View with images and charts Investment Mechanism of Islami Bank Bangladesh Limited (Ibbl)
1.1 An overview of the IBBL Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interestfree profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh 1.2 Business Philosophy of IBBL The philosophy of IBBL is to the principles of Islamic Shariah. The organization of Islamic conference (OIC) defines an Islamic bank as "a financial institution whose status, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operations. The sponsor, perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than a follower. The leadership will be in the area of service, constant effort being made to add new dimensions so that clients can get "Additional" in the matter of services commensurate with the needs and requirements of the country' growing society and developing economy. 1.3 Definition and Concept of Islamic Bank The definition of “Islamic Banking” and prove whether its activities are unequal to the conventional banking system & satisfy the principle of Islamic Shari’ah. Definition given by ‘OIC’ is- “An Islami bank is financial institution whose statutes, rules and regulations expressly state it’s commitment to the principle of Islamic shra’ah and to he banning of the receipt and payment of interest on any of its operation”. This definition indicates that IBBL is more convenient and acceptable to the Muslim mankind. Islamic Bank is committed to conduct all kinds of banking activities on the basis of profitloss sharing system. The objective of the Islamic Shari'ah is to promote the welfare of the people which lies in safeguarding their faith, their life, their intellect, their posterity and their
wealth. The basis of this Shari'ah is wisdom and welfare of the people in this world as well as the hereafter, which lies in complete justice, mercy, well-being and wisdom. 1.4 Aims and Objectives of IBBL The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. Its objectives are different from conventional banking that is as follows: Conducting interest- free banking Establishing participatory banking instead of banking on debtor- creditor relationship. Investing through different modes permitted under Islamic Shariah. Accepting deposits on profit- loss sharing basis Establishing welfare oriented banking system. Extending co-operation to the poor, the helpless and the low-income group for their economic enlistment Playing a pivotal role in human development and employment generation.
1.5 Goals of IBBL
To establish Ihsan (gracious conduct or kindness) in economic affairs Establishment of Maroof (proper and good acts, institutions) in economic life. Elimination of Munker (Evil, wrong of injurious practices) from economic life. To achieve maximum economic growth To maximized employment to ensure maximum distribution of wealth in society To achieve universal education and to encourage co-operation in society.
1.6 Features of Islamic Bank 1.6.1. Prohibition of interest The traditional capitalist banking system depends on interest. It receives interest for providing loans and pays interest for taking loans. The spread between these two interests is the source of its profit. But according to Islamic Shariah all types of interest is banned. So, Islamic bank does not carry on business of interest and it completely avoids the transaction of interest. 1.6.2. Investment Based on Profit After departing from interest, the alternate ways of income for Islamic bank is investment and profit. Thus IBBL gives up any transaction of interest and makes investments based on profit. Bank distributes its profit to its depositors and shareholders. 1.6.3. Investment in Halal Business
Islamic Shariah has banned the business of haram goods. For example, Islam not only forbids the drinking of alcohol but also banned any business of alcohol. Therefore, Islamic bank does not get any haram business and only do halal business. 1.6.4. Halal Paths and Procedures Islamic Shariah also rejects any haram path or process in case of a halal business. Therefore, Islamic bank system only allows the halal path procedures of halal business. 1.7 Mission of IBBL To establish Islamic banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourages socio-economic enlistment and financial services to the low-income community particularly in the rural areas. 1.8 Vision of IBBL Our vision is to always strive to achieve superior financial performance, be considered a leading Islamic bank by reputation and performance. Our goal is to establish and maintain the modern banking techniques, to ensure soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems. We will try to encourage savings in the form of direct investment. We will also try to encourage investment particularly in projects, which are more likely to lead to higher employment. 1.9 Functions of IBBL To maintain all types of deposit accounts. To make investment. To conduct foreign exchange business. To extend other banking services. To conduct social welfare activities through Islami Bank Foundation 1.10 Corporate Information at a Glance
Date of Incorporation Inauguration of (Local office, Dhaka)
13th March 1983 1st
Branch
Formal Inauguration
30th March 1983 12th August 1983
Share of Capital Local Shareholders
41.77%
Foreign Shareholders
58.23%
Authorized Capital
Tk. 10,000.00 million
Paid-up Capital
Tk. 7,413.00 million
Deposits
Tk. 265,193.00 million
Investment (including Investment in Shares)
Tk. 255,178.00 million
Foreign Exchange Business
Tk. 277,739.00 million
Branches Total number of Branches
244
-Regular Branches
224
-SME Service Centres
20
Number of AD Branches
43
Number of Shareholders
52164
Manpower
9588
1.11 Difference between Conventional Bank and Islamic Bank
Conventional Banking
Islamic Banking
1. The functions and operating modes of 1. The functions and operating modes of conventional banks are based on manmade Islamic banks are based on the principles of principles. Islamic Shariah. 2. The investor is assured of a predetermined 2. In contrast, it promotes risk sharing rate of interest. between provider of capital (investor) and the user of funds (entrepreneur). 3. It aims at maximizing profit without any 3. It also aims at maximizing profit but restriction. subject to 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 with an Islamic bank. compared with a conventional bank. It is, in effect, a multi-purpose institution. 7. It can charge additional money (compound 7. The Islamic banks have no provision to rate of interest) in case of defaulters. charge any extra money from the defaulters. 8. In it very often, bank’s own interest 8. It gives due importance to the public becomes prominent. It makes no effort to interest. Its ultimate aim is to ensure growth ensure growth with equity. with equity. 9. For interest-based commercial banks, 9. For the Islamic banks, it is comparatively borrowing from the money market is difficult to borrow money from the money relatively easier. market. 10. Since income from the advances is fixed, 10. Since it shares profit and loss, the Islamic it gives little importance to developing banks pay greater attention to developing expertise in project appraisal and evaluations. project appraisal and evaluations. 11. The conventional banks give greater 11. The Islamic banks, on the other hand, give emphasis on credit-worthiness of the clients. greater emphasis on the viability of the
projects. 12. The status of a conventional bank, in 12. The status of Islamic bank in relation to its relation to its clients, is that of creditor and clients is that of partners, investors and trader. debtors. 13. A conventional bank has to guarantee all 13. Strictly speaking, and Islamic bank cannot its deposits. do that.
1.12 Hierarchy of Dhanmondi Branch Hierarchy of DhanmondiBranch Figure 01: Hierarchy of DhanmondiBranch
Executive Vice President (Manager
Assistant Vice President (Second manager
General banking Incharge (SPO) Principal Officer
Senior Officer
Officer
Investment Banking Incharge (SPO)
Principal Officer
Senior Officer
Officer
Foreign Exchange Incharge (SPO)
Principal Officer
Senior Officer
Officer
Sources: DhanmondiBranch, local Branch 2.1 Introduction about Investment Investment is the action of deploying funds with the intention and expectation that they will earn a positive return for the owner. Funds may be invested in either real assets or financial assets. When resources are used for purchasing fixed and current assets in a production process or for a trading purpose, then it can be termed as real investment. IBBL, Dhanmondi operates its investment through mode wise, sector wise and scheme wise. The author has done her internship program in Islami Bank Bangladesh Ltd. At Dhanmondi. This is a branch of one of the leading commercial private banks in our country. This bank was established in 14th November 2000 based on Islamic sahriah. There are 33 employees. Their vision is strived to achieve superior financial performance and be considered a leading Islamic bank by reputation and performance. This bank internship program duration was for total 60 days that means 45 working days. It was designed by Islami Bank Training and Research Academy (IBTRA). First 15 days she had done theoretical class in IBTRA. Then IBTRA transferred me the Dhanmondi for gather some practical experience and knowledge with 45 days about Islamic banking and financial system. 2.2 Functional Department The Islamic Bank Bangladesh Limited (IBBL),Dhanmondi is headed by on senior vice president (SVP). There are several section headed by some most skilled and experienced person under the SVP. These are:
Account opening section. P.O, T.D.R, M.S.B, M.S.S, Haji Section& D.D, T.T section. Transaction entry section. Cash section. Foreign exchange section. Investment section. Clean cash section. Clearing house section.
2.3 Modes of investment Credit department of IBBL actually invests its money in various sectors of the economy through different modes permitted by shariah and approved by Bangladesh Bank. The modes of investment are as follows: 1. Bai-Mechanism 2. Share Mechanism 3. Ijara Mechanism Bai Mechanis Bai-Murabaha Bai-Muazzal Bai-Salam
Share
Ijara
Mechanism
Machanism
Mudaraba Musharaka
Hire Purchase under Shirkatul Meelk
Istishna’a Quard
3.4 Bai-Mechanism
Bai-Mechanism
Bai-Murabaha
Bai-Muazzal
Bai-Salam
Bai-Istishna
Figure-3: Bai-Mechanism (Trading Mode) (Trading Mode) Under Bai Mechanism banks are invested their money in some different way. Such as: 2.4.1 Bai-Murabaha (Contract Sale on Profit) Meaning The terms “Bai-Murabaha” have been derived from Arabic words and (Bai and Ribhun). The word means purchase and sale and the word “Ribhun” means an agreed upon profit “BaiMurabaha” means sale for on agreed upon profit. Definition of Bai-Murabaha “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 profit payable today or on same date in the future in lump-sum or by installment. The profit may be either a fixed sum or based on a percentage of the price of the good. 2.4.1.1 Steps of Bai-Murabaha First Step: The client submits a proposal regarding his requirements of the bank. 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 Bai-Murabaha basis. 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. Types of Bai-Murabaha In respect of dealing parties Bai-Murabaha may be of two types: Ordinary Bai-Murabaha: Ordinary Bai-Murabaha is a direct transaction between a buyer and a seller. Here the seller is ordinary traders who purchase goods from the market in the hopes of selling these goods to anther party for a profit. In this case, the seller undertakes the entire risk of his capital investment in the goods purchased. Where or not he earns a profit depends on his ability to find a buyer for the merchandise he has acquire
Bai-Murabaha on order and promise: This transaction involves three parties the buyer, the seller and Bank. Under this arrangement the bank acts as an intermediary trader between the buyer and seller. In other words, upon receipt of an order and arrangement to purchase product from the buyer, the bank will purchase the product from the seller to fulfill the order. 2.4.2 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. Definition 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. 2.4.3 Bai-Salam (Advance payment) Meaning of Bai-Salam The term “Bai” means sales and purchase and “Salam” means advance.”Bai-Salam” means advance sales and purchase. Definition of Bai-Salam Bai-Salam may be defined as a contract between a buyer and a seller under which the seller sells in advance in the certain commodity (ies)/ products (s) permissible under Islamic
Shariah and the law of the land to the buyer at a agreed price payable on execution of the said contract and the commodity (ies)/ products (s) to the buyer at a future time in exchange of an advance price fully paid on the spot. • 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. • 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. 2.4.4 Bai-Istisna’a Meaning of Bai-Istisna’a The word Istisna’a has been derived from the word “sana” which means Industry. Istisna’a means to purchase specific products by placing order to a manufacturer or to sale specific products after having the same manufactured against order of a buyer. Definition of Istisna'a Sale Intishna’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. The majority of the jurist considered Intishna’a as one of the divisions of Salam; therefore, it is subsumed under the definition of Salam. 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. • 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. 2.4.5 Quard The word “Quard” is an Arabic word” which means loan or credit on advance. The literal meaning of Quard is giving “Fungible goods” for use without any extra value returning those goods. It must follow the principle of equal for equal return with homogeneous goods. Fungible goods may be rice, oil, salt, money etc. In banking sector, money is used as quard. Quard is HaIaI by Islam for not to pay any extra or interest in return. Characteristics of Fungible goods1. Goods which are vanished /converted for one time use. 2. No flow of service.
3. Service can’t be separated from the actual goods. Characteristics of Quard There should have fungible goods. Goods must be returned equally. There is no extra payment. To specific period for returning goods. Quard-e-Hasana: Quard-E-Hasana is also one kind of Quard which is given with the expectation of return or not. 2.5 Share Mechanism Share Mechanism
Mudaraba
Musharaka
Figure 04: Share Mechanism 2.5.1 Mudaraba (Share Mechanism) Meaning of Mudaraba The term Mudaraba come from Arabic word “Travel” means for undertaking business. Definition of Mudaraba It is a form of partnership where one party provides the funds while the other provides the expertise and management. The first party is called the Sahib-Al-Maal and the latter is referred to as the Mudarib. Any profits accrued are shared between the two parties on a preagreed basis, while capital loss is exclusively borne by the partner providing the capital. Important features Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience. Administration and management is maintained by the client. Profit is divided as per management. Bank bears the actual loss alone. Client cannot take another investment for that specific business without the permission of the Bank. 2.5.2 Musharaka (Partnership) Meaning of Musharaka The word Musharaka is derived from the Arabic word Shirkat meaning partnership or sharing. Definition of Musharaka
It’s An Islamic financial technique that involves different types of profit and loss sharing partnership. Share both in the capital and management of a project so that profits will be distributed among them as per rations, where loss is shared according to ratios of their equity participation. In this case both the bank and the client provide capital at an agreed upon ratio and manage the business jointly. Share the cent as per agreed upon ratio and bear the loss, If any, in proportion to their respective equity. Bank may move itself with the selected client for conducting any shariah permissible business under Musharaka mode. Important feature: The investment client will normally run and manage the business. The Bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operations of the business of the client. The Bank may appoint suitable person(s) to manage the business and to maintain books of accounts of the business property. As the investment client shall manage the enterprise, the Bank may pay more share of profit to him than that of his proportionate capital contribution. Loss, if any, shall be shared on the basis of capital ratio 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. 2.6 Ijara mechanism (Leasing Mode) Ijara Mechanism
Shirkat
Ijara
Sale
Figure 05: Ijara mechanism (Leasing Mode)
Higher purchase under Sirkatul Melk (HPSM) Under this mode the Bank may supply implements/equipments/goods on rental basis. The ownership of the implements/equipments/goods will be with the Bank and the client jointly and the portion of the client will remain to the Bank as mortgage until the closer of the investment account, but the client will be authorized to possess the equipment for certain period. The client, after completion of the installment, will be the owner of the implements/equipments/goods.
Meaning and Definition Hire purchase under Sirkatul Meelk is a special type of contract, which has been developed through practices. Actually, it is a synthesis of three contracts: Sirkatul Melk Ijarah Sale These may be defined as follows 2.6.1 Sirkatul Melk Sirkatul means partnership. Sirkatul Meelk means share in ownership. When two or more person supply equity, purchase an asset, own the same jointly, and share the benefits as per agreement and bear the loss in proportion to their respective equity, the contract is called Sirkatul Meelk contract.
2.6.2 Ijarah The term Ijarah has been divided from the Arabic word (Air) and (Ujrat) which means consideration, return, and wages, rent. This is really the exchange value or consideration, return, wage, rent of service of an ASSET. Ijarah has been defining as a contract between two parties, the Hire and Hire where the Hire enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is Hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period. 2.6.3 Sale This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price to be paid by the buyer. 2.7.1 Induction of Client Generally banks analysis the five C’s of the clients: Character Capacity Capital Collateral, and Condition 2.7.2 Application a) All columns are properly field in; b) Particulars and information given therein are complete and correct in all respects; c) All required Documents/papers as listed in the footnote for the application is submitted;
d) It is signed by the client as per specimen signature with the bank and duly verified by the authorized official of the bank. 2.7.3 Categorization
Categories the proposal as under: • • • • •
Hire Purchase under Shirkatul Melk Commercial Hire Purchase under Shirkatul Melk Industrial Hire Purchase under Shirkatul Melk Real Estate: Hire Purchase under Shirkatul Melk Transport: Hire Purchase under Shirkatul Melk Agriculture
2.7.4 Processing and Appraisal Enter the Application in the “Investment Proposal Received and Disposal Register (B-53) and allot a Serial Number to it. Examine shariah permissibility of the goods. Reject the proposal outright, if not permitted by Islamic Shariah. Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current Investment Policy Guidelines. Visit the Business establishment of the Client. Talk to the business and important personalities of the locality to ascertain the Honesty, Integrity and Business dealings of the Client. Request for confidential report of the client from local Bank Branches. Confident Report from Credit Information Bureau (CIB) of Bangladesh Bank through Head Office Investment Division as per Instruction Circular of Head Office in this Regard. Effective demand, price of the goods, short or long-term duration, quality and other specifications of the goods, availability, etc. of the said or projected goods. 2.7.5 Sanction On completion of Appraisal as provided herein above, of the Proposal is found viable, issue Sanction Advice (F-188) if it is within the business power of the Branch mentioning all the terms and condition is duplicate to the Client and endorse copies to Zonal and Head Offices retaining one copy in the Client’s file duly accepted by the Client. If the proposal is not within the Discretionary Power of the Branch, the Branch shall with Appraisal Report on F-167A and F-167B to Zonal Office/Head Office. If the proposal is within the Business Power of the Zonal Office, Zonal Office shall accord Approval /Regret the Proposal. If the proposal is not within the Business of the Zonal Office shall forward the proposal to Head Office with their views and recommendations. On receiving the proposal and the Appraisal Report along with supporting papers Head Office will either approve or Regret. If the Branch/the Zonal Office /Head Office, the branch will issue the Sanction advice (F-188) with a copy to Zo/HO duly recorded in /Facility Sanctioned Register (B-119) with authority to the investment Client for the limit.
In case of investment to the existing Client, obtain required papers, document with the past performance and outstanding liabilities of the Client, if any and process of sanction the propsal as per instruction laid down here-in-above after due evaluation or study. 2.7.6 Documentation stage At this stage, usually the bank analysis whether required documents are in order. In the documentation stage, Islami Bank Bangladesh Limited (IBBL) checks the following documents of the clients. Tax payment Certificate. Stock report. Trade license (renewal). VAT certificate. Liability Statement for different parties. Receivable from different clients. Other assets statements. Commitment deed. Declaration letter. Three years net income business transaction. Performance report with the bank. Account Statement from of the bank. Valuation certificate. Particulars of the proposal. Particulars of the mortgagors. Particulars of the properties. Outstanding liability position of the bank. Credit information bureau report (CIB). 2.7.7 Disbursement Stage At this stage bank decides to pay out money. Here the clients get his/her desired fund or goods. It is to be noted that before disbursement a “site plan” showing the exact location of each mortgage property needs to be physically verified. 2.7.8 Monitoring and Recovery Stage At the final stage of investment processing of the Islami Bank Bangladesh Limited (IBBL), bank will contract with the client continually; for example-bank can obtain monthly stock report from the client in case of macro investment. Here the bank will keep his eye on over the investment taker .if needed bank will physically verify the clients operations. Also if bank feels anything is going wrong then it tries to recover its investment by some way. Example:
Telephonic communication Issuing letter. Final notice Legal notice. Suit filing.
2.8 Some Special Investment Schemes
The Bank, since its inception, has been working for the uplift and emancipation of the underprivileged, downtrodden and neglected sections of the populace and has taken up various schemes for their well being. The objectives of these schemes are to raise the standard of living of low-income group, development of human resources and creation of avenues for self-employment. SLNo.
Schemes Name
Implemented Date
01
Household Durable schemes-HDS
27.01.1993
02
Investment schemes for Doctors
11.07.1990
03
Small Business Investment schemes(SBIS)
06.03.1991
04
Agricultural Implements Investment schemes(AIIS)
02.12.1992
05
Housing Investment schemes-HIS
30.11.1994
06
Real Estate Investment Program-REIP
24.08.1991
07
Rural Development schemes-RDS
31.08.1995
08
Transport Investment schemes-TIS
21.05.1995
09
Car Investment scheme-CIS
14.11.1995
10
Mirpur Weavers Investment schemes-MSWIS
09.10.1999
11
Micro Industries Investment scheme-MIIS
18.07.2000
12
Palli Griha Nirman Beniyog Prakalpa-PGNBP
30.01.2011
2.8.1 Household Durables Scheme The objective of the scheme is to increase standard of filing and quality of life of the fixed income group by extending them investment facilities to purchase household articles such as furniture like Almirah, sofa set, wardrobe; electric and electronic equipment like television, refrigerator, gas cooker; air conditioner, PC, washing machine; electric generator-IPS, UPS; motor cycle; corrugated iron sheet, cement, rod, wood etc, for construction of dwelling house; gold ornaments, tube-well, mobile telephone set etc; medical/ engineering instruments/equipment, computer, books etc for students. 2.8.2 Housing Investment Scheme The Bank has introduced this scheme recently to ease the serious housing problem in the urban areas and to make arrangement for comfortable accommodation of the fixed income group. 2.8.3 Officials of the Defense Forces Permanent Officials of Government, Semi-Government and Autonomous Organizations; Teachers of the established Universities, University Colleges & Medical College: Graduate Engineers, Doctors and Established professionals; Bangladeshi Officials of reputed Multinational Companies, International Financial Organizations, Donor Agencies, Foreign Embassies etc. Officials of local established & reputed public Limited Companies; Wage Earner professionals like Doctors, Engineers, Accountants, Teachers and other profession doing good job abroad with hand-some pay-package shall be eligible to apply for availing investment facilities under the Scheme.
2.8.4. Real Estate Investment Program Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of people who are not entitled for availing investment facilities under Housing investment Scheme, shall be eligible under this program. Investment is to be extension/ completion of the house already constructed, commercial building, shopping complex, flat/ apartment etc. 2.8.5. Transport Investment Scheme To ease the existing transportation problem and ensure speedy economic growth and development of the country particularly the expansion of trade, commerce and industry, the Bank has taken up this Scheme. Under this Scheme investment is being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport like bus, mini-bus, truck, launch, cargo-vessel, transport for rent-a-car service; and baby taxi, tempo, pick-up van for self-employment; and ambulance for clinic & hospital. The Bank is also extending investment facilities to multinational companies, established business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.
2.8.6. Car Investment Scheme Car is considered as an 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. To meet this need, Islami Bank has introduced the "Car investment Scheme" for the mid and high ranking officials of government and semi-government organizations, corporations, executives and directors of big business houses and companies and also for persons of different professional groups on easy payment terms and conditions. 2.8.7. Investment Scheme for Doctors The Bank has taken up this Scheme to help unemployed qualified doctors to go for selfemployment and to provide latest medical equipments to specialist doctors to extend modern Medicare facilities throughout the country. 2.8.8. Small Business Investment Scheme This Scheme has been taken up for self-employment of educated unemployed youths of rural and urban areas and to provide investment to small businessmen and entrepreneurs. Investment is extended for about 200 economic activities in sectors as live-stock, fishery, agro-trading/shop-keeping, transportation, agricultural implements, forestry and service viz. laundry, signboard painting etc. 2.8.9. Agriculture Implements Investment Scheme In keeping with view of the people-oriented and welfare objectives of the Bank, this scheme has been introduced to provide power tillers, power pumps, shallow tube wells, thresher machines etc. on easy terms to unemployed rural youths for self-employment and to the farmers to help augment production in agricultural sector. 2.8.10. Micro-Industries Investment Scheme To create wider base for industries as well as to encourage establishment of micro-industries in different areas of the country by the potential entrepreneurs and for diversification of the Bank's investment port-folio, the Bank introduced 'Micro industries Investment Scheme'.
Different sectors including food and agriculture based industries, plastic & rubber industries, forestry and forestry and furniture industries, engineering industries, leather industries, chemical industries, textile industries, recycling industries, service industries, electrical accessories industries, computer technology industries, paper products industries, handicrafts industries, fishery & live stock farming, hollow bricks, roof tiles and any other viable microindustries have been identified for financing under the Scheme. 2.8.11 Rural Development Scheme Bangladesh is predominantly an agricultural country with vast majority living in rural areas. Near than 60% of the people live below the poverty line. Seasonal unemployment and under idle and without job in most of the time of the year. As a result people in large number are migrating to urban areas, particularly in metro polish in search of employment thereby creating social and environment hazards. Islami Bank has, therefore, taken up a Scheme to reactive the rural economy and develops model villages through integrated rural development approach. The objective of the Scheme is to create income generating and productive selfemployment opportunities through extension of investment for the development of rural areas and thereby contribute in alleviating rural poverty. Investment will be allowed for the purpose of, amongst others, production of 21 types of main crops viz. food, cereals and cash crops, off-farm activities like dairy, beef fattening, goat rearing, poultry, shop keeping, peddling etc, rural transport like rickshaw, rickshaw-van, cart etc; irrigation equipment, hand tube-well, housing materials. in all covering about 343 types of economic activities, Islami Bank Foundation, a subsidiary of the Bank, engaged in social welfare activities shall, side by side, take care of the requirement of sanitation, Medicare and education of the villages through integrated area development approach under Islamic model 2.9 Some Islamic New Investment Products 1) Ijara Muntahin Bittamleek (Financial Lease) Ijara is a form of leasing where a property is leased by the lessor to the lessee in a way that at the end of an agreed lease period, the lessees become the owner of the property by purchasing it from the lessor during or at the end of the lease period at an agreed sale price. 2) Mudaraba on Lands Literally, Mudaraba means selling on profit. The Shari’ah application of this term is as follows: A purchaser approaches a seller, provides the details of goods he wants to purchase from a seller & gives promise to the seller that he will purchase the goods from him at a price, which percentage of profit. Applying this mechanism, the bank purchases a plot of land as per clients’ specifications & their promise to purchase it from the bank on deferred basis. 3) Istissnaa (Manufacturing sale) It is contract by a spot purchase of a non available commodity or equipment is affected. The manufacturer is committed to deliver the commodity or the equipment as per the agreed upon specifications, price & date. Spot payment is not required as the case with Salam sale. The agreed commodity upon manufacturing is delivered to the bank on a forward date along with payment of the price subject to the terms of a contract. After delivery, the
bank sells the commodity in the market or to clients that have applied for the purchase previously. 4) Istizrar Istizrar is type of business permissible under Islamic Shariah. Under this mode, the buyer purchases the goods in different quantities time to time from a specific seller as per his requirement. Late of the total cost of the goods, taken by the buyer in different times is calculated at the market price. Shari’ah Council of IBBL in its 15th meeting (dated 08.07.2009) approved this mode of investment to introduce in IBBL. 5) Juwala Jueala is a specific mechanism where the bank will make an agreement with the intending client, to accomplish a specific work. Bank will realize commission or service charge against the services rendered. Bank can also use this mechanism by providing financial services to the students for completion of higher study & those who intends to perform Holy Hajj & Umrah & the clients who intends to go abroad for job etc. It is mentionable here that, The Shari’ah council of IBBL include it as an agenda for studying examining the feasibilities & Shari’ah permissibility of the product. 6) Tawarruk Tawarruk is special types of investment. It means buying a commodity with deferred payment & selling it to a person other than the seller for a lower price with immediate payment. The cash requirement of the clients can be met by practicing this mode. 7) Islamic Pawning Under this mode, Bank provides a certain amount in client’s under Quard al Hasan mode. They pawn the gold or other valuable assets against the Quard. The Bank takes safe keeping charge from the client for safe keeping that asst on basis of Al Wadiah Ad Damanah.This mode may be exercised to meet the cash requirement of entrepreneur of Small & Medium size enterprise. 3.1 Summary of Findings Findings on the basis of previous analysis and practical experience of 45 days internship program, the following findings are observed during the internship period.
Investment position of this bank is in moderate level. The bank situated in Commercial place that is why it’s commercial investment is very high in every mode Bi-Mechanism, Share Mechanism, Ijara Mechanism. Investment recollection position of this branch is increases day by day. Some clients are in overdue position but maximum clients are paid their installment regularly. Bai Murabaha investment position is slightly lower in previous years because of some lacking norms, values in the investment clients and Bank bears the actual loss alone but Bai Muajjal & HPSM investment is increasing rapidly.
3.2 Analysis & Major Findings Year 2007 2008
2009
2010
2011
Total 144980.6 Investments 1 (Excluding Investment in Share) Gross
180053.94 214615.80
263225.13
305840.56
Investment Ratio 87.13% (%)
89.08%
90.17%
89.47%
87.85%
Figure in Total Investment 3.2.1 Year to year Investment Position of Bai Murabaha in Dhanmondi (Amount in Lac Taka) Mode
2007
2008
2009
2010
2011
Bai-Murabaha
1531
533
480
382
420
% to Total Investment
4.32%
37.18%
47.72%
68.31%
70.82%
Source: Appendix Table 01: Bai Murabaha
Amount TK in Lac
Bai Murabaha 1600 1400
Bai Mujjal
1531
% 0f total investment
1200 1000 800 533
600
480
400 200 0
4.32% 2007
37.18% 2008
47.72% 2009 Year
382 68.31% 2010
420 70.82% Jun-11
Figure 06: Investment Position of Bai murabaha inDhanmondi. In this figure-06, It shows the upward trends and downward trends for IBBL,Dhanmondi investment, from 2006 to 2011 under Bai-Murabaha modes of investment. Investment in 2006 was TK 1531 lac and increased growth was 4.32%, in 2007 was Tk533 lac and increased growth was 37.18%, the height investment in this mode of investment and in 2006 was TK 1531 lac and increased growth was 4.32%.
3.2.2 Year to Year Ivestment position of Bai Muajjal in Dhanmondi Table 02: Bai muajjal (Amount in Lac Taka) Mode
2007
2008
2009
2010
2011
Bai-Mujjal
27
51
50
45
47
245.07%
990.00%
451.40%
6524.00%
632.89%
% of Investment
total
Source: Appendix
Figure 07: Ivestment position of Bai Muajjal inDhanmondi From the figure-07,it is observed that investment position is in the upward trends and downward trends for IBBL,Dhanmondi investment, from 2006 to 2011 under Bai-Muajjal modes of investment. Investment in 2006 was TK 27 lac and increased growth was 245.07%. The height investment in this mode of investment and in 2007was Tk 51 lac and increased growth was 990.00%, and in 2011 was TK 47 lac and increased growth was 632.89%. 3.2.3 Year to Year Ivestment position of Bai Salam I n Dhanmondi
(Amount in Lac Taka) Mode
2008
2009
2010
2011
Bai Salam
41
66
69
47
% 0f total investment
483.34%
341.96%
378.21%
632.89%
Source: Appendix
Amount TK in Lac
Table 03: Bai Salam Bai Salam Bai Salam 69
66
70
% 0f total investment
60 50
47
41
40 30 20 10 0
483.34% 2008
341.96%
378.21%
2009
20010
632.89% 2011
Year
Figure 08: Ivestment position of Bai Salam inDhanmondi In this figure shows the upward trends and downward trends for IBBL,Dhanmondi investment, from 2007 to 2011 under Bai-Salam modes of investment. Investment in 2007 was TK 41 lac and increased growth was 483.34%. The height investment in this mode of investment and in 2008 was Tk 66 lac and increased growth was 341.96%, and in 2011 was TK 47 lac and increased growth was 632.89%.
3.3 Year to Year Ivestment position of Hire Purchase under Serkatul Melk in Dhanmondi (Amount in Lac Taka) Year
2007
2008
2009
2010
2011
HPSM
3994
10456
15445
14919
13795
% to Total Investment
1.65%
1.89%
1.46%
0.18%
2.15%
Source: Appendix
Table 04: HPSM
Amount TK in Lac
H.P.S.M 15445
16000
14919
14000 12000
HPSM 13795
% to Total Investment
10456
10000 8000 6000 4000 2000 0
3994 1.65% 2007
1.89% 2008
1.46% 2009
0.18% 2010
2.15% Jun-11
Year
Figure 09: Investment position of HPSM in Dhanmondi In this figure shows the upward trends and downward trends for IBBL,Dhanmondi investment, from 2006 to 2011 under HPSM modes of investment. Investment in 2006 was TK 3994 lac and increased growth was 1.65%. The height investment in the HPSM In 2008 was Tk 15445 lac and increased growth was 1.46%, and in 2011 was TK 13795 lac and increased growth was 2.15%. 3.4 Year to Year Ivestment position of Murabaha TR in Dhanmondi (Amount in Lac Taka) Mode
2007
2008
2009
2010
2011
Murabaha TR
455
1377
1522
1670
2240
% to Total Investment
14.54%
14.39%
14.82%
15.62%
13.27%
Source: Appendix Table 05: Murabaha TR
Figure 10: Investment position of Murabaha TR inDhanmondi In this figure shows the upward trends for IBBL,Dhanmondi investment, from 2006 to 2011 under modes of Murabaha TR investment. Investment in 2006 was TK 455 lac and increased growth was 15.54%. The highest investment in the Murabaha TR In june 2011 was Tk 2240 lac and increased growth was 13.27%. 3.5 Year to Year Ivestment position of Special scheme in Dhanmondi (Amount in Lac Taka) Name of schemes
2007
2008
2009
2010
2011
HDS
15.67
30.5
30.05
25.31
25.71
ISD
1.7
2.22
2.75
2.55
0.05
TIS
23.44
55.67
37.21
257.41
622.58
CIS
17.12
22.11
37.50
22.19
18.44
SHDS
3.1
4.62
7.11
6.21
5.52
HIS
299.11
320.78
367.5
410.12
323.98
REIS
2612.05
3025.5
3420.1
3820.47
3964.09
SHBIS
178.56
197.87
222.48
225.52
245.07
Sub-Total Investment 3150.75 under Scheme)
3659.27
4124.7
4769.78
5205.44
Total Investment
8845
14094
8141.9
13203
13538
% to total Investment
35.63%
25.97%
50.66%
36.12%
38.45%
Source: Appendix Growth
Year
Growth
2007
35.63%
2008
25.97%
2009
50.66%
2011
36.12%
2011
38.45%
Table 06: Investment position of Special scheme
Special Schceme 60.00% Growth
50.00% 40.00% 30.00% 20.00%
50.66% 35.63%
25.97%
36.12%
38.45%
2010
Jul-11
Growth
10.00% 0.00% 2007
2008
2009 Year
Figure 11: Investment positions of Special schemes in Dhanmondi In this figure shows the upward trends and downward trends for IBBL, Dhanmondi investment, from 2005 to 2009 under special scheme of investment. In 2005, the investment growth was 35.63%, in 2006, the investment growth was 25.97% and it was the lowest investment growth. In 2007, the investment growth was 25.97% and it was the highest investment growth. In 2009, the investment growth was 38.45%. 4.1 Major Findings
Findings on the basis of previous analysis and practical experience of 45 days internship program, the following findings are observed during the internship period.
Investment position of this bank is in moderate level. The bank situated in Commercial place that is why it’s commercial investment is very high in every mode Bi-Mechanism, Share Mechanism, Ijara Mechanism. Investment recollection position of this branch is increases day by day. Some clients are in overdue position but maximum clients are paid their installment regularly. Bai Murabaha investment position is slightly lower in previous years because of some lacking norms, values in the investment clients and Bank bears the actual loss alone but Bai Muajjal & HPSM investment is increasing rapidly. 4.2 Recommendations It is not unexpected to have many problems in any organization. We have found some of the problems of general banking and investment section of IBBL. To solve these problems, we can suggest following recommendations Commercial sector under bai-muajjal mode of investment decreased by 88.63%, bank should increase this type of investment. Bank should more concentrate on commercial sector under bai-murabaha mode of investment because the amount in 2006 was 1571 lac but in 2009 the amount was 382 lac. This is really treatable for bank. House building investment sector under bai-muajjal mode of investment; bank should proper step to increase the investment; because in this sector investment decrease by 29.02%. Bank should invest quard-e-hasna not only their staff but also to the client because this type of investment client can more satisfied to bank. In opening an account customer facing some employ harassments it should be redeemable, because of satisfies of the client. Bank should develop their internet facilities very well. We believe that if the bank authority accepted the above mentioned recommendations. That would be better for their bank and betterment for establishing a well reputed modern bank in Bangladesh. 4.3 Conclusion Islami Bank Bangladesh Ltd. is a new generation bank. This bank is committed to provide high quality financial service / product to contribute to the growth of GDP of the country through stimulating accelerating the place of industrialization, creating employment opportunity for the youth, poverty alleviation, raising standard of living of limited of income group and overall sustainable socio economic development of the country. IBBL invests comparatively more fund in the development of the society. It has also operating its general banking operation with great success and been able to make positive image in the customer mind by virtue of its devoted and expert personnel.
Customers are more or less satisfied with the present services of the bank. Management should think to start new services take different types of marketing strategy to get more customers in this competitive market of the bank. Although it is a new bank, IBBL makes a strong position through its varies activities. Its number of clients, volume of deposit and investment increase day by day. This bank already has shown impressive performance investment, operating profit and return on assets. At last it can be said that, IBBL is growing fast contribution in our economy is also considerable. We hope that IBBL will widen its services by expanding its branch all over the country. 4.4 References & Books: Brigham, Eugene F, Houston, Joel F. (2004), “Fundamentals of Financial Management,” 10th edition, Ohio, Thomson, South Western, P-5. Gitman, Lawrence J. (2004), “Principals of Managerial Finance,” (Singapore: Pearson Education), 10th ed, P-4. Hossain Mr. Kabir, (2003).ISLAMC BANKING, Chapter-7. Management of funds by Islamic Banking: Islamic Modes of Investment, Dhaka, Chowkash Printers Ltd.Pp. 123-142. Kabir at el, Text Book on Islamic Banking, Islamic Economics Research Bearue, Dhaka, 2004.Pp. 278-287. Khan. A.R. “Investment of Islami Banking System” Dhaka University Journal of Business Studies, Vol 12 (2), 1993. Websites http://www.thefreedictionary.com/finance, retrieved at 11.50 AM on 30.05.12 http://www.investorglossary.com/investment.htm,retrieved at 11.53 AM on 19.05.12 http://www.answers.com/topic/financeretrieved at 11.30 AM, on 01.06.11 http://www.islamibankbd.com. At 12.00 AM on 5.06.11 4.5 APPENDIX TABLE 2.15. Financial Highlights of IBBL from FY2007 to FY2011
Taka in Million (Where applicable) Particulars
2007
2008
2009
2010
2011
Authorized Capital
5,000.00
10,000.00
10,000
10,000.00
20000.00
Paid-up Capital
3801.60
4752.00
6177.60
7,413.12
10007.71
Share Money Deposit
1.99
1.99
1.99
1.99
1.99
Reserves Fund
7418.05
9308.49
13927.94
16,081.14
17792.50
Retained Earnings
950.40
1425.60
1853.28
2,594.59
3202.47
Total Equity
14957.74
18572.08
23619.81
28,400.03
33716.73
Equity /Capital 860.58 surplus/(Deficit)
1243.14
3344.16
Total Deposits (Including bills 166325.29 payable) Gross
202115.45
244292.14
Total Investments (Including Inv in 165286.32 Share) Gross
187586.55
225752.41
Total Investments (Excluding Inv in 144920.61 Share) Gross
180053.94
214615.80
Import Business
137086.00
168329.00
161230.00
246,281.00
301207.00
Export Business
66690.00
93962.00
106424.00
148,421.00
178244.00
Remittance
84143.00
140404.00
194716.00
214,629.00
236607.00
Total Foreign 287919.00 Exchange Business
402695.00
462370.00
Total Income
17699.52
23756.33
25403.86
30,128.90
38401
Total Expenditure
13918.70
17408.50
188886.20
21674.20
28053.98
5287.58
291,934.60
275,493.94
796024
341853.67
322772.83
263225.13 305840.56
609,331.00
716058.00
Net Profit before Tax
3780.82
6347.83
6517.66
8,454.70
10347.30
Net Profit after Tax
1427.36
2674.80
3403.55
4463.47
4814.45
Payment Government Tax)
to (Income 2322.46
4,108.98 3245.08
3253.23
5515.56
30% (Stock)
Cash 10% 35% 20% (Stock) (Stock)
Cash 7% 25% stock
Total Assets (including 250012.79 Contra)
288017.19
340638.49
Total Assets 191362.35 (Excluding Contra)
230879.14
278302.84
Fixed Assets
4407.22
6512.36
Number of Foreign 265 Correspondents Bank
275
295
Number Shareholders
26488
33686
52164
Number of Employees
8426
9397
9588
10,349
11465
Number of Branches
*186
*206
*231
*251
*266
Market value per share 70.00 (taka)
83.00
89.00
Book value per Share 236 (Taka)
228
271.22
Cost of fund %
9.06%
9.56%
8.76%
8.65%
8.86%
Cost income ratio
0.79
0.72
0.74
0.68
0.73
Dividend
25% ( Stock)
3987.23
of
443,684.79
330,586.12
6,748.44 295
58,923
90.00
316.93
502613.05
389192.12
7100.19
313
60550
83.98
320
Return on (ROE)%
Equity
Return on (ROA) %
Assets
13.00%
19.02%
16.93%
0.84%
1.27%
1.34%
Price earnings ratio
17.88
10.78
12.87
Earnings (Taka)
3.00
4.33
4.59
1.69
2.05
2.18
Market Value per 700.00 Share (Taka) (Highest)
830.00
890.00
Capital Ratio
10.72%
11.65%
per
Share
Price equity Ratio
Adequacy
10.61%
19.00%
1.47%
13.29 4.46
2.52 879.00
**11.06%
17.42
1.35%
11.27
4.84
1.96
83.98
13.09%
Note: One Million = Ten Lac