P 1

Investment and Foreign Exchange Policy

1.0 Background of the Study Islami Bank Bangladesh Limited (IBBL) is the first of its kind in the South East Asia which was established in 1983 with a view to provide banking services based on Islamic principles. The bank, which started its operation with only 3 branches in the first year of its inception, has now 207 branches in 26 years of operation.

As a bank, Islami Bank Bangladesh Limited receives deposits from its customers from all over the country as well as from abroad on profit and loss sharing basis and deploys that fund to different investment clients to gain profit. The bank distributes an agreed portion of the profit earned to the customers and the shareholders. Islami Bank Bangladesh Limited also performs foreign exchange business. In this process, the bank endeavors to contribute to the betterment of the society.

In the context of open market economy, the foreign exchange business is growing rapidly and playing a vital role in the economic growth of a country. About 40 % of total business of our country is rolling through foreign exchange transaction.

Islami Bank Bangladesh Limited has significantly contributed in flow of international transactions.

Among the private commercial bank of our country IBBL is being kept the first position in export, import, remittance flow and as well as earnings the operating profit. Why I have chosen this topic, because to focus the foreign exchange banking performance of IBBL & its activities as based on Islamic Shariah.

This study is done to evaluate the over all activities of IBBL. Findings of the study may benefit the organization itself to take strategic decision on its future plan to enhance the volume of foreign exchange transaction. It may also benefit the readers as well as researchers who have particular interests in international trade finance.

1.1 Origin of the Report Today, practical experience is as much essential as academic education that enables someone to be successful business executive especially in the competitive business world. In order to gather knowledge and exposure regarding the organization culture, the business students have to be go internship after the successful completion of the BBA program. The internship program is an integral part of the BBA program.

As a student of BBA program in Dhaka City College everyone has to submit a report after completion of internship program. Recently Education is also in the age of competition. So different universities and institution in our country upgrade the procedures and standards of teaching. In respect to that, internship is mandatory for our BBA program offered by Department of Business Administration, Dhaka City College under National University Bangladesh. This program is a partial fulfillment of our BBA curriculum.

To do so I decided to complete my internship in Islami Bank Limited Bangladesh (IBBL). It is a two months program. I was assigned to Islami Bank Limited Bangladesh (IBBL) to complete the program.

I tried to segregate my schedule proportionately depending on the complexity and necessity of the task. I spent my time to be aware of all desks' tasks rather doing a specific job.

So I thought it would be useful to know the basic functionalities and understand the organization's activities and take feedback both of the customers and employees. Hence, this report is proposed my academic supervisor Md.Hafijul Islam Co-coordinator of BBA department.

I would like to add that this report is completely confidential and prepared with a view to expose myself to the practical exposure and knowledge.

1.2 Scope of the Study The scope of this paper is to discussion of various aspects of Deposit Mobilization, Investment Mechanism & Foreign exchange operation of IBBL. This report aims to focus the actual practices “An Overview Of Foreign Exchange Operation” of Islami Bank Bangladesh Limited and its operations.

1.3 Objectives of the Study The first objective of writing the report is fulfilling the partial requirements of the BBA program. The main purpose of this study is to have a better orientation on Foreign Exchange business performances of the bank. In this report, I have attempted to give an overview of Foreign Exchange Operation of Islami Bank Bangladesh Limited. Following are the main objectives •

To familiar the history and operations of Islami Banking in Bangladesh.

•

To show the investment mechanism and product offerings in different modes of IBBL.

•

To show overall investment proposal, appraisal procedures, documentation system of IBBL and Conventional Banks.

•

To show an overview of Foreign Exchange Operation of IBBL.

•

To show the differences with conventional banking regarding investments aspects

•

To identify strength and weakness of investments of IBBL.

•

To identify the problems related to investments faced by IBBL.

•

To recommend actions that may be necessary to redesign the investments of IBBL.

1.4 Rationale of the Study In our economy, there are mainly three types of schedule commercial banks are in operation. They are Nationalized Commercial Banks, Local Private Commercial Banks and Foreign Private Commercial Banks. Islami Bank has discovered a new horizon in the field of banking area, which offers different General Banking, Investments and Foreign Exchange banking system. So I have decided to study on the topic “Foreign Exchange Policy of IBBL”. Because the Internship program of the university is an integral part of the BBA program. So it is obligatory to undertake such task by the students whom desirous to complete and successfully end-up their BBA degree. This also provides an opportunity to the students to minimize the gap between theoretical and practical knowledge. During the internship program the teachers of the department are attached to actively and constantly guide the students.

Students are required to work on a specific topic based on their theoretical and practical knowledge acquired during the period of the internship program and then submits it to the teacher. That is why we have prepared this report.

1.5

Duration of the Study

The duration of the study was a very short span of time. It was two months long internship program (September 18th 2009 to November 18th 2009). It was very much hard to complete a report as well as assigned tasks by the Corporation. So I had to complete this study facing very much time pressure.

1.6 AnAlysis of the study In preparing the report the uses of computer is a must and it was necessary. The computer with the help of the following tools did the analysis of the study of this report: •

Ms Word

•

Ms excel

•

Photo illustrator

•

Diagrams

•

Websites etc

1.7 Methodology The study is performed based on the information extracted from different sources collected by using a specific methodology. The methods of completing the report have included some steps, which are followed one by one. First of all I selected the topic of the report then I had to collect information relating to the topic by primary and secondary sources and through personal interview. As a Internee of IBBL it was easy for me to collect data. After gathering the information I had to determine the procedure of

research and sampling plans. After gathering all the information I required, I have come up with an expected result of the report.

Population: All the Branches of IBBL located in everywhere in Bangladesh has been taken into consideration as population.

Sample: Islami Bank Bangladesh Ltd, Head Office complex Branch.

Data collection: Source of data of this report can be divided into two categories: 1.8 Sources of Information •

•

Primary Sources: •

Practical experience of banking.

•

Training, workshop & seminar.

•

Related files, books study provided by the officers concerned.

Secondary Sources: •

Research papers, training materials, and magazines.

•

Annual Report, Audit Reports of IBBL

•

Banking related textbooks, relevant books, Research papers, Newspapers and Journals, Manuals.

•

Class notes of IBTRA, Website of IBBL.

1.9 Limitations of the Study From the intention to make the report realistic and properly accepted this report has been conducted.

However, many problems appeared in the way of conducting the study. During the study it was not possible to visit the whole area covered by the bank although the financial statements and other information regarding the study have been considered. The study considers following limitations: •

The major limitation I faced in preparing this report was the sensitivity of the data. As it is a highly competitive market, if the margin information is released to other competitors, it may have a negative impact on their business. Resultantly, in some cases management were reluctant to give some specific data.

•

Confidentiality of data was another important barrier that was confronted during the conduct of this study. Every organization has their own secrecy that is not revealed to others. While

collecting data on IBBL, personnel did not disclose enough information for the sake of confidentiality of the organization •

Rush hours and business was another reason that acts as an obstacle while gathering data

•

Time limitation is also a big factor, which hinders the data collection process. Due to time limitation many aspect could not by discussed in the present study.

2.0 What is Islamic Bank?

An Islamic Bank is a financial institution that operates with the objectives of implementing and materializing the economic and financial principles of Islam in the banking arena. The definition of Islamic Bank as approved the General Secretariat of the OIC is stated in the following manner. “An Islamic Bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations. “According to Islamic Banking Act 1983 of Malaysia, “Islamic Bank is a Company which carries on Islamic banking business. Islamic banking business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam.”

2.1 Why Islamic Bank?

The objective of Islamic banking is not only to earn profit, but 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 in general and human being in particular. Islamic banks operate on Islamic principles including profit and loss sharing, strictly avoiding interest, which is the root of all exploitation and is responsible for large scale inflation and unemployment. An Islamic bank is committed to try its best to do away with disparity and establish justice in the economy, trade, commerce and industry, build socio-economic infrastructure and employment opportunities.

2.2 Introduction Islami Bank Bangladesh is one of the pioneer private commercial bank of Bangladesh. It was incorporated on 13.03.1983 as a public company with limited liability under company act, 1913. The Bank started its business from 30.03.1983. IBBL is based on Islamic Sharia’h. It is the first Islamic Bank in Southeast Asia. Now, it is the leading private commercial Bank in Bangladesh. Complying Islamic Shari’ah commits IBBL to do its all activities in interest free profit sharing. IBBL through its steady progress and continued success has, by now, earned the reputation of being one of the leading private sector banks of the country.

2.3 Vision

The vision of IBBL is to always strive superior financial performance, be considered a leading Islamic Bank by reputation & performance.

•

To establish & maintain modern banking techniques.

•

To ensure soundness & development of financial system based on Islamic principles.

•

To build–up a strong & efficient organization with highly motivated professionals.

•

To work for the benefit of people& encourage savings in the form of direct investment

•

Ensuring stability in financial system with accountability, transparency &integrity

2.4Mission To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balance growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio-economic uplift and financial services to the lowincome community particularly in the rural areas.

2.5 Functions The functions of Islami Bank Bangladesh Limited are as under: •

To maintain all types of deposit accounts.

•

To make investment.

•

To conduct foreign exchange business.

•

To extend other banking services.

To conduct social welfare activities through Islami Bank Foundation.

2.6 Islami Bank Management System Evaluating the common scenarios of IBBL bank activities management system:

Floor-1

2nd Officer

Posting TT

Account statement

IT Section

others activities

Waiting Lounge TT/Pay order

Cash Payment

Cash Received

Issuing Others Cheque Internal Check Processing

Stairs Vault

Floor-2

AVP

Remittance New Foreign Exchange Account Department

Open Locker TDR Cash Receive Computer Postings

Investments activities Department

2.7 Aims & Objectives •

To conduct interest –free banking

•

To establish participatory banking instead of banking on debtor – creditor relationship.

•

To invest on profit and risk sharing basis.

•

To accept deposits on Mudaraba & Al-Wadeah basis.

•

To establish a welfare-oriented banking system.

•

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

•

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

•

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

•

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

•

Ensuring justice to both suppliers of fund (depositor) and user of fund (investment taker)

•

Encouraging and patronizing entrepreneurship.

•

Bridging up the gap between the surplus and deficit of fund.

•

Development of a healthy capital and money market.

•

Providing various services and utilities to the public.

•

Development of standard of living

•

Switching over to mass banking from class banking.

•

Alleviating poverty through Zakat and profit sharing micro-finance.

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

To offer contemporary financial services in conformity with Islamic Shariah:



To contribute towards economic development and prosperity within the



Principles of Islamic justice;



Optimum allocation of scarce financial resources; and



Help to ensure equitable distribution of income.

These objectives are discussed below: Offer Financial Services: Interest-based banking, which is considered a

practice of Riba in financial transactions, is

unanimously identified as anti-Islamic. That means all transactions made under conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions.

Islamic Banking for Development: Islamic banking is claimed to be more development- oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs.

Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.

Islamic Banking for Equitable Distribution of Resources: Perhaps the most important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties: the bank, the depositors and the entrepreneurs.

2.9 Special Feature •

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

•

Investment is made through different modes as per Islamic Shariah.

•

Investment–income of the Bank is shared with the Mudaraba depositor according to an agreed upon ratio ensuring a reasonably fair rate of return on their deposits.

•

Aims to introduce welfare – oriented banking system and also to establish equity and justice in the field of all economic operations.

•

Extends socio-economic and financial services to individuals of all economic backgrounds with strong commitment in rural

•

Plays a vital role in human resources development and employment - generation particularly among the unemployed youths.

•

Portfolio of investment & investment policy have been specially tailored to achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and in the less developed areas of the national economy.

•

Ensures Shariah Compliance through regular and effective guidance of powerful and highly esteemed Shariah Council consisting of 13 members representing Shariah scholars.

•

It provides loan as Quard Hasana for social welfare.

2.10 Islamic Banking Movement Throughout The World The concept of Islamic Banking dates back many decades Attempts the 1950’s in Pakistan filed due to the lack of deposits into the system and depositor involvement in the deposits. In the early 1960’s Islamic banking practices achieved greater success in Egypt through the MitGhamar Savings Bank. In 1971 the Nasser Social Bank was the first urban based Islamic Bank. Its purpose was the granting of interest free loans to small projects and to needy students for higher education.

Islamic Banking also developed in Malaysia in response to Malaysian Muslims who contended that money spent on pilgrimage must be clean of Riba. As a result, the Pilgrims Savings Corporation was established in 1963. The Dubai Islamic Bank in Dubai, UAE and the Islamic Development Bank, a multinational corporation, opened in 1975.

Islamic Banking spread westward with the opening of an Islamic Bank Investment company in the Bahama in 1977 and the development of the Islamic Banking System International Holding, a joint stock company, in Luxembourg in 1978.The Islamic banking movement took a variety of forms throughout the 1970’s and 1980’s.In Iran the movement took place in several stages. First, in the late1970’s Islamic Banking was introduced through the naturalization of the banking system by the Iranian Government which proved to be unsuccessful. Second, in the mid 1980’s, the Iranian Government passed the law for Riba free banking giving a very strict deadline for banks to convert their operations to that of Islamic beliefs.

Till now, more than 300 Islamic banks and financial institutions in about 50 countries of Asia, Africa, Europe, and America including countries like UK, U.S.A., Germany, Argentina, Denmark, Luxembourg, Switzerland and India have been established. The banking system of Pakistan and Iran was Islamized and that of Sudan has been totally remodeled on the basis of Islamic Shari‘ah.

2.11 Islamic Banking in Bangladesh In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system in accordance with Islamic Shari‘ah. Earlier in November 1980, Bangladesh Bank, the Central Bank of the country sent a representative to study the working of several Islamic banks abroad.

In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic band in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers’ Association (BIBA) made significant contributions during the formative stage of Islamic bank in the country.

They came forward to provide training on Islamic banking to top bankers and economists to fill up the vacuum of leadership for the future Islamic bands in Bangladesh. They also arranged seminars,

symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking.

At last, the long drawn struggle to establish an Islamic bank in Bangladesh come to a reality and Islami Bank Bangladesh Limited was established in March 1983 in which 19 Bangladeshi nationals, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe including IDB and two eminent personalities of the Kingdom of Saudi Arabia joined hands to make the dream a reality.

Later other seven Islamic Banks, different Islamic Insurance Companies and Financial Institutions were established in the country.

1983

IBBL under companies Act. Function on 30.03.1983 with major share by the foreign

entrepreneurs.

1987

AL Baraka bank now the oriental Bank Ltd.

1995

27.09.1995 Al Arafah Islami bank Ltd.

1995

22.11.1995 Social Investment bank ltd. with foreign shares.

1997

August, Shamil bank of Bahrain EC (Islami Bankers) a foreign ownership bank. Now converted

Bank Al-Falah.

2001

10.05.2001 Shahjalal Bank Ltd.

2003 04.12.2003 Export Import Bank (EXIM Bank) 2006 First Security Islami Bank Ltd. *At present 12.9% of total banking business owned by the Islamic banks in Bangladesh.

Interest based traditional banks with Islami baking branch are given below: •

Prime bank ltd.

•

Dhaka Bank Ltd

•

Southeast Bank Ltd.

•

The city bank ltd.

•

Premier Bank Ltd.

•

Arab Bangladesh Bank Ltd.

•

HSBC Bank

•

Jamuna Bank Limited.

2.12 Distinguish between Islamic and Conventional Banking

Conventional Banks 1. The functions and operating modes of conventional banks are based on manmade principles.

2. The investor is assured of a predetermined rate of interest.

3. It aims at maximizing profit without any restriction.

Islamic Banks 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah.

2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).

3. It also aims at maximizing profit but subject to Shariah restrictions.

4. It does not deal with Zakat.

5. Leading money and getting it back with interest is the fundamental function of the conventional banks.

6. It can charge additional money (compound rate of interest) in case of defaulters.

7. In it very often, bank’s own interest becomes prominent. It makes no effort to ensure growth with equity.

8. For interest-based commercial banks, borrowing from the money market is relatively easier.

9. The Client’s status is creditor and debtors.

4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat.

5. Participation in partnership business is the fundamental function of the Islamic banks.

6. The Islamic banks have no provision to charge any extra money from the defaulters.

7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.

8. For the Islamic banks, it is comparatively difficult to borrow money from the money market.

9. The status of clients is investors and trader.

2.13 Distinguishing Features of Islamic Banking An Islamic Bank has several distinctive features as compared to its conventional counterpart.

1) Abolition of Interest (Riba): 2) The first distinguishing feature of an Islamic bank must be that it is interest-free.

3) Adherence to Public Interest: 4) Activity of commercial banks being primarily based on the use of public funds, public interest rather than individual or group interest will be served by Islamic commercial banks.

5) Multi-purpose bank: 6) Another substantial distinguishing feature is that Islamic banks will be universal or multipurpose 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.

7) More careful Evaluation of Investment Demand: 8) Another very important feature of an Islamic bank is its very careful attitude towards evaluation of applications for equity oriented financing.

9) Risk Sharing: 10) It is customary that conventional banks evaluate applications, consider collateral and avoid risk as much as possible. Their main concern does not go beyond ensuring the security of their principal and interest receipts. Since the Islamic bank has a built in mechanism of risk sharing 2.14 Islamic Banks Vs Conventional Banks

Conventional 1. Loan

Bank

Bank Client 4. Principal + Interest 3. Goods

2. Cash Payment

Supplier Islamic Bank

Bank

Bank Client

4. Cost + Agreed Profit 3. Goods 2. Goods 1. Cash Payments.

Supplier 2.15 Corporate Information: 31.12 .2008 Islamic Bank Bangladesh Limited is a multinational Joint Venture Public Limited Company engaged in commercial banking business based in Islamic Shari‘ah with 57.36% foreign shareholding having largest branch network (207 brunches) among the private sector Banks in Bangladesh. It was established on the 13th march 1983 as first Islamic Bank in the South East Asia.

Date of Incorporation Inauguration of 1st Branch, Local Office, Dhaka.

Formal Inauguration Authorized Capital Paid-up Capital Share of Capital: a)Local Shareholders b)Foreign Shareholders Equity Zones Branches

13th March 1983 30th March 1983 12th August 1983 Tk.10,000.00 million Tk.4752.00 million 42.64% 57.36% Tk.18572.08 million 08 207

Deposits Investments Foreign Exchange Business: Number of Shareholders Manpower IPO Listed in Dhaka Stock Exchange 1st Rights Share issue 2nd Rights Share issue 3rd Rights Share issue 4thRights Share issue Opening of 50th Branch Opening of 100th Branch Opening of 150th Branch Joining/Agreement with CDBL IDB President visit IBBL Mudaraba Perpetual Bond issue Inauguration of Broker House

Tk.200343.41 million (As on 31st December’08) Tk.180053.94 million (As on 31st December’08) Tk.402695.00 million (As on 31st December’08) 33686 9397 1985 1985 1989 1996 2000 2003 26th November 1991 12th Ju997ne 1 30th November 2004 29th December 2004 31st August 2007 25th November 2007 1st January 2008

2.16 Achievements of Islami Bank National and international ratings of IBBL: IBBL's past performances have been evaluated by Bangladesh Bank, several credit rating agencies home & abroad and by the local press.

International Press “In the midst of a difficult Banking system known to be plagued by high non-performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm.

However, IBBL provides a refreshing change and is, thus, a pleasant surprise. Although it does not command the market share as the 4 public sector banks, IBBL, which claims to have little interference in lending from the government, has nonetheless, managed to find a niche market of its own-says the ‘BANK ATCH’ a New York based international Credit Rating Agency in its January 30, 1998 issue.

“As a market leader offering banking services based on the Islamic rule of Shariah, IBBL's profitability trend has been quite impressive. The Bank's ability to keep its return on asset (ROA) well above the industry's average reflected its resilience to possible shocks in the banking system.

Concerns over massive NPLs and under provisioning are common amongst local banks. But this seems well resolved in IBBL. IBBL's good performance and solid capital base have indeed provided refreshing change found within a banking system saddled and held back by huge NPLs” the above agency continued to comment in the same issue.

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

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

IBBL's World rating As per Bankers' Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL's world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition. IBBL's country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL's Financial Statements of the year 2001.

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

IBBL has got the 2nd prize of National Export Fare for its pavilion of Service Organisation in 1995.IBBL has got Best Beautification Award in 2006. The Bangladesh Bank rating IBBL has got AA( double A) in 2008 at functional perspective.

2.17 Membership of Different Organization/Chamber Local: •

Bangladesh Institution of Bank Management (BIBM)

•

The Institution of Bankers Bangladesh (IBB)

•

Bangladesh Association of Banks (BAB)

•

Bangladesh Foreign Exchange Dealers' Association (BAFEDA)

•

Central Shariah Board for Islamic Banks of Bangladesh

•

International Chamber of Commerce- Bangladesh

Foreign: •

International Association of Islamic Banks (IAIB), Jeddah, K.S.A.

•

Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain.

•

General Council of Islamic Banks & Financial Institutions (GCIBFI),

•

Manama, Bahrain (IBBL is a member of its Executive Council)

•

Society for Worldwide Inter-bank Financial Telecommunication (SWIFT).

2.18 Departments of Islami Bank Local Sponsors of the Bank: Mohammed Abdul Razzaque lashkar (Late) Mafizur Rahaman (Late) Mohammad Younus (Late) Barrister Tamizul Hoque Md. Shafiuddin Dewan Md. Bashir Uddin Md. Hossain(Late) Nasirrudin Ahmed(Late) Md. Mosharraf Hossain; MP Md. Malek Minar Zakiuddin Ahmed M.A. Rasheed Chowdhury Engr. Mustafa Anwar Md. Abdullah Serajuddowla IBN Sina Trust (Shah Abdul Hannan) Bangladesh Islamic Center (A.K.M Nazir Ahmed) Bangladesh Islamic Economic Research Bureau (Prof. Md. Sharif Hossain) Md. Nuruzzaman Abdul Quasem A.K Fazlul Huque Engr. Md. Dawood Khan Baitush Saraf Foundation (Moulana Md. Abdul Jabber) Foreign Sponsors of the Bank: Kuwait Finance House Jordan Islamic Bank Islamic Investment & Exchange Corporation Bahrain Islamic Bank Islamic Banking System International Holding S.A; Luxemburg Al-Raji Company for Currency Exchange & Commerce; K.S.A Sheik Ahmed Salah Jamjoom; K.S.A Fuad Abdul Hmid Al-Kahtib (Late); K.S.A Dubai Islami Bank The People Institution For Social Security Kuwait Ministry of Awqaf and Islamic Affairs, Kuwait Islamic Development Bank (IDB); Jeddah, K.S.A Ministry of Justice, Dept of Minors Affairs, Kuwait 3.1 Related Topics of IBBL Islami banking has been defined in different ways. The definition of Islamic bank, as approved by the Secretariat of the OIC, is stated in the following manner:

“An Islami bank is a financial institution whose stratus, rules and procedures expressly state its commitment to the principle of Islamic Shariah And to the banning of the receipt and payment of interest on any of its operations”(Ali & Sarker 1955,pp.20-25).

Shawki Islami Shehta viewing the concept from the prospective of an Islamic Economy and the prospective role to be played by an Islamic bank therein opines: “It is, therefore, natural, and indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic Economy”(Ibid).

Ziauddin Ahmed says, “Islamic banking is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam” (Ibid).

It appears from the definition that Islamic banking is systems of financial intermediation that avoids receipt and payment of interest in its transaction and conducts its operation in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transaction of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS bank.

3.2 Aims and Objectives of IBBL 

To conduct interest-free banking



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



To invest on profit and risk sharing basis



To accept deposits on Mudaraba & Al-Wadeah basis



To extend co-operation to the poor, the helpless and the low-income group for their economic up liftmen



To play a vital role in human development and employment generation

3.3 Business Philosophy of IBBL The philosophy of IBBL is to the principles of Islamic Shariah. The organization of Islamic conference (OIC) defines an Islamic bank as "a financial institution whose status, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operations. The sponsor, perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than a follower. The leadership will be in the area of service, constant effort being made to add new dimensions so that clients can get

"Additional" in the matter of services commensurate with the needs and requirements of the country' growing society and developing economy.

3.4 Social Welfare Activities of IBBL One of the distinguishing features of Islami Bank is that its overall activities are directed towards the welfare of the society. The Bank, since its inception, has dedicated itself for the upliftment and emancipation of the helpless and downtrodden people of the society. With this end in view, the Bank has created a separate fund, which was earlier known as Sadaqua Tahbil. In 1991, the Sadaqua Tahbil was reorganized and enlarged-under the new name of 'Islami Bank Foundation' with a fund of Taka 38.00 million in order to conduct social-welfare activities on a wider scale. As one of the leading nongovernment voluntary organizations of the country, the Foundation has been working with unique and special programmers for the welfare of distressed humanity and to make poor, downtrodden, landless and asset less people self-reliant.

The aims and objectives of the Foundation are to serve distressed humanity, promote people oriented mass education, extend health and Medicare facilities to the poverty-stricken people in urban and rural areas, create facilities for productive self-employment and develop human resources for improving economic condition and quality of life, assist healthy growth of art, culture and literature, science and technology, sports, research and propagation of Islamic teachings. The Foundation has taken up a number of schemes covering the whole of Bangladesh.

3.5 Islami Bank Foundation One of the distinguishing features of Islami Bank Bangladesh Limited is that its Overall activities are directed towards the welfare of the society. The welfare activities of Islami Bank Foundation are as under: 1. Income Generating Programs 2. Educational Programs 3. Health and Medicare Programs 4. Humanitarian Help Programs 5. Relief and Rehabilitation Programs 6. Dawah Programs •

Income Generating Programs

Access to required finance and other related inputs might help many to become self-employed. In absence of such opportunity the unemployed youths entangle themselves in various anti-social activities. Islami Bank Foundation has, therefore, taken up the following Self-employment projects: 1.

Rickshaw

2.

Sewing

3.

Poultry Keeping

4.

Rural Health Work

5.

Milk Cow/Goat rearing

6.

Small Trade

•

Educational Program

Education is the backbone of a nation. Awareness building, skill training, and access to informationall depend on education. But it is regrettable that the rate of literacy is still very low in Bangladesh.

Most of the children are deprived of the light of education due to poverty, lack of sufficient educational institutions, non-availability of textbooks and equipments etc. In a ward, the unfavorable socio-economic conditions are responsible for this chaotic situation.

The Foundation has, therefore, taken up the following program to improve the country's educational scenario: a)

Support to Model Forqania Maktab

b)

Scholarship/lump grant for poor and Meritorious Students

c)

Financial support to Educational Institutions

•

Health and Medicare Programs

Health and Medicare facilities are the basic and fundamental rights of each individual but most of the people of our country are still deprived of it. The Foundation has, therefore, taken up the following program to extend health, Medicare and sanitation facilities to the urban and rural areas:a)

Establishment of Medical Centers

b)

Supporting charitable dispensaries

c)

Lump-sum help for medical treatment

d)

Tube well Installation

e)

Sanitary Latrine construction etc.

Such Assistance is also extended to the members of Rural Development Scheme (RDS) of IBBL. Under Health and Medicare program preventive measures have also been taken. Special steps have been taken for construction of sanitary latrines and installation of tube wells in the villages covered under to whom Islami Bank Bangladesh Ltd. is providing finance for income generation activities.

•

Dawah Program One important objective of Islami Bank Foundation is to disseminate the true knowledge and

teachings of Islam. The Foundation has, therefore, taken up various schemes to enlighten the common people as well as the elite and make them familiar with the concept of Islam. Islamic research magazines and other Islamic Literatures are being distributed among the Academicians, Journalists, Justices, Lawyers, High Officials, Bankers, Literatures and important Libraries and Institutions of the country. The Foundation is also working among the prisoners for their moral reforms.

3.6 Special Projects

•

Islami Bank Hospital

•

Islami Bank Medical Collage, Rajshahi

•

Islami Bank Community Hospital

•

Monoram: Islami Bank Crafts & Fashion Islami Bank Institute of Technology

•

Islami Bank International School and College

•

Bangladesh Cultural Center

•

Distressed Women Rehabilitation center

•

Islami Bank Nursing Training Institute

3.7 Automation of IBBL To meet the growing demand rendering prompt services to the customers, the Bank exerts its efforts continuously to automate all sorts of transactions in the Branches. IBBL has developed of its own software to facilitate on-line banking services. In the meantime, 45 branches including divisional are providing on-line banking services. Very soon, it will increase to 80 branches. The following automation and information technology has been made the transactions and interactions between the Head Office and branches easier and convenient and reduced lot of papers transfers and costs.

The automation and information technology which are used in IBBL are as follows: (a)

On-line banking facilities

(b)

IBBL E-cash ATM Network

(c)

Website:

(d)

SWIF

3.8 Emergence of Islamic Banking For an expanding economy, a developed and efficient banking system is indispensable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. The tremendous development that the world economy has experienced in the last few decades was contributed by several factors among which, growing institutional supply of loan able funds must have played the pivotal role. The role of banking is comparable to what an artery system does in the human body. Both commercial banks and other development

financial institutions provide short-, medium-, and long-term credits to

businesspersons and entrepreneurs who usually take the lead in ventures of economic development.

Institutional supply of credit has been made possible by a system of financial inter-mediation organized in a way where conventional banks collect small savings from the public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. The margin between these two rates is the bank's

income. In addition, banks also provide many other services to the public for which it receives service charges.

Despite the outstanding contribution of the conventional banking system (interest-based), several ancient and modern economists are critical about its efficiency level. Some economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to cyclical fluctuations in the economy (Minsky 1982). Specifically, the ineffectiveness of interest rate as a stabilization tool during the period of the Great Depression is a case to note.

This eventually called for Keynesian prescription of government intervention (Keynes 1964).

Similar concern was expressed in a story published in Newsweek regarding Henry Kissinger, the former Secretary of State of USA. To quote, “The instability has persisted and the uncertainty has continued. After going through the throes of painfully high levels of inflation, the world economy has experienced a deep recession and unprecedented rate of unemployment, complicated further by high level of real interest rates and unhealthy exchange rate fluctuations� (Newsweek 1983). More recent concern over the potential instability of the world monetary and financial system was expressed by Maurice Allais, a Nobel Laureate, who called for an urgent reform of the World Economic Order (Allais 1993, pp.13-16). Others vehemently oppose the argument for using rate of interest as a stabilizing tool in the economy (Saud 1980, p.88). This called for the emergence of a new system of banking capable of tackling new challenges that the present world economy, particularly the financial sector, has been facing.

In response, though not exactly to that exigency but for quite a few other reasons, the second half of the twentieth century witnessed a distinctly separate line of thinking on banking. This was institutionalized at the end of third quarter and subsequently emerged as a new system of banking called Islamic Banking {also called Profit-Loss-Sharing Banking (PLS)}. The world has now been experiencing operation of as many as 250 Islamic banks and financial institutions in more than 50 countries, Muslim and non-Muslim.

There are religious as well as economic reasons, which have contributed to the emergence of PLSbanking as an alternative to its conventional counterpart. It is the prohibition of 'Riba' in the Quran that, according to the proponents of the PLS-system, was the source of inspiration for establishing banks in line with Islamic Shariah (Muslehuddin 1987, pp.24-27). The basic intention behind establishing Islamic banks was the desire of Muslims to reorganize their financial activities in a way that do not contradict the principles of Shariah and enable them to conduct their financial transactions without indulging into Riba (Ahmad 1992). These writers consider rate of interest in the conventional banking mechanism synonymous to Riba, the term as used in the Quran [2:275; 30:39]. One of the reasons for this is that the outcome of the productive effort is uncertain, and so interest necessarily involves an element of Gharar, that is, uncertainty (Chapra 1985, p.64). On this religious ground, proponents of the PLS-system urge the Islamic community to avoid all transactions with institutions that are interest-based.

Conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on the one hand, and between the borrowers and the bank on the other.

Interest is considered to be the price of credit, reflecting the opportunity cost of money.

Islam, on the other hand, considers a loan to be given or taken, free of charge, to meet any contingency The economic reason derived from a verse of the Quran providing inspiration to devise an interest-free financial system has been substantiated in the way that interest, instead of increasing wealth, reduces it [30:34]. The primary reason of why the Quran has taken such a hard approach towards interest is that Islam stands for establishing a just economic system free from all kinds of exploitation (Chapra 1985). Further, Muslim economists consider depression and stagflation very often found in the capitalist world as an outcome of the financial system based on interest (Rahman 1976). Thus, Islamic banking emerged as a response to both religious and economic exigencies.

While religious exigency calls for avoiding any transaction based on interest, economic exigencies, on the other hand, provide a new outlook to the role of banking in promoting investment / productive activities, influencing distribution of income and adding stability to the economy. Islamic banking is thus perceived as an i. Thus in Islamic Banking, the creditor should not take 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. The first Islamic principle underlying such kinds of transactions is that “deal not unjustly, and ye shall not be dealt with unjustly� [2:279]. Hence, commercial banking in an Islamic framework is not based on the debtor-creditor relationship.The second principle regarding financial transactions in Islam is that there should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk (Ausaf Ahmed 1995, P.17).Thus, financial intermediation in an Islamic framework has been developed on the basis of the above two principles. Consequently financial relationships in Islam have been participatory in nature. Several theorists suggest that commercial banking in an interest-free system should be organized on the principle of profit and loss sharing. The institution of interest is thus replaced by a principle of participation in profit and loss. That means a fixed rate of interest is replaced by a variable rate of return based on real economic activities (Mangla & Uppal 1990. pp.179-215, 185). The distinct characteristics which provide Islamic banking with its main points of departure from the traditional interest-based commercial banking system are: (a) the Islamic banking system is essentially a profit and loss sharing system and not merely an interest (Riba) banking system; and (b) investment (loans and advances in the Conventional sense) under this system of banking must serve simultaneously both the benefit to the investor and the benefit of the local community as well. The financial relationship as pointed out above is referred to in Islamic jurisprudence as Mudaraba.

3.9 Role of IBBL in Development of SMEs

Small and Medium Enterprise (SMEs) play an important role in the economic and social life and can generate a large number of employments in the traditional and non-traditional sectors. Keeping this in view, IBBL has set up a separate Division name Small Enterprise & Consumer Investment Division (SECID) with effect from January 01, 2008 for Small Enterprises financing in compliance with the Bangladesh Bank guidelines. Moreover, IBBL is financing Medium.

Enterprises through two other Divisions name Project Investment Division (PID) and General Investment Division (GID).

3.10 Role and Contribution of IBBL to Bangladesh Economy •

Pioneer in Islamic Banking running its entire operation based on Islamic Shariah.

•

Shariah Council comprising of leading Ulama, renowned economists, lawyers and bankers of the country for constant supervision and guidance of the Banking operation.

•

Never participate in the interest based money market operations.

•

Never borrowed from any source either inside or outside the country.

•

A transparent and corruption free operation for the last 23 years in a row.

•

Regular and timely holding of AGM declaring good dividend since 1989 without break till 2002, except in the year 1992.

•

Largest contributor of Tax to the Government exchequer from the private sector banks receiving CIP status from the Government almost every year.

•

Received the best bank in Bangladesh Awards from Global Finance, UK in 1999, 2000 & 2004.

•

It is connected to 830 offices of 230 foreign banks in 74 countries.

•

IBBL received A+ rating in CRISL (Credit Rating Information & Services)

4.0 Foreign Exchange & Foreign Trade According to the theory of comparative advantages, some countries have some advantages where others have another. For example, we have cheap labor; readymade garments on the other hand, U.S. have strong currency. We need foreign currency & they need cheap labor & readymade garments.

Therefore, international transaction, Foreign exchange businesses are started.

No country is fully sufficient in every aspect. In general, one country depends on other for goods & services. Foreign exchange & foreign trade has greatly contributed to smooth exchange of goods & services among the countries all over the world.

Foreign Exchange: As per Foreign Exchange Regulation Act, 1947 (Article 2nd) Foreign Exchange means Foreign Currency i.e. Currencies other then Local Currency. It includes any instrument drawn, accepted, made or issued under clause (13) of Article 16 of the Bangladesh Bank Order, 1972, all deposits, credits

and balances payable in any foreign currency and any draft, traveler’s cheque, letter of credit and bill of exchange expressed or drawn in Bangladesh currency but payable in any foreign currency.

Foreign Trade: Cross border transactions or exchange of goods & services between two parties of separate territory (country) are called foreign trade. It is part of foreign exchange. Foreign trade includes: •

Import &

•

Export.

4.1 Importance of Foreign Exchange Business Today’s world is called global village. To survive in this competitive global market, the importance of foreign exchange business is badly needed. The necessity of foreign trade is a boarder area.

•

To maintain proper trade balance

•

To enhance sufficient foreign reserve

•

To attract potential investors

•

To control international flow of funds

4.2 Regulations for Foreign Exchange Transaction Many regulations have been developed to do smooth functioning & controlling the international business. International Chamber of Commerce (ICC) has been playing a vital role for effective & efficient function in international business. In our country, the Central Bank, Bangladesh Bank published two foreign exchange guide lines (Foreign Exchange Guide line Vol-I & Vol -II).

Bangladesh Bank & CCI & E controls the Foreign exchange business. The central bank issued many circulars regarding foreign exchange transactions & they are the monitoring authority by issuing upto-date instruction circulars for smooth functioning. Ministry of commerce issued IMPO (Import Policy Order & Export Policy Order) & EXPO. Foreign Exchange transactions are regulated by the following Act / Guidelines / Circular etc: • Foreign Exchange Regulation Act, 1947 •

Imports & Exports (Control) Act, 1950

•

Circular issued by the Central Bank (BB)

•

Export –Import Policy Orders –Published by the Ministry of Commerce.

•

Public Notices – issued by Chief Controller of Import & Export (CCI & E)

•

Guidelines / Circulars of the bank

•

Publications of International Chamber of Commerce (ICC) like UCPDC -500, URC, and URR etc.

In addition to the above following Acts are also followed – •

Companied Act, 1994

•

Bank Company Act, 1991

•

Money Laundering Prevention Act, 2002

•

Negotiable Instruments Act, 1881

•

Customs Act, 1969

•

Income Tax Ordinance, 1984

•

Contract Act, 1872 and

•

Other related Acts / Ordinances

Islami Bank Bangladesh Limited has to perform its all transactions related to import & export by abiding the National and International rules/regulations in addition to its own rules / regulations / guidelines and Islamic Shariah etc.

4.3 Foreign Exchange Activities Foreign exchange transactions are includes: •

Import

•

Export

•

Remittance

•

Trading of currency

Import Import means purchases of goods or services in exchange of foreign currency. It decreases the inflow of foreign currency. But, our country depends on import.

Export Export means selling of goods or services in exchange of foreign currency. It earns foreign currency by selling goods & services to the rest of the world. It increases inflow of foreign currency.

Remittance Remittance represents transfer of fund from one place to another through official channel. Banks have a wide network of branches all over the country and offer various types of remittance facilities to the public.

•

Foreign Remittance,

•

Local Remittance.

4.4 The Comparative Figure Of Import Export And Remittance Are Given Below

Particulars Import Export Remittance Total

2008 Amount % of total 74525.00 36169.00 36948.00 147,642.00

50.47% 24.50% 25.03% 100%

2007 Amount % of total 59804.00 29151.00 23669.00 112,624.00

53.10% 25.88% 21.02% 100%

Taka in Million % of growth in 2006 over 2005 37% 24.07% 56.10% 31.09%

Growth of Foreign Exchange Business: 2002 to 2008 80000 60000

Year Import

40000

Export

20000

Remitance

0 1

2

3

4

5

Year

Foreign Remittance Foreign remittance means remittance of foreign currencies from one place/person to another place/person. In board sense, foreign remittances include all sale & purchase of foreign currencies on account of Import, Export, Travel & purposes. All foreign remittances are grouped into two board categories & guided by the Foreign Exchange Regulation Act, 1947 and guidelines for foreign exchange transactions of Bangladesh Bank.

•

Foreign Inward Remittance

•

Foreign Outward Remittance

Foreign Inward Remittance Remittance of foreign currency being received in the country from abroad is called inward foreign remittance.

Some special feature of Inward Remittance •

Any amount can be brought in

•

If remittance is above US $2000/- then the form “C” is to be filled in by the beneficiary maintaining the purpose of remittance.

•

Form FRJ is to be declared to the custom for above US $ 5000/- on arrival by incoming passenger at the entry port.

•

If the remittance is for gift/donation permission is to be obtained from perspective ministry/authority.

Foreign Outward Remittance Foreign currency being made out abroad may be termed as foreign outward remittance. Purpose of foreign Outward remittance: •

Travel/Tour/Visit, Education, Seminar/Workshop, Fees

•

Family maintenance, Salaries & savings by expatriates

•

Remittance by foreign shipping lines/airlines/courier services

•

Dividend/gain of foreign company

•

Hajj

•

Expenses of office opened abroad

•

Remittance of royalty & technical fees

•

Operating expenses of offices of Bangladeshi shipping corporation & Bangladesh Biman

•

Remittance against import claims

•

Subscription to foreign media, Advertisement, Bank charges etc.

Trading Currency Trading of foreign currency means Purchase & sale of different currencies or exchange of one currency into other. It includes mainly dealing room operation (Dealing room: A room where online buying & selling of foreign currency takes places) excluding the money market operation. This is purchase or sale of one currency in term of another, either Local Currency to Foreign Currency, or Foreign Currency to Local Currency, or Foreign Currency to Foreign Currency (Cross Currency).

The Dealing Room of IBBL established at IBW (International Banking Wing) in July 2005 and is functioning with two officials who have taken Foreign Exchange Bourse Training in Mumbai under the auspices of Reserve Bank of India.

The Dealing Room of IBBL earned BDT 210.00 million from July 2005 to December 2005. From January to August 2006, Dealing Room has earned BDT 255.00 million.

4.5 Financing Foreign Trade (Import & Export Financing) In modern banking Foreign Trade is taken into a shape where customers are provided with various products and services by the bank. They get financial assistance at all stages of their Import & Export trade from bank. Almost all such facilities can be provided by IBBL. The general principle in financing import and export business is elimination and avoiding of interest in all operation. The different modes of IBBL are as under:

Import finance Mainly three types of import are done purpose wise. a. Import of trading item for ultimate user or consumer. b. Import of Raw materials or industrial item for further processing or further production c. Import of Capital Machinery & Capital Item.

In all types of import usually the importer take bank finance. In IBBL, finance can also be made for the first two types under Bai-Murabaha & Bai-Muajjal mode and for the 3rd type under Hire-Purchase Under Shirkatul Melk (HPSM) mode. Import finance can also make under Bai-Salam or Musharaka or Mudaraba modes. Islami Banks have to perform its all transactions related to import & export by abiding

the

National

and

International

rules/regulations

in

addition

to

its

own

rules/regulations/guidelines and Islamic Shariah.

A) Import under Bai-Murabaha Meaning of Bai_Murabaha Bai-Murabaha is a contract between a Buyer and a Seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the Buyer at a cost plus agreed profit payable in cash or any future date in lump sum or by installment. The profit mark-up may be fixed in lump sum or in percentage of the cost price of the goods.

Some Important features of Bai-Murabaha • The client (buyer) offers an order to purchase some specific goods by the bank (seller), and committing himself to buy the same from bank at a cost plus agreed upon profit.

•

The bank can make the promise binding upon the client to purchase the goods from the bank.

•

Stock and availability of goods is a basic condition for signing a Bia-Murabaha Agreement.

•

The bank must acquire the ownership by purchasing the goods before or at the time of signing Bai-Murabaha Agreement with the client.

•

After purchase of goods Bank must bear the risk until those are actually sold and delivered to the client.

•

The Bank shall sell the goods at a higher price (Cost +profit) to earn profit. The cost of goods sold and profit mark-up therewith must separately and clearly been mentioned in the BaiMurahaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But under no circumstances, the percentage of profit shall have any relation with time or expressed in relation with time,-such as per annum (p.a.), per month etc.

•

Price once fixed cannot be further increased.

•

The Bank may authorize any third party to buy and receive the goods on bank's behalf. The authorization must be made in a separate contract.

•

Bank may document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage or cash security may be obtained prior to signing or at the time of singing the Murabaha Agreement.

Procedure of Import of goods under Bai-Murabaha So it is clear that Bai-Murabaha means "Sale on agreed upon profit" and in case of import we can do the same practice. As per the procedure Bank purchase goods from foreign supplier and sale to the importer/client. As per international banking practice and as per UCPDC goods consigned to the opening bank i.e. the owner of goods is bank till transfer the ownership by endorsement on the back of Bill of Lading (B/L) or other transport document. Also as per UCPDC payment claim by the supplier of the goods to the L/C opening bank through drawing bill of exchange on Bank.

As per Islamic Banking practice import finance under Bai-Murabaha is made under single deal covering the investment at L/C stage, Bills stage, and post import stage as under: i.

Murabaha Import L/C

ii.

Murabaha Import Bills

iii.

Murabaha post Import

Murabaha Post Import (MPI): If the importer/client like to take the financial facility for paying custom duty, VAT and other cost along with import payment bank may provide the facility under Islamic mode under Murabaha mode, which is called single deal Murabaha or MPI. The agreement is made at the time of import and the whole process of (i) Murabaha L/C, (ii) Murabaha Bills and (iii) Murabaha Post Import is covered under one agreement as a single deal.

Calculation of Purchase Price, Profit & Sale Price: A. Amount paid to supplier B. Other expenditure in connection with purchase such as i.

Conveyance- TA/DA

ii.

Commission paid to agent

iii.

Cost of Remittance of fund

iv.

Transport Cost unto bank's godown

v.

Transit insurance and incidental charge

vi.

Godown Rent staff salary if any before sale.

In case of MPI the following expenses are to be added. i.

Duty ii.

VAT

iii.

License Fees

iv.

C&F Agents commission etc

C. Purchase Price or Total Cost = A+B D. Total Mark-up profit (Profit in percentage of total cost price) E. Sale Price= C+D B) Import under Bai-Muajjal: Meaning of Bai-Muajjal: It is a Contract between a Buyer and a Seller under which the seller sells certain specific goods (permissible under Shariah and law of the land) to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by installment.

Important Features of Bai-Muajjal: Most of the features of Bai-Murabaha & Bai-Muajjal are same, except i.

It is purely a sale on credit

ii.

The Seller (Bank) may sell the goods at an agreed price which will include both the cost price and the profit, unlike Bai-Murabaha; the Bank may not disclose the cost price and the profit mark-up separately to the client.

Procedure of import under Bai-Murabaha and Bai-Muajjal are almost same: Bai-Muajjal agreement is taken instead of Bai-Murabaha agreement.

C) Import under Hire Purchase under Shirkatul Melk (HPSM): For import of machinery and other durable and reusable item import is made under HPSM mode.

HPSM is a mechanism as combination of three systems namely- Izarah, Shirkat and Bai- (Purchase and Sale) i.

Bank and client import the item jointly sharing money as per agreement i.e. Shirkat

ii.

Bank gives lease of their portion at an agreed rent.

iii.

Bank Sale their portion of the property gradually by receiving periodical payment from the client.

Letter Of Credit (L/C): Letter of Credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a Credit Contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions.

Buyers and sellers enter into contracts for buying and selling goods/ services and the buyer instructs his bank to issue L/C in favor of the seller. Here bank assumes fiduciary function between the buyer and seller.

Types of L/C:

Islami Bank Bangladesh Ltd. deals with two types of L/C. These are 1. Sight L/C 2. Deferred L/C. PARTIES TO LETTER OF CREDIT: The following parties are involved to a letter of credit, namely – Obligatory Parties are •

Importer/ Buyer/ Applicant

•

Opening Bank/ Issuing bank

•

Advising Bank/ Notifying Bank

•

Exporter/ Seller/ Beneficiary

Optional Parties (In case of need) are • Negotiating Bank •

Confirming Bank

•

Paying/ Reimbursing bank

A. Applicant The person or body (customer of the bank) who requests the bank (opening bank) to issue letter of credit.

B. Opening Bank / Issuing Bank The bank that opens/issues letter of credit on behalf of the applicant/importer.

C. Advising Bank/ Notifying Bank The bank through which the L/C IS advised to the beneficiary (exporter).

D. Exporter/ Seller/ Beneficiary Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they are the seller or exporter.

E. Confirming Bank The bank, which under instruction in the letter of credit, adds their irrevocable undertaking to that of the issuing bank. It is done at the request of the issuing bank having arrangement with them. The confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank.

F. Negotiating Bank The bank that negotiates document and pays the amount to the beneficiary when presented complying credit terms. If the negotiation of the documents is not restricted to a particular bank in the L/C, normally negotiating bank is the banker of the beneficiary.

G. Reimbursing / Paying Bank

The bank nominated in the credit by the issuing bank to make payment against stipulated documents, complying with the credit terms. Normally issuing bank maintains account with the reimbursing bank.

Import Procedure An importer is required to have the following formalities to import the goods through Islami Bank Bangladesh Ltd. •

An account with Islami Bank Bangladesh Ltd.

•

Import Registration Certificate (IRC)

•

Tax Paying Identification (TIN) Number

•

Performa Invoice/ Indent

•

Membership Certificate

•

LCA (Letter of Credit Application) form duly attested

•

One set of IMP Form

•

Insurance Cover note with money receipt

•

Others

Import Mechanism To import, a person should be competent to be an ‘Importer’. According to Import and Export Control Act, 1950 the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Securitization of L/C Application The IBBL Official scrutinizes the application in the following manner•

The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation;

•

Eligibility of the goods to import;

•

The L/C must not be opened in favor of the importer or his agent;

•

L/C must be signed by the importer agreeing all terms and conditions mentioned in the application;

•

IMP form duly filled in and signed;

•

Validity of IRC;

•

HS code of the goods;

•

Insurance cover note with date of shipment;

•

Radioactivity report in case of food items;

•

Survey reports or certificate in case of old machinery (ies).;

•

Carrying vessel is not from Israel;

•

Certificate declaring that the item is in operation not more than 5 years

L/C Advising Mechanism Advising the Import L/C Advising depicts the proof of authenticity of the credit to the seller/ beneficiary. The advising process consists of forwarding the original credit to the beneficiary. Before forwarding the advising bank has to verify the signature (s) of the L/C opening bank In addition, it ensures that the terms and conditions of the L/C are not inconsistent with the existing regulations. In such a case, advising bank does not undertake any liability.

Presentation of the Documents The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the required goods to the buyer. Then he has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. The usual documents are•

Invoice

•

Bill of lading

•

Certificate of origin

•

Packing list

•

Shipping advice

•

Non negotiable copy of bill of lading

•

Bill of exchange

•

Pre-shipment inspection report

•

Shipment certificate.

Scrutiny of Documents First of all it must be ensured that full set of documents as mentioned in the L/C has been received.

Following documents are included, namely1. Letter of Credit 2. Commercial Invoice 3. Bill of Exchange 4. Bill of lading 5. Insurance cover note 6. Certificate of origin Lodgment of Shipping Documents During scrutiny, if the documents are in order, the branch then lodges the documents in PAD. The following steps are involved in lodgment – •

First all the particulars of the documents are entered in the PAD (Payment against Document) register and PAD No. Seal

•

Convert the foreign currency into Bangladeshi currency.

•

Reverse the contingent liability and entry made in the liability register.

•

Prepare lodgment voucher

•

Prepare lodgment voucher Liability reversal vouchers Banker’s Liability on L/C Customer’s liability on L/C

•

Send an IBCA to the head office.

•

Make intimation to the importer.

Dr. Cr.

Payment Procedure of Import Documents This is the most sensitive task of the Import Department. The officials have to be very much careful while making payment. This task constitutes the following-

•

Date of Payment: Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim Profit for making delay.

•

Preparing Sale Memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

•

Requisition for the Foreign Currency

•

For arranging necessary fund for payment, a requisition is sent to the International Department.

•

Transmission of Message: Message is transmitted to the correspondent bank ensuring that payment is being made.

Export Finance Export means flow of goods and services produced within Bangladesh but purchased by economic agent (individuals, firms & government) of other countries. In other words in case of exports products sold outside the country. So getting payment against such sale usually require different time span depending on the terms of sale contract or relative payment terms of export L/C. In view of above exporter require immediate fund and other financial facilities to execute their export order. It is the bank who extends such facilities as needed by the exporter. And facilitating export by financing exporter at different stages are now important part of bank’s activities.

Export section deals with two types of L/C that are as followsExport Section

Back-to-Back L/C

Export L/C

Exporter requires financial assistance at two stages namely • Pre-shipment stage & •

Post–shipment stage

So, export finance is classified into two categories A) Pre-Shipment finance B) Post-Shipment finance A) Pre-Shipment Finance under Islamic Modes Pre-shipment finance as the name suggest, given to finance the activities of an exporter prior to the actual shipment of goods for export. The purpose of such finance is to meet Working Capital needs starting from the point of purchasing raw materials to transportation of goods for export to foreign country.

Pre-shipment finance is given for the following purposes. i.

Finance for local procurement of goods.

ii.

Procuring and processing of goods

iii.

Packing & transportation of goods

iv.

Payment of Insurance premium

v.

Payment of utility bill

vi.

Payment of wages and salary

vii.

Freight charge

Pre-shipment finance can be made under Islamic mode as follows.

BACK-TO-BACK L/C To purchase/procure goods for export processing bank may provide facility in the way of Back-toBack L/C opened under Bai-Muajjal mode. If the back-to-back L/Cs are opened deferred payment basis no finance by the bank is required except if they fail to make shipment in time.

Bai-Murabaha TR For purchase of goods for export shipment bank can finance under Bai-Murabaha TR mode. That means the exportable goods or raw materials are purchased under Bai-Murabaha mode and delivered to the exporter client for export or export processing against Trust Receipt duly signed by the client.

•

The mechanism of Bai-Salam is- goods purchase in advance against payment now but delivery of goods will be made after a specified time.

•

For meeting the expenses other than procurement of goods bank make finance

Under Bai-Salam mode to the exporter. Through Bai-Salam bank purchase a portion of exportable goods in advance and make payment. After production exporter make shipment of the goods, which is already sold to the bank.

Calculation of Purchase Price and Realization of Bank's finance: Purchase price can be calculated by deducting the expected profit from the export price of that portion of goods, which are purchased by the bank along with his portion. After getting export payment bank realize the sale proceeds of their portion of goods at the original sale price of export.

Musharaka: Pre-shipment can be made through Musharaka mode if pre-arrangement is made.

B) Post Shipment Finance Post-shipment finance is made by the bank after shipment by negotiated and purchased of shipping documents by the bank. Bank made payment on submission of documents if these are free from any discrepancies and bank found suitable for purchase in all respect. Bank adjust their liability when get foreign payment. Bank earns exchange income from such finance, which is permissible under Islamic Shariah.

4.6: Foreign Exchange Performance Foreign exchange business plays a very important role among the overall business portfolio of the bank. Foreign trade facilitates setting up of export-oriented industries in the country as well as import substitute industries that helps the country to save foreign currency. Apart from trade, foreign remittance service also contributes greatly in reducing poverty of the country in general and developing the deposit base of the bank in particular. Both foreign trade and foreign remittance are a good source of earnings for the bank.

Remittance Export Import

Growth of F-Ex Business:2002-2008 250000

51133

Taka in Million

200000

150000

36169 23669

100000

50000

16673 14670 33788

16668 21738 46237

36948

29151

53819

96870

74525

59804

0 2002

2005

2006

2007

2008

Year

Item wise Import & Export of IBBL Table4.6 Item –wise Import of IBBL SL no.

1 2 3 4 5 6 7 8 9 10 11 12

Item

2008 Amount Raw Cotton, Yarn, Fabrics 18074 & Accessories Iron, Steel & other base 2477 metal Fertilizer 6052 Capital Machinery 12622 Wheat Chemicals Agriculture Equipment Edible Oil (Crude Refined) Rice Motor Vehicles Scrap Vessel Others Total

Item Wise Export

2804 2218 2123 & 2145 1273 2424 560 43098 96870

% of Total 19%

2007 Amount 16,473

% of Total 22%

3%

3,751

5%

6% 13%

4,327 10,848

6% 15%

3% 2% 3% 2%

2,763 3,589 2,788 1,198

4% 5% 4% 1%

1% 3% 1% 44% 100%

1,794 1,725 1,353 23,916 74,525

2% 2% 2% 32% 100%

In this recent decade readymade garments is the top most item of our export business. Islami Bank Bangladesh Limited has been playing a pragmatic role to boost the export oriented garments business of our country. IBBL is also financing in this sector huge volume with full effort.

During the year 2008, about 59% export of IBBL were generated through readymade Garments and in 2007 it was 62%. Major export financed items are the following: Table -6.2: Item wise Export of IBBL SL

Name of Commodity

1

Readymade Garments

Amount

2 3 4

Frozen Foods & Jute & Jute Goods Others Total

43277 2544 957 4355 51133

2008 % to total 85% 5% 2% 8% 100%

2007 Amount 29,757 657 558 5197 36,169

% to total 82% 2% 2% 14% 100%

Sector Wise Export in 2006

5%2%

8%

85%

Ready made Garments

Frozen foods and Vegetables

Jute & Jute Goods

Others

Figure: 4.6 Item wise export 5.0 Introduction The special feature of the investment policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning profit is not the only motive and objective of the Bank's investment policy rather emphasis is given in attaining social good and in creating employment opportunities. Pursuant to the Investment Policy adopted by the Bank, a '7-year Perspective Investment Plan' has been drawn-up and put into implementation. The plan aims at diversification of the investment port-folio by size, sector, geographical area, economic purpose and securities to bring in phases all sectors of the economy and all types of economic groups of the society within the fold of Bank's investment operations.

Accordingly, the plan envisages composition of the investment port-folio with 12% for agriculture and rural investment, 14% for industrial term investment, 14% for industrial working capital, 6% for housing and real-estate, 6% for transport and communication, 0.5% for electricity, gas, water and sanitation services, 2% for storage, 43% for import, export and local trade and trade related activities 1% for poultry and dairy,2% for Rural Development Scheme, 2.5% for other Special Scheme, 0.5%

for Micro Industry and 1% for other productive purposes by the end of the plan period, i.e. the year 2002.

Further, in order to diversify investment portfolio, the Bank engaged itself in investment operations through special schemes introduced during the years. The Bank is planning to introduce yet other new investment schemes in addition to welfare-oriented Investment Schemes.

5.1 Investment The special feature of the investment policy of Islamic Banks is to invest based on profit-loss sharing system in accordance with the tenets and principles of Islamic Sharia. Earning of the profit is not the only motives and objectives of the Islamic Bank’s investment policy rather emphasis is given in attaining social good and in creating employment opportunities.

5.2 Objectives and Principles of Investment ---To invest fund strictly in accordance with the principles of Islami Shariah.

---To diversity its investment portfolio by size of investment, by sectors (public and private) by economic purpose, by securities and by geographical area including industrial, commercial & agricultural.

---To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment close and constant supervision and monitoring thereof.

---To make investment keeping the socio economic requirement of the country in view.

---To increase the number of potential investors by making participatory and productive investment.

---To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and for enlistment of the society.

---To invest in the form of goods and commodities rather than give out cash money to the investment clients.

---To encourage social enlistment enterprises.

---To avoid even highly profitable investment in fields forbidden under Islamic Shariah and are harmful for the society.

5.3 Importance of Assessing of Investment Needs Assessment of Investment needs is necessary for the following reasons.

1. To detect actual Investment limit of Bank.

2. To detect actual Investment against obsolete /out dated/non trading items.

3. To assess the quality, quantity, price and marketability of the commodities

4. To ensure proper follow-up supervision and monitoring of the Investment.

5. To ensure capacity of the client in handling Investment activities.

6. to over come the situation of Division of found by the clients 7. To ensure trading instead of lending of money.

8. To ensure payment against delivery of goods.

9. To ensure actual buying and selling of goods.

10. To select proper & genuine Investment client.

11. To ensure viability/profitability of the project.

12. To ensure compliance of Shariah Principles.

13. To maintain discipline in the Investment port-folio of the Branch.

14. To secure the Investment.

15. To allow Investment for appropriate period.

16. To handle the Investment proposal efficiently.

17. To ensure investment for productive purpose.

18. To identify the tenure of investment to be made i.e. for short term /mid term /long term.

19. To know the objective of Investment.

20. To ensure profitability of all concerned.

21. To ensure welfare of the society.

22. To ensure Business ethics.

23. To minimize the risk of investment.

24. To ensure national interest.

25. To ensure recovery of investment in time.

26. To comply the Bank’s target regarding diversification of Investment.

5.4 INVESTMENT MANAGEMENT OF IBBL One of the significant and revolutionary development in the banking area of the world during last four decades is the emergence and extra ordinary development of Islamic Banking in different countries of the world which has drawn the attention of the scholars and general public of the Muslim and nonMuslim countries including the world bodies like International Monetary Fund, World Bank etc.

5.5 Investment Operation of IBBL Investment operation of a Bank is the greatest share of total revenue generated from it, maximum risk is centered in it and the very existence of a Bank mostly depends on prudent management of its Investment Port-folio. Bank landing is important to the economy.

Adequate finance can maintain a stable output. But as liquidity and profitability are conflicting considerations, IBBL, as a bank, while employing the funds pays due regard to both profitability and liquidity.

Investment and credit department receive application from clients in a prescribed application form supplied by the Islami Bank Bangladesh Limited. This application form contains detail about the borrowers such as names address of the borrowers/ directors/partners/proprietors, type and nature of the business, security offered, market of the borrower product, annual sales and production etc.

The applicant must duly sign the application form. The branch officer after receiving the application form scrutinize the information provided in the form, collect additional financial information of the proposed firm, detail financial and other relevant information of sister concern, if any. After appraising the investment request and its securities the branch makes an investment proposal with detail information to the head office for approval. The officer in-charge and manager must sign this investment proposal as well. If head office approves the investment proposal, the branch prepares all documentation and make arrangement for investment disbursement Islami Bank (B.D) offer various types of investment 5. 6 Different Investment Modes & Their Mechanism

Bai- Mechanism

Share Mechanism

A) Bai-Murabaha B) Bai-Muajjal C) Bai-Salam D) Istishna’a

A) Mudaraba B) Musharaka

There are three types of Investment Mechanism, which are: A) Bai- Mechanism (Trading) 1.

Bai Murabaha

2.

Bai Muazzal

3.

Bai Salam

4.

Bai Istishna

B) Ijara Mechanism (Leasing Mode) 1.

Hire purchase (Ijara)

2.

Hire purchase under Shirkatul Melk

Ijara Mechanism

A) Hire Purchase B) Hire Purchase Under shirkatul Melk

3.

Sale

C) Share Mechanism 1.

Mudaraba

2.

Musharaka

A) Bai-Mechanism: 1. Bai Murabaha The terms “Bai-Murabaha” have been derived from Arabic words and

(Bai and Ribbun). Te word

means purchase and sale and the word means an agreed upon profit “Bai-Murabaha” means sale on agreed upon profit. Bai-Mudaraba may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in percentage of the cost price of the goods.

Important features: o

It is permissible for the client to offer an order to purchase by the bank particular goods deciding its specification and committing him to buy same from the bank on murabaha, i.e. cost plus agreed upon profit.

o

It is permissible to make the promise binding upon the client to purchase from the bank, that is, he is to satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.

o

It is also permissible to take cash / collateral security to guarantee the implementation of the promise or indemnify the damages.

o

Stock availability of goods is a basic condition for signing a Bai-murabaha agreement. Therefore, the bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the BaiMurabaha agreement with the Client.

o

After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on Bai-Murabaha to the Client buyer, the bank bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the bank of the defects, that means, if the goods are damaged, bank is liable, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.

o

The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.

o

The bank shall the goods at a higher price (Cost + {profit) to earn profit. The cost of goods sold and profit markup therewith shall separately and clearly be mentioned in the Bai-Murabaha agreement. The profit Mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstance, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc.

o

The price once fixed as per agreement and deferred cannot be further increased.

o

It is permissible for the bank to authorize any third party to buy and receive the goods on Bank behalf. The authorization must be in a separated contract.

2. Bai Muazzal: The terms “Bai” and “Muazzal” have been derived from Arabic words Baiun. The word Baiun means purchase and sale and the word Azl means a fixed time or a fixed period. “Bai-Muazzal” means sale for which payment is made at a future fixed date or within fixed period.

In short, it is a sale on Credit. Bai-Muazzal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the Country), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.

Important feature: i)

Bank is not bound to declare cost of goods and profit mark-up separately to the client.

ii) Spot delivery of the item and payment is deferred. iii) The bank transfers ownership and possession of the goods to the client before receipt of sale price. iv) Client may offer an order to purchase by the bank any specified goods and committing himself to buy the same from the Bank on Bai-Muajjal mode. v) It is permissible to make the promise binding upon the client to purchase from the bank.

That is, he is either to satisfy the promise or to indemnify damage caused by breaking the promised. vi) Cash /Collateral Security should be obtained to guarantee the implementation of the promise or to indemnify the damages. vii) Mortgage / Guarantee /Cash Security may be obtained before / at the time of signing the agreement. viii) Stock and availability of goods is a pre- condition for Bai- Muajjal agreement. The responsibility of the bank is to purchase the desired goods at the disposal of the client to

acquire ownership of the same before singing the Bai-Muajjal agreement with the client. ix) The Bank after purchase of good must bear the risk of goods until those are actually delivered to the client. x) The Bank must deliver the specified goods to client on the specified date and at specified place of delivery as per contract. xi) The Bank may sell the goods at one agreed price, which will include both the cost price and the profit. xii) The price once fixed as per agreement and deferred cannot be further in increased.

3. Bai - Salam Bai-Salam may be defined as a contract between a buyer and a seller under which the seller sells in advance the certain commodities, products, permissible under Islamic Shariah and the law of the land to the buyer at an agreed price payable on execution of the said contract and the commodities/products are ideas are delivered as per specification, size, quality, quantity at a furniture time in particular place. In other word, Bai-Salam is a sale where by the seller undertakes to supply some specific commodities/ products/ to the buyer at a future time in exchange of an advanced price fully paid on the spot. Under this mode Bank will executive purchase contract with the client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit to be negotiated.

It this mode the payment as the price of the goods is made at the time of Agreement and the delivery of the goods is deferred.

Importance Features: Bai-salam is mode of investment allowed by Islamic Shariah in which commodity/product can be sold without having the said commodity (ies)/product(s) either in existence or physical/constructive possession of the seller. If the commodity /product are ready for sale, Bai-Salam is not allowed in Shariah. Then sale may be done either in Bai-Muajjal mode of investment.

Generally, Industrial and agricultural products are purchased /sold in advance under Bai-Salam mode of investment to infuse finance so that product is not hindered due to shortage of fund/cash.

I. It is permissible to obtain collateral security from the seller client to secure the investment from any hazards Vis non-supply of supply of commodity (ies)/product, supply of low quality commodity (ies)/ product(s) etc.

II. It is also permissible to obtain mortgage and /or personal guarantee from a third party as security before the signing of the agreement or at the time of signing the agreement.

III. Bai-salam on a particular commodity (ies)/product(s) or on a product of a particular field or farm cannot be affected.

4. Bai Istishna:

Istishna is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shariah and Law of the Country after haying manufactured at an agreed price payable in advance or by installments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.

Important Feature: i.

Istisna’a is an exceptional mode of investment allowed by Islamic shariah in which product(s) can be sold without having the same in existence. If the product(s) are ready for sale, Istishna’a is not allowed in shariah. Then the sale may be done either in BaiMurabaha or Bai-Muajjal mode of investment. In this mode, deliveries of goods are deferred and payment of price may be deferred.

ii.

It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods.

iii.

It gives the buyer opportunity to pay the price in some future dates or by installments.

iv.

It is a binding contract and party is allowed to cancels the Istishna’a contract the price is paid and received in full or in part or the manufacturer starts the work.

v.

Istishna’a is specially practiced in Manufacturing and industrial sectors. However, it can be practiced in agricultural and constructions sectors also.

B) Ijara Mechanism (Leasing Mode) 1. Hire Purchase: The term Ijarah has been derived from the Arabic works Ajr and Ujrat, which mean consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset.

Ijarah has been defined as a contract between two parties; the Hire and Hirer where the Hirer enjoys or reaps a specific service on benefit gains a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period.

2. Hire purchases under Sirkatul Melk: Hire purchase under shirkatul Melk is a special type of contract, which has been developed through practice. Actually, it is a synthesis of three contracts: Shirkat, Ijara and sale. Shirkat means partnership. Shirkatul Melk means share an ownership. When two or more persons supply equity,

purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul contract.

Stages of hire purchases under sirkatul melk Thus Hire Purchase under Shirkatul Melk Agreement has got three stages: 1. Shirkatul Melk.

2. Ijarah and 3. Sale and /or transfer of ownership to the other partner Hirer. i) Shirkatul Melk: Shirkat means partnership. Shirkatul Melk means share in ownership.

When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract. ii) Ijarah: The term Ijarah has been derived from the Arabic words (Air) and (Ujrat) which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service f an asset. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which the Hiree to a Hirer against fixed rent or rentals hires out a certain asset for a specified period. iii) Sale: This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the buyer.

Thus, in Hire purchase under Shirkatul Melk mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, and machinery, transport etc. Purchase the asset with that quit money, own the same jointly, share the benefit as per agreement and bear the loss in proportion their respective equity. The share, part of portion of the asset owned by the bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the bank sells and transfers the ownership of its share/part/portion to the client against payment of price fixed for the either gradually part by part or in lump sum within the hire period or after the expire of the hire agreement.

Importance Features:

o

◙ In case of Hire Purchase under Shirkatul melk transaction the assets / property involved is jointly purchased by the Hiree (Bank) and the Hirer (client) with specified equity participation under Shirkatul Melk contract in which the amount of equity and share in ownership of the asset of each partner (Hiree Bank and Hirer Client) Are clearly mentioned. Under this agreement, the Hiree and the become co-owner of the asset under transaction in proportion of their respective equity participation.

•

◙ In Hire Purchase under Shirkatul Melk agreement, the exact ownership of both Hiree (Bank) and Hirer (Client) must be recognized. However, if the partners agree and wish that the asset purchased may be registered in the name of any of them or in the name of any third party, clearly mentioning the same in the Hire purchase Shirkatul melk agreement. o

◙ The share /part of the purchase asset owned by the Hiree (Bank) is put at the disposal / possession of the Hirer (client) keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulation are also to be clearly stated. Under this agreement, the Hirer (client) becomes the owner of the benefit of the asset but not of the asset itself, in accordance with the specific provision of the contract which entitles the Hiree (Bank) is entitled for the rentals.

o

◙ As the ownership of hired portion of the asset lies with the hiree (bank) and rent is paid by the Hirer (client) against the specific benefit, the rent is not considered as price of the asset.

o

◙ In the Hire Purchase under Shirkatul Melk agreement, the Hiree (Bank) does not sell or the Hirer (Client) does not purchase the asset but the Hiree (bank) premise to sell the assets to the Hire (client) part by part only, if the Hirer (client) pays the cost price /equity /agreed price as fixed for the asset as per stipulation within agreed upon period on which the hirer also gives undertakings.

o

◙ The promise to transfer legal title by the Hiree and undertaking given by the Hirer to purchase ownership of the hired asset upon payment part as per stipulations are affected only when it is actually done by a separate sale contract.

C. Share Mechanism: 1. Mudaraba It is a form of partnership where one party provides the funds while the other provides the expertise and management. The first party is called the Sahib-Al-Maal and the latter is referred to as the Mudarib. Any profit accrued is shared between the two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital.

Importance Features: •

Bank supplies capital as Sahib- al –Mall and client invest if in the business with his experience.

•

The client maintains administration and management

•

Profit is divided as per agreement.

•

Bank bears the actual loss alone.

•

Client cannot take another investment for that specific business without the permission of the Bank.

2. Musharaka An Islamic financial technique that adopts “equity sharing” as a means of financing projects.

Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, bankers etc.) share both capital and management of a project so that profits will be distributed among them as per rations, where loss is shared according to ratios of their equity participation.

Important Features: The investment client will normally run manages the business. The bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operation s of the business of the client. The bank may appoint suitable personal(s) to run the manage the business and to maintain books of accounts of the business property. As the investment client shall manage the enterprise, the bank may more share of profit to him than that of his proportion capital contribution. Loss, if any, shall be shared on the basis of capital ratio.

5.7 Operational Procedure of Investment mechanism Induction of client of IBBL

Application Categorization (4 categories) Processing and appraisal Sanction Documentation Purchase of goods by the Bank Taking delivery of goods by the bank Sales and delivery of goods to the client

Application: •

Obtain application in triplicate from the client of F-167A and record the same in the Investment Proposal Received and Disposal Register (B-53).

•

Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/ Trustee/ Administrator on the top right hand corner of the application.

•

Scrutinize the application of the Client to see that(a) All columns are properly field in; (b) Particulars and information given therein are complete and correct in all respects; (c) All required Documents/papers as listed in the footnote for the application is submitted; (d) It is signed by the client as per specimen signature with the bank and duly verified by the authorized official of the bank.

Categorization: Categories the proposal as under: •

Hire Purchase under Shirkatul Melk Commercial: Investment on hire purchase under Shirkatul Melk mode to individual /firm/company /society for commercial purpose shall be termed as hire purchase under Shirkatul Melk Commercial.

•

Hire Purchase under Shirkatul Melk Industrial: Hire Purchase under Shirkatul Melk investment to industrial undertaking in the form of land, building, machineries, equipment, transport, etc shall be termed as Hire Purchase under Shirkatul Melk Industrial

•

Hire Purchase under Shirkatul Melk Agriculture: Hire Purchase under Shirkatul Melk investment to agriculture sector in the form of Agriculture equipment’s, machineries, shallow Tube–well, Tractor, trailers, Transport etc. shall be termed as Hire Purchase under Shirkatul Melk agriculture.

•

Hire Purchase under Shirkatul Melk Transport: Hire Purchase under Shirkatul Melk Industrial in the form of transport –Bus, truck, car, taxi, lunch, steamer, cargo vessel, air transport etc. shall be termed as Hire Purchase under Shirkatul Melk transport.

•

Hire Purchase under Shirkatul Melk Real Estate:

Hire Purchase under Shirkatul Melk Industrial in the form of land building, market, apartments, for use /rental shall be termed as Hire Purchase under Shirkatul Melk Real Estate.

Processing and Appraisal: Enter the Application in the “Investment Proposal Received and Disposal Register (B-53) and allot a Serial Number to it.

•

Examine shariah permissibility of the goods. Reject the proposal outright, if not permitted by

Islamic Shariah.

•

Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current

Investment Policy Guidelines.

•

Visit the Business establishment of the Client. Talk to the business and important

personalities of the locality to ascertain the Honesty, Integrity and Business dealings of the Client.

•

Request for confidential report of the client from local Bank Branches. Confident Report from

Credit Information Bureau (CIB) of Bangladesh Bank through Head Office Investment Division as per Instruction Circular of Head Office in this Regard.

•

Obtain Financial Statement/Balance Sheet of the Client for the last three consecutive years for

Investment Proposals of Tk. 50.00 lac or above as per Head Office Instruction.

•

Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or

Hypothecated.

•

Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of the Bank

for examination and furnishing his opinion.

•

Obtain Lawyer’s Opinion as per clause No. 8.02.

•

Please study the following carefully and note down the actual findings in the Appraisal Form

against each item : •

Work out the purchase and sale prices of the goods as per guidelines.

Documentation:

Before purchasing the asset/property by the Bank, obtain sufficient collateral securities as mentioned in the sanction advice along with the following charge documents properly executed i.e. duly filled in, signed, stamped, verified and witnessed where necessary: I. Hire Purchase under Sirkatul Melk Sanction Advice deal-wise duly accepted by the client.

II. Hire Purchase under Shirkatul Melk Agreement (Deal-wise).

III. Letter of Pledge (Deal-wise)/Mortgage Deed.

IV. Single party D.P. Not, if there is no guarantor.

V. Double party D.P. Not, if there is guarantor (s) to be made by the Client in favor of the guarantor and endorsed by the later to the Bank.

VI. D.P. Not Delivery letter.

VII. Letter of Hypothecation for the asset(s) and Client’s stock in Trade/work- in process.

VIII. Letter of Disclaimer, (if stored in Client’s/Party’s own/hired Godown.

IX. Insurance policy (If stored in Client’s/Party’s Godown/yard under Bank’s effective control) duly recorded in insurance register.

X. Letter of guarantee.

XI. Balance confirmation letter.

XII. Letter of installments.

XIII. Letter of Disbursement.

If the investment is made collaterally secured by Mortgage of property, obtain the following documents: I. In case equitable mortgage, Memorandum of Deposit of Title Deep (MDTD) signed by the owner of the property.

II. In case of Legal Mortgage, Registered Mortgage Deed should be obtained.

III. Personal Guarantee of the owners of the property on.

IV. Original Title Deeds with CS, RS, SA, Mutation Parcha, DCR of the property and Mutation record.

V. Up-to-date Rent Receipt.

VI. Non-encumbrance Certificate along with Search Fee Paid Receipt of the concerned Registry/Sub-Registry office.

VII. Site plan (Map/Naksha) of the Mortgaged property.

Where the Investment is secured by pledge/Hypothecation of Stock-in-Trade, Machineries etc., also obtain the following Document: I. Letter of Pledge asset & goods security, for Client’s stocks in Trade/work-in-Process etc. if any.

II. Letter of Hypothecation for Client’s stocks stores, Work-in-Process etc.

III. Legal Mortgage of Machineries with full details of each machinery

In case the investment collaterally/ additionally secured by pledge of Shares of reputed Public Limited Company on Bank’s approved list and quoted in the Stock Exchange, the following additional documents are to be obtained: I. Agreement for Pledge of share along with original share certificates (No share in the name of minor shall be accepted as security).

II. Blank Share Transfer Deed in Duplicate – on copy signed, dated and another copy signed and undated.

III. Share Delivery letter addressed to the Bank.

IV. Letter to the concerned Company to register Line in Bank’s favor. This notice shall be sent be registered acknowledgement due post (registered A/D post) and confirmation of recording the Line shall be obtained from the concerned company.

V. Letter of authority in Bank’s favor duly signed by the shareholder to collect dividend /Bonus on his behalf on the share pledged to the Band. In case of Investment to partnership Firms, obtain the following Document: a. Copy of partnership deed signed by all partners. b. Copy of partnership deed duly attested by a 1st Class Gazetted officer with the original copy and attested by the incumbent-in-charge of the Branch.

In case of investment to private or public Limited Company, obtain the following additional document: I. Obtain certified copy of the Memorandum and Articles of Association of the company to ensure that the company has necessary power to borrow/avail investment from any Bank.

II. Resolution of the board Directors of the Company to avail Investment/Facility/Borrow, do Business with IBBL and authorizing the office bearers to execute necessary Documents.

III. Personal Guarantee of the Directors of the Company.

IV. If the investment is allowed on Hypothecation of assets, in addition to other charge documents, 1st charge under relevant section of the Company’s Act-1994 shall be created in Bank’s favor in respect of Company’s assets prescribed as security. This charge shall be created with the registrar of Joint Stock Companies within 21 days from the date of execution of relative Change Documents.

V. Certificate issued by the registrar of Joint Stock Companies under section 114 of The Companies Act-1994 in respect of creation of charges.

VI. Copies of Memorandum and Articles of Association with the latest amendments, if any, duly certified by the registrar of joint stock companies and attested by the managing director on every page with official seal of the company and duly verified by the Incumbent-In-Charge of the Branch.

VII. A copy of the Certificate of Incorporation duly attested by the Incumbent-In-Charge of the Branch.

VIII. A copy of the certificate of commencement of Business (incase of publish Limited company) duly attested by the Incumbent-In-Charge of the Branch.

In case of investment to a trust organization obtain the following Document in addition to other charges Documents: I. Copy of trust deed duly attested by a 1st class Gazette officer and verified by the incumbent-incharge of the branch with the original copy. The Trust Deed must contain a clause authorizing the Trustees to do Business with banks and to avail investment facilities /borrow from banks.

II. Resolution of the Board of Trustees to do business with IBBL and avail investment/borrow from IBBL. III. The charge documents and all other agreements shall be signed /executed by persons authorized by all the members of the board of Trustees, in Trustees are authorized to delegate their powers by the trust Deed; otherwise all the Trustees must sign/execute the charge documents and all other agreements.

IV. Personal guarantee of all the members of the board of trustees must be obtained.

In case of investment to co-operative security, obtain the following documents also: I. Clearance from the register of co-operative societies for doing business and avail faculties / investment from IBBL within the annual borrowing limit of the society.

II. Litter to be issued to; the concerned registrar of co-operative societies under registered A/D Mail informing about allowing investment /facility to the concerned society by the bank as per clearance accorded by him.

III. Personal guarantee of the office Bearers of the society if their personal capacity.

IV. A copy of the bylaws of the society duly certified by the registrar of the co-operative societies Signature of the Client: After completion of Document, enter Document in Documents Execution Register (B-103). Movement of Document, if any, should be duly recorded in the Document Ex-custody Register duly singed by the Custodians.

Purchase of Goods by the Bank: •

That the goods desired by the Client are first purchased by the Bank and the ownership of the Bank on the goods is established, i.e. Bank must transform its money into goods.

•

That after purchase of the goods, the risk of the goods is borne by the Bank until the possession of the Merchandise has been passed on the Client.

•

That the specification of the goods, delivery schedule and other terms of contract are fulfilled.

•

Obtain deal-wise application Order for Purchase on F-136 after due study.

•

Open investment account in Investment Account Opening Register (B-102).

•

Enter the Account Particulars in the Investment Ledger (B-105).

•

It should be carefully noted that purchase of goods shall be made only after completion of all the Documentation formalities, including Pre-Audit memo (F215).

•

In case purchase of Bai-Murabaha goods by the Bank on Credit/deferred payment basis, the Bank shall execute a Credit Purchase Agreement with the seller to that effect mentioning date of delivery of Goods to the bank and that of payment by the Bank.

•

If the goods are to be purchased from the local or outstation market and money is to be paid/remitted thereof and other expenses such s TA/DA, transportation etc, shall be borne by the Bank, which shall ultimately be loaded on the cost of Goods.

Taking Delivery of Goods by the Bank: •

After finalization of purchase of Bai-Murabaha Goods either by the Bank officials or through any Agent from the local or out station market the Bank shall request the seller to deliver the goods purchased to the Bank’s Authorized official /Agent or to the Bank go down against proper acknowledgement.

•

After taking delivery of the goods by the Bank or trough and Agent, the Bank shall make payment of the price of the goods to producers /sellers /supplier through DD/TT/PO against Cash memo which will exclusively be issued in the name of the Buying Agent.

•

The Bank shall not be invest in such cases where the allotting Authority will not accept the Letter of Authority and agree to deliver the goods to the Bank as per authorization of this Allotted.

5.8 Growth of Investment Investment of the Bank increased to Tk. 180054 million as on 31.12.2008 from Tk.144921 million as on 31.12.2007 showing an increase of tk 35133 million ,i.e 24.24% growth as against 21.45% growth of the banking sector.This increased investment growth of the bank in 2008 is due the trust given to promote investment for effective utilization of depositors’ fund.The percentage of increase of Investment of IBBL in 2007 was 27.60%.

The share of Investment of IBBL in banking sector as on 31.12.2008 increased to 8.41%, from 8.27% as on 31.12.2007.

5.9 Mobilization The year 2008 was another successful year of mobilization of deposit. Total deposit stood at Tk 200343 million as on 31st December 2007 as against Tk. 166325 million of the preceding year registering as increase of Tk. 34018 million, i.e. 20.45%% growth as compared to the growth rate of 18.16% of the Banking Sector during 2008. The percentage of growth of Deposit in 2007 was 16.70%.

The share of deposit of IBBL in banking sector as on 31.12.2008 increased to 7.99% from 7.48% as on 31.12.2007.

Total number of depositors of IBBL increased to 4361896 as on 31 st December 2008 from 3802709 of the preceding year, registering an increase of 14.70% as against increase of 18.57% as on 31.12.2007.

Sector wise Investments Sector wise distribution of investment as on 31st December 2006 vis-à-vis the corresponding period of last year is given below: Table:5.1 Sector wise Investment

(Amount in Million Taka)

SL No

Sector

1

Industrial

2 3

Commercial Real Estate

4

Agriculture(including 9110 investment in Fertilizer and Agriculture Instruments) Transport 4082

5

2008 Amount 99,233

2007 % to Total Amount Investment 55.11% 78788

% to Total Investment 54.37%

51332 10172

28.51 % 5.65%

43877 8588

30.28 % 5.93%

5.06 %

6485

4.47%

2.27 %

2656

1.83 %

6

Others

6125

3.40 %

4527

3.12%

Total

180054

100.00%

144921

100.00%

Composition of of Mode wise Invesment Com position sector w ise investm entas ason on 31-12-2008 31.12.2008

3.40%

0.95%

1.19%

2.27% 5.03%

3.64%

0.00% 0.02%

5.06%

Industrial

5.65%

Com mercial 53.44%

35.08%

Real State B a i M ura b a ha

H . P . und e r S h i rk a t u l M e l k

B a i M u a jj a l

P urc h a s e & N a g a t i o n M u da ra ba

Q u a rd M u s a ra k a

B a i S a la m

55.11%

28.51%

Agriculture Transport Others

Figure: 5.1 Composition of Sector-wise Investment Mode wise Invest Table: 5.2 Mode-wise Investment 2001-2008 Year

Bai Murabaha

Musharaka

BaiMuajjal

2001

17112.56 48.56% 23522.92 50.83% 31138.88 52.77% 41731.48 52.77% 51822.28 55.34% 59465.09 52.36% 73833 50.95% 96216 53.44%

346.28 0.98% 37.02 0.08% 12.13 0.02% 27.13 0.02% 20.42 0.02% 12.95 .01% 143 0.1% 35 .02%

4753.54 13.49% 4965.74 10.73% 5512.13 9.34% 5735.19 9.34% 5917.18 6.32% 6921.40 6.09% 6546 4.52%

2002 2003 2004 2005 2006 2007 2008

Hire Purchase & Purchase Negotiation Under Shirkatul Melk 10664.08 1386.14 30.27% 3.93% 14131.48 1865.26 30.53% 4.03% 18065.10 1801.33 30.62% 3.05% 23344.46 2416.84 30.78% 3.05% 30046.89 3179.81 32.09% 3.40% 39399.19 4846.62 34.69% 4.27% 50201 8878 34.64% 6.13% 63159 9047 35.08% 5.03%

Figure: 5.2 Mode wise Investment 5.10 Welfare Oriented Investment: Special Schemes

Others

975.16 2.77% 1758.17 3.80% 2477.92 4.20% 2603.46 3.04% 11157.93 2935.82 2.58% 1955 3.66% 11597 6.43%

Total

35237.76 100% 46280.61 100% 59007.49 100% 7585.56 100% 102,144.51 100% 113575.07 100% 144921 100% 180054 100%

SMEs and Welfare Oriented Special Schemes SME has become a common slogan today around the world including Bangladesh. It is now very much in the public and trade support institutions policy limelight in Bangladesh. Financial institutions, including state owned and private commercial banks, are also rendering their support by providing investment facilities and promotional services to SMEs. SMEs including micro-enterprises make a significant contribution to economic and industrial development in Bangladesh like any other economic and industrial development in Bangladesh like any other economic and industrial development in Bangladesh like any other economies. Various survey findings show that SMEs form the backbone of private sector, making up over 90 percent to enterprises, and account for 80% of the industrial employment and about 40% of industrial output. Despite its tremendous impact and scope, access to finance has been the key problem for SMEs for last two decades despite taking various programs by the government. Islami Bank Bangladesh Limited is a multi-product financial institution operating on Islamic Shariah offering a broad spectrum of financial assistance to institutional and individual client through its 207 Branches. Since its inception, it has introduced several investment schemes to cater to the needs of SMEs keeping in view the needs of different sectors and various sections of people for their socio-economic uplift and to improve their quality of life.Under SME investment, the Bank invests from Tk. 2.0 lac to Tk. 50.0 lac in various manufacturing, trading and service concerns. Sectors under Small Enterprise are: a) Manufacturing: Enterprise involving production process viz. Food & Agro-based, Leather, Textile, Handicrafts, Pharmaceutical, Engineering, Electrical Accessories, recycling enterprises etc. b) Trading: Enterprises involving Purchase & Sales, Export and Import etc. c) Service: Enterprise providing services to other persons/organization viz. Telecommunication, Transport, Information Technology, Hotel-Restaurants, Workshop, etc.

Under consumer financing, the Bank finances to the individuals for meeting their personal, family and household needs. The Bank has taken up various welfare oriented investment Schemes. The features of the Special Schemes are given here: 1. Household Durables Scheme: The objective of the Scheme is to increase standard of living and quality of life of the fixed income group by extending them investment facilities to purchase household articles such as furniture like almirah, sofa set, wardrobe; electric and electronic equipment like television, refrigerator, gas cooker, air conditioner, PC, washing machine; electric generator-IPS, UPS; motor cycle; corrugated iron sheet, cement, rod, wood etc. for construction of dwelling house; gold ornaments, tube-well, mobile telephone set etc.; medical/ engineering instruments/ equipment, educational instruments/ equipment, computer, books etc. for students.

Among the schemes, the objective of Household Durables Scheme is to increase standard of living and quality of life of fixed income group by providing them investment facilities to purchase different household durable items.

As on 31 December 2006, investment under Household Durables Scheme is to increase standard of living and quality of life of fixed income group by providing them investment facilities to purchase different household durable items.

As on 31 December 2008, investment under Household Durable Scheme was Tk. 638.40 million among the 22016 investment clients as against Tk. 742.80 million among the 27010 investment clients in 2007.

Objectives •

To assist service holders with limited income in purchasing household durable.

•

To assist the fixed income group in raising the standard of living.

•

To create opportunity for the service holders to enjoy the benefit of modern and sophisticated living and at the same time lead a decent and honest life.

Eligibility Interested permanent officials of the following organizations may apply for investment: •

Government Organizations.

•

Semi-Government Organizations and Autonomous Bodies.

•

Banks and Financial Institutions.

•

Armed Forces, BDR, Police and Ansars.

•

Teachers of Universities, Government Colleges, School and Senior Madrashas.

•

Officers of International Financial & Relief Organization.

•

Officers of the multinational companies.

•

Officers of the local established and renowned public limited companies.

•

Permanent Teachers & Officers of prominent Private Universities, Medical Colleges & University Colleges.

•

House Owners.

•

Doctors, Engineers, Architects, Chartered Accountants/ FCMA and other important professionals.

•

Investment clients of IBBL.

•

Deposit client of IBBL.

•

Shopkeepers and Businessman.

•

Wage earners, Panel lawyers of IBBL, C & F Agents enlisted in IBBL etc.

•

Graduate & post Graduate Students of Universities, Medical Colleges, Engineering Colleges, University Colleges for purchase of PC, Medical/Engineering Equipment/ Machinery, Books etc.

•

In case of Government, Semi-Government and Autonomous Organizations the age of the investment clients must be 25 and above with at least three years of service and he must have at least three years of service prior to his retirement. In case of private organizations, teachers of school, college and madrashas the age of investment clients must be in between 30-50 with at least five years of service and he must have five years of confirm service prior to his retirement in the same organization.

•

In case of others service holders the age limit must be within 27-60 years.

•

In case of students the minimum age must be 18 years and maximum 25 years.

Security The investment client shall execute/provide the following documents in order to secure the investment: •

All required charges documents as per rules of the Bank.

•

A written undertaking to the effect that the monthly installments shall be paid regularly.

•

Personal guarantee of an official of the same rank or superior rank. The guarantee shall have to be duly authenticated by the competent authority of the concerned organization.

•

Personal guarantee of another person, preferably family membe (Taka in millions)

Particulars Household Scheme

2002 Durable 588

2003 735

2004 866

2005 887

2006 911

2007 879

Household Durable Scheme

1000 800 600 400 200 0

2002

2003

2. Housing Investment Scheme:

2004

2005

2006

2007

2008

2008 879

The Bank has introduced this scheme to ease the serious housing problem in the urban areas and to make arrangement for comfortable accommodation of the fixed income group. Officials of the Defense Forces; Permanent Officials of Government, Semi-Government and Autonomous Organizations; Teachers of the established Universities, University Colleges & Medical Colleges; Graduate Engineers, Doctors and Established Professionals; Bangladeshi Officials of reputed Multinational Companies, International Financial Organizations, Donor Agencies, Foreign Embassies etc. Officials of local established & reputed Public Limited Companies; Wage Earner Professionals like Doctors, Engineers, Accountants, Teachers and any other profession doing good job abroad with hand-some pay-package shall be eligible to apply for availing investment facilities under the Scheme.

Objectives 

To extend the benefits of the investment of the Bank under the Scheme to different sections of the people.



To assist in solving the existing housing problem of the country.



To assist the service holders and professionals with fixed income to arrange for house of their own.



To extend the investment facilities of the bank to every nook and corner of the country, by size of investment, by sector of investment and on the basis of geographical area.

To make investment facilities easily available under Islamic Shariah to those people who do not want to avail investment facilities from interest-based financial institutions.

Eligibility 

Initially the following categories of people shall be eligible to apply for availing investment facilities under this Scheme: 1. Officials of the Defense Forces.

2. Permanent

Officials

of

Government,

Semi-Government

and

Autonomous

Organizations.

3. Teachers of the established Universities, University Colleges & Medical Colleges.

4. Graduate, Engineers, Doctors and established professionals.

5. Bangladeshi Officials of reputed Multinational Companies, International Financial Organizations, Donor Agencies, foreign Embassies etc. Officials of local established & reputed Public Limited Companies.

6. Wage earner professionals like Doctors, Engineer, Accountants, Teachers and any other profession doing job abroad with hand-some some-package.

Security

•

Personal guarantee of the clients, his/her spouse, adult son(s) and daughter(s) shall have to be obtained.

•

Mortgage of land and building to be constructed thereon, apartment/ flat/ house in favor of the Bank till the full payment of dues to the Bank.

•

An undertaking from the client as well as from the dependants (nominees) to the effect that the retirement benefits including Provident Fund will be appropriated towards adjustment of the house building investment liability of the client prior to any other appropriation, if the liability relating thereto or any of it remains unadjusted at the time of getting the retirement benefits.

(Taka in millions) Particulars 2002 Housing Investment 200 Scheme

2003 468

2004 500

2005 598

2006 662

2007 725

2008 789

Housing Investment Scheme

1000 800 600 400 200 0 2002

2003

2004

2005

2006

2007

2008

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

(Taka in millions) Particulars 2002 Real Estate Investment 1015

2003 1507

2004 1642

2005 2264

2006 3419

2007 4573

2008 5728

4. Transport Investment Scheme: Real Estate Investment

7000 6000 5000 4000 3000 2000 1000 0 2002

2003

2004

2005

2006

2007

2008

To ease the existing transportation problem and ensure speedy economic growth and development of the country particularly the expansion of trade, commerce and industry, the Bank has taken up this Scheme. Under this Scheme investment is being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport like bus, mini-bus, truck, launch, cargo-vessel, transport for rent-a-car service; and baby-taxi, tempo, pick-up van for selfemployment; and ambulance for clinic & hospital. The Bank is also extending investment facilities to multinational companies, established business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.

5. Car Investment Scheme: Car is considered as an essential mode of transport in the modern society, particularly by a section of the officials, business house and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. To meet this need, Islami Bank Bangladesh Limited has introduced “Car Investment Scheme” for the mid and high ranking officials of government and semi-government organization, corporations, executives and directors of big business house and companies and also for persons of different professional groups on easy payment terms and conditions.

6. Investment Scheme for Doctors: The Bank has taken up this Scheme to help unemployed qualified doctors to go for self-employment and to provide latest medical equipment to specialist doctors to extend modern Medicare facilities throughout the country.

Objectives 

To provide investment facilities for establishment of chambers, clinics, pharmacies and procurement of medical equipment by the unemployed medical graduates and thus to provide self-employment.



To assist newly passed unemployed medical graduates to establish clinics by way of formation of groups by 5 years.



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



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

Eligibility Criteria 

Newly passed medical graduates who are willing to establish chambers, pharmacies and small clinics in district and Thana level towns.



Experienced and established doctors who are settled in district and other towns but cannot procure modern medical equipment to improve their techniques of treatment.



Specialized and consulted physicians who are willing to procure latest and specialized type of medical equipment.



Newly passed medical graduates who are willing to from groups in order to establish clinic.



Priority is given to specialist and consultant physicians like dentists, child specialists, and ophthalmologists etc.

(Taka in millions) Particulars Investment Doctors

2002 Scheme

for 40

2003

2004

2005

2006

2007

2008

82

95

97

101

105

109

Investment Scheme for Doctors

120 100 80 60 40 20 0 2002

2003

2004

2005

2006

2007

2008

7. Small Business Investment Scheme: This Scheme has been taken up for self-employment of educated unemployed youths for rural and urban areas and to provide investment to small businessmen and entrepreneurs. Investment is extended for about 200 economic- activities in sectors as live-stock, fishery, agro-faming, processing

and business, manufacturing, trading/shop-keeping, transportation, agricultural implements, for forestry and service viz. laundry, signboard painting etc.

8. Agriculture Implements Investment Scheme: In keeping with the view of the people-oriented and welfare objective of the Bank, this Scheme has been introduced to provide power tillers, power pumps, shallow tube wells, thresher machines etc. on easy terms to unemployed rural youths for self-employment and to the farmers to help augment production in agriculture sector.

9. Micro-Industries Investment Scheme: To create wider base for industries as well as to encourage establishment of micro-industries in different areas of the country by the potential entrepreneurs and for diversification of the Bank’s Investment portfolio, the Bank introduced `Micro Industries Investment Scheme’. Different sectors including food and agriculture based industries, plastic & rubber industries, forestry and furniture industries, engineering industries, leather industries, chemical industries, textile industries, recycling industries, service industries, electrical accessories industries, computer technology industries, paper products industries, handicrafts, industries, fisher & live stock farming, hollow bricks roof tiles and any other viable micro-industries have been identified for financing under the Scheme.

10. Mirpur Silk Weavers Investment Schem: The Scheme has been taken up to assist the silk weavers of Mirpur area particularly in respect of requirement of working capital, BMRE of existing unit by adding further machineries, to develop new entrepreneurs and to assist the workers for getting further training for producing products of various modern designs and for modernization of the silk sector.

11. Rural Development Scheme (RDS): The Rural Development Scheme (RDS) was launched in 1995 with the objective to alleviate rural poverty by providing small & micro investment facilities to the agricultural & rural sector to create opportunity for generation of employment and raising income of the rural poor. At present 136 branches among 10676 villages under 289 thanas of 61 districts under 6 divisions.

The female members in this scheme constitute about 88% of the total beneficiaries. These rural poor are provided with collateral free investment facilities for 21 types of crops production and 343 offfarm activities in the rural areas starting from tK.10,000 to a maximum limit of Tk. 30,000. To meet up the higher investment need of the successful graduated members of RDS, another scheme has been introduced under the name and style of ‘Micro Enterprise Investment Scheme (MEIS)’ under which the clients are provided with investment facilities from Tk. 30,001 to Tk. 200,000 million against securities.

Objectives The main objectives of the Scheme are: •

To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.

•

To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.

•

To alleviate rural poverty through integrated rural development approach.

•

To extend investment facilities for hand tube-wells and rural housing, keeping in view the needs of pure drinking water and housing facilities of the rural dwellers.

•

To provide education and Medicare facilities to the poor rural people.

Security Requirements Generally, security will not be required against investment under the Scheme as entire Scheme has been drawn taking into account the social welfare objective of the Bank for upliftment of the socially down-trodden and economically backward and weaker section of the population of the society.

However, Group discipline should be strictly followed and complied with so that only the right persons are selected and included as member of the Group.

In case of investment for purpose of pond fishery, special ceiling in off-farm activities and agricultural and irrigation implements, Branch should obtain after due verification, of land documents of the clients and keep their documents as collateral by way of simple deposit of title deeds through a memorandum of deposit executed by the client/owner.

Besides, in all cases, each member of the Group will give personal guarantee for the other members of the same Group and the members will be jointly and severally liable and responsible for payment of investment.

(Taka in millions) Particulars 2002 Rural Development 140

2003 273

2004 371

2005 432

2006 571

2007 710

2008 849

Scheme

Rural Development Scheme

900 800 700 600 500 400 300 200 100 0 2002

2003

2004

2005

2006

2007

2008

Up to 31.12.2008, total disbursement of Tk. 18768.27 million has been made since beginning of the scheme.The percentage of recovery against this scheme was 99%.

Table:5.3 Performance of Rural Development Scheme up to 31.12.2006 Particulars Village Center Member (Male) Member (Female) Total Members Cumulative disbursemen t (million Tk.) Outstanding Investment (million Tk.) Rate of Recovery Member’s Savings (million Tk.) Tube well (Nos.) Sanitary Latrine (Nos.) Field Officer (Nos.)

31.12.2007 10023 18897

Growth 24% 23%

31-12-2008 10676 21193

Growth 7% 12%

56830

73%

69329

25%

459885

22%

508411

10%

516725

26%

577740

12%

6033

43%

9303

34%

1107

40%

2242

4%

99%

-

99%

-

1053.56

45%

1270.50

21%

6242

13%

6844

10%

3551

13%

3838

8%

1819

33%

1712

6%

Year-wise data for the last 4(four) years performances of the Scheme are given below: Sector wise distribution of investment as on December 31, 2008 vis-Ă -vis corresponding period of last year are given below: Investment in Different Sector: (Taka in millions) Sector Industry Commerce Real Estate Transport Agriculture Others

2008 24,480.21 20,467.76 5,204.18 2,475.11 2,235.29 4,144.94

2007 19,692.68 17,534.07 3,581.72 1,851.32 2,350.52 1,270.30

From the graph, it is observed that investment in the Industry sector is the highest of all the sectors. In Industry sector, from 2007-2008 Tk.4, 787.53 million increases investments. Second highest sector is the Commerce sector that holds Tk.20, 467.76 million in the year of 2008. In case of Real Estate Tk.1, 622.46 million increases sector investment from 2007 – 2008. In Agriculture sector investment is the lowest of all the five sectors.

6.0 CAMEL Rating Camel is an acronym, which stands for the five most important attributes for analysis of the activities of financial institutions. It derived from the system developed by bank examiners in the US and has become an international approach by which creditworthiness of financial institutions is evaluated.

The CAMEL model attempts to categorize the key elements of a financial institutions overall financial conditions that affects its creditworthiness. The five elements are: C - Capital

A - Asset Quality

M – Management E – Earnings L – Liquidity

The meaning of these factors of financial ratio analysis and the ratio used to measure them are discussed in a nutshell that follows. All but the assessments of the quality of management are amendable to ratio analysis.

Capital: The bank has been maintaining capital adequacy requirement as set by Bangladesh Bank. Its risk weighted total assets stood at Tk 88.23 billion in year 2007& Tk 72.63 in year 2006. In year 2007, bank risk weighted capital adequacy ratio reached to 9.44% from 9.21% in year 2006. The bank is holding Tk 390.41 million capital surplus over required 9% risk weighted capital adequacy in year 2007. The tier 1 ratio stood at 7.13% 7 7.11% in year 2007 & year 2006 respectively compared to peer average 7.65% in year 2007. The IBBL shareholder funds to total asset ratio stood at 6.69 % & 6.49% in year of 2007 & 2006 respectively against peer average of 5.86% in year 2007. Similarly shareholders funds to deposit & borrowing ratio stood at 7.62% & 7.55% in the year of 2007 & 2006 respectively peer average of 6.80% in the year of 2007. However the Bank will further to increases its

capital base in order to maintain the growth of investments in future. As part of its process, the Bank is going to raise the fund worth 3000 million through issuing Mudaraba Perpetual Bond & Bank will inject Tk 1886.3 million which would be considered as supplementary capital. After injecting this amount of capital Bank RWCAR will be stood at 11.19% which is considered to sufficient to maintain the present business growth. In this connection Bangladesh Bank has already approved IBBL under stipulated framework for finalizing the issue on the requirement of capital adequacy; the BB has decided to adopt Basel Accord 2 in Bangladesh with effect from beginning of 2009.

Asset Quality: The overall asset quality of the bank is moderate. IBBL’s total asset stood at Tk 122880.35 million on December 31, 2007 of which only 6.69% is financed by shareholders funds 87.71% by customer deposits & the remaining 5.60% financed by other liabilities. Its total asset growth rate is 20.29% in the year of 2007, which was 25.02% in the year of 2006. There are various kind of asset quality.

1. Non-performing investment: With the write-off of NPI worth of Tk 1778.21million & NPI recovery of Tk 196.14million during the year 2007 the Bank NPI position has improved. The total NPI stood at Tk 3047.05 million in the year of 2007 compared to Tk 5247.95 in the year of 2006 against total investment of Tk 93644.15 million in the year of 2007& Tk 75858.56million in the year of 2006. Consequently the Bank gross NPI ratio of the Bank has improved during 2007. The ratio stood at 3.25% in the year of 2007compared to 6.92% in the year of 2006 against peer average of 6.51% in the year of 2007. From this above it is clear that the overall asset quality of the bank is alleviating considering its peer & industry as a whole.

2. Large and Director Investment: The Bank large investment concentration risk is within the limit & in line with the guidelines of Bangladesh Bank. Banks total of large investment as per definition of Bangladesh Bank stood at 33 covering total amount of Tk 38593.20 million in year 2007 representing 31.70% of total investment. The Bank has been a enjoying a comfortable positions in terms of investment exposure to director & Ex-director & their related parties during 2007.As on 31st December 2007, 6 Ex- director of the Bank availed total facilities of Tk 460.99 million of which Tk 426.85 million funded while balanced Tk 34.14 million was non funded. The total facility was fully covered by asset collateral.

3. Rescheduled

Investment:

Bank

follows

Bangladesh

Bank

guidelines

regarding

rescheduling of investment. The IBBL has rescheduled a considerable of investment in year 2007. The Bank has total rescheduled investment amount Tk 5972.86 million concentrating on 744 separate accounts in year 2007 while this was Tk 3602.12 million concentrated on 488 clients in year 2006. While analyzing the rescheduled investment, it is observed that there are some reasons behind the rescheduling such as business fall/ loss, fund diversion, credit sale. Recovery against rescheduled investment is satisfactory but while reviewing the

classified loan review form the recovery of loss investment is not satisfactory. During the last two-quarter of 2007 bank recover an amount of Tk 157.26 million against classified investment of Tk 3047.04 million.

4. Off- Balance sheet Exposure: Off-balance sheet exposure of the bank is in increasing trend.

The Bank follows documented guidelines regarding the maintenance of off-balance sheets exposure under investment risk manual. As on 31 the December 2007, total contingent liabilities increased to Tk 28079.32 million from Tk 23627.66 million which representing 18.84% growth. Total contingent liabilities accounted for 18.60% of total footing & 22.85% of total asset. The Bank contingent liabilities consists of 11.92% bill for collection , 77.77% letter of credit, 9.26% letter of guarantee & 1.05% other contingent liabilities. In terms of risk weighting, off- balance asset formed 17.98% of the Bank total risk weighted asset as on 31st December 2007.

Management: There is various kind of management system in IBBL. They are in the following way. The management of IBBL is headed by its Executive president, Janab Abdur Raquib before joining IBBL served various international & local organizations including Bangladesh Bank. His experiences in banking sector span more than 24 years including 7 years in IBBL. During the year 2007 the committee met 17 times & discussed the diverse management issues deciding on the issues on the delegated to the Executive president.

1. Risk Management: The Risk of Islami Bank limited is defined as the possibilities of losses, financial or otherwise. The risk management of the Bank covers 5 core risk areas of Banking. i.e. Investment Risk Management, Foreign Exchange Risk Management, Asset Liabilities Management, Prevention of Money Laundering& Establishment of internal control & compliance. The prime objective of the Risk management is that the Bank takes well calculative business risk while safeguarding the Banks capital, its financial resources, & profitability from various risk.

2. Investment Risk Management: Investment risk is one of the major risks faced by the Bank. This can be described as political loss arising from the failure of counter party to perform as contractual agreement. With the Bank. The failure may result from unwillingness of the counter party or decline in his/ her financial condition. Therefore Bank Investment risk management activities have been designed to address all this issues.

3. Foreign Exchange Risk Management: Foreign exchange risk is defined as the potential change in earning arising due to the change in the market price. The foreign exchange risk of the Bank is minimal as all the transactions are carried out on behalf of the customer against underline L/C commitment & other remittances requirements. Treasury department independently conducts the transactions & the Bank office of treasury is responsible for verifications of the deals & passing of their entries in books of accounts. All foreign

exchange transactions are revalue at Bangladesh Bank rates at the month- end. All account is reconciled on monthly basis & the management for its settlement reviews outstanding entry beyond 30 days.

Earnings: Refer to both profits and profitability, but with an emphasis on the latter. A bank with strong earning capacity and high profitability will be able to earn its way out of trouble by building up capital and continuing to invest in and grow its business.

Liquidity: The liquidity position of IBBL is moderate & it has declined in the year of 2007 Compared to previous year. The liquidity asset ratio stood 22.02% in year 2005 compared to 25.05% in year 2006 against the required 10.00% of SLR set by the Bangladesh Bank. The Bank attitude is aggressive in sanctioning the investment compared to the deposits during 2005. Bank investment to deposit ratio reached to 99.98% in year 2007, which is remained unchained from the year 2006.

6.1 Impact on Capital Adequacy of IBBL IBBL has been maintaining capital adequacy ratio AS SET BY Bangladesh Bank. But due to gradual increase of risk- weighted asset through private sector financing, the capital coverage of the Bank has been decreasing despite issuing right shares bonus shares in the past few years several times. The present capital adequacy ratio is marginally above 9%. As part of its process, the Bank is going to raise fund worth taka 3000 million through issuing MPB which will be treated as supplementary capital up to 30% of the core capital. After issuing the MPB the present capital adequacy will increase to 11.19% from 9.44% as based on the financials as on December 2007. Subsequently this MPB fund will be adjusted with supplementary capital as according to its core capital in future.

6.2 Credit Rating Report This is a credit rating report as per the previous of the credit rating companies’ rules 1996 wherein rating for surveillance is not mandatory. However, the IBBL has entered into surveillance agreement with CRISL & this report is response to the above.

Long term

Short term

Entity rating - 2005

A+

ST-2

Entity rating - 2006

AA-

ST-1

Entity rating - 2007

AA-

ST-1

Based on this Rating: CRISL reframed Islami Bank Bangladesh limited (IBBL), its (AA-) rating in the long term & ST-1 rating in the short term. The IBBL maintained the above rating on the basis of maintenance of its good asset quality, Capital adequacy, strong market share, low cost of fund, & experienced top management with less exposure to risk. However, the above rating is moderated by the average profitability, moderate liquidity, & weakness of MIS. Financial institutions rated in this category are adjusted to be of high quality, offer higher safety, & have high credit quality. This level of rating indicates a corporate entity with sound credit profile & without significant problems. The short term rating indicates highest category of timely payment, very strong internal fund generation, and outstanding access to alternatives sources of fund. The IBBL has been performing profitability in its inceptions. The management has been working to maintain its strong market share through expanding its branch network. Credit rating information & services Ltd- CRISL ( a joint venture rating agency of rating agency Malaysia Bank, JCR-VIS Credit rating company Ltd- Pakistan, Prime commercial Bank, Pakistan & Local Corporation / Sponsors, Bangladesh) was engaged by the Bank. The CRISL submitted its report on the financial year 2002,2003, 2004,2005,2006 & also 2007 & assigned A+ ( Adequate Safety) for the long term rating scale for 2004 & 2005, & upgraded the same to AA- (High Safety) for long term rating scale for 2006& 2007. Financial institutions rates in this category are adjusted to be of high quality, offer high safety& have high credit quality. This level of rating indicates a corporate entity with a sound credit profile & without significant problems. Risks are modest & may vary slightly from time to time because of economic conditions. Financial institutions rated in this category means having high certainty of timely payment. Liquidity factors are strong & supported by the good fundamental protections factors.

6.3 SWOT Analysis SWOT analysis means the compositions of four things & they are S for Strength, W for Weakness and O for Opportunities & T for Threats. It’s a basic mechanism to measure the organizations present or current situations. It used by almost all organizations in the world today to identify those above four things randomly. It’s all about to utilize the brain storming capability of managers of

STRENGTHS

WEAKNESS

organization to justify any situation or future intentions to justify their decision making process of

Capital Adequacy organizations. It’s although used by the organizations• forMarginal the basic & relevant purposes now a day.

•

Stable Source of Funds

•

Largest Portfolio Among PCBs

•

Strong Liquidity Position

•

Low Cost Fund

•

Satisfactory Profitability

•

Strong market share

•

Diversified product lines

•

Moderate asset quality

•

Moderate liquidity position

•

MIS at initial stage

•

Limited delegation of power

•

Lack of Strong Initiative to Explore Investment

Opportunity

Research & Marketing

Through

OPPORTUNITIES

THREATS

•

Scope Of Whole Sale Banking with NBFIs

•

SME & Agro based industry investment

•

Real time online Banking

•

Credit card in dual currency

•

Overall liquidity crisis in money Figure:–II SWOT Analysis oftoIslam Bangladesh•Limited Basel compliance top Bank advantages Strength: market from RM system

•

Increasing awareness of Islamic Banking

o

•

Increased

Competition

In

The

Market For Quality Assets •

Market pressure for increasing the SLR

Adequate Finance: Islami Bank Bangladesh Ltd. adequate That is why they need not to • has Supply Gapfinance.

Of Foreign Currency borrow money from Bangladesh Bank or any other banks.

o

More funds for Investment: For adequate financial ability they can provide loan to the more investment clients.

o

Honest and Reliable Employees: All of the employees of Islami Bank are honest and reliable. They are always devoted themselves to the works for better customer service. They have no corruption report.

o

It has vast years of experience since its establishment.

o

IBBL is only the Bank which is the pioneer of welfare banking system among all other financial and banking organization.

o

At IBBL, the top management is the driving force and the think tank of the organization where policies are crafted and often cascaded down.

o

IBBL provides its customer excellent and consistent quality in every service.

o

IBBL is a financially sound company.

o

IBBL utilizes state-of-the art technology to ensure consistent quality and operation.

o

IBBL provides its works force an excellent place to work.

o

IBBL has already achieved a good will among the clients.

o

IBBL has a research division.

Weakness: o

IBBL lacks well-trained human resource in some area.

o

IBBL lacks aggressive advertising

o

The procedure of credit facility is to long compare to other banks.

o

Employees are not motivated in some areas.

o

Absence of structured marketing and credit policy

o

Lack of coordination among the branches and Head Office.

Opportunities: o

Emergence of E-banking will open more scope for IBBL.

o

IBBL can introduce more innovative and modern customer service.

o

Many branches can be open in remote location.

o

IBBL can recruit experienced, efficient and knowledgeable work force as it offers good working environment.

o

The successful launcing and needs to an Islamic Money Market in the country.

Threats: o

The worldwide trend of mergers and acquisition in financial institutions is causing problem.

o

Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.

o

Lots of new banks are coming in the scenario with new service.

o

Local competitors can capture huge market share by offering similar products.

o

The rules and regulations of Bangladesh are not favorable for Islami Bank. So they have to face various problems to operate their activities according to Islami Shariah.

o

Lack of skill personnel because of poor salary structure rather than other private banks.

o

Unknown attitudes of the people about the Islamic Banking.

6.4 Highlights of Six years Performance of IBBL (Amount in million Taka) Particulars 2003 Authorized Capital

2004

2005

2006

2007

1,000.00

1000.00

3000.00

3000.00

2008 5000.00

640.00

640.00

1920.00

2304.00

2764.80

1,998.04

2852.07

3280.37

2,993.24

3540.51

5266.47

41,640.94

56,246.37

70,552.65

6691.12 88,452.18

108261

37,648.75

49,185.92

62,755.90

83,893.63

102145

25907.00

33,788.00

46,237.00

59,804.00

74,525.00

16082.00

16,673.00

21,738.00

29,192.00

36,169.00

9879.00

14,670.00

16,668.00

23,669.00

36,948.00

51868.00

65,131.00

84,643.00

112,665.00

147,642.00

4,259.55

5,234.07

6,841.29

8262.73

10586.78

3,683.43

4,240.02

6039.28

6419.74

8424.36

1,000.00 Paid-up Capital 320.00 Reserves Fund 1,759.65 Total Equity

4329.92

2,671.06 Total Deposits (Including bills payable) Gross Total Investments (Including Inv in Share) Gross Import Business

5450.94 8331.14

32,112.81 29,563.20 25,327.00

Export Business 16,889.00 Remittance 7,644.00 Total Foreign Exchange Business Total Income

49,860.00 3,207.81

Total Expenditure 2,877.57

Net Profit before Tax Payment to Government (Income Tax) Dividend

994.05 330.24

576.12

802.01

1842.99

426.61

829.35

20% (Stock)

20%

25%

98,046.85

125,776.94

150959.66

81,704.74

102149.28

122880.35

397.62 104.03

181.48

25%

25% 58,644.46

25%

Total Assets 77,463.12 (including Contra) 49,250.36 Total Assets 39,362.27 49,551.87 65,080.12 (Excluding Contra) 0.38, 0% Fixed Assets 1,276.89 1725.53 0.46, 0% 1,121.15 5.58, 6% 0.02, 0% 7.74, 8% 1,116,006 No. of deposit 1,355,053 16,51122 33.18, 34% 8.3, 8% account holder No. of11.34, investment 139,738 176,138 1,96295 11% account holder 20.27, 20% Cumulative 12.73, amount13% 714.93 1323.87 2,029.67 of disbursement from RDS Outstanding 272.6 371.1 432.1 Investment of RDS RDS no. of A / C 74,315 100,470 107,225 holder RDS no. of village 1,365 2,214 2875 Number of Foreign 815 830 Correspondents 775 Number of 10,747 Shareholders 7,549 9,917 Number of 3,060 3,297 Employees 2,685 Number of Branches 121 128 116 Book value per 6278 3519 4205 Share ( Taka) Earnings per Share 353 617 932 (Taka) Market Value per 3,305 3,205 3656 Share (Taka) (Highest) Capital Adequacy 10.59% 9.24% 8.64% Ratio (Note: One Million = Ten Lac) Graphical Presentation of Composition of Equity of IBBL: 6.5 Corporate information Share of Capital • Local Shareholders •

2162.42

Foreign Shareholders

:

40.62%

:

59.38%

Authorized Capital

Tk.5, 000.00 million

Paid-up Capital

Tk.2, 764.00 million

973.09

Paid up c apital

Statutory Res erve

2036.65

2552.70

3067.90

Provision of Unc lass ified inves tment

19,94266

22,91269

As sets Revaluation Reserve

2705180

Retaind Earnings

22,3954

26,4863

Inves tment los s offsetting Res erve General Res erve

2923.60

4216.77

Ex change Equaliz ation

297943 6033.36

Dividend Equalization

570.9

789.97

-

130,465

163,465

164116

3700 840

4230 850

4560 -

14,196

15,892

-

Share preminum

4,261

4906

3,752 141

151

169

2181

2257

3013

195.92

518.59

487.57

2595

4833

5580

9.43%

9.21%

9.44

Deposit

Tk.142154 million (As on 30-Aprl-2007)

Investment

Tk.139186.91 million (As on 30-Apr-2007)

Foreign Exchange Business:

Tk.201, 822 million (As on 31-Dec-2006)

Number of Branches

176

Number of Shareholders

15,693

Manpower

(As on 30-Sep-2005)

5,647

(As on 30-Dec-2006)

6.6 Paid-up Capital and Reserve The Authorised Capital of the Bank is Taka 3000.00 million and Paid-up capital is Taka 1920.00.00 million. The Paid-up Capital was Taka 67.50 million in 1983. The Reserve Fund of the Bank has been increasing steadily. On 31st December 1983, it was Taka 0.36 million and stood at: Taka

303.57

million

as

on

31st

December

1994,

Taka

535.08

million

as

on

31st

December

1995,

Taka

759.39

million

as

on

31st

December

1996,

Taka

930.17

million

as

on

31st

December

1997,

Taka

1011.84

million

as

on

31st

December

1998,

Taka

1115.61

million

as

on

31st

December

1999

Taka

2074.88

million

as

on

31st

December

2000

Taka

1998.04

million

as

on

31st

December

2001.

Taka

2852.07

million

as

on

31st

December

2002.

Taka

3287.80

million

as

on

31st

December

2003.

Taka

4387.12

million

as

on

31st

November

2004.

Taka

5566.34

million

as

on

31st

November

2005.

6.7 Equity As per new Capital Adequacy Policy prescribed by Bangladesh Bank, the Central Bank of the country, banks are to maintain 9.44(p) % capital on its Risk-Weighted Assets against which present total equity of the Bank as on September 30, 200 5 stood at Taka 7757.26 million.

This was Taka 2,993.24 million in 2001,Taka 2,671.06 million in 2000, Taka 1,659.26 million in 1999, Taka 1,517.55 in 1998, Taka 1,429.86 million in 1997, Taka 1241.05 in 1996, Taka 813.09 million in 1995,Taka 420.06 million in 1993, Taka 537.35 million in 1994 and Taka 420.06 million in 1993.

6.8 DEPOSIT Islami Bank is one of the fastest growing banks in Bangladesh. In every aspect Islami banking concept and as 1st introducer of this banking system in Bangladesh Islami bank plays a superior position in the whole banking sector in Bangladesh. In that stream of flows total deposits achieved by

IBBL at Tk. 107,779 Million as on 31.12.05 as against Tk. 87,841 Million as on 31.12.04 of the preceding year registering an increase of Tk. 19,938 Million i.e. (35 percent as compared to the growth rate of 12 percent of the Banking Sector during 2005.) Total number of depositors of IBBL increased to 2,604,266 as on 31 st December 2007 from 2,111,122 of the preceding year, registering an Million Taka

increase of 24 percent.

Trend of Deposit: 2002 to 2007 120,000

107,779

100,000

87,841

80,000

69,655

60,000

Deposits

55,462 41,547

40,000 20,000 0 1

2

3

4

5

Year

Generally Islami bank has its own product line such as Mudaraba Savings Account (MSA), Mudaraba Special Scheme (MSS), Mudaraba term Deposit (MTDR), Mudaraba Short Notice A/C (MSNA), Mudaraba monthly profit distribution Scheme (MMPDS) etc. This entire product makes a tremendous response over the client. More over the client are become very much interested to accept the new methodology introduce by IBBL instead of conventional Banking methodology where there is no use of terms call INTEREST. Then recently IBBL introduce a New Product Call Mudaraba Savings Bond (MSB) already augment resources matching with its asset structure; it has received tremendous response. In 1998, 10 year and 5 year’s term Mudaraba Special Savings (Pension) Scheme has been introduced to meet the expectation of the existing/potential depositors of the Bank that has also received tremendous response.

Particulars Mudaraba Savings Mudaraba Term Deposit Mudaraba SND Mudaraba Special Savings Currency & Contingency Bills Payable Mudaraba Saving Bond Mudaraba Monthly Profit Deposit Scheme Mudaraba Muhor Savings Mudaraba Foreign Currency Deposits Mudaraba Muhor Savings Mudaraba Wakf (Cash Deposit)

Percentage 40.26% 20.47% 14.15% 11.52% 8.07% 3.39% 1.01% 0.35% 0.64% 0.08% 0.05% 0.01%

6.9 Present Status of IBBL Today IBBL is the largest private sector joint-venture bank amongst the contemporary private banks in Bangladesh with the following parameters of performance as of 31 December 2005.

Branches

31-Dec-04

31-Dec-05

151

169

Growth

88457.53

107358.97

21%

Deposits Investments

83899.79

102148.33

22%

Gross Profit

2391.02

2917.41

22%

Import

59804

74525

25%

Export

29192

36948

27%

Remittance

23669

36948

56.10%

World Ranking of IBBL amongst Top 3000 International Banks Serial No 1 2 3 4 5 6 7 8 9 10 11 12

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Rank 2447 2314 2304 2262 2119 2100 1999 1902 1771 1755 1581 1658

Source: The Bankers Almanac: World Ranking Read Business Information, U.K 6.10 Performance of IBBL: CAPITAL STRUCTURE (CAPITAL COMPOSITION & CHANGES DURING THE LAST 20 YEARS IN BRIEF): It is well known to all that Islami Bank is one of the fastest growing bank in Bangladesh. The management introduces this new Islami Shariah based banking over the conventional banking. A scenario is presented here on the view of Capital structure during the last 20 years: 1983 (Million)

1985 (Million)

1990 (Million)

1995 (Million)

2000 (Million)

2005 (Million)

2006 (Million)

Authorized Capital

500.00

500.00

500.00

500.00

1,000.00

5,000.00

5000.00

Paid Up 67.50 Capital

67.50

80.00

160.00

320.00

2764.80

3456.00

Reserves

Nil

13.20

200.00

653.10

1,759.65

5450.94

6979.96

Total Equity

67.50

92.70

280.00

813.10

2,671.06

8331.14

10435.96

ď Ž Today, IBBL is the largest Private sector Joint-Venture Bank amongst the contemporary private Banks in Bangladesh with the following parameters of performances as on 30.09.2008. o

IBBL can recruit experienced, efficient and knowledgeable work force as it offers good working environment.

o

The successful launcing and needs to an Islamic Money Market in the country.

Threats: o

The worldwide trend of mergers and acquisition in financial institutions is causing problem.

o

Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.

o

Lots of new banks are coming in the scenario with new service.

o

Local competitors can capture huge market share by offering similar products.

o

The rules and regulations of Bangladesh are not favorable for Islami Bank. So they have to face various problems to operate their activities according to Islami Shariah.

o

Lack of skill personnel because of poor salary structure rather than other private banks.

o

Unknown attitudes of the people about the Islamic Banking.

6.4 Highlights of Six years Performance of IBBL (Amount in million Taka) Particulars 2003 Authorized Capital

2004

2005

2006

2007

1,000.00

1000.00

3000.00

3000.00

2008 5000.00

640.00

640.00

1920.00

2304.00

2764.80

1,998.04

2852.07

3280.37

2,993.24

3540.51

5266.47

1,000.00 Paid-up Capital 320.00 Reserves Fund 1,759.65 Total Equity

4329.92

2,671.06 Total Deposits (Including bills payable) Gross

41,640.94 32,112.81

5450.94

56,246.37

70,552.65

8331.14 6691.12 88,452.18

108261

Total Investments (Including Inv in Share) Gross Import Business

37,648.75

49,185.92

62,755.90

83,893.63

102145

25907.00

33,788.00

46,237.00

59,804.00

74,525.00

16082.00

16,673.00

21,738.00

29,192.00

36,169.00

9879.00

14,670.00

16,668.00

23,669.00

36,948.00

51868.00

65,131.00

84,643.00

112,665.00

147,642.00

4,259.55

5,234.07

6,841.29

8262.73

10586.78

3,683.43

4,240.02

6039.28

6419.74

8424.36

802.01

1842.99

29,563.20 25,327.00

Export Business 16,889.00 Remittance 7,644.00 Total Foreign Exchange Business Total Income

49,860.00 3,207.81

Total Expenditure 2,877.57 Net Profit before Tax Payment to Government (Income Tax) Dividend Total Assets (including Contra) Total Assets (Excluding Contra) Fixed Assets No. of deposit account holder No. of investment account holder Cumulative amount of disbursement from RDS Outstanding Investment of RDS RDS no. of A / C holder RDS no. of village Number of Foreign Correspondents Number of Shareholders Number of Employees Number of Branches Book value per Share ( Taka) Earnings per Share (Taka)

994.05 330.24

576.12

2162.42

397.62 104.03

181.48

25%

25% 58,644.46

49,250.36 39,362.27

973.09 426.61

829.35

25%

20% (Stock)

20%

25%

77,463.12

98,046.85

125,776.94

150959.66

49,551.87

65,080.12

81,704.74

102149.28

122880.35

1,276.89

1725.53

2036.65

2552.70

3067.90

1,121.15 1,116,006

1,355,053

16,51122

19,94266

22,91269

2705180

139,738

176,138

1,96295

22,3954

26,4863

297943

714.93

1323.87

2,029.67

2923.60

4216.77

6033.36

272.6

371.1

432.1

570.9

789.97

-

74,315

100,470

107,225

130,465

163,465

164116

1,365

2,214 815

2875 830

3700 840

4230 850

4560 -

10,747

14,196

15,892

-

4,261

4906

775 7,549

9,917 3,060

3,297

121

128

3,752 141

151

169

116 6278

3519

4205

2181

2257

3013

353

617

932

195.92

518.59

487.57

2,685

Market Value per 3,305 Share (Taka) (Highest) Capital Adequacy 10.59% Ratio (Note: One Million = Ten Lac)

3,205

3656

2595

4833

5580

9.24%

8.64%

9.43%

9.21%

9.44

Graphical Presentation of Composition of Equity of IBBL:

Paid up capital Statutory Reserve

0.38, 0% 0.46, 0%

Provision of Unclassified investment

5.58, 6% 0.02, 0%

7.74, 8%

Assets Revaluation Reserve

33.18, 34%

8.3, 8%

Retaind Earnings Investment loss offsetting Reserve

11.34, 11%

General Reserve

12.73, 13%

20.27, 20% Exchange Equalization Dividend Equalization Share preminum

6.5 Corporate information Share of Capital •

Local Shareholders

:

40.62%

•

Foreign Shareholders

:

59.38%

Authorized Capital

Tk.5, 000.00 million

Paid-up Capital

Tk.2, 764.00 million

Deposit

Tk.142154 million (As on 30-Aprl-2007)

Investment

Tk.139186.91 million (As on 30-Apr-2007)

Foreign Exchange Business:

Tk.201, 822 million (As on 31-Dec-2006)

Number of Branches

176

Number of Shareholders

15,693

Manpower

(As on 30-Sep-2005)

5,647

(As on 30-Dec-2006)

6.6 Paid-up Capital and Reserve The Authorised Capital of the Bank is Taka 3000.00 million and Paid-up capital is Taka 1920.00.00 million. The Paid-up Capital was Taka 67.50 million in 1983. The Reserve Fund of the Bank has been increasing steadily. On 31st December 1983, it was Taka 0.36 million and stood at: Taka

303.57

million

as

on

31st

December

1994,

Taka

535.08

million

as

on

31st

December

1995,

Taka

759.39

million

as

on

31st

December

1996,

Taka

930.17

million

as

on

31st

December

1997,

Taka

1011.84

on

31st

December

1998,

million

as

Taka

1115.61

Taka

2074.88

million

as

on

31st

December

2000

Taka

1998.04

million

as

on

31st

December

2001.

Taka

2852.07

million

as

on

31st

December

2002.

Taka

3287.80

million

as

on

31st

December

2003.

Taka

4387.12

million

as

on

31st

November

2004.

Taka

5566.34

million

million

as

on

as

on

31st

31st

December

November

1999

2005.

6.7 Equity As per new Capital Adequacy Policy prescribed by Bangladesh Bank, the Central Bank of the country, banks are to maintain 9.44(p) % capital on its Risk-Weighted Assets against which present total equity of the Bank as on September 30, 200 5 stood at Taka 7757.26 million.

This was Taka 2,993.24 million in 2001,Taka 2,671.06 million in 2000, Taka 1,659.26 million in 1999, Taka 1,517.55 in 1998, Taka 1,429.86 million in 1997, Taka 1241.05 in 1996, Taka 813.09 million in 1995,Taka 420.06 million in 1993, Taka 537.35 million in 1994 and Taka 420.06 million in 1993.

6.8 DEPOSIT Islami Bank is one of the fastest growing banks in Bangladesh. In every aspect Islami banking concept and as 1st introducer of this banking system in Bangladesh Islami bank plays a superior position in the whole banking sector in Bangladesh. In that stream of flows total deposits achieved by IBBL at Tk. 107,779 Million as on 31.12.05 as against Tk. 87,841 Million as on 31.12.04 of the preceding year registering an increase of Tk. 19,938 Million i.e. (35 percent as compared to the growth rate of 12 percent of the Banking Sector during 2005.) Total number of depositors of IBBL increased to 2,604,266 as on 31 st December 2007 from 2,111,122 of the preceding year, registering an increase of 24 percent.

Million Taka

Trend of Deposit: 2002 to 2007 120,000

107,779

100,000

87,841

80,000

69,655

60,000

Deposits

55,462 41,547

40,000 20,000 0 1

2

3

4

5

Year

Generally Islami bank has its own product line such as Mudaraba Savings Account (MSA), Mudaraba Special Scheme (MSS), Mudaraba term Deposit (MTDR), Mudaraba Short Notice A/C (MSNA), Mudaraba monthly profit distribution Scheme (MMPDS) etc. This entire product makes a tremendous response over the client. More over the client are become very much interested to accept the new methodology introduce by IBBL instead of conventional Banking methodology where there is no use of terms call INTEREST. Then recently IBBL introduce a New Product Call Mudaraba Savings Bond (MSB) already augment resources matching with its asset structure; it has received tremendous response. In 1998, 10 year and 5 year’s term Mudaraba Special Savings (Pension) Scheme has been introduced to meet the expectation of the existing/potential depositors of the Bank that has also received tremendous response.

Particulars Mudaraba Savings Mudaraba Term Deposit Mudaraba SND Mudaraba Special Savings Currency & Contingency Bills Payable Mudaraba Saving Bond Mudaraba Monthly Profit Deposit Scheme Mudaraba Muhor Savings Mudaraba Foreign Currency Deposits Mudaraba Muhor Savings Mudaraba Wakf (Cash Deposit)

Percentage 40.26% 20.47% 14.15% 11.52% 8.07% 3.39% 1.01% 0.35% 0.64% 0.08% 0.05% 0.01%

6.9 Present Status of IBBL Today IBBL is the largest private sector joint-venture bank amongst the contemporary private banks in Bangladesh with the following parameters of performance as of 31 December 2005.

Branches

31-Dec-04

31-Dec-05

151

169

Growth

88457.53

107358.97

21%

Deposits Investments

83899.79

102148.33

22%

Gross Profit

2391.02

2917.41

22%

Import

59804

74525

25%

Export

29192

36948

27%

Remittance

23669

36948

56.10%

World Ranking of IBBL amongst Top 3000 International Banks Serial No 1 2 3 4 5 6 7 8 9 10 11 12

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Rank 2447 2314 2304 2262 2119 2100 1999 1902 1771 1755 1581 1658

Source: The Bankers Almanac: World Ranking Read Business Information, U.K 6.10 Performance of IBBL: CAPITAL STRUCTURE (CAPITAL COMPOSITION & CHANGES DURING THE LAST 20 YEARS IN BRIEF): It is well known to all that Islami Bank is one of the fastest growing bank in Bangladesh. The management introduces this new Islami Shariah based banking over the conventional banking. A scenario is presented here on the view of Capital structure during the last 20 years: 1983 (Million)

1985 (Million)

1990 (Million)

1995 (Million)

2000 (Million)

2005 (Million)

2006 (Million)

Authorized Capital

500.00

500.00

500.00

500.00

1,000.00

5,000.00

5000.00

Paid Up 67.50 Capital

67.50

80.00

160.00

320.00

2764.80

3456.00

Reserves

Nil

13.20

200.00

653.10

1,759.65

5450.94

6979.96

Total Equity

67.50

92.70

280.00

813.10

2,671.06

8331.14

10435.96

ď Ž Today, IBBL is the largest Private sector Joint-Venture Bank amongst the contemporary private Banks in Bangladesh with the following parameters of performances as on 30.09.2008.