingling of funds. In Malaysia, the National Syariah Advisory Council additionally set up at Bank Negara Malaysia (BNM) advises BNM on the Shariah aspects of the operations of these institutions, as well as on their products and services.
3.4 Legitimate Business Contracts for Islamic Banks The modes of mobilization in Islamic banks have derived from the overall permissible contracts in Islam. In what follows we fast describe the concept of Aqd or contract form business perspective and then discuss the legitimate forms contracts that can be used in Islamic banks for both deposit collection and their profitable employment. A business contract can be defined as the exchange of a thing of value by another thing of value with mutual consent. There are four element of an Aqd or contract: 1. Contrat(Aqd). 2. Subject Matter (Mabe’e). 3. Price (Thaman). 4. Prossession of delivery (Qabdh)
3.5 Common practices of Islamic banks in mobilization of funds
The common practices of Islamic banks in the sources of funds may be described as follows:
3.5.1 Current Accounts All Islamic banks operate current account on behalf of their client individuals and business firms. These accounts are operated for the safe custody of deposits and for the convenience of customers. There is little different between conventional banks as far the operation of current accounts is concerned. There are two dominant views about current account. One is to treat demand deposit as amnah (trust). A trust deposit is defined by the Jordan Islamic Banks as “cash deposits received by the bank where the bank is authorized to use the deposits at its own risk and responsibility in respect to profit or loss and which are not subject to any conditions for withdrawals or depositing�.
3.5.2 Saving Account All Islamic banks operate saving accounts. It must be pointed out that any return on capital is Islamically justified only if the capital is employed in such a way that it is expected to a business risk. Savings accounts at Islamic Banks Generally operate as follows: 1. Savings accounts are opened with the condition that deposits provide the bank with an authorization to invest. 2. Depositors have the right to deposit and withdraw funds. 3. The profits in savings accounts are calculated on the minimum balance maintained during the month. Depositors participate in the profits of savings accounts with effect from the beginning of the month following the month in which the deposits are made. Profits are not calculated with effect from the beginning of the month in which a withdrawal is made from the account. 4. A minimum balance has to be maintained in order to qualify for a share in profit.
3.5.3 Investment Deposit Investment deposits are Islamic banks counterparts of term deposits or time deposits in the conventional system. They are also called profit and Loss-Sharing (PLS) Accounts or Participatory Account. However they can be distinguished from traditional fixed term deposits in the following manner: 1. Fixed term deposits in the conventional system operate on the basis of interest while investment accounts in Islamic banks operate on the basis of profit sharing Instead of promising depositors a predetermined fixed rate of return on their investment the bank tells them only the ratio in which it will share the profits with them.
2. While fixed term deposit are usually distinguished from each other on the basis of their maturities investment deposits can be distinguished on the basis of maturity as well as on the basis of purposes as it is possible to give special instructions to the bank to invest a particular deposit in a specified project or trade. The main distinguishing characteristics of investment deposits can be described as follows: 1. Deposit holders do not receive any interest. Instead they participate in the share of the profits or losses. 2. Usually these accounts are opened for a specific period e.g. three months, six month, one year or more. 3. The return on investment is determined according to actual profit s from investment operations of the bank and shared in an agreed proportion by depositors according to the amount of their deposits and the period for which the bank holds them. 4. Generally speaking depositors do not have the right to withdraw from these accounts as is customary in time deposits in conventional banks.
3.6 Islamic Financial Vehicles Islamic banks around the world have devised many creative financial products based on the risk sharing and profit sharing principles of Islamic banking. For day to day banking activities a number of financial instruments have been developed that satisfy the Islamic doctrine and provide acceptable financial returns for investors.
3.6.1 Al-Mudaraba (Profit sharing) This implies a contract between two parties whereby one party the rabb al mal (beneficiary; owner or the sleeping partner), entrusts money to the other party called the mudarib (managing trustee or the labor partner). Important features of Mudaraba are as follows: The division of profits between the two parties must necessarily be on a proportional basis and cannot be a lump sum or guaranteed return. The investor is not liable for losses beyond the capital he has contributed. The mudarib does not share in the losses except for the loss of his time and efforts.
3.6.2 Murabaha
This is the sale of a commodity at a price, which includes a stated profit, which includes a stated profit known to both the vendor and the purchaser. This can be called a cost plus profit contract. The buyer in deferred payments usually pays the price back. Under Murabaha the Islamic bank purchases in its own name, goods that an importer or a buyer wants and then sells them to him at an agreed mark-up. This technique is usually used for financing trade, but because the bank takes title to the goods, and is therefore engaged in buying and selling its profit derives from a real service that entails a certain risk and is thus seen as legitimate.
3.6.3 Musharaka (Profit and loss sharing) This is a partnership normally of limited duration formed to carry out a specific project. It is therefore similar to a western- style joint venture, and is regarded by some as the purest from of Islamic financial instrument, since it conforms to the underlying partnership principles of sharing in and benefiting from risk. In this case the bank enters into a partnership with a client in whom both share the equity capital and perhaps even the management of a project or deal and both share in the profits or losses according to their equity shareholding.
3.6.4 Ijarah (Lease financing) Another popular instrument is leasing which is designed for financing an asset or equipment. It is a manfaah (benefit) or the right to use the asset or equipment. The lessor leases out an asset or equipment to the client at an agreed rental fee for a pre-determined period pursuant to the contract.
3.6.5 Ijara Wa Iktina (Hire Purchase) Equivalent to the leasing and installment loan, hire- purchase, practices that put millions of drivers on the road each year. These techniques as applied by Islamic banks include the requirement that the leased items be used productively and permitted by Islamic law.
3.6.6 Muqarada This technique allows a bank to flat what are effectively Islamic bonds to finance a specific project. Investors who buy muqaradah bonds take a share of the profits of the project being financed, but also share the risk of unexpectedly low profits or even losses.
3.6.7 Bai-Salam A buyer pays in advance for a specified quality of a commodity, deliverable on a specific date at an agreed price. This financing technique, similar to a futures or forward- purchase contract is particularly applicable to seasonal purchase but it can also be used to buy other goods in cases where the seller needs working capital before he can deliver.
3.6.8 Istisna (Purchase order) This is a sale and purchase agreement whereby the seller undertakes to manufacture or construct according to the specification given in the agreement. It is similar to bai salam the main distinction being the nature of the asset and method of payment. Istisna generally covers those things which are customarily made to order and advance payment of money is not necessary as required in bai salam. The method of payment in istisna is flexible.
3.6.9 Bai-Muajjal The terms ‘Bai’ and ‘Muajjal’ have been derived from Arabic words ‘Bai’ and ‘Ajl’. The word ‘Bai’ means purchase and sale. The word ‘Ajl’ means fixed time or a fixed period. ‘Bai-Muajjal’ means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit. ‘BaiMuajjal’ may be defined as a contract between a buyer and seller under which the seller sells specific goods to the buyerat an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installment’s. 3.6.10 Hire Purchase under Shirkatul Melk
Shirkat means partnership. Shirkatul Melk means share in ownership when two or more persons supply equity to purchase an asset own the same jointly and share the benefit as per agreement and bear the loss in proportion to their equity, the contract is called Shirkatul Melk contract.
3.6.11 Quard-Al-Hasan It is a virtuous loan. Through this mode, Bank provides loan to its customer for a certain period, which bears no profit/loss/compensation.
3.6.12 Direct Investment Islamic Bank without the help/assistance of any client may directly invest its fund/capital in share, securities, business and industry. Profit and loss in this business is exclusively, the internal matter of the Bank.
The concepts of equity and morality are at the root of Islamic banking .In Islam moral and equitable values from an integral part of the rules of law governing contractual and financial relations to such an extent that the relationship, which exists between equity law and relation, is an organic rather than supplementary relationship. The importance of Islamic banking has increased dramatically over the past 10 years. The main differences between Western and Islamic style banking is the concentration on people and their businesses rather than on accounts it is a much more grass roots banking according to one expert. Chapter-Four Activities of the SJIBL
4.1 Introduction of SJIBL, Kawran Bazar Branch: This branch was established 26th September, 2004 it is situated at the First floor of T.K Bhaban, 13 Kazi Nazrul Islam Avenue, Kawran Bazar, Dhaka-1215. The bank is designed under one floor. It has been providing Islamic banking services for the customers of Kawran Bazar area.
4.2 Objectives: •
To provide Islamic banking service to the people within the commanding area.
•
To expand business based on Islamic Shariah.
•
To keep position in the competitive market.
•
To contribute in profitability of SJIBL
4.3 Department of the Branch: •
Account opening department
•
Cash department
•
Accounts department
•
Investment department
•
Foreign exchange department
•
Clearing department
•
Remittance department.
4.4 Number of Accounts: Application
Total Account
AL-Wadiah Current Deposit (ACD)
2010-december 394
Mudaraba Savings Deposit (MSD)
1972
Mudaraba Short Notice Deposit (MSND)
47
Doble Profit M.Savings Scheme (DPMSS)
396
Education Deposit Scheme (EDS)
161
FCD
9
Hajj Palon Scheme (HAJJ)
49
House Deposit Scheme (HDS)
11
InLand Doc. Bill Purchase (IDBP)
67
INV
746
Lakhopoti Dep. Scheme (LDS)
165
Multiple Benefits M. S. Scheme (MBMSS)
46
Monthly Deposit Scheme (MDS)
5772
Monthly Income Scheme (MIS)
229
Millionaire Scheme – 12 Yrs (MS12)
220
Millionaire Scheme – 12 Yrs (MS15)
182
Millionaire Scheme – 20 Yrs (MS20)
118
Millionaire Scheme – 25 Yrs MS25
202
Marriage Deposit Scheme (MSD)
1972
Mohor Deposit Scheme (MSD)
279
M. Term Deposit Scheme (MTDR)
996
Non
Resident
(NRFCD) TOTAL
FC
Depo.
–
Dollar
5 11823
4.5 Statement of Affairs on SJIBL Kawran Bazar Branch: Account No. Sundry
Account Name
Balance
9020824001 9020824002 9020824013 9020824014 9020824016 9020824017 9020824021 9020824022 9020824028 9020824030 9020824033 9020824036 9020824038 9020824041
UN Identified Entries S/D- Sundry Creditors S/D- Excise Duty on Deposits S/D- Vat for LC Commission S/D- 5% Tax for LC Commission S/D- 5% Tax on Agency Com S/D- Margin on LC S/D- Margin LG S/D- RISK Fun for HHD Scheme S/D- Leased Deposit S/D- FC Held B/B Payment USD S/D-Clearing adjustment S/D- Application Fees S/D- VAT
30750.00 99830.00 1364298.00 230181.00 8500.00 819057.00 18344211.00 5122828.34 1900.00 263840.00 11414353.65 3456768.00 60977.00 31.00
9020824042 9020824049 9020824086
S/D-VAT for Banking Service Sundry Deposit Others S/D Card Issue Charge
1355.00 1236877.00 100.00
9020824116
Risk Fund Under HPSM
57700.00
Deposits
Total
42513559.61
4.6 A list of Employees of the SJIBL Kawran Bazar Branch: SL. 01
Designation Executive Vice President & Manager
Number of Employer 01
02
Senior Assistant Vice President & Deputy
01
03 04 05 06
Manager First Assistant Vice President Senior Executive Officer Executive Officer First Executive Officer
01 02 02 03
07
Assistant Executive Officer
01
08
Senior Officer
03
09
Officer
06
10
Senior Trainee Officer
01
11
Trainee Officer Staff
Total
02 06 29
4.7 Products of SJIBL, Kawran Bazaar Branch: 4.7.1 Deposits: Shahjalal Islami Bank Limited accepts deposits on the basis of Mudaraba in the following types of accounts, and pays profit, like that of dividend in these accounts, except AL-Wadiah Current Account. The relationship between banker and customer is not debtor-creditor relationship of conventional banks. The depositor is a partner in business with Shajalal Islami Bank Limited. Customers' deposit their fund in the following types of Accounts: 1. Mudaraba Short Notice Deposit Account 2. Mudaraba Savings Account 3. Mudaraba Term Deposit Account 4. Other Scheme Deposit Accounts Average 70% of profit earned by the bank is distributed proportionately among depositors annually.
4.7.2 Investments Modes: To provide interest-free Banking Shahjalal Islami Bank has adopted the following modes of investment: 1. Musharaka (equity participation on the basis of sharing profit and loss) 2. Mudaraba (sharing of profit and loss in business where one of the partners provides expertise and management and other partner provides capital remaining inactive)
3. Murabaha (buying and selling of commodities goods etc. with profit) 4. Bai-Muajjal (credit sale with profit) 5. Ijara (leasing for rent) 6. Hire purchase or Shirkatul Melk 7. Bi-Salam (purchasing of agricultural products while in production and providing advance oney to the producers) 8. Istisna (purchasing of industrial products while in production and providing advance money to the producers).
4.7.3 Computer Services: Shahjalal Islami Bank is computerized and provides the following services some of these services will be introduced soon. Shahjalal Islami Bank Limited introduced a few schemes, which are very popular: •
Online services
•
Automated Accounting
•
Integrated System
•
Signature Verification
•
Any Branch Banking
•
ATM Services
•
POS Services
•
SMS Push Pull Services 9. Other Delivery Channel Services (to be implemented)
4.7.4 Deposit Schemes: •
Millionaire Scheme
•
Double the Money Scheme
•
Monthly Income Scheme
•
Monthly Deposit Scheme
•
Hajj Scheme
•
Mudaraba Bibaho Scheme (New Product)
•
Mudaraba Cash Waqf Deposit Scheme (New Product)
•
Special Term Deposit Scheme (New Product)
•
Mudaraba Mohor Deposit Scheme (New Product)
•
Mudaraba Shikhkha Deposit Scheme (New Product)
•
Mudaraba Housing Deposit Scheme
•
Mudaraba Lakhopoti Deposit Scheme
•
Mudaraba Small Business Deposit Scheme
4.7.5 Investment Schemes: •
Doctors Investment Scheme
•
Education Investment Scheme
•
Executives Investment Scheme
•
Marriage Investment Scheme
•
Overseas Investment Scheme
•
Household Durable Scheme
•
Small Business Investment Scheme
•
Housing Investment Scheme
•
Small Enterpreneurs Investment program
•
Medium Enterpreneurs Investment program
•
Rural Investment Program (RIP)
•
Car Investment Scheme
•
CNG Conversion Investment Scheme
4.7.6 Services: •
SJIBL VISA Card :
Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, the following two products are launched broadening service products of the Bank to the clients’: 1.
VISA Electron (SJIBL VISA Debit Card - local)
2.
VISA Prepaid (SJIBL VISA Prepaid Card)
SJIBL VISA Debit Card: To a customer, “My card, my money” concept is used for Debit Card. Any accountholder of SJIBL can apply for a SJIBL VISA Debit Card against his/her Al-Wadiah Current Deposit (AWCD), Mudaraba Savings Deposit (MSD) or Mudaraba Short Notice Deposit (MSND) Account. He/she is fully authorized to enjoy the benefits of cash withdrawal from ATMs, liberty of shopping, dining, paying utility bills and having access account information through SMS, etc. round the clock. SJIBL VISA Prepaid Card (Local): SJIBL VISA Prepaid Local Cards are open to the customers even having no account with Shahjalal Islami Bank Limited. Cardholders can have the card against prepayment and have access from anywhere in Bangladesh. SJIBL VISA Prepaid Local Cards are accepted locally at all VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Prepaid Card (International): SJIBL VISA Prepaid International Cards are also open to the customers even having no account with Shahjalal Islami Bank Limited. Cardholders can have the card endorsing US Dollar paying against Travel Quota, Exporters Retention Quota or marking Lien of his/her FC Account. SJIBL VISA Prepaid International Cards are accepted worldwide at all the VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Prepaid Card (Dual): The Dual Card is a hassle free product, no need to carry two separate plastic cards for local and international card. Now, with one plastic card the Cardholders can enjoy all the benefits and make transactions locally & globally from their Prepaid card account at all the VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Souvenir Card (Gift Card – Local): SJIBL Souvenir Card is a very attractive and stylish product. Like a Gift Card, SJIBL Souvenir Card can be used by anyone wishes to. The intending customer may have the card instantly or may customize the card as required. The SJIBL Souvenir Cards are accepted locally at all the VISA labeled merchant outlets, ATMs, etc. Usage Limit Description Cash withdrawal limit (total) Cash withdrawal limit (amount)
Transaction Limit 4 times per day Tk. 20,000 per day
Balance checking Mini statement printing PIN change Invalid PIN retry count Card usage limit in ATMs (total)
•
4 times per day 2 time per day 2 times per day 3 times per day 10 times per day
SMS Service :
Welcome to the convenience of accessing your banking needs from anywhere anytime. Shahjalal Islami Bank again fulfilled the demand of time in the era of modern banking technology by introducing the Mobile banking i.e. SMS / Push Pull Service. We offer a range of ways for you to access and manage your money. Mobile Banking is a secured & flexible solution that delivers the banking services to its customers through a range of mobile devices using SMS / Push Pull technology. It provides banking services to the registered clients access to account information and real-time transaction capabilities from the mobile phones at a true “Anywhere, Anytime, Anyhow” convenience. As a leading private sector bank in Bangladesh the Shahjalal Islami Bank Limited presents the Mobile banking i.e. SMS / Push Pull service. Services: 1. Balance Inquiry 2. Cheque Book Request 3. Cheque Leaf Status 4. FC Rate Information 5. Cheque Stop Payment Instruction 6. Statement Request by Courier/Post 7. Statement request by E-mail 8. Last Three Transaction Statement 9. Help inquiry 10. PIN Change
• GP Bill Collection:
Grameen Phone subscribers availing the service to pay their bills, advances, security deposit and other related charges through all branches of Shahjalal Islami Bank Limited.
4.8 Remittance: •
Kushiara
•
Western Union
•
Swift Service
4.8.1 Kushiara: Kushiara Money Transfer’s a definition of safety and reliability and a popular Money Transfer Company in United Kingdom (U.K.). Kushiara offers “Instant Cash” next day collection from Bank counter at most cities in Bangladesh and “Quick Credit” to beneficiary’s account in all over the Bangladesh.
4.8.2 Western Union: Western Union a fast, reliable and convenient way to send a money transfer Western Union Financial Services Inc. U.S.A. is the number one and reliable money transfer company in the world. This modern Electronic Technology based money transfer company has earned worldwide reputation in transferring money from one country to another country within the shortest possible time. Shahjalal Islami Bank Limited has set up a Representation Agreement with Western Union Financial Services Inc. U.S.A. Millions of people have confidence on Western Union for sending money to their friends and family. Through Western UnionMoney Transfer Service, Bangladeshi Wage Earners can send money quickly from over 280,000 Western Union Agent Locations in over 200 countries and territories worldwide- the world’s largest network of its kind, only by visiting any branches of Shahjalal Islami Bank Limited in Bangladesh. The money sent by your loved ones is very special to you indeed. So, at Western Union, we offer the following benefits:
Reliability: Our customers have benefited from our electronic money transfer for over 150 years. Each transfer can be tracked electronically to make sure that you receive the money your loved one has sent. Speed: When your loved one sends you money, within minutes you can receive it in Bangladesh. Convenience: •
Bank account is not required!
•
Just go to a Shahjalal Islami Bank Limited branch anywhere in Bangladesh offering Western Union Money Transfer. Thensimply fill a form and collect your money.
•
Shahjalal Islami Bank Limited has 51 branches all over Bangladesh and Western Union has over 280,000 agent locations across 200 countries and territories.
3 easy steps to receive your money:
Your loved ones deposit the money at any Western Union Agent location and get a receipt with MTCN.
He/she then informs you about the amount sent (sender name, amount, sending country, receiver name and MTCN).
You go to the nearest Shahjalal Islami Bank Branch with a valid identity card. You fill a simple form and receive the money.
4.8.3 SWIFT Service Shahjalal Islami Bank Limited is a member of the society for Worldwide Inter Bank Financial Telecommunication (in abbreviation S.W.I.F.T). SWIFT is the industry-owned co-operative supplying secure, standardized messaging services and interface software to nearly 8,100 financial institutions in 207 countries and territories. SWIFT members include banks, brokerdealers and investment managers. The broader SWIFT community also encompasses corporate as well as market infrastructures in payments, securities, treasury and trade.
4.1 Introduction of SJIBL, Kawran Bazar Branch: This branch was established 26th September, 2004 it is situated at the First floor of T.K Bhaban, 13 Kazi Nazrul Islam Avenue, Kawran Bazar, Dhaka-1215. The bank is designed under one floor. It has been providing Islamic banking services for the customers of Kawran Bazar area.
4.2 Objectives: •
To provide Islamic banking service to the people within the commanding area.
•
To expand business based on Islamic Shariah.
•
To keep position in the competitive market.
•
To contribute in profitability of SJIBL
4.3 Department of the Branch: •
Account opening department
•
Cash department
•
Accounts department
•
Investment department
•
Foreign exchange department
•
Clearing department
•
Remittance department.
4.4 Number of Accounts: Application
Total Account 2010-december
AL-Wadiah Current Deposit (ACD)
394
Mudaraba Savings Deposit (MSD)
1972
Mudaraba Short Notice Deposit (MSND)
47
Doble Profit M.Savings Scheme (DPMSS)
396
Education Deposit Scheme (EDS)
161
FCD
9
Hajj Palon Scheme (HAJJ)
49
House Deposit Scheme (HDS)
11
InLand Doc. Bill Purchase (IDBP)
67
INV
746
Lakhopoti Dep. Scheme (LDS)
165
Multiple Benefits M. S. Scheme (MBMSS)
46
Monthly Deposit Scheme (MDS)
5772
Monthly Income Scheme (MIS)
229
Millionaire Scheme – 12 Yrs (MS12)
220
Millionaire Scheme – 12 Yrs (MS15)
182
Millionaire Scheme – 20 Yrs (MS20)
118
Millionaire Scheme – 25 Yrs MS25
202
Marriage Deposit Scheme (MSD)
1972
Mohor Deposit Scheme (MSD)
279
M. Term Deposit Scheme (MTDR)
996
Non
Resident
FC
Depo.
–
(NRFCD) TOTAL
Dollar
5 11823
4.5 Statement of Affairs on SJIBL Kawran Bazar Branch: Account No. Sundry
Account Name
Balance
UN Identified Entries
30750.00
Deposits 9020824001
9020824002 9020824013 9020824014 9020824016 9020824017 9020824021 9020824022 9020824028 9020824030 9020824033 9020824036 9020824038 9020824041
S/D- Sundry Creditors S/D- Excise Duty on Deposits S/D- Vat for LC Commission S/D- 5% Tax for LC Commission S/D- 5% Tax on Agency Com S/D- Margin on LC S/D- Margin LG S/D- RISK Fun for HHD Scheme S/D- Leased Deposit S/D- FC Held B/B Payment USD S/D-Clearing adjustment S/D- Application Fees S/D- VAT
99830.00 1364298.00 230181.00 8500.00 819057.00 18344211.00 5122828.34 1900.00 263840.00 11414353.65 3456768.00 60977.00 31.00
9020824042 9020824049 9020824086
S/D-VAT for Banking Service Sundry Deposit Others S/D Card Issue Charge
1355.00 1236877.00 100.00
9020824116
Risk Fund Under HPSM
57700.00
Total
42513559.61
4.6 A list of Employees of the SJIBL Kawran Bazar Branch: SL. 01
Designation Executive Vice President & Manager
02
Senior Assistant Vice President & Deputy
01
03 04 05 06
Manager First Assistant Vice President Senior Executive Officer Executive Officer First Executive Officer
01 02 02 03
07
Assistant Executive Officer
01
08
Senior Officer
03
09
Officer
06
10
Senior Trainee Officer
01
11
Trainee Officer Staff
02 06
Total
Number of Employer 01
29
4.7 Products of SJIBL, Kawran Bazaar Branch:
4.7.1 Deposits: Shahjalal Islami Bank Limited accepts deposits on the basis of Mudaraba in the following types of accounts, and pays profit, like that of dividend in these accounts, except AL-Wadiah Current Account. The relationship between banker and customer is not debtor-creditor relationship of conventional banks. The depositor is a partner in business with Shajalal Islami Bank Limited. Customers' deposit their fund in the following types of Accounts: 1. Mudaraba Short Notice Deposit Account 2. Mudaraba Savings Account 3. Mudaraba Term Deposit Account 4. Other Scheme Deposit Accounts Average 70% of profit earned by the bank is distributed proportionately among depositors annually.
4.7.2 Investments Modes: To provide interest-free Banking Shahjalal Islami Bank has adopted the following modes of investment: 1. Musharaka (equity participation on the basis of sharing profit and loss) 2. Mudaraba (sharing of profit and loss in business where one of the partners provides expertise and management and other partner provides capital remaining inactive) 3. Murabaha (buying and selling of commodities goods etc. with profit) 4. Bai-Muajjal (credit sale with profit) 5. Ijara (leasing for rent) 6. Hire purchase or Shirkatul Melk 7. Bi-Salam (purchasing of agricultural products while in production and providing advance oney to the producers) 8. Istisna (purchasing of industrial products while in production and providing advance money to the producers).
4.7.3 Computer Services:
Shahjalal Islami Bank is computerized and provides the following services some of these services will be introduced soon. Shahjalal Islami Bank Limited introduced a few schemes, which are very popular: •
Online services
•
Automated Accounting
•
Integrated System
•
Signature Verification
•
Any Branch Banking
•
ATM Services
•
POS Services
•
SMS Push Pull Services 9. Other Delivery Channel Services (to be implemented)
4.7.4 Deposit Schemes: •
Millionaire Scheme
•
Double the Money Scheme
•
Monthly Income Scheme
•
Monthly Deposit Scheme
•
Hajj Scheme
•
Mudaraba Bibaho Scheme (New Product)
•
Mudaraba Cash Waqf Deposit Scheme (New Product)
•
Special Term Deposit Scheme (New Product)
•
Mudaraba Mohor Deposit Scheme (New Product)
•
Mudaraba Shikhkha Deposit Scheme (New Product)
•
Mudaraba Housing Deposit Scheme
•
Mudaraba Lakhopoti Deposit Scheme
•
Mudaraba Small Business Deposit Scheme
4.7.5 Investment Schemes: •
Doctors Investment Scheme
•
Education Investment Scheme
•
Executives Investment Scheme
•
Marriage Investment Scheme
•
Overseas Investment Scheme
•
Household Durable Scheme
•
Small Business Investment Scheme
•
Housing Investment Scheme
•
Small Enterpreneurs Investment program
•
Medium Enterpreneurs Investment program
•
Rural Investment Program (RIP)
•
Car Investment Scheme
•
CNG Conversion Investment Scheme
4.7.6 Services: •
SJIBL VISA Card :
Card is considered as a new dimension of product resulting from technological development in the banking arena. In line with our affiliation with VISA International for VISA ATMs and POS, the following two products are launched broadening service products of the Bank to the clients’: 1.
VISA Electron (SJIBL VISA Debit Card - local)
2.
VISA Prepaid (SJIBL VISA Prepaid Card)
SJIBL VISA Debit Card: To a customer, “My card, my money” concept is used for Debit Card. Any accountholder of SJIBL can apply for a SJIBL VISA Debit Card against his/her Al-Wadiah Current Deposit (AWCD), Mudaraba Savings Deposit (MSD) or Mudaraba Short Notice Deposit (MSND) Account. He/she is fully authorized to enjoy the benefits of cash withdrawal from ATMs, liberty of shopping, dining, paying utility bills and having access account information through SMS, etc. round the clock.
SJIBL VISA Prepaid Card (Local): SJIBL VISA Prepaid Local Cards are open to the customers even having no account with Shahjalal Islami Bank Limited. Cardholders can have the card against prepayment and have access from anywhere in Bangladesh. SJIBL VISA Prepaid Local Cards are accepted locally at all VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Prepaid Card (International): SJIBL VISA Prepaid International Cards are also open to the customers even having no account with Shahjalal Islami Bank Limited. Cardholders can have the card endorsing US Dollar paying against Travel Quota, Exporters Retention Quota or marking Lien of his/her FC Account. SJIBL VISA Prepaid International Cards are accepted world wide at all the VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Prepaid Card (Dual): The Dual Card is a hassle free product, no need to carry two separate plastic cards for local and international card. Now, with one plastic card the Cardholders can enjoy all the benefits and make transactions locally & globally from their Prepaid card account at all the VISA labeled merchant outlets, ATMs, etc. SJIBL VISA Souvenir Card (Gift Card – Local): SJIBL Souvenir Card is a very attractive and stylish product. Like a Gift Card, SJIBL Souvenir Card can be used by anyone wishes to. The intending customer may have the card instantly or may customize the card as required. The SJIBL Souvenir Cards are accepted locally at all the VISA labeled merchant outlets, ATMs, etc. Usage Limit Description Cash withdrawal limit (total) Cash withdrawal limit (amount) Balance checking Mini statement printing PIN change Invalid PIN retry count Card usage limit in ATMs (total)
•
SMS Service :
Transaction Limit 4 times per day Tk. 20,000 per day 4 times per day 2 time per day 2 times per day 3 times per day 10 times per day
Welcome to the convenience of accessing your banking needs from anywhere anytime. Shahjalal Islami Bank again fulfilled the demand of time in the era of modern banking technology by introducing the Mobile banking i.e. SMS / Push Pull Service. We offer a range of ways for you to access and manage your money. Mobile Banking is a secured & flexible solution that delivers the banking services to its customers through a range of mobile devices using SMS / Push Pull technology. It provides banking services to the registered clients access to account information and real-time transaction capabilities from the mobile phones at a true “Anywhere, Anytime, Anyhow” convenience. As a leading private sector bank in Bangladesh the Shahjalal Islami Bank Limited presents the Mobile banking i.e. SMS / Push Pull service. Services: 11. Balance Inquiry 12. Cheque Book Request 13. Cheque Leaf Status 14. FC Rate Information 15. Cheque Stop Payment Instruction 16. Statement Request by Courier/Post 17. Statement request by E-mail 18. Last Three Transaction Statement 19. Help inquiry 20. PIN Change
• GP Bill Collection: Grameen Phone subscribers availing the service to pay their bills, advances, security deposit and other related charges through all branches of Shahjalal Islami Bank Limited.
4.8 Remittance: •
Kushiara
•
Western Union
•
Swift Service
4.8.1 Kushiara: Kushiara Money Transfer’s a definition of safety and reliability and a popular Money Transfer Company in United Kingdom (U.K.). Kushiara offers “Instant Cash” next day collection from Bank counter at most cities in Bangladesh and “Quick Credit” to beneficiary’s account in all over the Bangladesh.
4.8.2 Western Union: Western Union a fast, reliable and convenient way to send a money transfer Western Union Financial Services Inc. U.S.A. is the number one and reliable money transfer company in the world. This modern Electronic Technology based money transfer company has earned worldwide reputation in transferring money from one country to another country within the shortest possible time. Shahjalal Islami Bank Limited has set up a Representation Agreement with Western Union Financial Services Inc. U.S.A. Millions of people have confidence on Western Union for sending money to their friends and family. Through Western UnionMoney Transfer Service, Bangladeshi Wage Earners can send money quickly from over 280,000 Western Union Agent Locations in over 200 countries and territories worldwide- the world’s largest network of its kind, only by visiting any branches of Shahjalal Islami Bank Limited in Bangladesh. The money sent by your loved ones is very special to you indeed. So, at Western Union, we offer the following benefits: Reliability: Our customers have benefited from our electronic money transfer for over 150 years. Each transfer can be tracked electronically to make sure that you receive the money your loved one has sent. Speed:
When your loved one sends you money, within minutes you can receive it in Bangladesh. Convenience: •
Bank account is not required!
•
Just go to a Shahjalal Islami Bank Limited branch anywhere in Bangladesh offering Western Union Money Transfer. Thensimply fill a form and collect your money.
•
Shahjalal Islami Bank Limited has 51 branches all over Bangladesh and Western Union has over 280,000 agent locations across 200 countries and territories.
3 easy steps to receive your money:
Your loved ones deposit the money at any Western Union Agent location and get a receipt with MTCN.
He/she then informs you about the amount sent (sender name, amount, sending country, receiver name and MTCN).
You go to the nearest Shahjalal Islami Bank Branch with a valid identity card. You fill a simple form and receive the money.
4.8.3 SWIFT Service Shahjalal Islami Bank Limited is a member of the society for Worldwide Inter Bank Financial Telecommunication (in abbreviation S.W.I.F.T). SWIFT is the industry-owned co-operative supplying secure, standardized messaging services and interface software to nearly 8,100 financial institutions in 207 countries and territories. SWIFT members include banks, brokerdealers and investment managers. The broader SWIFT community also encompasses corporate as well as market infrastructures in payments, securities, treasury and trade.
Chapter-Five General Banking Activates General Banking: Financial institution/ intermediary that mediates or stands between ultimate borrowers and ultimate lenders is knows as banking financial institution. Banks perform this function in two ways- taking deposits from various areas in different forms and lending that accumulated amount of money to the potential investors in other different forms. General Banking is the starting point of all the banking operating. General Banking department aids in taking deposits and simultaneously provides some ancillaries services. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. In some general banking activities, there is no relation between banker and customers who will take only one service form Bank. On the other hand, there are some customers with who bank are doing its business frequently. It is the department, which provides day-to-day services to the customers. Every day it receives deposits from the customers and meets their demand for cash by honoring cheques. It opens new accounts, demit funds, issue bank drafts and pay orders etc. since bank in confined to provide the service everyday general banking is also known as retail banking.
General Banking Section of a branch is designed•
To serve the general people for saving money
•
To ensure smooth transaction for commercial people and
•
To ensure security of preaches wealth of the clients and also for all other important activities.
The general banking involves the following activities5.1 Account opening One cannot be a customer of the bank without opening an account. Account opening is an agreement between the customer and the bank. The form of account opening acts as a contract
evidence. So account opening is one of the most important activities of a bank. The rules and regulations for opening of an account can vary according to types of accounts.
5.2 Account Opening Procedure in a flow chart: Customer fills up the application form in the prescribed manner.
Customer must have to sign on specimen signature card.
Now the Account is ready for operation
Then bank official issued a cheque book for the customer
Letter of Introduction is required for individual customer
Bank Official scrutinizes the introduction and examines the documents submitted.
Initial deposit must be in the form of cash. No cheque or draft is acceptable to the Bank.
Figure 1: Account opening procedure. (Source : General Banking Manual)
5.3 Cheque Book: Cheque book is issued to the new customer after opening account. Two separate cheque books are given for current and saving accounts. AWCA accounts Cheque book consists 25 and 50 leafs, while MCA account Cheque book has 10 leafs. There is a cheque book issue register in this regard; where Cheque book number, leaf number, date of issue etc. information are kept. All the necessary numbers are the sent to the computer department to give entry in the program.
Fig Then Officer draws a cheque book under his own disposal
Starts with opening the account
Then officer enter the customer’s name and the account number on the face of the cheque book
Then he put the same on the cheque requisition slip (CRS)
Then he writes the issued date and number of cheque leaves in the cheque book and sign in the register
Then the banker sealed the branch name and bank logo
Then the officer enter the cheque number on the leaves
After completing all the procedure the officer handed it over to the customer.
ure 2: The process of cheque book issuance for new account.
5.4 Transfer of an account:
5.5 Types of
Figurein3:written Transfer account.of the Step: 1 Application to of theanManager Accountsaccount maintaining branch
One cannot imagine the banking business without deposits. So the most important activity of the Step: 2 Manager sends a request to the manager of the commercial bank is to receive the deposits from the customers Shahjalal Islami Bnak’s deposits desired branch of depositors can be divided as follows— Step: 3 Sends original Account opening application and specimen signature sheet with the balance i. AL-Wadiah Current Deposit remained in the account at he sent Manger’s request
Step: 4 new accounts are opened at desired branch.
For private, individuals, merchants, traders, importers and exporters mill and factory overset this type of account is advantageous. The minimum deposit of Tk.5000 for opening of a current account is required with reference. The benefits of current account are as follows•
Statement of account on monthly basis/any time.
•
Free checkbook
•
Statement by fax on demand
•
Any number of transactions a data
• ii. Mudaraba Savings Deposit There is restriction on withdrawals. Frequent withdrawal is prohibited. The saving account is primarily for small-scale savers. The main objective of this A/C is promotion of saving money. Highlights of the Account
7 days notice is required for withdrawal of large amount.
Frequent withdrawal is not encouraged.
Minimum amount of Tk.2000.00 is required as initial deposit.
Normally withdrawal is not allowed more than one time in a week
iii. Mudaraba Short Notice Deposit (MSTD) The Bank offers more profits in the short-term deposit than savings account. The depositors must keep their money for at least six months to get the profit. Generally it is suitable for various big companies, organizations and govt. departments
iv) Mudaraba Term Deposit Receipt (MTDR) When an account of cash is kept in the bank for a fixed period of time these deposits cannot withdraw money from the bank before the maternity of a fixed period. When the depositors open these types of account the banker issue a receipt acknowledging the receipt of money, on deposit account. For three and six and twelve months the rate of interest is 12.5%, 12.75%, and 13% respectively.
v) Monthly income scheme: It is a monthly income scheme that really makes good sense. A sure investment for a steady return.
Highlights of the Scheme: •
Minimum deposit TK, 50,000.00 and profit will be TK, 450.00.
•
Higher monthly income for higher deposit.
•
The scheme is for a 5-year period.
Objectives of the scheme •
The depositors have to fill up forms for opening this account.
•
The receipt, which is provided by the bank to the customers, is not transferable.
•
The Bank will not provide profit to means if this deposit is withdrawer within one year of opening the account.
vi) Mudaraba multiple Deposit scheme Investment leads a country to industrialization. But saving is the main source of investment. Without saving a country cannot build up capital. For this reason saving is called the skeleton of development. This is a nine years deposit, which increases the deposit more than triple. Shahjalal Islami Bank offers mudaraba multiple savings by creating more conscious and encouraging people to save.
vii) Hajj Deposit Scheme: Hajj deposit at monthly installment from 1(one) year to 25 (twenty five) years are accepted under the above scheme to enable the account holder to perform hajj out of the accumulated saving with profit.
vii) Money Grower Money gradually grows in this account. It is a monthly savings scheme. It secures the future with ease. A small saving today will provide comfort tomorrow. There are several types of Money Grower Scheme which are given bellow:
• Education Deposit Scheme (EDS) Savings Period and Monthly Installment Rate the savings period is for 10, 15, or 20 years. Monthly installment rate is:
M.Inst.
TK.100
TK.250
TK.500
TK.1000
TK.3000
TK.5000
Yrs 10 Yrs 15 Yrs 20 Yrs
18,680 36,108 69,144
46,700 90,270 1,57,860
93,400 1,80,540 3,15,720
1,86,800 3,61,080 6,31,440
5,60,400 10,43,240 18,94,320
9,34,000 18,05400 31,57,200
• Monthly Deposit Scheme (MDS) Savings Period and Monthly Installment Rate the savings period is for 5, 8, or 10 years. Monthly installment rate is:
M.Inst.
TK.1000
TK.2000
TK.5000
TK.10,000 TK.25,000 TK.50,000
Yrs 5 Yrs 8 Yrs 10 Yrs
74,050 135,950 186,800
148,100 271,900 373,600
370,250 679,750 934,000
740,500 13,59,500 18,68,000
18,51,250 33,98,750 46,70,000
37,02,500 67,97,500 93,40,000
• Millionaire Scheme – 12 Yrs (MS12) Savings Period and Monthly Installment Rate the savings period is for 12, 15, 20, or 25 years. Monthly installment rate is: M.Inst. Yrs 12 Yrs 15 Yrs 20 Yrs 25 Yrs
TK.950.00
TK.1585.00
TK.2770.00
TK.4060.00 10,00,000.00
10,00,000.00 10,00,000.00 10,00,000.00
• Mohor Deposit Scheme (MSD) Savings Period and Monthly Installment Rate the savings period is for 3, 5, or 8 years. Monthly installment rate is: M.Inst.
TK.500
TK.1000
TK.2000
TK.3,000
TK.4,000
TK.5,000
Yrs 3 Yrs 5 Yrs 8 Yrs
20,435 37,133 67,980
40,870 74,265 1,35,960
81,740 1,48,530 2,71,920
1,22,610 2,22,795 4,07,880
1,63,480 2,97,060 5,43,840
2,04,350 3,71,325 6,79,800
Marriage Deposit Scheme (MSD) Savings Period and Monthly Installment Rate the savings period is for 10, 12, 15 or 20 years. Monthly installment rate is: M.Inst.
TK.250
TK.500
TK.1,000
TK.1,500
TK.2,000
Yrs 10 Yrs 12 Yrs 15 Yrs 20 Yrs
46,700 61,715 90,270 1,57,860
93,400 1,23,430 1,80,540 3,15,720
1,86,800 2,46,860 3,61,080 6,31,440
2,80,200 3,70,290 5,41,620 9,47,160
3,73,600 4,93,720 7,22,160 12,62,880
5.6 Account Closing: First a customer has to submit an application with his/her signature mentioning that he/she wants to close his/her A/C. Then the signature will be verified by the officer. Customer has to certify by different department (Advance, Foreign Exchange department) of Bank that he/she has no liabilities to the Bank. After that the Customer's A/C is debited and then Bank issues a Pay Order in the name of A/C holder.
5.7 ACCOUNT TRANSFER: Customer has to submit an application mentioning that he/she wants to transfer his/her A/C to his desired Branch and the officer will verify the signature, Customer has to be certified by different department of Bank that he/she has no liabilities to the bank. Then total particulars of A/C holder will prepare and sent to the Customer's desired branch. Liability of Recognizer is secondary and account holder is primary.
5.8 General Practice at Regarding Accounts, in Account Opening Register: After fulfilling all the requirements for opening account necessary entries are given in the account opening register. There are several registers for several accounts as MSD, ACD, SND,
MDS and MTDR etc. Date of opening name of the account holder, nature of business, address, initial deposit, and introduction, and various information's are recorded in that register. New accounts number is given from the list of new numbers provided by the computer department..
5.9 Pay Order (PO): Pay Order an instrument, which is used to remit money with in a city thorough banking channel the instruments are generally safe as most of them are crossed.
5.10 Clearing: As far safety is concerned customers get crossed check for the transaction. As we know crossed check cannot be encased from the counter rather it has though been collected through banking channel i.e. clearing. A client of SJIBI received a check of another bank, which is located within the clearing range deposit, the checks in account at SJIBL New SJIBL will not the money until the check is honored.
5.11 Outward Bills for Collection (OBC): Customers deposit cheque, draft etc for collection attaching with their deposit receipt. Instrument within the range of clearing are collected through local clearing house but the other which are outside the clearing range are collected through OBC mechanism. A customer of SJIBL principal branch local office Dhaka is depositing a check of Sonali Bank Cox's-Bazar. New as a collecting bank SJIBL principal branch will perform the following tasks: •
Received seal on deposit slip.
•
SJIBL local office principal branch crossing indicating them as collecting bank.
•
Endorsement give payees A/C will be credited on realization.
•
Entry on register from where a controlling number is given.
Collecting bank can collect it either by its branches of by the drawer's bank they will forward the bill then to that articulate branch. OBC number will be given on the forwarding letter.
5.12 Inward Bills for Collection (IBC): In this case bank will work as an agent of the collection bank branch receives a forwarding letter and the bill. Next steps are: •
Entry in the IBC register, IBC number given.
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Endorsement given- "our branch endorsement confirmed".
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The instrument is sent to clearing for collection.
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Miscellaneous creditor A/C
Chapter- Six Internship Position and duties Internship position & Duties Throughout my internee period I have worked with more or less all the CSO (Customer Service Officer) and try to help at my level best to help them in their work. So basically I know more about general banking. The tasks that I have done throughout my internee period are given below:
6.1 Account Opening Section: I have started my internee with responsibility of Customer Service Officer. I was assigned to work with account opening department. In a whole day I have to open more than 10 accounts. Customer account opening is a lengthy process. If the customers have the documents that she/ he is needed to open that particular; he or she must fill an account correctly. If there is any problem found in the fulfillment of the from is wrongly filled, the from will be return on next day. So the form must be filled correctly. If all the things are right, the CSM give the permission to open the account. They have to fill up a KYC (Know Your Customer) from to have more idea about the customer. The main purpose of this from is to give all necessary information regarding the account, like the charges, benefits and if any specific inquiry the customer ideas. I also open FDR account, DPS, different type of account like•
Mudaraba Short Notice Deposit
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Account Mudaraba Savings Account
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Mudaraba Term Deposit Account
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Other Scheme Deposit Accounts
The process of opening an account is given in the flow chart below: Client come and show interest to open an account
Fill KYC form, check the clients has necessary documents & information to open an account
If has then give him the application form to fill up
If hasn’t serve the application. Form & inform the necessary documents to bring next day
Check the application form carefully and whether it include necessary documents Get the signature of the client on the register
Deliver the welcome pack and the ATM card
6.2 Clearing Section: I have worked total more than 10 days in this section. The main responsibilities was received several cheques from their clients. I also attached in the front side of the cheque clearing seal and at the back side endorsement seal. My responsibility to ensure account number, account holder name, which bank’s cheque etc. After confirming this I sent this cheque to my boss. He was responsible for completing the other tasks.
6.3 Provide information of all types customers query:
I also provided information to all type of customer queries. Each day many people come to the branch with various types of problems. I tried my best to give them the proper information and try to solve their problem. Some of the information that I provided are given bellow: •
Account opening requirements, DPS related information, FDR information, some type of loan facilities different type of debit card related queries and their benefits.
•
Give instruction for address change, signature change, and mandate instruction, nominee change, and account closing information, DPS closing information, FDR closing formalities, pay order, document issue and all type of queries.
•
I also gave information of western union money transfer. I used to give information, like from which country the money can be sent and in which banks money can be received. I usually tell about the formalities or requirements to be maintained to receive the money.
6.4 Verification of signatures of different issue: Verification of signature is very important for banking transaction. Because one of the important proves to be an account holder is the signature. It was also a risky issue. I used to verified signature for different issues, like•
For balance inquiry.
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For stop payment instruction.
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For address change, nominee change, mandate instruction, signature change.
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For cheque book delivery.
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For DPS, MSD, SND, FDR account opening.
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For DPS, MSD, SND, FDR certificate delivery.
6.5 Learning Points: I have learnt so many things about the banking sector especially Islamic banking system. Now, it is very clear to me how Shahjalal Islami Bank Limited operates their operation in this country. I explain this as follows: •
How to open their several account in their bank?
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What are the requirements for opening their account?
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How to provide information to their client?
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How clients can gather their account statement and know to balance?
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What are the procedures to close an account?
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How cash sections provide the service to their clients?
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How clearing house operates their operation?
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I was not well informed about PO but after the completion of internship program the mechanism of this has been clear to me.
•
How to prepare different company’s salary sheet by using their software?
•
Finally, I learned how to prepare an internship report?
CONCLUSION We have already known that there are some clear distinctive characteristics of Islamic Banking System from the Conventional Banking System from the above discussion. These differences are making the Islamic banking system not only very different from the conventional banking system but also a very potential business field. The Government should provide a smoother way for creating new Islamic banks. Bangladesh has been proved to be a very positive field for Islamic banking. The pro-religion mentality of the mass people has made possible a seemingly impossible event. Not only the Muslims but also the non Muslims have shown a great fascination for Islamic banking which attracted many banks to open Islamic banking branch, even the banks directed by the non Muslims. But we should be aware that only by our negligence, may this field be utterly destroyed and abused. If we speak about the theoretical difference and practice the same as the traditional banks, then this would be only cheating. It is very likely that in this very favorable time for Islamic Banking, some deceptive bankers may practice traditional banking but may shout for Islamic banking to attract customer. Bangladesh Bank has to take precautionary measures to prevent those and to protect tender Islamic Banking Field. It is a pity that still there is no shariah auditing committee for checking the compliance of the existing Islamic banks. The now-practicing Islamic Banks have to take measures to train specially their desk officers about the shariah. It is very evident that if the desk officers do not have sufficient knowledge about the shariah, it becomes practically impossible to comply shariah. The intellectuals have started doing their jobs of making the people more aware of the coming new kind of banking very honestly. It is not important whether they are talking in favor of the Islamic banking or against; actually the important thing for them is to talk from their point of view, be it positive or negative. This is the only way to make sure that the proponents of Islamic Banking will be compelled to practice the knowledge for the sake of their existence and the people who will come in this field to cheat will be caught red handed.
Bibliography ■ References Book: 1. Sk. Nazibul Islam & Atul Chandra Pandit; Training Course on Credit Management, February 25 – March 08, 2009. 2. Peter S. Rose & Sylvia C. Hudgins; Bank Management & Financial Services, McGrawHill International Edition. 3. Gup & Kolari; Commercial Banking, McGraw-Hill. 3rd Edition. 4. Dr. A. R. Khan; Bank Management. 5. P. N. Varsheny; Banking Law and Practice.
■ Reports: 1. Prospectus of Shahjalal Islami Bank Limited. 2. Annual Report 2009 of Shahjalal Islami Bank Limited. 3. Brochures of Shahjalal Islami Bank Limited.
■ Web Sites: 1. www.shahjalalbank.com.bd 2. www.bangladesh-bank.org 3. shahjalajislamibank@gmail.com 4. sblho@shahjalalbank.com.bd