Different Modes of Investment of Islami Bank Bangladesh Limited

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Different Modes of Investment of Islami Bank Bangladesh Limited

Introduction

Economic history shows that development has started everywhere with the banking system and its contribution towards financial development of a country is the highest in the initial stage. Modern banks play an important part in promoting economic development of a country. Bank provides necessary funds for executing various programs in the process of economic development. They collect savings large masses of people scattered throughout the country, which in the absence of banks would have remained ideal and unproductive. These scattered amounts are collected, pooled together and made available to commerce and industry for meeting the financial requirements

Bank plays a vital role in the economy by providing means of payment and in mobilizing resources. Bank is the most financial institution in the economic. The economic development of a country depends on the development of banking sector. Today’s modern are not only providing traditional banking but also expanding the many financial services. In today’s world the life of the people directly or indirectly are within the arena of banking whether Islamic or conventional. Although Islami Banking is not a newer concept in Bangladesh as it has started its operation since 1983, very few people are aware about its operation. But things are changing. Islamic Banking is very much popular now in the country. It has achieved the 1^st position in the country with the concept that an Islamic banking is a financial institution that operates with the objective to implement and materialized the economic and financial principles of Islam in the banking arena.

Internship program is essential for every student, especially for the students of Business Administration, which helps them to know the real situation. For this reason a student takes the internship program at the last stage of the BBA to launch a career with some practical experience. Against this backdrop, we have completed our two months internship in the Islami Bank Bangladesh Ltd, Rampura Branch, Dhaka. This has helped us a lot to understand the real life situation of banking business.

1.1 ORIGIN OF THE REPORT

Banks are very important financial institution in the economy. The present economic state of Bangladesh demands immediate development of the financial institutions. The banks have a lot of areas to improve upon. To build up potential future banker there is a practical orientation stage of two month. The report helps to build a perception about day to affairs of the bank.

Course instructor has authorized me to prepare a report on “Different modes of Investment of Islami Bank Bangladesh Ltd” which will be regarded as the “Internship Paper.” He authorized our orally how can analyze the study. Based on his lecture, have prepared this report. \

1.2 REPORT OBJECTIVE

The first objective of writing the report is fulfilling the partial requirement of the BBA program. In this report, have attempted to give an overview of Islamic Bank Bangladesh Limited in investment. The study aims at some objectives, which are as follows:

• Understanding the overall picture of IBBL investment modes.
• Understanding how an Islami Bank runs its business without interest.
• How an Islami Bank earns its profits through investment.
• Assessing the ratio of mode wise investment.
• Finding out the risk and profitability of different modes theoretically.

1.3 SCOPE

The scope of the study includes the modes of investments of Islami Bank Bangladesh Ltd.

It did apparently depend on the information that has been provided by the organization and also the data that has been collected in general on the basis of all of this a recommendation has been given as well.

The study on “Different modes of investment of Islami Bank Bangladesh Ltd. ” was conducted at Rampura Branch of IBBL located at Rampura with a view to know about the investment mechanism of Islami Bank Bangladesh Ltd.

1.4 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 (7 day) at Islami Bank Training and Research Academy (IBTRA).
• Working with the employees in the Rampura Branch of Islami Bank Bangladesh Limited.
• Official records of the various department of IBBL, Rampura Branch.

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

• Various Manuals on Investment Mechanism.
• Prospectus, Annual report, Different journals of IBBL.
• Relevant Books and
• Website

1.5 LIMITATIONS

Everything has its limitation. Report is not also out of weakness. Have considered the following causes are the limitations of the study. The limitations acquainted with this report are as the following:

· Time limitation: Learning overall activities and performance of a bank with in 2months is really difficult. Also there was time limitation because the employees of the bank are busy persons. So, they tried to give me as much time as possible in a short time. If get more time then this report would be more presentable and informative.

· Limitation of data: The IBBL website is not properly updated.

· Real situation: The real situation is different from the bookish concept. Some concepts varied from industry to industry, bank to bank. Some academic concepts and real company applying concepts are different in some cases too. But have tried to incorporate with a proper solution and to some extent I am successful.

· Confidentiality: Bank has some policy for not disclosing some data and information for obvious reasons that could be very much essential.

2.1 Definition of Islamic Bank:

An Islamic Banking is a financial institution that operates with the objective to implement and materialized the economic and financial principles of Islam in the banking arena.

The Organization of Islamic Conference (OIC) defined an Islamic Bank as ’’a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations.’’

According to Islamic Banking Act 1983 of Malaysia, an Islami Bank is a ‘’company which carries on Islamic Banking business, Islam Banking business means banking business whose aims and operations do not involve any element which is not approved by the religion Islam.

2.2 Brief Overview on Islami Bank Bangladesh Limited

Islami Bank Bangladesh Limited was incorporated as the first Shariah based interest-free Bank in South-East Asia on the 13^th March 1983 as a Public Limited Company with limited liability under the Companies Act, 1913 (At present the Companies Act, 1994) and obtained Certificate of Commencement of Business on 27^th March 1983.

The first branch of the Bank i.e. Local Office, Motijheel, Dhaka started functioning on the 30^th March 1983. The Bank was ceremonially inaugurated on the 12^th August 1983. The Authorized Capital of the Bank is Tk. 20,000 million and Paid-Up Capital is Tk. 10,007.172 million. The shareholding of Foreign and Local Shareholders in the Paid-Up Capital is 57.85% and 42.15% respectively as on 30.06.2011.

Total Shareholders of the bank were 63001 and total officials of the bank were 11,033 as on 30^th June 2011. The Bank’s Corporate Headquarter is housed in its own 18-stored modern building at 40, Dilkusha Commercial Area, Dhaka. The total Equity of the bank stood at Tk. 29,963.40 million as on 31^st March 2011. Bank had 12 Zonal Office, 261 Branches, 43 AD Branches and 30 SME/Krishi Branches in the country.

Islami Bank Bangladesh Limited was established with the objective to do good and bring welfare to the people, not only to earn profit. Today with interest-free nature it has earned the sole position in Bangladesh.

2.3 MISSION & VISION OF IBBL

? Mission of IBBL:

To establish Islami Banking through the introduction of a welfare oriented banking system and also ensure equality 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 development areas of the country.

To encourage socio-economic uplift and financial services to the low income community particularly in the rural areas.

? Vision of IBBL:

Vision of IBBL is always to strive to achieve superior financial performance, be co considered a leading Islami Bank by reputation and performance.

? Goal of IBBL is to establish and maintain the modern banking techniques, to ensure the soundness and development if the financial system based on Islami 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 the stability of financial system.

? IBBL will try to encourage saving in the form of direct investment.

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

2.4 FEATURES OF IBBL

The bank is committed to run all its activities as per Islami Shariah. IBBL through its steady progress and continuous success has earned the reputation of being one of the leading private sector banks of the country. The distinguishing feature s of IBBL is as follow:

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

· Establishment of participatory banking instead of banking on debtor-creditor relationship.

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

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

· It plays a vital role in human resource development and employment generation particularly for the unemployed youths.

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

2.5 Islami Bank Bangladesh Limited: The departments at a glance

Figure-01: Departments of Islami Bank Bangladesh Limited.

2.6 FUNCTIONS OF IBBL

The operation of Islamic Bank Bangladesh limited can be divided into three (3) major categories:

1. General Banking: it includes: –

a. Mobilization of deposits

b. Receipts and payment of cash.

c. Handling transfer transaction.

d. Operations of clearing house

e. Maintenance of accounts with Bangladesh bank and other bank.

f. Collection of cheque and bill.

g. Issue and payment of Demand Draft, telegraphic transfer and payment Order.

h. Executing customers standing instructions.

i. Maintenance of safe deposit lockers.

j. Maintenance of internal accounts of the bank.

While doing all the above noted work IBBL issue cheque-books, Deposit account operating form, SS card, Ledgers, Cash book, Deposit account ledgers, preparation statement of accounts, Pass book, Balance of different accounts and calculates profits.

Islami Bank Bangladesh limited offers to open the following account to the depositors:

1. Al-Wadeeah Current Account.

2. Mudaraba Savings Account.

3. Mudaraba Term Deposit Account. (3 month / 6 month / 12 month / 36 months term)

4. Mudaraba Special notice Account

5. Mudaraba Hajj Savings Account (1 year to 25 year term)

6. Mudaraba Special savings (pension) Account (5 year to 10 year term)

7. Mudaraba Savings Bond Scheme (5 year & 8 year term)

8. Mudaraba Foreign Currency Deposite Account.

9. Mudaraba Monthly Profit Deposite Account (3 years to 5 years).

10. Mudaraba Muhor Savings Account.

11. Mudaraba Waqf Cash Deposit Account.

12. Mudaraba NRB Savings Bond (5 to 10 years).

Deposit

Deposit is one of the principal sources of fund for investment of banking sectors and investment of deposit is the main stream of revenue in banking business. The total of the bank stood at tk.291,934.60 million as on December 2010 against tk.244,292.14 million of the previous year. This growth rate may be termed as a high remarkable achievement for the bank.

Table -1: Total Deposit of IBBL

Source: (Annual Report of IBBL from 2006-2010)

2. Investment:

IBBL 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:

Bai-Mechanism

· Bai-Murabaha

· Bai- Muzzal

· Bai-Salam

· Istishna

Leasing, Ijara

· Hire Purchase (HP)

· Hire Purchase under shirkatul melk (HPSM)

Shirkat Mechanism (Share)

· Musaraka

· Mudarab

Investment

Investments are the core asset of a bank. For this bank gives emphasis to acquire quality assets and does appropriate lending risk analysis and follows all the terms and conditions of CRM (Credit Risk Management) while approving investments to clients. Total amount of investment stood at tk.263,225 million as on December 31, 2010

Table -2: Total Investment of IBBL

Source: (Annual Report of IBBL from 2006-2010)

3. Foreign Exchange Business

Foreign Exchange Business plays a vital role in providing substantial revenue in the bank income pool. Like all modern Banks IBBL operates in the area of the foreign Exchange business. IBBL performs the following tasks:

a) Opening letter of credit (LC) against commission for importing industrial, agricultural and other permissible items under Islamic Shariah and Import policy.

b) Opening letter of credit on the principle of Mudaraba sale, on the principle of Musharaka sale and under wage earner scheme.

c) Handling of export/import document.

d) Negotiation of export / import document when discrepancy occurs.

e) Financing in import under MPI (Murabaha Post Import)

f) Financing to export on profit or loss sharing.

g) Handling Inward and outward remittance.

Import Business

During the year 2010 bank opened 46,736 import letters of credit for tk. 246281 million as against 38,717 letters of Credit for tk.161,230 million in 2009 showing 53% growth in amount.

Table -3: Total Import of IBBL

Source: (Annual Report of IBBL from 2006-2010)

Export Business

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 39.46% growth in amount.

Table -4: Total Export of IBBL

Source: (Annual Report of IBBL from 2006-2010)

Foreign Remittance

Islami Bank Bangladesh Ltd. 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.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.

Table -5: Total Foreign Remittance of IBBL

Source : (Annual Report of IBBL from 2006-2010)

2.7 Other activities:

TheIBBL performs the following task for the welfare of the society:

· Income generating scheme for the unemployed youth of the nation.

· Monorom sale center for marketing homemade garments, handicrafts and other items.

· Education scheme for assisting poor scholar student to case and help them to continue their study.

· Health scheme for fulfillment of health needs of rural people.

· Islamic bank hospital was established to extend first hand modern and contemporary medical service to the people on non-profit business.

· Humanitarian assistance is being provided to the poor, families affected by river erosion and for marriage of poor girls.

· Energy relief operations are provided to the people affected by natural calamities.

· Assistance to mosque for construction, repair and renovation.

2.8 Special Services of IBBL

» SWIFT (Worldwide Inter-Bank Financial Telecommunication)

Secured Locker Service is provided in some branches of the Bank. Customers may avail this service and secure their valuables.

Source : Web Site of Islami Bank Bangladesh Limited (www.islamibankbd.com)

» ATM Facilities

Table -6: Growth of Income and Expenditures of IBBL(2007-2010)

Source: (Annual Report of IBBL from 2006-2010)

Figure-02: Growth of Income and Expenditures of IBBL (2007-2010)

It is entirely a new banking system which was adopted for a better change in socio-economical condition and to make the banking function dynamic. In the modern world Islami Bank is developing banking activities for the welfare of the people according to the Islami Shariah. IBBL has achieved stable growth and continuous progress to be one of the leading private sectors Bank of the country.

2.9 Successful Achievements of IBBL:

IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh. The success of IBBL has embedded other sponsors at home and abroad to establish Islamic Banking in Bangladesh. Several existing and proposed traditional Banks have also expressed their intention to introduced Islamic Banking.

Ratings

Ratings agency: Credit Rating Information and Services Limited (CRISL)

Long-term ‘AA+’

Short-term ‘ST-1’

Basis of Rating

· Wide Branch Network.

· Strong Market Share.

· Stable Customer Deposit Base.

· Diversified and Innovative Product Line.

· Experienced Management Team.

· Contribution to Corporate Social Responsibility.

· Good Financial Performance.

· Good Asset quality.

· Comfortable liquidity position and low cost of fund.

Achievements of IBBL can be given as under:

· The Global Finance, a reputed U.S.A. based quarterly Financial Magazine, awarded IBBL as the best Islamic Financial Institution of the country for the years 2008, 2009, and 2010. The Global Finance also awarded IBBL as the best bank of the country for the year 1999, 2000, 2004 and 2005.

· The Institute of Cost and Management Accountants of Bangladesh (ICMAB), awarded IBBL as the ICMAB National Best Corporate Award-2007 and ICMAB Best Corporate Performance Award-2008.

· Credit Rating Information and Services Ltd. (CRISL) rated AA+ (High Safety) for long term & ST-1(Highest Grade) for short term for the year 2009.

2.10 SWOT ANALYSIS

SWOT analysis is the detailed study of an organization’s exposure and potential in perspective of its strength, weakness, opportunity, and threat. As through this tool, an organization can also study its current position, it can also be considered as an important tool for making changes in the strategic management of the organization.

Strengths:

· Islami Bank Bangladesh Limited has already established a favorable reputation in the banking sector of the country. It is one of the leading private sector islamic banks in Bangladesh. The bank has already shown a tremendous growth in the profit, deposit, investment & foreign exchange.

· Islami Bank Bangladesh Limited has been providing its banking service under top leadership and management.

· Islami Bank Bangladesh Limited has already achieved a high growth rate. The number of depositor and investment client are increasing rapidly.

Weakness:

· Most of its investment has been made in Bai-Murabaha & HPSM. Other investment modes have not been as popular as those two.

· Some of the job in ISLAMI BANK Limited has no growth or advancement path. So lack of motivation exists in persons filling those positions. This is a weakness of the Bank that it is having a group of unsatisfied employees.

· In terms of promotional sector, ISLAMI BANK Limited has to more emphasize on that. They have to follow aggressive marketing campaign.

Opportunity:

· The performance of IBBL today is in the highest apex in all the sectors like deposit, investment, export, import and remittance. But in the days to come it can face a great challenge in the market as large number of islami banks are flourishing their business to compete with IBBL. So bank should develop its business different prospective to face the challenge of time.

· IBBL has more than 100 ATM (Debit Card) network in all over the country. It can introduce Credit Card to meet the demand of the customers.

· IBBL holds highest portion of remittance earning in national market. So it can introduce an international standard remittance card for the easy withdrawal of remittance any time.

Threats:

· All sustain and upcoming multinational, foreign and private as well as local islami banks pose enormous threats to Islami Bank Bangladesh Limited.

· The default risks of all terms of investment have to be minimizing in order to sustain in the financial market. Because the default risks lead the organization toward bankruptcy. Islami Bank Bangladesh Limited has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem.

The low compensation package of the employee motivation. As a result, good quality employees leave the organization and its effects the organization as a whole.

3.1 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.

3.2 Investment Objective and Principles IBBL

The objectives and principles of investment operations of the banks are:

• The investment fund strictly in accordance with the principles of Islamic Shariah.
• To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural.
• To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment and monitoring therefore.
• To invest in the form of goods and commodities rather than give out cash money to the investment clients.
• The Bank extends investments under the principles of Bai-Marabaha, Bai- Muazzal, Hire Purchase under Shirkatul Melk and Musharaka.

3.3 Different Modes of Investment of IBBL

Figure-03: Different Modes of Investment of IBBL

Bai- Machanism

Under Bai-Modes of Islami Bank Bangladesh Ltd practiced different kinds of investment modes. These are given below:

A.Bai-Murabaha:

The term “Bai-Murabaha” has been derived from Arabic words Bai and Ribhun. The work Bai Means purchase and sale and the word Ribhun means an agreed upon profit. “Bai-Murabaha” means sales on agree 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 loan to be buyer to a cost plus agreed profit payable in cash or on any fixed future date in lump sum or by installments. The profit marked up may be fixed in lump sum or in percentage of the cost price of the goods.

Types of Murabaha:

In respect dealing parties Bai-Murabaha may be of two types.

a. Ordinary Bai-Murabaha: If there are two parties, where the seller is an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to buyer for cost plus profit then the sell is called ordinary Bai-Murabaha.

b. Bai-Murabaha on order and promise: If there are three parties, the buyer, the seller and the Bank as an intermediary trader between the buyer and the seller, where the bank upon receipt of order from the buyer with specification and a prior understanding promise to buy the goods from the bank purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit the sale is called Bai-Murebaha on order or promise.

Important Features:

• Client offers an order to purchase by the Bank any specified goods.
• Client makes promise to buy the same from the bank.
• Permissible to take cash security to guarantee the implementation of the promise.
• Permissible to document the debt by guarantor/mortgage.
• Mortgage/ guarantee/ cash security may be obtained before/ at the time of signing the Agreement.
• The bank must acquire ownership of the goods before signing the Murabaha Agreement.
• The bank must bear the risk of the goods until those are actually delivered to the client.
• The bank must shall sell the goods at higher price(Cost+profit).
• Price once fixed and deferred cannot be further increased.
• Bank declares the cost of goods & profit Make-up separately to the client.

Categories the Proposal As Under:

a. Bai-Murabaha Commercial:

Investment for purchase and sale of goods to individual or firm or company for trading purpose shall be termed as Bai-Murabaha commercial.

b. Bai-Murabaha Industry:

Investment to industrial undertaking in the form of supply of machineries equipment’s, raw materials etc. will be termed as Bai-Murabaha industry.

c. Bai-Murabaha Agriculture:

Investment to agriculture sector for supply of seeds, fertilizer etc. shall be termed as Bai-Murabaha Agriculture.

d. Bai-Murabaha Import:

Investment for import termed as Bai-Murabaha import.

B.Bai-Muajjal

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

Definition

In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installments.

Important Features

· To offer an order by the client to the bank.

· To make the promise binding upon the client to prophase from the bank and also to indemnify the damages caused by the breaking the promise.

· To take security in the form of cash/kind/collaterals.

· To document the debts resulting from Bai Muajjal.

· Stock & availability of goods is a basic condition.

· Bank must bear the risk until delivery of the goods to the client.

· Bank may sell it at a higher price.

· Price once fixed cannot be increased.

Table -7: Difference between Bai-Murabaha & Bai-Muajjal

C.Bai-Salam

Bai-Salam may be defined as a contract between a buyer and 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)/ product(s) to the buyer at a future time in exchange of an advanced price fully paid on the spot.

Important Feature:

There are some important features of Bai-Salam as given below:

• The Transaction is considered Salam if the buyer has paid the purchase price to the seller in full at the time of sale.
• Salam can be effected in those commodities only the quality and quantity of which can be specified exactly.
• The exact date and please of delivery must be specified in the contract.
• The things whose quality or quantity is not determined by specification cannot be sold through the contract of salam.
• Unit price and total price of the commodity must be fixed and mentioned.

D.Istisna

A purchase order/contract whereby a buyer orders a seller to manufacture an asset according to specifications in the purchase contract to be delivered on a certain future date. The settlement of the purchase price is according to an agreed terms and conditions between the two parties.

Important Feature:

• Istisna’a contract is another exceptional method where by commodities are bought and sold without existence of it.
• Delivery of goods is deferred and payment may also be delayed. Advanced payment/spot payment like Bai-Salam is not necessary. However payment may be made in advanced or by installment.
• Sometimes advance payment against the goods is being paid to meet the production cost.
• Buyer gets the opportunity to make payment within the stipulated date in future or by installments.
• If the production of the commodity started or full or part payment is made, none of them can revoke the contract.

Table -8: Difference between Bai-Salam & Bai-Istisna’a

Share Modes

1.Murabah

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

Important feature:

• Capital must be specified & capital must be in currency.
• Delivery of capital to Mudarib & capital not a liability debt on Mudarib.
• Mixing of private capital permissible.
• Imposition of restriction on Mudarib allowed.
• Hiring helping hands by Mudarib permissible.
• Disposal of the Mudarib allowed.
• No accountability except negligence.
• Profit sharing as per agreed ratio & loss to be borne by the owner of the capital.
• Profit is protection to capital.
• Not a binding contract.

2.Musharaka

The terms “Shirkat” and “Musharaka” have been derived from Arabic worlds “Shairkah” and “Sharika”. The world shirkah means a partnership between more than one partner. Thus the word “Musharaka” and “Shirkat” mean a partnership established between two or more partners for purpose of a commercial venture participated both in the capital and management.

In this case of investment, “Musharaka” meaning a partnership between the bank and the client for a particular business in which both the bank and the client provide capital at an agreed upon ratio and manage the business jointly. Share the rent as per agreed upon ratio and bear the loss, if any, in proportion to their respective equity.

Main feature:

• Capital should be specified.
• Equal share is not a must.
• Nature of Capital may be money or valuables.
• Active participation of partners.
• No security for profit.
• Ratio of profit prefixed and loss as per capital ratio.
• Variation in share of profit permissible.

Table -9: Difference between Musharaka & Mudaraba

Ijara Modes

1. Hire Purchase:

It is a contract between two parties, one is Hiree & another is Hirer to acquire rentable assets by the Hiree and for taking the services of the Asset by the Hirer against rent and payable the value of the asset to the Hiree for getting the Ownership of the Asset.

2. Hire Purchase Under Shirkatul Melk:

Under this mode Bank may supply implements/ equipment/goods on rental basis. The ownership of the implements/equipment/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 closure of the investment account, but the client will be authorized to possess the equipment for certain period. The client, after completion of the installments, will be the owner of the implements/ equipment/goods.

Meaning and Definition

Hire Purchase under Shirkatul Melk is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:

· Shirkat

· Ijara

· Sale

Shirkatul Melk

Sirkat 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 benefits as per agreement, the contract is called Shirkatul Melk.

Ijarah

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

Sale

This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by The buyer.

The Bank sells and transfers the ownership of it’s share / part / portion to the Client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.

Table -10: Difference between Hire Purchase & Hire Purchase under Shirkatul Melk

Investment growth of IBBL (2006-2010)

Figure-04: Investment growth of Islami Bank Bangladesh Limited

This graph shows the total investment of IBBL in different year. From this graph we can see that in the year2006, investment of the bank was low in comparison to the year 2010. So we can say that the bank’s investment is increasing.

3.4 Investment Schemes of IBBL

Islami Bank Bangladesh Limited being welfare oriented institution has now designed and implemented investment schemes keeping in view the needs of different sectors and various sections of people for their socio-economic uplift and to improve their quality of life. The schemes are as follows:

Household Durable Investment Scheme

In a developing country like Bangladesh people of middle and lower class especially 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 cannot enhance the standard and quality of life to the desired level due to the constraints of their limited income. Islami Bank Bangladesh Limited has, therefore, introduced Household Durables Investment Scheme that has already created great enthusiasm among the people and received tremendous response from them.

Investment Scheme for doctors:

Experienced and specialist physicians who are providing Medicare facilities to the people in different towns with their limited and outdated Medical equipment will be able to improve the standard of their techniques of treatment and also make the modern treatment facilities available to more people, if investment facilities are extend to them for procurement of modern and improved medical equipment. The constitution of Bangladesh has made it obligatory to ensure good health for all and the government is also committed to ensure good health for all.

In view of the above facts, Islami Bank Bangladesh Limited has taken the initiative an introduced the “Doctors Investment Scheme” to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment.

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 transport has increased manifold throughout the country. 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 transport. Besides, Multinational companies, established business house and well to do officials and professionals can become owner of various kinds of transports through Hire Purchase under scheme.

Car Investment Scheme:

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 cannot 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 semi-government organizations, corporations, executive and directors of big business houses and companies and also for persons of different professional group on easy payment terms and conditions.

Small Business Investment Scheme:

Bangladesh, a third-world developing country, is rich in natural and human resources. A large segment of this population is active youth force. Many of them are efficient, intelligent and energetic and have courage to take risk. But they cannot uplift their socio-economic condition due to poverty, lack of financial support and other required facilities. Lack of capital compelled many small traders to leave their profession. As a result the unemployment problem has been increasing day by day, and the unemployment youths, finding no avenues of employment, are getting themselves involved in ant-social activities creating threat to the social life.

To solve this problem Islami Bank Bangladesh Limited introduced ‘Small Business Investment Scheme’ to make the small traders, entrepreneurs and neglected unemployed youths of urban and rural areas self-reliant by providing them required financial support.

Micro Industries Investment Scheme:

Islami Bank Bangladesh Ltd. has been appreciably participating in creating employment opportunities by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch “Micro Industries Investment Scheme” through its Branches. This scheme has been devised to cater to the investment needs of those persons who intend to set-up new micro industrial ventures or to restructure their old units by way of BMRE involving a total cost of Tk. 5.00 lac. The scheme has been prepared with easy terms and conditions to encourage the small entrepreneurs, educated unemployed youths and skilled/semi skilled persons to come forward for establishment of micro industries commensurate with the local demand.

Agriculture Implements Investment Scheme:

Islami Bank Bangladesh Limited is a welfare oriented Bank. It can ply positive and important role in the economic development, progress and uplift of the country by investing in the agriculture sector. The Bank has, therefore, introduced “ Agriculture Implements Investment Scheme” to provide power tillers, power pumps shallow tube wells, thrasher machine etc. on easy terms to the unemployed youths for self-employment and to the farms to help augment production in agricultural sector.

Housing Investment Scheme:

One of the basic human needs is to have a house to live in. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis. With limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class people 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 housing.

Real Estate investment Program:

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

Rural development Scheme:

In Bangladesh rural areas are characterized by stagnant and scanty industries. Underemployment and unemployment is the regular feature particularly in rural areas. The vast human resources have remained unutilized due to lack of education and training and also concerted efforts directed towards the rural economy.

Accordingly, a Scheme in the name and style of ‘Rural Development Scheme’ has been introduced to cater to the investment needs of the agricultural and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty.

3.5 Investment procedure

The investment procedures of Islami Bank Bangladesh Limited are summarized below:

1. Application: At first of investment procedure the client should write an application to bank for investment. In application the client should write down the reason with details. With the application the bank begin the procedure and require other related details.

2. Introduction of the client:

– Following points should be considered while selecting clients:

a) Honesty b) Integrity c) Commitment d) Ability e) Potentiality

f) Efficiency

g) Skill & Expertise and h) Genuineness.

-Opening of Al-Wadia C/A with 6 months satisfactory transaction.

-Existing clients with 3years of good-will shall get preference.

3. Application with prescribed form-167A(revised)

4. Appraisal: Study on the information, if correct, then apprise with the another format 167B (revised) with incorporation of all information, particulars, figures and statistics.

5. Formation of Equity and profit sharing Ratio:

-Capital ratio depends on merits of the client, items and nature of the business but not less than 20%.

-Share of capital supplied by cash or kind in case of mudaraba.

-Value of asset may be determined or as agreed upon by contracting parties.

-Profit ratio may differ from business to business depending on the risk factor and profitability of business.

-Profit sharing ratio does not fall below the anticipated ratio of rate of return 16.5% on the rate fixed by the Head Office.

6. Security: Collateral security or personal guarantee required due to willful negligence and mismanagement/ violation of terms of contract and observation may happen by the client.

7. Period: On the basis of trade norms and nature of business of client.

8. Sanction:

– Sanction by Head Office to be forwarded though VP. Investment Department except RDS proposals.

-Recommended by committee of the branch and Zonal office.

-Issuance of sanction advice by the branch with the terms of Head Office sanction.

-For RDS Forms- F220A to be used