This report is to represent the ‘investment mechanism’ of islami bank bangladesh limited

This report is to represent the ‘Investment mechanism’ of Islami Bank Bangladesh Limited

Preface At the very beginning would like to thank Almighty Allah for giving me the strength to finish the project within the schedule time. During the preparation of this report received generous help from many individuals which would like to mention with deepest gratitude.

First of all, must take this opportunity to thank “Islami Bank Bangladesh Limited” for giving the opportunity to complete my internship program in their organization.

As an apart of this internship program, have conducted study under Mr. Abu Zahid Md. Zoglul Pasha Chairman, Bachelor of Business Administration, Mohammadpur Kendriya College, Dhaka.

It was really a great opportunity to work on this topic, and which is really an important and exceptional report. tried to dedicate my best trying and resources. But “Too Error is Human”, not exception to this, have some limitations, also.

My ultimate constraint was time, invested beyond this report. If could give more times, could make it better in the point of view of doing “Discovery of Information”, “Recommendation” etc.

At last, just want to say that tried best to make it realistic. extremely sorry for limitations and constraints that had impact in making the “Internship Report” efficient and effective.

Executive Summary Internship training refers to a joint program in which business school and business houses co-operate.

The prime objective of such program is to provide students on the job exposures and the opportunity to translate the bookish concentration in real life situation. Through this program good balance between theory and practice is gained. Furthermore this internship assignment is a vital requirement for obtaining Bachelor of Business Administration (BBA) Program. So was supposed to work in Islami Bank Bangladesh Limited-Shyamoli Branch and get a proper understanding of the organizational objectives, management procedures etc. and as a requirement of MBA program, have to put my understanding in a report. prepare this report dividing into three parts. In first part have discussed about Islamic banking systems and comparison with conventional banking system regarding investment. Then in the second part have discussed about the investment performance of Shyamoli Branch and at the last part overall performance of IBBL.

CHAPTER-1 ABOUT THE REPORT:

ORIGIN OF THE REPORT The internship program of BBA students of the Department of BBA, Mohammadpur Kendriya College, is an important part of the BBA program. This program is for 60 days duration. However, assigned to Shyamoli Branch of Islami Bank Bangladesh Limited to complete the program. The period for this program was from 1 st February, 2010 to 31st March, 2010. During this period worked closely with the employees of the Bank in Shyamoli Branch. A student must submit a report on the assigned topic to the department and supervisor after the completion of the internship program period.

Rationale of the Study Theoretical knowledge is not enough for a student. It is a far difference between theoretical knowledge and practical field. So, these two should be synchronized. Our internship program is launched mainly for this purpose. Another purpose that may be is to know about the rules, regulations, and environment of an organization before getting a job. To gather some experience, which will help a student to get a good job, may be another purpose of the study.

OBJECTIVES OF THE STUDY The Primary Objective: The Primary objective of preparing this report is to represent the ‘Investment mechanism’ of Islami Bank Bangladesh Limited and to have a clear conception about all of the essential parts of the internship program.

Secondary Objective: Furthermore, the secondary objectives of this report1

To co-ordinate between theory and practice and to make a bridge between theoretical

2

and practical knowledge in fulfillment of the internship program.

To have an overall idea about Islamic Banking System that is based on Al-Quran and

3

Sunnah.

To know about the interest free Banking System within the Islamic Shariah and how it

4

could be processed.

To identify the formalities maintained by both the Bank & client in sanctioning or

5

having investment facilities.

To know about the process of different investment Modes and their application in the context of Islami Bank Bangladesh limited.

6

To have a clear idea regarding the requirements and the limitations at the time of

7

applying for an investment and other formalities.

To identify the major problems the bank encounters in sanctioning and recovery of

8

investment.

To give some suggestions to overcome the weakness and problems that exists in the existing system.

METHODOLOGY Sources of Data: Both primary and secondary sources of data are used to complete this study. These two sources are explained below: 1. Primary sources: Among the primary sources of data, the main sources are: *

Training Classes (15 days) at Islami Bank Training & Research Academy (IBTRA)

*

Face to face communication with the employees in the Shyamoli Branch of Islami Bank Bangladesh Limited.

*

Official records of the various department of IBBL Shyamoli Branch.

2. Secondary sources: Among the secondary sources of data, the main sources are: *

Various Manual on Investment Mechanism.

*

Prospectus, Annual Report, Different Journals of IBBL.

*

Relevant books.

LIMITATION OF THE STUDY There are some limitations in the study. The Branch of IBBL on which studied is a very busy Branch. The employees of the branch were very much busy with their activities. They had interested to help but got a little time to do that. This is the main limitation of the study.

The rely entirely on the data received from the books of Statistics, Manifesto, and the Annual Reports of ISLAMI BANK BANGLADESH LIMITED, and had no opportunity to verify the satisfaction level of clients and receive their suggestions in implementing the Islamic Shariah as well as other Banking activities. Because of some existing employees being too much busy, they couldn’t manage to provide required times and to pay such attention in answering all of the questions.

CHAPTER-2 Background of Islami Banking Definition of Islami banking An Islamic bank is a financial institution which operates with the objective to implement and materialize the economic and financial principles of Islam in the arena of banking.

“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 of interest on any of its operations”-OIC.

Objective of Islamic banking •

Islamic banks operate on Islamic principles of profit and loss sharing ,strictly avoiding interest, which is the root of all exploitation and is responsible for largescale inflation and unemployment

•

The objectives of Islamic banking are 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.

•

An Islamic bank is committed to do away with disparity and establish justice in the economy, trade, commerce and industry; build socio-economic infrastructure and create employment opportunities.

Special Features of Islamic banking • All activities are conducted on interest-free system according to Islamic Shariah Principles.

• 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 • To introduce a welfare-oriented banking system and also to establish equity and justice in the field of all economic operations • Extend socio-economic and financial services to individuals of all economic backgrounds with strong commitment in rural uplift.

• •

Plays a vital role in human resources development and employment-generation particularly among the unemployed youths Portfolio of investment and investment policy have been specially tailored to achieve balanced growth and equitable development through diversified investment operation particularly in the priority sectors and in the less developed areas of the national economy.

Conventional and Islamic banking 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. 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.

For the interest of the readers, the distinguishing features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below:

Conventional Banks

Islamic Banks

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

2. The investor is assured of a predetermined rate 2. In contrast, it promotes risk sharing between of interest. provider of capital (investor) and the user of funds (entrepreneur).

3. It aims at maximizing profit without any 3. It also aims at maximizing profit but subject to restriction.

Shariah restrictions.

4. It does not deal with Zakat.

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. Leading money and getting it back with 5. Participation in partnership business is the interest is the fundamental function of the fundamental function of the Islamic banks. conventional banks.

6. Its scope of activities is narrower when 6. Its scope of activities is wider when compared compared with an Islamic bank. with a conventional bank. It is, in effect, a multipurpose institution.

7. It can charge additional money (compound rate 7. The Islamic banks have no provision to charge any of interest) in case of defaulters. extra money from the defaulters.

8. In it very often, bank’s own interest becomes 8. It gives due importance to the public interest. Its prominent. It makes no effort to ensure growth ultimate aim is to ensure growth with equity. with equity.

9. For interest-based commercial banks, 9. For the Islamic banks, it is comparatively difficult borrowing from the money market is relatively to borrow money from the money market. easier.

10. Since income from the advances is fixed, it 10. Since it shares profit and loss, the Islamic banks gives little importance to developing expertise in pay greater attention to developing project appraisal project appraisal and evaluations. and evaluations.

RIBA: ‘Riba’ Arabic word means Excess. Excess in case of spot transaction of one/same kind of goods. General reason – quality. Or, Excess in case of deferred transaction of same goods.

Reason is time –basis.

BASIC FEATURES OF RIBA

The word used by the Quran concerning ‘interest’ is Riba. The literal meanings of Riba are money increase, increase of anything or increment of anything from its original amount (Maududi 1979, p.84). However, all increases are not considered as Riba in Islam. Money may increase in business activities as well. This increase is not at all considered as Riba. The increase, instead of being prohibited (Haram), is approved (Halal) in Islam. Islam prohibits only those increases that are charged on the loan with a prefixed rate.

Muslim scholars equate interest with Riba. In the Shariah, Riba technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension in its maturity (Chapra 1985, p.64). In other words, Riba is the predetermined return on the use of money. In the past there has been dispute about whether Riba refers to interest or usury, but there is now consensus among Muslim scholars that the term covers all forms of interest and not only “excessive” interest (Khan 1985, p.52).

The most important characteristic of Riba is that it is the positive and definite result of money when changed. In other words, when money begets money, without being exchanged for goods or services, it is called Riba.

ITS BASIC CHARACTERISTICS ARE: •

It must be related to loan;

•

A prefixed amount of money to be paid when due;

•

A time is fixed for the repayment; and

•

All these elements for repayment are taken as conditions for loan.

RIBA AND PROFIT: There are persons who try to equate Riba with profit. In effect, they are fundamentally different from each other as can be seen from the following:

1 Riba Profit 1. When money is “charged”, its imposed 1. When money is used in trading (for e.g.) its positive and define result is Riba uncertain result is profit.

2. By definition, Riba is the premium paid by 2. By definition, profit is the difference between the borrower to the lender along with principal the value of production and the cost of amount as a condition for the loan. production.

3. Riba is prefixed, and hence there is no 3. Profit is post-determined, and hence its uncertainty on the part of either the givers or amount is not known until the activity is done. the takers of loans.

4. Riba con not be negative, it can at best be 4. Profit can be positive, zero or even negative. very low or zero.

5. From Islamic Shariah point of view, it is 5. From Islamic Shariah point of view, it is Halal.

Haram.

CHAPTER-3 General Banking of IBBL: an overview IBBL is committed to conduct all banking activities in line with the Shariah principles prescribed in Islam. It has materialized the long cherished dream of the people of Bangladesh for doing their banking under Islamic Shariah. In doing so , IBBL has also established different divisions, departments and sections in accordance with banking norms.

Usually the following sections are involved to perform the general banking operations: • Cash Section • Bills & Remittance Section • Ciearing and Collection Section • Accounts Section Scope of general banking operations • Mobilizing deposits Here has two principles1. Al- Wadeah principles 2. Mudaraba principles • Deposit products: 1. Al-Wadeah current account 2. Mudaraba savings account 3. Mudaraba special notice account 4. Mudaraba term deposit account 5. Mudaraba hajj savings account 6. Mudaraba savings bond scheme 7. Mudaraba special savings (pension) account 8. Mudaraba monthly profit deposit scheme 9. Mudaraba muhor savings account 10. Mudaraba waqf cash deposit account 11. Mudaraba foreign currency deposit (savings) account 12. Mudaraba NRB savings bond (MNSB) • • • • • • •

Receipts and payments of cash Passing, cancellation, issuance and payment of cheque Maintenance of “Vaut’ and “Strong Room’ Operations of clearing house Remittance related function Maintenance of safe deposit lockers Maintenance of ATM, electronic funds transfer, internet banking, phone banking etc.

• •

Maintenance of security Correspondence, receipt & dispatch.

CHAPTER-4 Investment of IBBL

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 2.5% for agriculture and rural investment, 18% for industrial term investment, 13% for industrial working capital, 10% for housing and real-estate, 4% 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, Rural Development Scheme, Transport Investment Scheme, Car Investment Scheme, Small Business Investment Scheme, Doctors Investment Scheme, Household Durables Investment Scheme, Housing Investment Scheme and Agricultural Implements Investment Scheme etc. Besides, the Bank is financing various economic groups in different sectors in both urban and rural areas for upliftment of their economic condition.

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

• •

•

• • •

• • •

To invest fund strictly in accordance with the principles of Islamic Shariah.

To diversify its investment portfolio by size of investment, by sectors (public & 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 accelerating sustainable socio-economic growth and upliftment 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 upliftment enterprises.

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

.

Allah has permitted Bai (Buying and selling i.e. trading) & prohibited Riba. Islamic Banks in all its transactions follow the verdict of Al-Quran and Sunnah and prohibit Riba in all its operations. The Banks conduct investment portfolio under three mechanism i.e.

(1) Bai Mechanism; (2) Share Mechanism 7 (3) Ijara.

Investment Mechanism

Bai Mechanism Bai Bai Bai Bai

Murabaha Muajjal.

Salam.

Istishna’a

Sharing Mechanism Mudaraba.

Musharaka

Lease Mechanism Pure Lease/Ijara.

Hire Purchase.

Hire Purchase under Shirkatul Melk.

Bai Mechanism 1. BAI-MURABAHA Meaning of Murabaha The terms "Bai-Murabaha" have been derived from Arabic words Bai and Ribhun. The word 'Bai' means purchase and sale and the word ‘Ribhun’ means an agreed upon profit.

“Bai-Murabaha" means sale for an agreed upon profit. Bai-Murabaha may be defined as a

contract between a buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the buyer at a cost plus an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit may be either a fixed sum or based on a percentage of the price of the goods.

Types of Murabaha In respect of dealing parties Bai-Murabaha may be of two types (IBBL 1986, pp.1-2): - Ordinary Bai-Murabaha, and - Bai-Mudabaha order on and Promise.

Ordinary Bai-Murabaha is a direct transaction between a buyer and a seller. Here, the seller is an ordinary trader who purchases goods from the market in the hope of selling these goods to another party for a profit. In this case, the seller undertakes the entire risk of his capital investment in the goods purchased. Whether or not he earns a profit depends on his ability to find a buyer for the merchandise he has acquired.

Bai-Murabaha order on and Promise involves three parties - the buyer, the seller and the bank. Under this arrangement, the bank acts as an intermediary trader between the buyer and the seller. In other words, upon receipt of an order and agreement to purchase a certain product from the buyer, the bank will purchase the product from the seller to fulfill the order.

However, it should be noted here that the Islamic Bank acts as a financier in this transaction. This is the case, not in the sense that the bank finances the purchase of goods by the consumers; rather it is a financier by deferring payment to the seller of the product.

Thus, there is a chance that this transaction could resemble nothing more than a loan for which interest (Riba) is earned, which is contrary to Islamic beliefs.

There are some important features of Bai-Murabaha as given below.

Important Features of Murabaha 1. A client can make an offer to purchase particular goods from the bank for a specified agreed upon price, including the cost of the goods plus a profit.

2. A client can make the promise to purchase from the bank, that is, he is either to satisfy the promise or to indemnify any losses incurred from the breaking the promise without excuse.

3. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify any losses that may result.

4. Documentation of the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt is permissible. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.

5. The bank must deliver the goods to the client at the date, time, and place specified in the contract.

6. It is permissible for the bank to contract with a third party to buy and receive the goods on its behalf. This agreement must be a separate contract.

These features make Bai-Murabaha distinctive from all other modes of Islamic Investment. There are certain steps to accomplish a deal of Bai-Murabaha as shown below (ABIIB 1995, p.12).

Steps of Bai-Murabaha First Step: The client submits a proposal regarding his requirements of the bank. The client sends a proposal with the specifications of the commodity to be acquired from the bank.

The proposal also indicates details regarding the date, time and place of delivery as well as price and form of payment information. The bank responds by sending a counter proposal either accepting the buyer’s price or stipulating a different price.

Second Step: The client promises to buy the commodity from the bank on a BaiMurabaha basis, for the stipulated price. The bank accepts the order and establishes the terms and conditions of the transaction.

Third Step: The bank informs the client (ultimate buyer) of its approval of the agreement to purchase. The bank may pay for the goods immediately or in accordance with the agreement.

The seller expresses its approval to the sale and sends the invoice(s).

Fourth Step: The two parties (the bank and the client) sign the Bai-Murabaha Sale contract according to the agreement to purchase.

Fifth Step: The Bank authorizes the client or its nominee to receive the commodity The seller sends the commodity to the place of delivery agreed upon. The client undertakes the receipt of the commodity in its capacity as legal representative and notifies the bank of the execution of the proxy.

The Bai-Murabaha has some legal rules. These rules are mentioned below (Ibid, pp.14-16).

Rules of Bai-Murabaha 1. It is permissible for the client to offer to purchase a particular commodity, deciding its specifications and committing itself to buy it on Murabaha for the cost plus the agreed upon profit.

2. It is permissible that the mutual agreement shall contain various conditions agreed upon by the two parties, especially with respect to the place of delivery, the payment

3.

4.

5.

6.

7.

of a cash security to guarantee the implementation of the operation and the method of payment.

It is permissible to stipulate the binding nature of the promise to purchase. Thus, the agreement can only be satisfied by either fulfilling the promise to purchase or by indemnifying the bank for any losses incurred if the promise to purchase is not fulfilled.

It is a condition that the bank purchases the requested commodity (first purchase contract) before selling it on Murabaha to the buyer. The contract in the first purchase must be settled, in principle, between the source seller and the bank.

It is permissible for the bank to authorize a second party including the buyer to receive the commodity on its behalf. This authorization must be in a separate contract, particularly if the buyer is going to receive the goods on behalf of the bank.

This is necessary to avoid any conflicts with the ensuing Murabaha sale.

Once the bank takes ownership of the goods, it is responsible for any damages or defects. Thus, if the goods are damaged, the bank is liable and must repair the damage prior to delivering the goods to the purchaser.

It is a condition that the Bai-Murabaha contract be drawn at the last phase. That is after the promise to purchase and the purchase of the commodity in the name of the bank and receipt of the commodity directly by the bank or through an agent.

The areas of application of Bai-Murabaha are discussed below.

Application of Bai-Murabaha Murabaha is the most frequently used form of finance in Islamic banking throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finished goods, procurement of raw materials, machinery, and other required plant and equipment purchases.

Murabaha Case Study Bai mechanism system policy is covered by much well reputed company in our Bangladesh from Islami Bank Bangladesh Ltd. Murabaha system applied by Xyz Company & investment by jute Mills Corporation. The IBBL investment for the xyz company of jute mills sector.

There are several agreements by the IBBL & xyz company for the jute sector business. This xyz company statement or performances are given below:

2. BAI-MUAJJAL (Deferred Sale) Meaning of Bai-Muajjal The terms "Bai" and "Muajjal" are derived from the Arabic words 'Bai' and ‘Ajal’. The word 'Bai' means purchase and sale and the word 'Ajal' means a fixed time or a fixed period.

"Bai-Muajjal" is a sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit.

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

There are some important features of Bai-Muajjal as given below (ABIIB).

Important Features of Bai-Muajjal 1. It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement.

2. It is permissible to make the promise binding upon the client to purchase the goods from the bank. In other words, the client is required to either satisfy the promise or to indemnify the bank for damages caused by breaking the promise without excuse.

3. Stock and availability of goods is a basic condition for signing a Bai-Muajjal Agreement. Therefore, the bank must purchase the goods in accordance with the specifications of the client, prior to signing the Bai-Muajjal Agreement with the client.

4. All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client.

5. The bank must deliver the goods to the client at the time and place specified in the contract.

6. The bank may sell the goods at a higher price than the purchase price to earn profit.

7. The price is fixed at the time of the agreement and cannot be altered.

8. The bank is not required to disclose the profit made on the transaction.

Some Observations

This type of financing by the bank is considered to be more risky than the other Islamic modes of investment previously discussed. Therefore, the application/proposal for BaiMuajjal investment must be reviewed very carefully to ensure the client can ultimately make payment. . The following steps may be taken to ensure the Bai-Muajjal Investment is a good proposition for the bank: 1. The bank may meet with the prospective client regarding his investment needs and business experience prior to an application /proposal is submitted.

2. The bank may review the client’s past performance and other financing arrangements he may have had with the bank in the past.

3. The bank may review its current investment policy regarding this type of financing arrangement to ensure the proposal meets bank guidelines.

It should be remembered that if the Bai-Muajjal investment is not secured by first class collateral securities, it becomes more risky than investments under other modes of Islamic banking.

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

1. Whether the goods that the client intends to purchase are marketable and have steady demand in the market.

2. Whether the price of the goods is subject to frequent and violent changes.

3. Whether the goods are perishable in short or in long-term duration.

4. Whether the quality and other specifications of the goods as desired by the client can be ensured.

5. Whether the goods are available in the market and the bank will be in a position to purchase the Goods in time and at the negotiated price.

6. Whether the sale price of the goods is payable by the client at the specified future date in lump sum or in Installments as per the agreement.

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

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

1. The seller receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the Salam sale by locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses.

2. The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him from price fluctuation.

Steps of Bai-Salam

1. Cash sale or Sale on Credit - The bank pays the agreed upon price at the time of the contracts inception. The seller agrees to the delivery of the commodity some specified date in the future.

2. Delivery and Receipt of the Commodity on the Specific due Date: There are several options for delivery available to the bank a) The bank may receive the commodity and resell it to another party for cash or credit. b) The bank may authorize the seller to find another buyer for the commodity. c) The bank may direct the seller to deliver the commodity directly to a third party with whom the bank has entered into another agreement.

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

There are some rules for Bai-Salam as given below.

Rules of Bai-Salam 1. It is a condition that the commodity known by both parties to the agreement.

Misunderstandings about the commodity may lead to disputes, which could void the contract.

2. It is conditions that the quality of the commodity be monitored closely, as very little variation from specifications in the contract are allowable. If the commodity cannot be monitored for quality standards, a Salam transaction is impermissible.

3. It is a condition that the commodity be deliverable on the due date. If there is uncertainty about the ability to deliver the commodity at the due date, a Salam transaction is impermissible.

4. It is permissible to draw a Salam sale contract for a total to be delivered increments on different specified future dates.

5. It is a condition that the commodity is a liability debt. The seller is obliged to deliver the commodity when it is due, according to the specifications stipulated in the contract, whether or not his firm produces the commodity or obtained from other firms.

6. Salam sales are impermissible on existing commodities because damage and deterioration cannot be assured before delivery on the due date.

7. Salam is impermissible on Land lots and real estates.

8. Salam is permissible on a commodity of a specific locality if it is assured that it is almost always available in that locality and it rarely becomes unavailable.

9. It is a condition that the purchase price in Salam is specified and advanced to the seller at the time of signing of contract.

Typical Bai-Salam transactions are discussed below: Application of Bai-Salam Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop.

Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices.

In addition, the Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date.

Concluding Remark The Bai Salam agreement is a combination of debt and trading. The capital provider has no control over the management of capital provided. However the capital provider takes all of the risk as profits cannot be determined until the commodity is delivered and the final sale price is determined. In addition the capital provider incurs the opportunity cost associated with the capital outlay. Like the other three previously discussed modes of finance there is no certain rate of return. In addition the cost of capital is uncertain ex-ante. Also, there is no correlation in the relationship of cost of capital and rate of return on capital.

4. ISTISNA'A SALE Definition of Istisna'a Sale The Istisna'a sale is a contract in which the price is paid in advance at the time of the contract and the object of sale is manufactured and delivered later (IDB 1992, p.28). The majority of the jurists consider Istisna'a as one of the divisions of Salam, Therefore, it is subsumed under the definition of Salam. But the Hanafie school of Jurisprudence classifies Istisna'a as an independent and distinct contract. The jurists of the Hanafie School have given various definitions to Istisna'a some of which are: “That it is a contract with a manufacturer to make something" and "It is a contract on a commodity on liability with the provision of work". The Purchaser is called 'Mustasnia' contractor and the seller is called 'Sania' maker or manufacturer and the thing is called 'Masnooa', manufactured, built, made (ABIIB). Islamic banks can utilize Istisna'a in two ways.

1. It is permissible for the bank to buy a commodity on Istisna'a contract then sell it after receipt for cash or deferred payment.

2. It is also permissible for the bank to enter into a Istisna'a contract in the capacity of seller to those who demand a purchase of a particular commodity and then draw a parallel Istisna'a contract in the capacity of a buyer with another party to manufacture the commodity agreed upon in the first contract.

Each transaction is deemed a separate contract with payment being made in cash either immediately or on a deferred basis. Any disagreements that may arise are settled under each contract separately according to the provisions therein. The steps of the Istisna'a sale and the parallel Istisna'a have been discussed below.

Steps of Istisna'a Sale Istisna'a Sale Contract: The Buyer expresses his desire to buy a commodity and brings a request to purchase the commodity to the bank. The method of payment, whether cash or deferred is set forth in the agreement. The bank agrees to deliver the commodity to the buyer at some agreed upon time in the future.

The Parallel Istisna'a Contract: In order that the bank is able to deliver said commodity in the Istisna’a agreement, the bank enters into a parallel Istisna’a agreement with a third party

to either manufacture or otherwise deliver-said commodity. Obviously, the bank stipulates a price that is lower than that agreed to in the original agreement and requires delivery on or before the date stipulated in the original contract.

The seller, in the parallel agreement, agrees to manufacture the specific commodity and to deliver it on the due date agreed upon.

Delivery and Receipt of the Commodity: The seller in the parallel Istisna’a agreement, delivers the commodity to the bank on the agreed upon date. The bank, in turn, delivers the product to the buyer of the original Istisna’a contract, in accordance with the original agreement. In this way, all parties fulfill their obligations to the contract.

Rules of Istisna'a Sale 1. It is a condition in the Istisna'a contract to clearly define dimensions and specifications of the product being purchased. This is important to ensure that there is no room for dispute over what is required.

2. The Istisna'a contract is only used for objects that can be manufactured. It can not be used to purchase corn, wheat, barley, fruit or any natural product.

3. The object sold in a Istisna'a contract is a fixed liability debt and it is permissible for the object to be a custom manufactured product, made in accordance with certain specifications.

4. The maker should supply the materials. If they are supplied by the buyer, the contract is Ijara and not Istisna'a.

5. Once the contract is drawn the ownership of the asset is confirmed to the buyer and the purchase price is confirmed to the manufacturer.

6. It is not a condition in the Istisna'a contract to advance the price. Usually part of the price is paid in advance and the remainder is withheld until the time of delivery.

7. It is a condition that the time of delivery be specified in the agreement to avoid confusion that may lead to a dispute over the transaction.

8. It is a condition that the place of delivery be stated in the contract if the commodity requires special handling and delivering arrangements.

9. The buyer may stipulate in the Istisna'a contract that the commodity shall be manufactured or produced by a specific manufacturer, or manufactured with specific materials. This is not permitted in a case of Salam Sale.

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

Sharing Mechanism

1. MUDARABA Definition of Mudaraba The term Mudaraba refers to a contract between two parties in which one party supplies capital to the other party for the purpose of engaging in a business activity with the understanding that any profits will be shared in a mutually agreed upon. Losses, on the other hand, are the sole responsibility of the provider of the capital. Mudaraba is also known a Qirad and Maharajah (Shirazi 1990, p.31).

Mudaraba is a contract of those who have capital with those who have expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal (lawful) profit which will be shared in a mutually agreed upon proportion. This type of business venture serves the interest of the capital owner and the Mudarib (agent).

The capital owner may not have the ability or the experience to run a profitable business. On the other hand, the agent (the Mudarib) may not have adequate capital to invest in a business or project. Therefore, by entering into a contract of Mudaraba each party compliments one another, allowing a business venture to be financed. The following are the steps of the Mudaraba contrac (ABIIB, p.53).

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

1. The Results of Mudaraba: The two parties calculate the earnings and divide the profits at the end of Mudaraba. This can be done periodically in accordance with the terms of the agreement, subject to the legal rules that apply.

2. Payment of Mudaraba Capital: The bank recovers the Mudaraba capital it contributed before dividing the profits between the two parties because the profit is considered collateral for the capital.

3. Distribution of wealth resulting from Mudaraba: In the event a loss occurs, the capital owner (the bank) is responsible for the entire loss. In the event of profits, they are divided between the two parties in accordance with the agreement between them, subject to the capital being recovered first.

1.3 Rules of Mudaraba There are some legal rules that govern the business relationship Mudaraba which are as follows.

1. It is a condition in Mudaraba that the capital be specific in nature. In other words, the amount of capital must be known at the inception of the contract. The purpose of this rule is to ensure that there is no uncertainty about the amount of capital and, thus, no uncertainty about the division of profits.

2. It is a condition that capital must be in the form of currency in circulation. However, merchandise can be contributed, so long as both parties to the business arrangement agree upon its value.

3. It is a condition that the capital cannot be subject to indebtedness.

4. It is permissible for a Mudarib to mix his private capital with the capital of the Mudaraba, thus becoming a partner. In addition, it is also permissible for the Mudarib to dispose of capital on behalf of the Mudaraba.

5. It is a condition that the capital of the Mudaraba is delivered to the Mudarib. Some of the jurists permit the capital owner to withhold capital and release it gradually according to the needs of the Mudarib since the Mudaraba adjudges unrestricted disposal.

6. It is permissible for the capital owner to deliver capital to two Mudharibs in a single contract.

It is permissible for the capital owner to vary the in profit sharing agreement between the two Mudharib based upon differences in the services provided 7. It is permissible for the Mudarib to hire an assistant to perform difficult work that he is unable to perform on his own.

8. The disposal of capital by the Mudarib is restricted to reasons that are conducive to the Mudaraba. The Mudarib must not lend or donate any of the Mudaraba capital. Further, he is not allowed to enter into indebtedness nor enter into another partnership agreement with the Mudaraba capital. However, these activities are permissible if the capital owner consents and authorizes the agent to use his discretion.

1.4 Concluding Remark It is an investment-based form of financing. The provider of capital in Mudaraba has no role in the management of the capital. However, he has to bear the risk of capital loss as well as the opportunity cost of capital for the entire period of the contract. The rate of return is quite uncertain and the cost of capital is also uncertain. Hence, there is a perfect correlation between cost of capital and rare of return on capital.

2. MUSHARAKA (PARTNERSHIP) Meaning of Musharaka The word Musharaka is derived from the Arabic word Sharikah meaning partnership. Islamic jurists point out that the legality and permissibility of Musharaka is based on the injunctions of the Quran, Sunnah, and Ijma (consensus) of the scholars. It may be noted that Islamic banks are inclined to use various forms of Shariakt-al-Inan because of its built-in flexibility.

At an Islamic bank, a typical Musharaka transaction may be conducted in the following manner.

One, two or more entrepreneurs approach an Islamic bank to request the financing required for a project. The bank, along with other partners, provides the necessary capital for the project. All partners, including the bank, have the right to participate in the project. They can also waive this right. The profits are to be distributed according to an agreed ratio, which need not be the same as the capital proportion. However, losses are shared in exactly the same proportion in which the different partners have provided the finance for the project (Hussain 1986, p.61).

Types of Musharaka Musharaka may take two forms: i) Permanent Musharaka and ii) Diminishing Musharaka.

These are discussed below (ABIIB 1995).

Permanent Musharaka In this case, the bank participates in the equity of a company and receives an annual share of the profits on a pre-rate basis. The period of termination of the contract is not specified. This financing technique is also referred to as continued Musharaka.

The contributions of the partners under this mode may be equal or unequal percentages of capital for the purpose of establishing a new income-generating project or to participate in an existing one. In this arrangement, each participant owns a permanent share in the capital structure and receives his share of the Profits accordingly. This type of a partnership is intended to continue until the company is dissolved. However, one can exit the partnership by selling his share of the capital to another investor.

Permanent Musharaka is used by Islamic Banks in many income generating projects. They can provide financing to their customers, in exchange for ownership and profit sharing in the proportion agreed upon by both parties. In addition, the bank may leave the responsibility of management to the customer-partner and retain the right of supervision and follow up.

The three steps to establishing Permanent Musharaka are discussed below.

One - Partnership in Capital : The bank tenders part of the capital required in its capacity as a partner and authorizes the customer/partner to manage the project. The Partner tenders part of the capital required for the project and is entrusted with what he holds from the bank funds.

Two - Results of the Projects : The intent of the project is growth. However, the project may be profitable or it may loss money.

Three - The Distribution of wealth accrued from the Project : In the event a loss is incurred, each partner bears part of the loss proportionate to his share in capital. In the event the venture is profitable, earnings are divided between the two parties (the bank and the partner) in accordance with the agreement.

The following is a discussion of those legal rules that apply to the Musharaka relationship: Rules for Permanent Musharaka 1. It is a condition that the capital provided by each partner is specific, existent and easily accessible. It is inappropriate to establish a company with borrowed money, for the purpose of profit.

2. It is permissible for partners to have unequal ownership in the project. The percent of ownership is set forth in the agreement.

3. It is a condition that the capital of the company is money and valuables. Some of the jurists permit contributing merchandise as invested capital. However, the merchandise must be evaluated, and the value agreed upon by all parties. Once the value has been established, it is counted as capital and stipulated in the contract as such.

4. It is a condition that each partners’ share of the profits be known to avoid uncertainty. Also, it is required that the ownership interest be in percentage terms and not a fixed sum, because this would violate the requirements of a partnership.

5. In principle, profit must be divided among partners in ratios proportionate to their shares in capital but some of the jurists permit variation in profit shares, so long as it is agreed to by all

of the partners. This may be the case when one of the partners is more dexterous and more diligent and does not agree to parity, so variation in the sharing of profits becomes necessary.

6. In principle, a partnership is a permissible and non-binding contract. Thus, if a partner wishes, he could rescind the agreement provided that this occurs with the knowledge of the other partner or partners. Rescinding the agreement without the knowledge of the other partners’ prejudices the rescinding partner’s interest. On the other hand, some of the jurists take the view that the partnership contract is binding up to the liquidation of capital or the accomplishment of the job accepted at the contract.

Application of Permanent Musharaka Permanent Musharaka is helpful in providing financing for large investments in modern economic activities. Islamic banks can engage in Musharaka partnerships for new or established companies and activities. Islamic banks may become active partners in determining the methods of production cost control, marketing, and other day-to-day operations of a company to ensure the objectives of the company are met. On the other hand, they can also choose to either directly supervise or simply follow up on the overall activities of the firm. As part of the agreement, Islamic banks will share in both profits and losses with its partners or clients in operations of the business.

Diminishing Musharaka Diminishing or Digressive Musharaka is a special form of Musharaka, which ultimately culminates in the ownership of the asset or the project by the client. It operates in the following manner.

The Bank participates as a financial partner, in full or in part, in a project with a given income forecast. An agreement is signed by the partner and the bank, which stipulates each party's share of the profits. However, the agreement also provides payment of a portion of the net income of the project as repayment of the principal financed by the bank. The partner is entitled to keep the rest. In this way, the bank's share of the equity is progressively reduced and the partner eventually becomes the full owner.

When the bank enters into a Diminishing Musharaka its intention is not to stay in the partnership until the company is dissolved. In this type of partnership, the bank agrees to accept payment on an installment basis or in one lump sum, an amount necessary to buy the bank’s partnership interest. In this way, as the bank receives payments over and above its share in partnership profits, its partnership interest reduces until it is completely bought out of the partnership.

After the discharge, the bank withdraws it claims from the firm and it becomes the property of the partner. The decreasing partnership arrangement is an Islamic bank innovation. It differs from the permanent partnership only in continuity. It appears that there are four steps of the diminishing partnership. Those are mentioned below.

Steps of Diminishing Musharaka

1. Participation in Capital: The bank - tenders part of the capital required for the project in its capacity as a participant and agrees with the customer/partner on a specific method of gradually selling its share in capital back to the partner.

2. Results of the Projects: The intent of the project is capital growth. The project may be profitable or lose money.

3. The distribution of the Wealth accrued from the Proje cts: In the event of loss each partner bears his share in the loss in his exact proportionate share of capital. In the event that the project is successful, profits are distributed between the two partners (the bank and the customer) in accordance with the agreement.

4. The bank sells its Share of Capital : The bank expresses its readiness, in accordance with the agreement, to sell a specific percentage of its share of capital.

In the first Conference of the Islamic Banks in Dubai, the conferees studied the topic of partnership ending with ownership (decreasing partnership) and they decided that this type of business relationship may take one of the following forms.

The First Form: In this form, the bank agrees with the customer on the share of capital and the conditions of partnership. The Conference decided that the bank should sell its shares to the customer after the completion of the partnership. Furthermore, they determined that the selling of the banks interest to the partner should be done under an independent contract.

The Second Form: In this form, the bank participates in financing all or part of the capital requirements in exchange for sharing in the prospective earnings. In addition, the bank gains the right to retain the remainder of the income for the purpose of applying it towards the capital provided by the bank.

The Third Form: In this form, the bank and partner’s ownership is determined by stocks comprising the total value of the asset (real estate). Each partner, (the bank and the customer) gets its proportionate share of the earnings accrued from the real property. On an annual basis , the partner may purchase a prescribed number of the bank’s shares until such time that the partner becomes the sole owner of the real property.

There are some legal rules for diminishing Musharaka as given below.

Rules for Diminishing Musharaka In addition to all the legal rules that apply to the permanent partnership which also apply to the decreasing partnership, the following rules also must be observed.

1. It is a condition in the decreasing partnership that it shall not be a mere loan financing operation. In other words there must be shared ownership and all the parties must share in the profits or losses during the period of the partnership.

2. It is a condition that the bank must completely own its share in the partnership and all rights of ownership with regard to management of the business. In the event that bank authorizes its partner to manage the business, the bank shall have the right of oversight supervision and follow up.

3. It is impermissible to include in the contract of decreasing partnership a condition that adjudges the partner to return to the bank the total of its shares in capital in addition to profits accruing from that share, because of resemblance to Riba (usury).

4. It is permissible for the bank to offer a promise to sell its shares in the company to the partner, if the partner pays the value of the shares. The sale must be concluded as a separate deal with no connection to the contract of the company.

Application of Diminishing Musharaka

The decreasing Musharaka is suitable for the financing of industrial businesses that have regular income. It can be considered to be the appropriate mode to finance collective investment. In this arrangement, the bank earns periodic profits throughout the year and it encourages the partner to participate in the joint investment. In addition it fosters individual ownership by allowing the partner to gradually buy the bank’s ownership interest. In terms of society as a whole it corrects the course of the economy by developing a mode of positive partnership instead of the negative relationship of indebtedness. In addition, it assists in the equitable distribution of society’s wealth.

Concluding Remark Financing through a Musharaka partnership is investment-based. The capital provider has full control in the management of the business. In addition, he shares proportionately in both the profits and losses of the business. Therefore, the rate of return is uncertain and can be either positive or negative. The cost of capital is also uncertain and there exists perfect correlation between the relationship of cost of capital and rate of return on capital.

Lease Mechanism 1. IJARAH 1.1 Definition of Ijarah Fuqaha (jurists) have defined Ijaraha as ownership of a benefit for consideration. This is also known as lease or Hire contract. Al-Ijarah is an Arabic term. This has been derived from the Arabic term “Ujr” or “Ujrat” which means ‘consideration’ or ‘return’ or ‘wages’.

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

1.2 Elements of Ijarah According the majority of Fuqaha, there are three general and six detailed elements of Ijarah: 1. The wording: This includes offer and acceptance 2. Contracting parties: This includes a lessor, the owner of the property, and a lessee, the party that benefits from the use of the property.

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

The lessor (Mujjir) – The individual or organization who leases out/rents out the property or service is called the lessor.

The lessee: (Mustajir) – The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir).

The Benefit (Maajur) – The benefit that is leased/rented out is called the benefit (Maajur).

The rent (Ajar or Ujrat) – The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat or Ajar.

1.3 Rules for Ijarah It is condition that the subject (benefit/service) of the contract and the asset (object) should be known comprehensively.

1. It is a condition that the assets to be leased must not be a fungible one (perishable or consumable) which can not be used more that once, or in other words the asset(s) must be a non-fungible one which can be utilized more than once, or the use/benefit/service of which can be separated from the assets itself.

2. It is a condition that the subject (benefit/service) or the contract must actually and legally be attainable / derivable. It is not permissible to lease something, the handing-over of the possession of which is impossible. If the asset is a jointly owned property, any partner, according to be majority of the jurists, may let his portion of the asset(s) to co-owner(s) or the person(s) other than the co-owners. However, it is also permissible for a partner to lease his share to the other partner(s), 3. It is a condition that the lessee shall ensure that he will make use of the asset(s) as per provisions of the Agreement or as per customs/norms/practice, if there is no expressed provision.

4. The lease contract is permissible only when the assets and the benefit/service derived from it are within the category of ‘Halal’ or at least ‘Mobah’ as per Islamic Shariah.

5. The lessor is under obligation to enable the lessee to the benefit from the assets by putting the possession of the asset(s) at his disposal in useable condition at the commencement of the lease period.

6. In a lease contract, the period of lease and the rental to be paid in terms of time, place or distance should be clearly stated.

7. Everything that is suitable to be considered a price, in a sale, can be suitable to be considered as rental in a lease contract.

8. It is a condition that the rental falls due from the date of handing over the asset to lessee and not from the date of contract or use of the assets.

9. It is permissible to advance, defer or install the rental in accordance with the Agreement.

10. It is permissible to review the lease period or the rental or the both, if the lessor and the lessee mutually agree to do so.

2. QARD –E- HASANA (Benevolent loans) Qard Hasan is a contract in which one of the parties (the lender) places into the ownership of the other party (the borrower) a definite parcel of his property, in exchange nothing more than the eventual return of something in the same value of the property loaned.

Ausaf Ahmad (1998, p.49) mentioned that since interest on all kinds of loans is prohibited in Islam, a loan that is to be given in accordance with the Islamic principle, has to be, by definition, a benevolent loan (Qard Hasan) i.e. a loan without interest. It has to be granted on the grounds of compassion, i.e. to remove the financial distress caused by the absence of sufficient money in the face of dire need. Since banks are profit driven organizations, it would seem that there is not much opportunity for the application of this technique.

However provisions to provide Qard Hasan besides engaging in income generating activities Islamic banks also play a socially useful role. Hence they make provisions to provide Qard Hasan besides engaging in income generating activities There may be slight variations among different Islamic banks in the use of this technique.

The Faisal Islamic Bank of Egypt provides interest-free benevolent loans to the holders of investment and current accounts, in accordance with the conditions set forth by its board of directors. The bank also grants benevolent loans to other individuals under conditions decreed by its Board. On the other hand, the Jordan Islamic Bank Law authorizes it to give "benevolent loans (Qard Hasan) for productive purposes in various fields to enable the beneficiaries to start independent lives or to raise their incomes and standard of living (Ibid, pp.49-50). Iranian banks are required to set aside a portion of their resources out of which interest free loans (Qard Hasan) can be given to small producers, entrepreneurs and farmers who are not able to secure financing for investment or working capital from other alternative sources, and needy customers. It should also be noted that Iranian banks are permitted to charge a minimum service fee to cover the cost of administering these funds.

Finally, in Pakistan, Qard Hasan is part of the bank’s normal financing activities. Qard Hasan loans are granted compassionate basis and no service charges are imposed on the borrower. While these loans are considered loans of compassion, they are expected to be repaid when it is possible for the borrower to do so. Furthermore in Pakistan, Qard Hasan operations are concentrated in the head office of each bank. Branch offices are not permitted to extend these loans.

3. Hire-Purchase Under Shirkatul Melk Hire-Purchase under Shirkatul Melk has been developed through practice. Actually, it is a synthesis of three contracts: (a) Shirkat; (b) Ijarah, and (c) Sale. These may be defined as follows: Definition of Shirkatul Melk: ‘Shirkat’ means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, Islamic banks purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly till the full ownership is transferred to the client.

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

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

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, machinery, transports, etc., purchase the asset with that money, own the same jointly, share benefit as per agreement and bear the loss in proportion to their respective equity. The share/part or portion of the asset owned by the bank is leased 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 that part

either gradually part by part or as a whole within the lease period or on expiry of the lease agreement. Hire-Purchase under Shirkatul Melk contract is to a great extent similar to the contract of Ijarah Montahia Bil Tamlek as termed by Accounting and Auditing Standards Board of the Account and Auditing Organization of Islamic Financial Institutions (AAOIFI).

3.1 Stages of Hire Purchase under Shirkatul Melk Hire Purchase under Shirkatul Melk Agreement has got three stages: 1. Purchase of asset under joint ownership of the lessor and the lessee.

2. Hire, and 3. Sale and transfer of ownership by the lessor to the other partner - lessee.

3.2 Important Features 1. In case of Hire Purchase under Shirkatul Melk transaction the asset/property involved is jointly purchased by the lessor (bank) and the lessee (client) with specified equity participation under a Shirkatul Melk contract in which the amount of equity and share in ownership of the asset of each partner (lessor bank and lessee client) are clearly mentioned. Under this agreement the lessor and the lessee become co-owners of the asset under transaction in proportion to their respective equity.

2. In Hire Purchase under Shirkatul Melk Agreement the exact ownership of both the lessor (bank) and lessee (client) must be recognized. However, if the partners wish and agree the asset purchased may be registered in the name of any one of them or in the name of any third party clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement.

3. The share/part of the purchased asset owned by the lessor (bank) is put at the disposal possession of the lessee (clients) keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are clearly stated. Under this agreement the lessee (client) becomes the owner of the benefit of the asset not of the asset itself, in accordance with the specific provisions of the contract that entitles the lessor (bank) the rentals.

4. As the ownership of leased portion of asset lies with the lessor (bank) and rent is paid by the lessee against the specific benefit, the rent is not considered as price or part of price of the asset.

5. In the Hire Purchase under Shirkatul Melk agreement the Lessor (bank) does not sell or the lessee (client) does not purchase the asset but the lessor (bank) promise to sell the asset to the lessee only if the lessee only if the lessee pays the cost price/equity price of the asset as fixed and as per stipulations on which the lessee also gives undertakings.

Hire Purchase under Shirkatul Melk Mode is a combination of three contacts. All rules governing the lease contract should be applicable in this mode also. Moreover, the rules for Musharakah and sale contracts will also apply to this. In addition, the following should also be followed: 1. Under Hire Purchase Shirkatul Melk Agreement, both the lessor and the lessee must pay their respective equity as agreed upon to purchase the desired asset under joint ownership.

2. Ownership of the asset of both the lessor and the lessee should be recognized as per law of the land.

Growth of Investment Modes

YEAR 2005

AMOUNT IN MILLION TAKA 521.385

2006

570.161

2007

636.265

2008

771.13

2009

856.52

2010

1078.96

Graphical Position of Investment Mode

AMOUNT IN MILLION TAKA 1200

800 AMOUNT IN MILLION TAKA

600 400 200 0 20 05 20 06 20 07 20 08 20 09 20 10

Million Taka

1000

Year

Sector-wise Investment Sector wise investment as on 31.12.2010 is as under: (Figure in million taka)

Graphical Position of Investment Sector

Sector

Investment

% total Investment

Industry

312,812,380

31.45830038

Commercial

289,522,032

29.11608246

Real Estate

329,463,271

33.13281445

Transport

31,121,820

3.129798002

H.D.S

620,417

0.062392877

Others

30,831,601

3.100611829

Total

994,371,521

100

Mode wise Investment Mode-wise investment of the Bank as on 31.12.2010 is as under (Figure in million taka)

Mode

Investment

% total Investment

Bai Muajjal

5,588,875

0.571872221

Bai Murabaha

2,820,687

0.288622046

HPSM

513,731,999

52.56676151

QTDR

25,230,690

2.581687859

Bai Salam

2,100,000

0.214878963

MPI

287,727,505

29.44123229

Murabaha TR

140,094,611

14.33494511

Total

977,294,366

100

Graphical Position of Investment Mode Mode Wise Investment

14%

1% 0%

Bai Muajjal Bai Murabaha HPSM 53%

29%

QTDR Bai Salam MPI

0% 3%

Murabaha TR

Special Investment Scheme Of IBBL Household

Durable

Scheme

In a developing country like Bangladesh people of middle and lower middle class specially service holders with limited income find it difficult to purchase articles like refrigerator,

television, cot, almirah, wardrobe, sofa-set, pressure cooker, sewing machine etc. which are part of modern and decent living. They can not enhance the standard and quality of life to the desired level due to the constrain of their limited income.

Islami Bank Bangladesh Limited has, therefore, introduced Household Durables Investment Scheme which has already created great enthusiasm among the people and received tremendous response from them.

Objectives • • •

To assist the service holders with limited income in purchasing household durables.

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

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

Items a. Refrigerator/Deep freezes. b.

Television. c. Radio/Two-in-one/Three-in-one. d. Motor cycle/Bi-cycle. e. Air cooler/ Air conditioner. f. Personal computer. g. Washing machine. h. Furniture, viz. cot, almirah, sofa-set, wardrobe, i.

Sewing j. Kitchen appliances like oven, toaster, blender, pressure cooker etc. k. l. m. n.

carpet

etc. machine.

Electronic generator: IPS UPS etc.

Power generator, motor pump/power pump etc.

CI sheet, Rod, Wood etc.

Gold ornaments

o. Tube-wells Eligibility Interested permanent officials of the following organizations may apply for investment: a.

Government Organizations. b. Semi-Government Organizations and Autonomous Bodies. c. Banks and Financial Institutions d. Armed Forces, BDR, Police and Ansars. e. Teachers of Universities, Government Colleges and Schools and Senior Madras has. f. Officers of International Financial & Relief Organization. g.

Officers of the multinational companies. h. Officers of the local established and renowned public limited companies. i. Permanent Teachers & Officers of established & prominent Private Universities, Medical Colleges & University Colleges.

• • • • • • •

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

Investment Clients of IBBL Deposit Clients 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 others except 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.

Amount •

• • • •

For doctors, Engineers, Architects, Chartered Accountants, FCMAs the Ceiling of the investment of the Bank will be a.

Dhaka City: Maximum Tk.3, 00,000.00 b.

Other Metropolitan Cities: Maximum Tk.2, 00,000.00 c. Other Municipal Areas: Maximum Tk.1,00,000.00 For Depositors Tk. 2,00,000.00 For others: Tk.1,00,000.00 NCOs of Bangladesh Armed Forces, Teachers of Primary Schools, Private School & Colleges and other professionals: Maximum Tk. 35,000.00 For Students : Maximum Tk. 40,000.00

Period of Investment: Maximum two years Mode of Investment: Bai-Muajjal Equity Minimum 25% of the total value of the articles. The client shall have to deposit the amount of equity in his Mudaraba Savings/Investment Account with the concerned branch before the disbursement of investment.

Disbursement • •

After sanction of investment and deposit of required equity by the client, the Branch shall supply to the concerned investment client the desired articles within seven days by procuring them by way of pay-order/cheque/draft etc. favouring the supplier.

For ensuring the ownership of the Bank over the goods, all papers and documents related to the procurement of the goods shall remain in the name of the Bank and Bank's sticker shall remain affixed over the same. The ownership shall be transferred in favour of the client after full adjustment of the dues to the Bank.

Mode of Recovery • • • i.

The Bank's investments and profit thereon shall be recovered in 24 monthly instalments within a period of 2 (two) years.

The monthly installment shall be payable by the first week of every month. The first instalment shall be due for payment in the first week of the subsequent month of the disbursement/delivery of goods/articles.

Dues payable to the Bank shall be recovered in the following manner depending on the nature of the organization and the status of the client :

On request of the employee, the employer shall deduct the monthly installment from his salary and remit the amount to the Bank. In this connection, the client shall have to furnish a letter of consent from the employer. ii. Before the delivery of goods, the client shall deposit to the Bank 24 post-dated cheques giving specific dates against each monthly installment. The cheques shall be presented to the concerned bank on due dates for encashment and adjustment of proceeds towards repayment of installment.

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

• • • •

All required charge 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 of 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 member

Procedure for Application Interested clients shall apply in prescribed form to the concerned Branch. The application shall have to be duly recommended by the Divisional Chief of the organisation where the applicant serves. Form and booklet outlining the rules and procedures of the Scheme may be obtained from the selected Branches of the Bank on payment of Tk. 25.00 only.

Supervision of Investment Under this Scheme, the Bank, at the initial stage, has engaged M/s. Anudip Services Private Ltd., Ibn Sina Group Investment Company Ltd., Faisal Investment Foundation and Crescent Consultants on commission basis for selection of client, disbursement and recovery of investment and for overall supervision of the Scheme. The concerned investment client shall pay the commission of the supervising agency at the rate of 2% per annum over the investment.

Risk Fund

A risk fund shall be created under this Scheme by charging the investment account @ 2% at a time against the total investment at the rate of 1% per annum for 2 years. In case of any genuine damage or if the concerned client is totally incapable to the Bank, then the amount shall be covered or adjusted from the risk fund.

Other Terms & Conditions •

•

• • • •

The concerned Branch of the Bank shall take possession of the goods supplied to the client in case of his failure to repay 3 (three) installments consecutively.

The client shall bear all necessary expenses relating to license, registration, insurance etc. of the goods supplied.

The client shall bear cost of all maintenance, repair and preservation.

The client shall use and handle the goods with utmost care and he will be liable to pay for any damage of the articles in his possession due to his negligence, carelessness and inefficient use. In case of total damage and destruction of the goods or if it becomes irreparable, the client shall be liable to pay immediately the balance amount of Bank's investment including profit.

The client shall use the goods supplied to him personally and under no circumstances he shall let-out or transfers the possession of the goods to others without prior written permission from the Bank.

The client shall be bound to allow the Bank's Authorized agent and representative to inspect the goods as and when required.

The client, before availing the investment facility, shall execute Bai-Muajjal agreement and other documents as per investment rules and procedure of the Bank.

The client must keep the Branch abreast and informed about any change in his official and residential address.

Housing Investment Scheme One of the basic human needs is to have a house to live in. A house is an abode of peace and happiness. Housing has now become an acute problem in the country, specially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy living. The Bank has introduced 'Housing Investment Scheme' with the objective to ease and minimize the housing problem and assist service holders and professionals with limited income in materializing their dream of becoming owner of houses.

Objectives • • •

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

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

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

• •

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

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

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

Officials 2. Permanent Officials

the Defense Forces.

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., and Officials of local established & reputed Public Limited Companies 6. Wage earner professionals like Doctors, Engineers, Accountants, Teachers and any other profession doing good job abroad with hand-some pay-package.

•

•

of

of

The client must have exclusive and undisputed possession and ownership title over the land on which the proposed house will be constructed. The leased property must be on lease for 99 years and must be legally acceptable for mortgage to the Bank. If the investment client is a service holder then he must have at least 5 years un-expired service prior to retirement.

Bank will select the client on the basis of the following criteria: Percentage of Bank's investment is less than the client's investment; amount of Bank's investment is comparatively smaller in size, quality of construction & value of the property; constructed house/apartment is in good location & the price is reasonable; return from the property (rented income) & other known sources of income of the applicant; investment servicing capacity of the client is quite satisfactory.

•

Target Area

•

At the initial stage, the Scheme is being implemented in: • • • • •

Dhaka metropolitan area.

Chittagong metropolitan area.

Rajshahi metropolitan area.

Khulna metropolitan area.

Sylhet metropolitan area.

Later on the Scheme will be implemented in other district headquarters and business areas in phases.

Scope of Investment

• •

•

Investment is to be extended to build new houses on the client's own land, to purchase built houses/ apartments/flats and for extension/ completion of the house constructed/under construction.

The building to be constructed on the land must be as per approved plan of the competent authority of that area, viz. RAZUK, CDA, RDA, KDA etc.

The amount of investment will be limited to the following: a) In case of construction on land owned by the client: maximum 60% of the total cost of the construction of the building. Maximum ceiling of the Bank's investment will be Tk.30.00lac b) In case of purchase of apartment/flat/ready-made house: maximum 50% of the value including purchase related cost. Maximum ceiling of the Bank's investment will be Tk. 20.00 lac.

If any client intends to provide the following securities to the Bank duly discharged/ completing necessary formalities by him, Bank may allow further or additional investment in excess of the aforesaid ceiling to the extent of 100% of the value of the securities: TDR & Mudaraba Savings Bond of Islami Bank Bangladesh Limited, TDR/Fixed Deposit of any scheduled Bank, Wage Earners Bond, ICB Unit Certificates, National/Defence Savings Bonds/ Sanchaypatra etc., Bank Guarantee from any scheduled Bank.

Mode of Investment Hire Purchase under Shirkatul Melk (HPSM) Period of Investment •

The maximum period of investment shall be generally 15 years. However, the period of investment shall be determined on the basis of the proposal of the client, the amount of investment (for which the client has applied) and the ability of the project or client to repay the dues.

Reasonable gestation period for construction be allowed considering the size of construction and Bank's investment.

Bank's Rent The Bank, in accordance with its normal practice shall decide rent on the investment. The clients, who will repay the entire dues in time or before the stipulated time by way of payment of all due instalments regularly, they will be allowed rebate on the rent.

Disbursement Procedure of Investment Bank will pay the sanctioned money through Pay-Order directly or through investment client to the supplier of construction materials/owner of the apartment/owner of the built house.

However, the following points shall be taken into consideration in disbursing the investment: •

In case of purchase of apartment/flat/built house, the client shall have to deposit the equity money in the Branch or produce documentary evidence in support of his investment upto the satisfaction of the concerned Branch.

• • •

In case of construction of house on the client's own land or for extension of the existing house, the valuation of the Bank as regards client's investment shall be considered final.

The client shall have to submit to the Bank, the construction plan approved by the competent authority and also the required permission to mortgage the property, where necessary.

The client must execute all necessary documents including mortgage deed and complete all necessary documentation formalities to avail the investment. Related documents of mortgage, agreement of sale and other documents must be vetted by the penal lawyer of the Bank.

Recovery of Bank's Investment •

The client shall have to pay the Bank's dues by monthly instalment immediately after the expiry of the period of construction. To ensure payment as per stipulation of sanction the client, shall have to deposit post-dated cheques to the Bank for the amount of each monthly instalments covering the entire period of investment. The Bank shall realise the amount of monthly instalment by depositing the cheque of a particular month on the first week of every month.

•

The client shall have to execute irrevocable power of attorney in favour of the Bank authorizing the Bank to collect monthly rent from the tenants incase of failure of the client to pay the monthly instalment.

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 favour 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 part of it remains unadjusted at the time of getting the retirement benefits.

Procedure for Application Interested persons shall have to apply in prescribed form of the Bank through the Branch of the concerned area. The Bank shall sanction investment if the proposal is found acceptable after examination of its viability and profitability. The Bank reserves the right to sanction or reject any investment proposal Reale state 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 programme. Investment is to be extended to build new houses and for extension/ completion of the house already constructed, commercial building, shopping complex, flat/apartment etc.

Transport Investment Program The role of modern communication is most vital for the socio-economic growth and uplift of a developing country like Bangladesh. A sound and efficient communication network is the pre-requisite for sustained development through the expansion of trade, commerce and industry. In this backdrop the demand for road and water transports has increased manifold throughout the country. Moreover, the use of modern transports has increased keeping pace with the rise of the standard of living of the professionals. Considering all these facts, Islami Bank Bangladesh Limited has introduced 'Transport Investment Scheme'. Under this scheme investment on easy terms is being extended to the existing successful businessmen in road and water transports and potential entrepreneurs in this sector for different types of road and water transports. Besides, Multinational companies, established business houses and well to do officials and professionals can become owner of various kinds of transports through Hire Purchase under this scheme.

Aims and Objectives • • •

To assist in the development of communication system of the country.

To help overcome the existing transportation problem.

To assist solvent service-holders and professionals having fixed income for acquisition of private cars and thus to help them to improve their professional efficiency and the standard of living.

Mode of Transports Road Transports • Private car, microbus, jeep, pick-up van.

• Bus, truck, minibus.

• Auto-rickshaw, tempo.

• Ambulance.

Water Transports • Cargo vessel of maximum 500 ton capacity.

• Ocean going vessel of maximum 800 ton capacity.

Target Group Bus/Truck/Minibus Successful individual/businessman/firm engaged in transport business and potential individual/ businessman/firm who intends to take-up transport as business.

Private Car/Microbus/Jeep

• • • • •

Permanent Officials of Government, Semi-government, Autonomous Bodies, Corporations, Banks and Financial Institutions.

Established Businessman and Business Establishments.

Officials of Defense Forces.

Professionals: University Teachers, Doctors and Engineers.

Experienced Person/Firm engaged or interested in transport business (Rent-a-car).

Preference will be given to those person and firms who are already engaged in transport business.

Auto Rickshaw/Tempo/Pick-up van Persons/Businessmen/Firms who have already proved themselves successful in the transport business and those efficient and potential persons/businessmen/firms who are interested to take small transport as business, may apply for investment to purchase autorickshaw, tempo and pick-up van.

Ambulance Established Clinics and Hospitals.

Water Transport Experienced and successful Persons and Businessmen engaged in water transport business.

Area of the Scheme Road Transport: Water Transport: ports.

All Branches of the Bank.

Preference will be given to areas adjacent to Branches located in river-

Mode of Investment Hire-Purchase Shirkatul Meelk Amount

of

Bank's

Investment

and

Client's

Down

Payment

Type of Transport Bank’s Maximum Investment Client's Down Payment 1. Private Car/Jeep 70% 30% 2. Bus/Truck/Mini-bus 60% 40% 3. Water Transport 50% 50% 4. Auto Rickshaw/Tempo/ Pick-up van/Ambulance50% 50% While ascertaining Bank's investment to service holders it should be kept in view that the amount of monthly instalment does not exceed 40% of his total salary.

Period of Investment: Maximum 3 years from the date of delivery of the vehicle.

Rent of Investment The Bank as per existing rules shall charge rent on investment. Clients, who will repay the entire investments within the stipulated period or earlier by way of regular payment of instalments, shall be given rebate over the rent.

Security • The ownership of the vehicle shall remain in Bank's name till full repayment of investment including rent.

• The client shall have to mortgage immovable properties as collateral security.

• In case of Officials of Government, Semi-Government and Autonomous Bodies, personal guarantee of the officer of the same grade or of superior grade and in case of officials of public limited company or business houses, corporate guarantee of the employer/ chairman/managing director shall have to be provided.

Mode of disbursement • •

Bank's sanctioned amount shall be disbursed directly to the supplier of the vehicle.

The client shall have to complete all documentation formalities including mortgage of property before disbursement of the Bank's investment.

• The cost of chassis and bodybuilding shall be taken into consideration in ascertaining the price.

Supervision Bank officials or appointed agents of the Bank reserve the right to inspect the vehicle at any time in any place where it is kept or found in order to ascertain its overall condition.

Recovery • •

•

of

Bank's

investment

The client shall have to repay the dues to the Bank in monthly instalment starting immediately after the expiry of the gestation period fixed by the Bank.

Required number of post-dated cheques for the whole period of investment mentioning the amount of monthly instalments shall have to be deposited to the Bank.

The Bank shall collect the monthly instalment of a particular month through encashment of the cheque in the first week of the concerned month.

If a client fails to pay 3 consecutive instalments, the Bank can take back the possession of the vehicle from the client and sell or transfer it to another client as per the rules of the Bank. If any amount remains outstanding after sale or transfer of the vehicle, the client shall remain liable to repay the same to the Bank.

Repair and Maintenance of the vehicle The client shall wholly and solely be responsible for proper maintenance, care and safety of the vehicle and shall bear all cost of repair, preservation and maintenance. The client shall also be responsible for any loss and damage of the vehicle and shall also be bound to repay all dues of the Bank immediately in case of total damage or destruction of any vehicle.

Registration etc.

• •

The vehicle shall be registered in the name of Bank. The client shall bear the expenses of registration, primary tax token, route permit, fitness, insurance and all other expenses and shall obtain renewal every year.

The client shall have to follow and abide by all other necessary rules of the scheme.

Procedure of application Interested Person/Firm must apply through any branch of the Bank for availing investment facilities under this scheme in prescribed form along with required papers and documents. The Bank will consider the proposal as per prescribed rules and sanction and disburse the investment.

Car Investment Scheme Islami Bank, being welfare oriented banking institution, has by now deigned and implemented a good number of investment schemes keeping in view the needs of different sectors and various sections of the people for their socio-economic upliftment and to improve their quality of life. The investment schemes including the "Transport Investment Scheme" and the "Household Durables Investment Scheme" so far introduced have gained popularity and received wide response from the people.

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

Objectives • To meet the demand of senior officials of different organizations, established business houses and companies and persons of various professional groups who essentially need a car but can not afford to purchase on payment at a time.

• To assist the above categories of persons to procure a car on easy payment terms and conditions and thus become its proud owner.

• To assist in minimizing transport problem in the private sector and help the mid and high • ranking officials and professionals with fixed income in the improvement of their standard of living.

Car Investment Schemes 22.30 27.40 28.25 33.58 30.30 Small Business Inv. Schemes 216.80 244.10 325.06 395.75 501.26 Micro Industrial Inv.Speacial Scheme 0.80 6.30 6.63 10.10 17.18 Investment Scheme Rural Development Agricultural Implemets Inv. Scheme16.70 18.80Schemes 13.66 12.76 14.69 Household Durable 5000.00 Schemes Housing Inv. Scheme 467.90 499.50 597.64 661.56 672.10 Investment Schemes 4000.00 for Doctors Real Estate Inv. Scheme 1507.00 1641.70 2264.35 3418.85 4713.70 Transprt Investmetn 3000.00 Scheme Total: 4288.70 4917.40 6474.01 8427.00 10145.66 Car Investment 2000.00 Value

5 6 7 8 9 10

1000.00 0.00 2006

2007

2008

2009

2010

Year

Schemes Small Business Inv. Schemes Micro Industrial Inv. Scheme Agricultural Implemets Inv. Scheme Housing Inv. Scheme Real Estate Inv. Scheme

Growth of Special Investment Scheme

Review of Performance of IBBL: Performance of deposits and investments The bank through its 251 as on 31.12.2010 branches ( including 30 SME/Krishi Branches) successfully mobilized Tk. 291,283 million deposits from 49, 39, 502 depositors and deployed Tk. 292,084 million as investment to 5,25,948 accounts up to 31 st December 2010.

Growth rate of deposits of IBBL in 2010was 20%, as against 20.55% in 2009. Growth rate of investment of IBBL in 2010 was 22%, as against 19.20% in 2009. In the year 2010, total income of the bank was Tk. 30,121 million showing 22% growth in 2010 as against 6.93% growth in 2009.

Capital formation of IBBL: Authorized Capital Authorized capital of Islami Bank Bangladesh Limited is Tk. 10,000 million divided into 10, 00, 00,000 ordinary shares of Tk. 100/- each.

Paid up Capital Paid up capital of IBBL is Tk. 7,413.12 million as on 31.12.2010 (Local shareholders 41.97% and foreign shareholders 58.03%as on 31.12.2010).

Financial Report:

ISLAMI BANK BANGLADESH LIMITED Shyamoli Branch 15/4, Mirpur Road, Dhaka, Bangladesh

1.0.1 Statement of Affairs As On 31-DEC-2008

CodeLiabilities Taka 1000 DEPOSITS: 1,842,732,528.48 Al-wadeeah Current 1001 69,929,192.87 Deposits Mudaraba Savings 1002 673,867,772.83 Deposits Mudaraba Special 1003 30,426,440.60 Notice Deposits Mudaraba Term 1004 367,092,323.51 Deposits 1005 Profit-payable A/C 40,420,390.95 1006 SUNDRY DEPOSITS 22,207,629.12 Mudaraba Hajj 1009 7,633,497.02 Savings A/c Mudaraba Savings 1010 153,966,675.19 Bond Mudaraba Special 1011 353,564,162.99 Savings Scheme Mudaraba Monthly 1012 Prft Dep122,439,223.40 Schemes(MMPDS) Mudaraba Muhor 1013 967,575.00 Savings A/C Mudaraba Waqf 1014 217,645.00 Deposit A/C 2000 BILLS PAYABLE; 30,195,254.14 2001 D.D. Payable 374,241.00 2002 T.T. Payable 115,000.00 2003 P.O. Payable 29,706,013.14 F.C DEPOSIT 3000 5,809,467.40 ACCOUNTS: OTHER 4000 46,648,480.38 LIABILITIES : Payable Against 4002 74,947.00 Expenditure 4003 Profit Receivable A/c 22,705,595.07 4004 Unearned Exchange 2,388,503.00 Profit/Rent Suspense 4006 971,245.00 Account Compensation 4007 1,188,292.00 Suspense Account Un-earned Income 4009 19,023,583.31 A/C 4011 Valuation Adjustment 313,310.00

CodeAsset Taka CASH & BANK 0100 19,617,357.86 BALANCES: 0101 Cash In Hand 17,946,047.86 Foreign Currency In 0102 1,671,310.00 Hand BALANCE WITH 0200 0.00 OTHER BANKS: 0300 INVESTMENT: 739,096,731.00 Bai-Murabaha 0301 53,622,779.00 (General) Bai-Murabaha (Post0302 256,396,574.59 import) 0303 Bai-Muazzal 2,431,429.00 0304 HPSM 392,128,837.28 0307 Quard Against TDR 12,086,660.00 Quard Against P.F. 0308 3,540,355.00 (Staff) Quard-e-Hasana B.F. 0309 291,010.00 (Staff) 0321 Bai-Muazzal (Staff) 771,004.00 0322 HPSM (Staff) 17,828,082.13 0400 Inland Bills Purchase 22,298,504.00 0401 Musharaka Doc Bill 22,298,504.00 0500 FBN & FBP: 6,583,372.00 0503 Baim-FC Bills 5,977,450.00 0505 FCDP 605,922.00 FURNITURE, 0600 FIXTURE &3,805,956.56 LIBRARY Furniture,Fixture 0601 3,805,956.56 &Library 0700 OTHERS ASSETS 7,576,381.00 D.D. Paid Without 0702 5,720,629.00 Advice Stock Of Stationary In 0704 251,668.00 Hand 0705 Stamps In Hand 20,241.00 0706 Security Deposit Paid 16,000.00 0708 FC Fund Purchased 172,797.00 0709 Advance Rent 1,395,046.00 BRANCHES 0800 1,126,424,422.98 ACCOUNTS: 0801 IB-General A/C 54,641,616.19 0804 IBG OLD 1,071,782,806.79 ASSETS AS PER 0900 144,320,048.15 CONTRA

0906 Import LC (General) 88,469,146.00 Back to Back LC 0907 320,743.00 (Foreign) Back to Back LC 0908 13,372,260.00 (Inland) Back Bills Grand Total 2,069,722,773.55 Grand Totalto Back 2,069,722,773.55 0909 6,161,255.00 (Foreign) Back to Back Bills 0910 No 24,282,717.00 of (Inland) No of Amount(Thds) Amount(Thds) A/cs A/cs Foreign Export Bills 0915 3,943,116.00 for Current Lodged A/c 1773 NaN Total Mudaraba Letter of Guarantee 258906,832,201.15 1,710,175 Investment 816 767979 0916 deposit A/c (Inland) A/C Other A/c 317 98,633 EXPENDITURE Total Overdue 1100 0.00 Total 27978 1,878,737 56 27308 A/C: A/C Total 55958 NaN Exp.Dhaka North 1700 0.00 Zone Exp.Dhaka South 0.00 ISLAMI BANK BANGLADESH LIMITED 1800 Zone Shyamoli Branch 15/4, Mirpur Road, Dhaka, Bangladesh

1.0.2 Statement of Affairs As On 31-DEC-2009

CodeLiabilities Taka 1000 DEPOSITS: 2,188,684,996.97 Al-wadeeah Current 1001 92,314,104.13 Deposits Mudaraba Savings 1002 839,851,701.32 Deposits Mudaraba Special 1003 50,273,523.99 Notice Deposits Mudaraba Term 1004 464,790,415.33 Deposits 1005 Profit-payable A/C 37,464,858.06 1006 SUNDRY DEPOSITS 25,985,524.23 Mudaraba Hajj 1009 7,718,191.76 Savings A/c Mudaraba Savings 1010 116,940,423.37 Bond Mudaraba Special 1011 412,214,339.08 Savings Scheme Mudaraba Monthly 1012 Prft Dep139,520,485.30 Schemes(MMPDS) Mudaraba Muhor 1013 1,140,421.60 Savings A/C Mudaraba Waqf 1014 471,008.80 Deposit A/C 2000 BILLS PAYABLE; 24,047,991.90 2001 D.D. Payable 1,563,004.00 2002 T.T. Payable 207,924.80 2003 P.O. Payable 22,277,063.10 F.C DEPOSIT 3000 9,900,225.00 ACCOUNTS: Mudaraba Foreign 3011 1,786,303.00 Currency Deposit Foreign Currency 3021 7,644,524.00 Deposit 3023 FC Deposit ERQ 30,616.00 FC held against B/B 3031 438,097.00 L/C 3041 FDD/FTT Payable 685.00 OTHER 4000 44,993,153.36 LIABILITIES : Payable Against 4002 142,833.60 Expenditure 4003 Profit Receivable A/c 22,055,138.27

CodeAsset Taka CASH & BANK 0100 6,122,773.05 BALANCES: 0101 Cash In Hand 6,015,772.05 Foreign Currency In 0102 107,001.00 Hand BALANCE WITH 0200 0.00 OTHER BANKS: 0300 INVESTMENT: 781,219,859.96 Bai-Murabaha 0301 75,761,348.03 (General) Bai-Murabaha (Post0302 254,277,786.13 import) 0303 Bai-Muazzal 1,868,809.00 0304 HPSM 371,271,784.67 0307 Quard Against TDR 46,043,000.00 Quard Against P.F. 0308 3,870,225.00 (Staff) Quard-e-Hasana B.F. 0309 446,616.00 (Staff) 0321 Bai-Muazzal (Staff) 583,490.00 0322 HPSM (Staff) 25,846,801.13 0324 BAI SALAM 1,250,000.00 0400 Inland Bills Purchase 54,480,218.00 0401 Musharaka Doc Bill 54,480,218.00 0500 FBN & FBP: 20,823,555.00 Bai-Murabaha FC 0502 12,605,307.00 Bills 0503 Baim-FC Bills 3,185,258.00 Foreign Bill 0504 5,032,990.00 Negotiated(FBN) FURNITURE, 0600 FIXTURE &3,608,995.30 LIBRARY Furniture,Fixture 0601 3,608,995.30 &Library 0700 OTHERS ASSETS 1,651,844.63 SUSPENSE 0701 436,000.00 ACCOUNT: Stock Of Stationary In 0704 266,317.63 Hand 0705 Stamps In Hand 22,769.00 0706 Security Deposit Paid 18,000.00 0709 Advance Rent 908,758.00 BRANCHES 0800 1,399,719,121.29 ACCOUNTS: 0801 IB-General A/C 327,936,889.50 0804 IBG OLD 1,071,782,231.79

ASSETS AS PER 227,327,994.15 CONTRA 0901 Outward Bills Lodged 753,665.00 0906 Import LC (General) 123,392,180.00 Back to Back LC 0907 15,498,124.00 (Foreign) Grand Total 2,494,954,361.38 Grand Total 2,494,954,361.38 Back to Back LC 0908 14,372,031.00 (Inland) Back to Back No Bills ofAmount(Thds) 0909 No of A/cs 1,054,994.00 (Foreign) Amount(Thds) A/cs Current A/c 1859 Back to Back Bills NaN 0910 29,501,440.00 Mudaraba (Inland) 28406 2,032,921 Total deposit A/c Bills for Inland Export Investment 894 856524 0913 Other A/c 426 17,452,846.00 97,399 Lodged A/C TotalBills (Foreign) 306896,425,703.00 2,222,633 0914 Import Total Overdue 62 9295 Total Export 61380 Foreign Bills NaN A/C 0915 12,800,090.00 for Lodged Letter of Guarantee 0916 6,076,921.15 (Inland) ISLAMI BANK BANGLADESH LIMITED EXPENDITURE 1100 0.00 Shyamoli Branch A/C: 15/4, Mirpur Road, Dhaka, Bangladesh Exp.Dhaka North 1700 0.00 Zone Exp.Dhaka South 1800 0.00 Zone 0900

1.0.3 Statement of Affairs As On 31-DEC-2010

CodeLiabilities Taka 1000 DEPOSITS: 2,393,398,272.78 Al-wadeeah Current 1001 119,414,735.83 Deposits Mudaraba Savings 1002 912,265,756.18 Deposits Mudaraba Special 1003 47,790,996.01 Notice Deposits Mudaraba Term 1004 483,291,614.67 Deposits 1005 Profit-payable A/C 40,723,902.03 1006 SUNDRY DEPOSITS 21,038,789.81 Mudaraba Hajj 1009 9,522,186.66 Savings A/c Mudaraba Savings 1010 106,276,563.15 Bond Mudaraba Special 1011 460,490,765.03 Savings Scheme Mudaraba Monthly 1012 Prft Dep189,783,550.00 Schemes(MMPDS) Mudaraba Muhor 1013 1,257,963.65 Savings A/C Mudaraba Waqf 1014 1,541,449.76 Deposit A/C 2000 BILLS PAYABLE; 26,238,892.96 2001 D.D. Payable 3,190,679.00 2002 T.T. Payable 44,700.00 2003 P.O. Payable 23,003,513.96 F.C DEPOSIT 3000 12,416,565.00 ACCOUNTS: Mudaraba Foreign 3011 906,890.00 Currency Deposit Foreign Currency 3021 7,758,538.00 Deposit 3023 FC Deposit ERQ 31,271.00 FC held against B/B 3031 3,189,475.00 L/C 3041 FDD/FTT Payable 530,391.00 OTHER 4000 57,095,723.09 LIABILITIES : Payable Against 4002 71,937.20 Expenditure 4003 Profit Receivable A/c 34,377,475.81

CodeAsset Taka CASH & BANK 0100 13,790,318.91 BALANCES: 0101 Cash In Hand 13,650,234.91 Foreign Currency In 0102 140,084.00 Hand BALANCE WITH 0200 0.00 OTHER BANKS: 0300 INVESTMENT: 981,305,135.92 Bai-Murabaha 0301 142,915,297.73 (General) Bai-Murabaha (Post0302 287,727,504.51 import) 0303 Bai-Muazzal 5,197,938.00 0304 HPSM 443,090,594.55 0307 Quard Against TDR 25,230,690.00 Quard Against P.F. 0308 3,755,780.00 (Staff) Quard-e-Hasana B.F. 0309 254,990.00 (Staff) 0321 Bai-Muazzal (Staff) 390,937.00 0322 HPSM (Staff) 70,641,404.13 0324 BAI SALAM 2,100,000.00 0400 Inland Bills Purchase 89,531,499.00 0401 Musharaka Doc Bill 89,531,499.00 0500 FBN & FBP: 8,123,998.00 Bai-Murabaha FC 0502 5,824,225.00 Bills 0503 Baim-FC Bills 251,004.00 Foreign Bill 0504 2,048,769.00 Negotiated(FBN) FURNITURE, 0600 FIXTURE &3,802,467.07 LIBRARY Furniture,Fixture 0601 3,802,467.07 &Library 0700 OTHERS ASSETS 1,231,910.23 SUSPENSE 0701 670,000.00 ACCOUNT: Stock Of Stationary In 0704 110,750.23 Hand 0705 Stamps In Hand 1,690.00 0706 Security Deposit Paid 18,000.00 0709 Advance Rent 422,470.00 Clearing Adjustment 0710 9,000.00 A/C BRANCHES 0800 1,391,364,124.70 ACCOUNTS:

ASSETS AS PER 444,975,546.15 CONTRA 0901 Outward Bills Lodged 723,808.00 0905 Inland LC 15,797,700.00 0906 Import LC (General) 244,906,702.00 Grand Total 2,934,124,999.98 Grand Total 2,934,124,999.98 Back to Back LC 0907 37,809,525.00 (Foreign) Back to BackNoLC ofAmount(Thds) 0908 No of A/cs 17,438,711.00 (Inland) Amount(Thds) A/cs Current A/c 1994 Back to Back Bills NaN 0909 11,013,532.00 Mudaraba (Foreign) 30884 2,212,221 Total deposit A/c Back to Back Bills Investment 1009 1078961 0910 Other A/c 536 52,267,307.00 100,418 (Inland) A/C TotalBills (Inland) 334121,200,040.00 2,432,054 0912 Import Total Overdue 27 5737 Total 66826 Inland Export Bills for NaN A/C 0913 34,037,305.00 Lodged 0914 Import Bills (Foreign) 2,500,462.00 ISLAMI BANK BANGLADESH LIMITED Foreign Export Bills 0915 21,480,378.00 Shyamoli Branch for Lodged 15/4, Mirpur Road, Dhaka, Bangladesh Letter of Guarantee 0916 5,800,076.15 (Inland) EXPENDITURE 1100 0.00 A/C: Exp.Dhaka North 1700 0.00 Zone Exp.Dhaka South 1800 0.00 Zone 0900

1.0.4 Statement of Affairs As On 28-MAR-2011

CodeLiabilities Taka 1000 DEPOSITS: 2,455,188,342.63 Al-wadeeah Current 1001 124,725,735.42 Deposits Mudaraba Savings 1002 925,178,176.89 Deposits Mudaraba Special 1003 39,062,608.49 Notice Deposits Mudaraba Term 1004 517,959,200.96 Deposits 1005 Profit-payable A/C 42,364,197.02 1006 SUNDRY DEPOSITS 21,891,875.15 Mudaraba Hajj 1009 9,734,646.19 Savings A/c Mudaraba Savings 1010 103,636,785.07 Bond Mudaraba Special 1011 463,941,974.12 Savings Scheme Mudaraba Monthly 1012 Prft Dep203,703,834.10 Schemes(MMPDS) Mudaraba Muhor 1013 1,357,822.62 Savings A/C Mudaraba Waqf 1014 1,631,486.60 Deposit A/C 2000 BILLS PAYABLE; 43,821,282.96 2001 D.D. Payable 566,990.00 2002 T.T. Payable 2,197,929.00 2003 P.O. Payable 41,056,363.96 F.C DEPOSIT 3000 18,699,384.00 ACCOUNTS: Mudaraba Foreign 3011 961,316.00 Currency Deposit Foreign Currency 3021 7,556,662.00 Deposit 3023 FC Deposit ERQ 31,869.00 FC held against B/B 3031 9,381,423.00 L/C 3041 FDD/FTT Payable 768,114.00 OTHER 4000 76,067,282.09 LIABILITIES : 4003 Profit Receivable A/c 35,423,972.73 4004 Unearned Exchange -208,737.00 Clearing Adjustment 4005 16,770,847.08

CodeAsset Taka CASH & BANK 0100 21,074,805.65 BALANCES: 0101 Cash In Hand 20,319,171.65 Foreign Currency In 0102 755,634.00 Hand BALANCE WITH 0200 0.00 OTHER BANKS: 0300 INVESTMENT: 1,025,218,078.80 Bai-Murabaha 0301 176,142,865.16 (General) Bai-Murabaha (Post0302 259,957,901.84 import) 0303 Bai-Muazzal 4,396,036.00 0304 HPSM 469,084,778.67 0307 Quard Against TDR 32,008,250.00 Quard Against P.F. 0308 4,191,620.00 (Staff) Quard-e-Hasana B.F. 0309 241,810.00 (Staff) 0321 Bai-Muazzal (Staff) 412,526.00 0322 HPSM (Staff) 76,581,291.13 0324 BAI SALAM 2,201,000.00 0400 Inland Bills Purchase 83,730,736.00 0401 Musharaka Doc Bill 83,730,736.00 0500 FBN & FBP: 8,337,408.00 0503 Baim-FC Bills 5,257,398.00 Foreign Bill 0504 3,080,010.00 Negotiated(FBN) FURNITURE, 0600 FIXTURE &3,888,582.07 LIBRARY Furniture,Fixture 0601 3,888,582.07 &Library 0700 OTHERS ASSETS 1,839,356.63 SUSPENSE 0701 672,000.00 ACCOUNT: Stock Of Stationary In 0704 231,734.63 Hand 0705 Stamps In Hand 76,200.00 0706 Security Deposit Paid 18,000.00 0709 Advance Rent 841,422.00 BRANCHES 0800 1,465,023,561.05 ACCOUNTS: 0801 IB-General A/C 1,465,023,561.05 ASSETS AS PER 0900 500,004,741.01 CONTRA 0901 Outward Bills Lodged 297,868.00

0905 Inland LC 19,800,000.00 0906 Import LC (General) 202,012,381.00 Back to Back LC 0907 36,754,456.00 (Foreign) Back to Back LC 0908 45,983,185.00 (Inland) Grand Total 3,135,469,125.57 Grand Total 3,135,469,125.57 Back to Back Bills 0909 36,205,901.00 (Foreign) Back to Back No Bills ofAmount(Thds) 0910 A/cs 76,751,565.00 (Inland) No of Amount(Thds) Current 2030 2,100,000.00 NaN A/cs 0912 Import BillsA/c (Inland) Mudaraba Inland Export Bills for 2,266,207 31527 0913 50,520,500.86 deposit A/c Lodged Total Other A/c Foreign Export 547 Bills 126,777 Investment 1023 1119857 0915 3410223,648,808.00 2,517,709 for Total Lodged A/C Totalof Guarantee 68206 NaN Letter 0916 5,930,076.15 (Inland) EXPENDITURE 1100 26,351,856.36 Chapter-5 A/C: Foreign Exchange Exp.Dhaka North 1700 0.00 Zone complying Shariah and law of the Islami Banks offer different trade products and services land. The foreign exchange and foreign trade operations can be categorized Exp.Dhaka Southfour areas: 1800 0.00 - Import services and Import finance Zone -

Export services and export finance Foreign remittance Services Foreign exchange Treasury operation

Import services and financing products Service principles Wakalah

Kifalah

Financing principles

Bai

Scope of applications

Basis

Letter of credit Safe keeping Remittance

Commission basis

Letter of credit Performance bond Bid bond Advance payment Guarantee

Commission basis

Scope of applications Mudaraba Import Mudaraba Import bills Mudaraba post import

Basis Mark up basis

Shirkat

Mudaraba Musharaka

Ijarah

Hire Purchase Shirkatul Melk

Sharing basis

under

Rental basis

Foreign Remittances: In spite of global financial crisis and return of our expatriates to a good number, the foreign remittance position was outstanding in 2010. Islami Bank Bangladesh Limited with its sophisticated software, motivated and efficient employees has consolidated its position as the market leader in foreign remittance with 10 % growth in 2010 as against 39% growth in 2009. IBBL handled 27.66% of foreign remittance of the country in 2010 as against 11.61% handled by the next competitor Sonali Bank Ltd. The total remittance business of the Bank during the year stood at Tk. 214, 629 million which was Tk. 19, 913 million higher than the total remittance of Tk. 194,716 million received in 2009.

Import: During the year 2010 bank opened 46, 736 import Letters of Credit for Tk. 246, 281 as against 38, 717 Letters of Credit for Tk. 161,230 in 2009 showing 53% growth in amount

Export: During the year 2010 bank handled 46, 699 Export Bills for Tk. 148, 421 million as against 44, 291 Export Bills for Tk. 106, 424 million in 2009 showing 39% growth in amount.

Chapter-6 Findings: At the time of my Internship program I have found some Problems which are faced by IBBL incase of Investment Mechanism are discussed bellow:

1. IBBL cannot invest in Shariah prohibited sector, so its investment scope is narrow in Bangladesh.

2. Entrepreneurs have no clear concept about Shariah and investment mode. As a result they do not want to take investment easily.

3. IBBL lead their investment operation within limited number of investment mode.

4. Lack of Islamic Banking Rule in our country, the authority of IBBL faces various problems in their investment operation as a result it cannot run smoothly.

5. Most of the people of Bangladesh have no positive idea about Islamic Banking Operation, some of them hold negative about the philosophy investment Mechanism of IBBL, so they are not interested to generate the Banking activities with this bank.

6. IBBL is Shariah based & welfare oriented, so they should engage in poverty alleviation & rural development seriously, but they could not reach their operation in eighty five thousand villages of Bangladesh.

7. Investment is heart of the Bank and it is the main source of income of IBBL, but lack of sufficient investment scope a large amount of money are being idle, as a result, profit is not increasing.

8. Lack of sufficient & skilled manpower some time IBBL cannot invest their asset in proper portfolio.

9. Advertisement is the most important factors to introduce any organization, goods products or information to the people, but IBBL is not eager to advertisement that can show their activities in the society 10. There no proper arrangement for women dealing in which many women clients is in a fix.

Recommendation: It is not unexpected to have many problems in any organization. For this reason already have found many problems of IBBL. To solve these problems, suggest following recommendation 1. IBBL can diffuse its scope of investment through focusing shariah concept regarding investment among the Bank officers; employer and the Clients by strong training, workshops and Clients get - together.

2. This Bank should arrange a wide varieties of regular programs like "ISLAMIC JALSA" "OAAZ MAHFIL" "SEMINAR" "MOSQUE -BASED DISCUSSION" etc. about Islamic Banking Function countrywide to remove the negative impression about IBBL. 3. The authority of IBBL should manage pressure on Government bodies to run proper and sufficient application of Islamic banking law in Bangladesh.

4. Practice amount of doubtful income declined substantially during the year as compared to the past few years, indicating more carefulness of the Management in complying with Shariah. As a result, idle money will be invested to increase potential profit of this Bank.

5. Inclusion of more subjects based on the Quran and Sunnah in the Training courses of the Islami Bank Training & Research Academy in order to develop human resources having morally.

6. Arrangement of monthly /quarterly training courses /workshops for the clients selected by the Branches in order to promote Investment clients of the desired level.

7. IBBL should initiate different investment modes according to changing /diverse needs of clients by conducting huge Research and study.

8. IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals and understand their needs and thus create demand for investment.

9. To gain success in the programs like "Poverty Alleviation and "Self Reliant" especially in rural areas, this bank should provide investment facilities on the basis of individual position.

10. In the context of Bangladesh considering the necessity of Islami Banking system the Government should establish Mudaraba company/bank.

11. IBBL needs to finance the needy entrepreneurs who have no money at all and they are newcomer in the business.

12. We know there are most important modes of investment is share mechanism but islami bank have no such strong application of that mode though theoretical use of share mechanism is so wide.

Chapter-7 SWOT Analysis of IBBL: STRENGTH

•

Unique System: 100% supervise credit. Related with shariah.

• •

Religious Feelings of the people.

Management System.

•

High Morality of the employees and customers

WEAKNESS

•

Absence of Competitors. Existing are quite weak,

•

Deficiency of experienced manpower.

•

Absence of Islamic money market.

•

Few employee’s attitude towards customers are not satisfactory

•

IBBL still remain under lower position in the world ranking.

•

IBBL does not use the share mode of investment

•

They have no such program to finance to the new entrepreneur or creating the same.

OPPORTUNITY

•

IBBL has a verse opportunity to hold the most of the customers of Bangladesh as its banking operation is based upon Islamic Shariah.

•

Rural Development Scheme of IBBL is a great chance to save the county’s poor people from being taking loan from different NGOs or few banks with higher interest rate THREATS

•

State law defers with the Islami Shariah.

•

In the money market of Bangladesh there is no call money system of Islami Shariah.

•

Few other conventional banks have open their Islamic banking branch .

Conclusion: The concept of Islami banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950′s with the establishment of a local islami bank in a rural area (Wilson 1983). After 42 years, Islamic banking system is established in Bangladesh as a financial institution that is named “Islami bank Bangladesh limited”.

Islamic bank Bangladesh limited is a bank which operates it′s activities according to Quaran and Sunnah. It′s banking activities based on profit \ loss sharing. It does not create any illegal pressure on client.

The strength of islami bank Bangladesh limited are - employees of Islamic Bank Bangladesh Ltd. are honest because they strongly believes in Islamic rules and Allah and they do not take any types of bribe form clients. So believes of people are increasing on the activities of Islamic bank Bangladesh limited. Many people of Bangladesh are involving with IBBL for doing their daily financial activities. It has a bright future because it has got huge customer then other conventional bank in Bangladesh that are based on interest.

The weaknesses of Islamic bank Bangladesh limited are - although it is getting bright future but it does not operate it′s activities 100% based on Islamic shariah. Because still there is not existed an Islamic environment in the economic activities of Bangladesh. It is performing it′s daily financial transaction with other financial institution that are not based on Islam. In this case, it is involving with some unislamic activities unintentionally. on the other hand every client is not 100% honest . So they are taking investment form IBBL and after maturity, they are showing loss on that project intentionally. So IBBL is losing some profit form their

investment .For this reason, Islami bank Bangladesh limited has closed it′s bai - mechanism.

Now it is not providing investment under this mechanism.

Threats of Islamic bank Bangladesh limited are - at this time, many financial institutions have commenced their financial activities according to Islamic shariah. This type of organization will create more competition in the financial market. So it is a threat for Islamic bank Bangladesh limited.

After all, although it is facing some problem, it has a bright future and day-by-day it is enhancing it′s financial activities over the country. Many organizations are following to IBBL and they are starting their business based on Islamic shariah in the economy in Bangladesh.

Bibliography 1. Natarajan, Dr. K. Gordon, professors. E.“Banking Theory, Law and Practice” Himalay Publisher House, Mumbai.

2. Introduction to Islami Bank Bangladesh Limited. - Published by IBBL. 3. Islamic Bank a decade of Progress - Published by IBBL. 5. Jb. Ashequre Ahamed Jebal, “Islamic Banking Definition, History, Growth & Present status in Bangladesh and around the World”. VP, FM, IBTRA (Lecture Synopsis).

6. Janab M. Azizul Huq, “Philosophical foundation of Islamic Economic and Banking”.

Advisor, IFIL, Dhaka. (Lecture Synopsis).

7. “A Journal of Islamic Banking” -

Published by IBBL.

8. Prof. Mohd. Sharif Hussain, “Riba, Bai, Investment, Profit & Rent”. Director, IBBL, Dhaka. (Lecture Synopsis).

9. Mrs. Mahmuda Sultana, “Course Co-ordinator”. Senior Principle Officer & Faculty member, IBTRA. 10. Jb Mahmood Ahmed, “Senior Vice President & Director (Training), IBTRA.

List of Abbreviation used in the Report: SWIFT- Society for World-Wide Inter-bank Financial Telecommunication.

IRS- International Referral System.

AWCA- Al-Wadeah Current Account.

KYC-

Know Your Customer.

CAMELs- Capital Asset Management Equity and Liquidity.

UCPDC- Uniform Customs Practice for Documentary Credit.

STR- Suspecious Transaction Report.

SME- Small and Medium Enterprise.

BIB- Business Internet Banking.

MTD- Mudaraba Term Deposit.

CTR- Currency Transaction Report.

CIB- Corporate and Investment Banking. Or Commercial International Bank.

RWA- Ready, Willing and Able. Or Risk Weighted Asset.

IBCA- Inter-Bank Credit Advice.

IBDA- Inter-Bank Debit Advice.