General Banking, Investment and Foreign Exchange Operations of Islami Bank Bangladesh Limited.
Banking plays an important role in the economy of any country. In Bangladesh Muslim constituted more than 80% of its population. These people possess strong faith on Allah and they want to lead their lives as per the constructions given in the Holy Quran and the way shown by the prophet Hazrat Muhammad (Sm). Naturally, it remains a deep cru in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. But no Islamic banking system was developed here up to 1983. The Traditional banking is fully based on interest it is commonly meant as commercial banks. But interest is absolutely prohibited by Islam. As a result the people of Bangladesh have been experiencing such a non-Islamic and prohibited banking system against their normal values and faith.
The present world especially the third world is affected by unemployment socioeconomic injustice inflation, inequitable distribution of income and wealth etc. The main aim of traditional banking is to earn profit by borrowing and lending money in exchange of interest. As a result there is an unfair competition among the bankers and among the customers.
Under conventional framework a bank borrows to lend and it mobilizes savings/deposits by borrowing from savers and lends those deposits to productive interest on deposits and advances respectively. The banks generally maintain a difference is known as interest-spread which is the main income of an interest-based bank. In the Islamic banking system the bank receives no interest. In this case IBBL receives its entire deposits from the investment of the clients on the basis of profit-sharing places it to the actual entrepreneurs on the basis of the profit sharing. So, it is clear that in case of the traditional banking systems, a fixed percentage of interest, irrespective of income earned is paid to the depositors. The depositors of IBBL are never deprived of excess income, which the bank may make at the end of year. Not only has this traditional bank given fixed interest rate even when they incur operational loss. The critics of Islamic banking system are of the opinion that both are found same in terms of deposits mobilization and advances investment. Banking functions of IBBL is an important aspect in our economy as it has broken the line of interest based traditional banking system through the introduction Islamic Shariah based banking. Since its commencement in 1983, it has already gained a good reputation in customers as well as the massage of people of Bangladesh. Islamic Banking is especially important in the whole countries, which are characterized by unemployment, inequitable distribution of income and wealth, etc. But there are so many constraints in our country in functioning the Islamic banking activities.
1.2 Objective of the study:
· Intention to achieve extensive knowledge about bank and banking system
· To familiar with corporate business and its environment.
· To understand the prevailing mechanism and modes of investment of Islami Bank Bangladesh limited.
· To study the performance of modes of investment of Islami Bank Bangladesh limited.
· To understand the foreign exchange operations of Islami Bank Bangladesh limited
· To highlight the general banking operations of Islami Bank Bangladesh limited
The study requires a systematic procedure from selection of the topic to final report preparation. To perform the study data sources are to be identified and collected, they are to be classified, analyzed, interpreted and presented in a systematic manner and key points are to be found put. This overall process of methodology is given sin the following page in the form of flow chart that has been followed in the study.
A. Selection of the topic: As I am Service Holder in IBBL, After consulting with my honorable course coordinator I have decided this topics.
B. Identifying data sources: The report is prepared by using both primary and secondary data. In my report primary data has played a significant role which has been collected with help of a formatted questionnaire.
I) Primary Sources: A lots of the required information came from primary sources. These sources are –
· Face to face conversation with the officers: Officers of the general banking, Foreign Exchange & Investment Division of Mawna Chowrasta Branch.
· Practical desk work.
· Relevant file study as provided by the concerned officer
· Face to face conversation with the respective officers and staffs.
· Interviewing officers and staffs.
· Relevant file study on provided by the officers concerned.
· In depth study of selected cases.
ii) Secondary sources: Conceptual parts of the report have been collected by studying different literatures regarding credit appraisal system. Some of these secondary sources are:
· Different Circulars issued by the Head Office and Bangladesh Bank
· Different ‘Investment Manual’, published by IBBL.
· Annual Reports2005, 2006,2007,2008,2009 of IBBL.
· Newspaper information on several days
· Audit Reports.
· Relevant books, Newspapers and Journals.
C. Classification, analysis, interpretation and presentation of data: Some arithmetic and graphical tools are used in this report for analyzing the collected data and to classifying those to interpret them clearly.
D. Findings of the study: The collected data were scrutinized very well and were pointed out and shown as findings. Few recommendations are also made for improvement of the current situation.
E. Final report preparation: On the basis of the suggestions of our honorable program Director some corrections were made to present the paper in this form
1.4 Scope of the Study
This present study covers general banking, investment and foreign exchange operations of Islami Bank Bangladesh Limited (IBBL). This study is confined to only this bank other than conventional bank.
1.5 Limitation of the study
· Islami Banking system is different than the traditional banking system
· It is very difficult to analyze this issue without proper knowledge about Islamic banking and economy.
· As it is not conventional so it bears some complexity to understand.
· Some words are in Arabic terms that make it difficult.
· It is time consuming to differentiate & understand interest & profit.
Islami Banking and Islami Bank
2.1 What do we understand by Islamic bank?
This is for those who want to lead their financial life based on Islamic shariah. Islamic Bank developed under Islamic framework, performs most standard banking service and investment activities on the basis of profit-loss sharing system conforming the principles of Islamic Shariah. It operates with the objectives to implement and materialize the economic and financial principles of Islam in the banking arena.
According to Organization of Islamic Conference (QIC), “Islamic bank is 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 Dr. Ziauddin Ahmed “Islamic Bank is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam.”
Although Islamic Bank is a financial institution, its operations and activities shows that Islamic Bank as a Business firm with Halal transactions within the boundary of Islami Shariah .The main objective is not only to earn profit but also to make welfare oriented interest free and exploitation free economy of a country. This is the motto of Islami Bank.
2.2 History and progress of Islamic Bank all over the world:
In this millennium, Islamic Bank with its special features acquainted with a new member in the money market especially in financial and banking world. Islami Banking gradually evolved during the last thirty years in some parts of the Muslim world. During 1960’s it was observed that Muslims Malaysia used to save money primarily for performing Hazz. Such savings mostly kept idle in pillows, under mattresses and floor for avoiding interest, which was unproductive and damaging for the growth and development of economy. For utilizing such saving the Government of Malaysia in 1962 established an interest free financial institution known as “Pilgrims Saving Corporation”. In 1963 Dr. Ahmed-Al-Nazzar established a savings bank at Mit Ghamar in Egypt by his personal endeavor with a view to bring some development in socio-economic field in the process of Islam. This Mitt Ghamar is considered as Modern Islami Banking and A.A. Nazzar is considered as the Father of Islamic Banking System.
A survey report by the National Institute for Management Development, Cairo, Egypt, shows that the Mitt Ghamr Bank was tremendously succeeded in achieving its objectives and the tremendous success of the Bank was the cause of its closure by the vested interest in 1967.
Islamic Development Bank was established in 1975 and during the following three years Seven Islami Banks & financial institutions was established. Name of this banks are given follows:
i) Dubai Islami Bank
ii) Kuwait Finance House
iii) Faisal Islami Bank, Sudan
iv) Jordan Islami Bank for Finance and Investment
V) Islamic Bank System International Holding S. A. Luxembourg
vi) Faisal Islami Bank of Egypt
vii) Islamic Investment Co. Ltd.
In 1978 Islamic foreign minister conference is Dakar, capital of Senegal, the ministers decided that the member of OIC would take systematic efforts to establish Islamic Banking gradually and within the next three months their plan came into existence. In 1978 the Faisal Islamic Bank of Sudan was established. In Bangladesh Islamic Bank named Islami Bank Bangladesh Limited (IBBL) was first found on March 13, 1983 and opened its operation formally on March 30, 1983. Malaysia Islamic bank was established in July 1983 that was the second Islami Bank in South and South East-Asia.
Now more than 300 Islamic Banks and Islamic Institutions have been operating their business all over the world. Besides Muslim countries, Islamic Banks are operating their banking business in non-Muslim countries as well.
2.3 Historical Background of IBBL:
In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah.
In January 1981, the President of People’s Republic of Bangladesh While addressing the third Islamic conference held at Mecca and Taif suggested “The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce”
This statement of the president indicated favorable attitude of the government of the People’s Republic of Bangladesh towards establishing Islamic banks and financial institution in the country.
In early November 1980, Bangladesh bank, the country’s Central Bank, sent a representative to study the working of several Islamic Banks abroad.
In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready from for immediate introduction. Two professional bodies of Islamic Economic Research Bureau (IERB) and Bangladesh Islami Bankers’ Association (BIBA) made significant contribution towards introduction of Islami Banking in the country.
They came forward to provide training of Islamic banking to top bankers and economists to fill up the vacuum of leadership for the future Islami Bank in Bangladesh. They also had seminars, symposiums and workshops on Islami economic and banking throughout the country to mobilize public opinion in favor of Islami Banking.
Their professional activities were .reinforced by a number of Muslim entrepreneurs working under the support of the then Muslim Businessmen society (now reorganized as Industrialist & Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islami Bank.
At last, the long drawn struggle to establish an Islami Bank in Bangladesh become a reality and Islami Bank Bangladesh limited was established in march 1983 in which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the middle East and Europe including IDB and two eminent personalities of the kingdom of Saudi Arabia joined hands to made the dream a reality.
Later, other Islami Banks, Islami Insurance Companies and Financial Institution were established in the country. Some traditional banks opened Islamic banking branches in some major cities.
2.4 Core Objectives of IBBL:
The basic objectives of Island bank Bangladesh Limited can be pointed out as follows:
· To conduct interest free banking systems according to Islamic Shariah.
· To make investment through different modes permitted under Islamic Shariah.
· To avoid the production of harmful goods and services.
· To eliminate socio-economic in-justice.
· To establish economic equality.
· To eliminate economic exploitation.
· To avoid economic instability.
· To avoid evil, wrong and injurious practices from economic life.
· To cover the fulfillment of the basic needs of the people.
· To realize the full potential of the economy.
· To provide safely net for the weak, poor and distressed.
· To develop human resources for enhancing economic growth and quality of life.
· To establish a well-balanced economic system.
2.5 Mission and 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 to always strive to achieve superior financial performance, be 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.
2.6 Difference between Riba (interest) and Profit
There is debate on the similarity of Riba and profit. In effect they are fundamentally different from each other. These differences are given below:
|1. When money in ‘charged’, its imposed positive and definite result of Riba||1. When money is used in trading (for e.g.) its positive and defines result is Riba uncertain result is profit.|
|2. By definition, Riba is the premium paid by the borrower to the lender along with principal amount as a condition for the loan.||2. By definition, profit is the difference the borrower to the lender along with between the value of production and the cost principal amount as a condition for the loan of production.|
|3. Riba is prefixed, and hence there is no uncertainty on the part of either the givers of the takers of loans.||3. Profit is post-determined, and hence its uncertainty on the part of either the givers or amount is not know until the activity is takers of loans done.|
|4. Riba cannot be negative, it can at best be very low or zero.||4. Profit can be positive, zero or even very low or zero negative.|
|5. From Islamic Shariah point of view it is Haram.||5. From Islamic Shariah point of view, it is Halal.|
2.7 Functional Department of IBBL
The Islami Bank Bangladesh Limited (IBBL), provides several services to its customers by several departments. These departments are dedicated to its millions of customers. These are given follows:
1. General banking
• Account Opening Section
• M.S.A, M.S.S.A, Haji Section
• P.O, T.D.R, D.D, T.T Section
• Cash Section
• Clearing House Section
• Transaction Entry Section
• Transfer & Locker Service Section
2. Foreign Exchange Section
• Activities for importer
• Activities for exporter
• Collecting and sending foreign remittance
Brief Profile and Performance of IBBL
ISLAMI BANK BANGLADESH LIMITED
A Brief Profile (at a glance)
|· Date of Incorporation
· Inauguration of First Branch
· Formal Inauguration
· Authorized Capital
· Paid up capital
· Share of Capital
a) Local Shareholders
b) Foreign Shareholders
· Number of Zones
· Number of Branches
· Total Deposits
· Total Investments
|: 13th March 1983
: 30th March 1983
: 12th August 1983
: Tk. 1000.00 Crore
: Tk. 617.80 Crore
: Tk. 2138.50 Crore
:Tk 24429.20 Crore
(Amount in million Taka)
Total Deposits (Inducing bills payable) Gross
|Total Investment(Including Inv in share)||97178.31||117132.83||165286032||187586.55||225752.41|
|Total Foreign Exchange Business||1476420.00||201822.00||287919.00||402695.00||462370.00|
|Net Profit before Tax||2162.42||2908.67||3780.82||6347.83||6517.66|
|Payment to Government||973.09||1490.12||2322.46||3245.08||3253023|
|Total Assets(Including contra)||150959.66||188115.27||250012.79||288017019||340638.49|
|Total Assets (Excluding Contra)||122880.35||150252.82||191362.35||230879.14||278302.84|
|Number of Shareholders||17201||20960||26488||33686||52164|
|Number of Employees||6202||7459||8426||`9397||9588|
|Number of Branches||169||176||186||206||231|
|Number of Foreign Correspondents||860||`870||884||906||919|
|Book value per Share (Taka)||238||263||236||228||325|
|Earning per Share (Taka)||48.76||36.84||30.04||43.30||55.10|
Market Value per Share (Taka)
|Capital Adequacy Ratio||9.44%||9.43%||10.61%||10.72%||11.65%|
(Note: One Million = Ten Lac)
GENERAL BANKING OPERATIONS OF IBBL
General banking is the heart of any bank. In this division bank does lots of work. These are includes Al Wadeah: – It means to keep something is safe of safety. Current account is conducted under Al Wadeah system. Mudaraba mode: – It is a business contract between two or more parties. In here one party give 100% capital but not take any part in business activities and another party give his labor in business activities. The principle of profit/loss distributing in maharaja is called loss bearing and profit shearing. In this mode client is called Saheb Al Mall and bank called Mudarib. Under this agreement profit distribution under agreed ratio and loss (if any) will be born by Saheb Al Mall. The bank distributes minimum 65% of its investment -income earned through deployment of Mudaraba Deposits among the Mudaraba depositors. Under Mudaraba mode there are many accounts as under:
3.2 Activities of general banking section
Cash section: a) Cash receipt
b) Cash payment
c) Issuance of cheque book
d) Passing, cancellation and payment of cheque.
Remittance section: issuance, payment and collection of DD, TT, P.O., OBC and IBC.
Clearing and Collection department: Clearing and Collection of instruments of different banks through central bank or its representative by clearing house.
Account section: Book keeping, maintenance of vouchers, preparation of general ledger and clean cash book. Maintenance of sundry, suspense etc A/Cs for internal purpose.
This bank provides locker service, vault & maintenance of strong room.
3.3 Principles of Distribution of Profit to Mudaraba Depositors:
The principles of calculation and distribution of profit to Mudaraba Depositors generally followed by Islami Bank Bangladesh Limited are as under:
1. Mudaraba Depositors share income derived from investment activities i.e. from the use of fund.
2. Mudaraba Depositors do not share any income derived from miscellaneous banking services where the use of fund is not involved, such as communication, exchange, service charge and other fees realized by the Bank in connection with sale and purchase of Demand Drafts, Telegraphic Transfers and Mail Transfers etc.
3. Profit and loss resulting from the use of funds are separately maintained in the accounts from other income and expenditure relating to other activities and services offered by the bank.
4. Mudaraba Deposits get priority in the matters of investment over bank’s equity and other cost free funds.
6. Mudaraba Depositors do not share any income derived from investing Bank’s equity and other cost free funds.
8. The amount of statutory cash reserve and liquidity reserve which are required to be maintained with Bangladesh Bank is deducted from the aggregate balance of Mudaraba Deposits to arrive at the net balance of profit sharing deposit.
9. The gross income derived from investments during the accounting year is, at first, allocated to Mudaraba Deposits and cost free funds according to their proportion in the total investment
a.) Minimum 65% is distributed to Mudaraba Depositors applying the rates of weight age shone below. Mudaraba Depositors share of 65% of gross investment income might further be raised by the Bank’s management at its discretion to rationalize the rates of profit to Mudaraba Depositors but it would not be reduced during any accounting year without giving prior declaration.
b.) The rest of gross investment income is retained by the bank as management fee for managing the investment & for making reserve for bad & doubtful investment.
3.4. Types and Characteristics of Deposit Accounts:
3.4.1. Al- Wadeeah Current Account (AWCA)
AWCA accounts are unproductive in nature as far as banks loan able investment fund is concerned sufficient fund has to be kept in liquid form, as current deposits are demand liabilities. Thus huge portion of his fund becomes no performing. For this reason banks do not pay any of AWCA account holder. Businessmen and companies are the main customer of this product.
3.4.2. Mudaraba Savings Account (MSA)
As per Bangladesh Bank instruction 90% of SB deposits are treated as time liability and 10% of it as demand liability. In IBBL there is a restriction about drawing money from SB account but any time accounts holder may draw money of any amount with prior notice. Generally householders and individuals are the clients of this account.
3.4.3. Mudaraba Term Deposit Account
Fixed deposit are two kind – midterm deposit (MTD) and term deposit (TD) instrument whose maturity period is within one year are known as MTD and those one year are considered as term deposit TD. Calculation of profit TDR and provisioning regarding this is quite complicated issue. Profit is calculation at each maturity date and provision is made on that. Also at the month and provision of profit is mode.
3.4.4. Special Savings Schemes
i) Mudaraba Hajj Savings Scheme (MHSS)
IBBL has introduced a scheme in the name and style of ‘Mudaraba Hajj Savings Scheme’ to facilited the intending Muslims to perform Hajj properly at appropriate age. This is purely a savings scheme for performing hajj. Any Muslim intending to perform Hajj by build up deposit required for meeting Hajj expenses will select one of the 25 alternative choices based on duration of period from 1 year to 25 years for building up savings by monthly installments under this scheme.
ii) Mudaraba Savings Bond Scheme (MSBS)
Person (s) age 18 years and above shall be eligible to purchase Mudaraba Savings Bond (s) in single name or in joint names. Educational institutions, Clubs, Associations, and other non-trading and non-profit socio-economic institutions shall also be eligible to purchase bond (s) in the name of the institutions. Guardians shall be allowed to purchase bond (s) jointly with a minor mentioning the age of minor. Mudaraba Savings Bond shall be available in Tk. 1,000.00, Tk.5, 000.00, Tk. 10,000.00, Tk.25, 000.00, Tk.50, 000.00, Tk. l, 00,000.00, and Tk.5, 00,000.00 denominations. Term: 5 years and 8 years.
iii) Mudaraba Special Savings (pension) Scheme:
Considering increasing demand from the people of all walks of the country for special and attractive savings schemes on the basis of the Islamic Shari’ah so as to enable and encourage them to save as per their capacity in Islamic way for their old age when they will normally retair from their active economic life, Islami Bank Bangladesh Limited has introduced ‘Mudaraba Special Savings (pension) Scheme’ in which a person gets the opportunity to build up savings by contribution small monthly installments for getting an attractive amount at the end of a specified term or a monthly amount for a specific period after the expire of the term.
iv) Mudaraba Monthly Profit Deposit Scheme:
Any individual may open account under this Scheme by depositing a minimum amount of Taka 1, 00,000.00 and multiples thereof at a time for 5 years. Monthly provisional profit shall be given to the account just after completion of 30 days from the date of opening of the account. The profit amount will be adjusted on completion of each accounting year after decleration of final rate of profit.
v) Mudaraba Muhor Savings Scheme:
IBBL has introduced Mudaraba Mohor Savings Scheme’ which has been designed for all classes of people particularly the professionals and service holders aiming to create an opportunity for them to save in monthly installments according to their capability for building up sufficient fund in order to meet the obligation of Muhor to their wives and to protect the rights of women ensured by the religious faith. The scheme is of 2 different terms, 5 years and 10 years. Any married bonafide citizen of the country with sound mind may open account in his wife’s name.
vi) Mudaraba Waqf Cash Deposit Account:
Mudaraba Waqf Cash Deposit Account’ is a special scheme through which savings made from earnings for the purpose of Waqf by the well-off and the rich people of the society can be mobilized and the income to be generated therefrom may be spent for different benevolent purpose. Through the scheme the bank will be able to contribute to popularize the role of Waqf in the country including casf Waqf which will be instrumental in transferring savings of the rich to the members of the public, in financing various religious, educational and social service in Bangladesh. Under this scheme one can create cash Waqf at a time or may start with a minimum deposit of Tk. 10,000/– only and the subsequent deposit shall be made by installment (s) in thousand Taka or in multiple of thousand Taka. Higher profit is given against this account. Profit from this account is utilized for social and human welfare as per instruction of the account holder.
vii) Mudaraba Foreign Currency Deposit Scheme:
Mudaraba Foreign Currency Deposit Scheme has been introduced under Mudaraba principle and endeavoring to invest the foreign currency funds in profitable way through its foreign correspondent banks under Shari’ah principle so as to enable the bank to pay profit to its FC/PFC depositors, who will intend to open/ maintain Mudaraba Foreign Currency Deposit Account in minimum 1,000/-= US Dollar.
3.5 Local Remittance:
Sending money from one place to another place for the customer is another important service of banks. And this service is an important part of country’s payment system For this service, people, especially businessmen can transfer funds from one place to another place very quickly. There are five kinds of techniques for remitting money from one place to another place. These are:
1. Demand Draft
2. Pay Order
3. Telegraphic Transfer
4. Telephone Transfer
5. Mail Transfer – Time consuming and not frequently used
IBBL sells and purchases P.O., DD, and T.T. to its customers only. It does not offer remittance service frequently to those other than its customer.
3.5.1. Pay Order (PO):
This is the service for the people. A person can do pay order transaction without having bank account Pay Order an instrument which is used to remit money within a city through banking channel the instruments are generally safe as most of them are crossed.
3.5.2. Demand Draft (DD):
Demand draft is a very much popular instrument for remitting money from one corner of a country another. The instrument is basically used for transfer and payment. Difference between pay order and demand draft is in terms of place only P.O. is issued for remitting money within the city whereas DD is used for within the country. DD too constitutes current liability on the part of a bank. At IBBL DDis not sold to people other than its customer.
3.5.3. Telegraphic Transfer (TT):
Telegraphic Transfer is one of the fastest means of transferring money from one branch to another and from one to another. The TT issuing bank instructs its counterpart by tested telex message regarding remittance of money. No instruments is given for TT both parties should have account, as money is transferred.
Telegraphic and Telephone transfer are almost the same, both are them are known as TT in short. So the basic three types of local remittances are discussed below with difference among them:
|Points||Pay Order||Demand Draft||TT|
|Explanation||Pay Order gives the payee the right to claim payment from the issuing bank||Demand Draft is an order of 1 issuing bank on another j branch of the same bank to j pay specified sum of money to payee on demand.||Issuing branch requests another branch to pay specified money to the specific payee on demand by Telegraph Telephone|
|Payment from issuing branch only||Payment from ordered ranch||I Payment from ordered
|Generally used to Remit fund||Within the clearinghouse area of issuing branch.||Outside the clearinghouse area of issuing branch. Payee can also be the I purchaser.||Anywhere in the country|
|Payment Process of the paying bank||Payment is made through clearing||! Confirm that the DD is not forged one.
Confirm with sent advice Check the ‘Test Code’
|Confirm issuing branch Confirm Payee A/C Confirm amount Mack payment Receive advice|
|Charge||Only commission||Commission + telex charge||Commission + telephone|
Problem of general banking division
Problems Regarding Bank View:
1. There is no sufficient and high bandwidth Internet connection available in the bank So, bank cannot ensure better service for all Customers outward city.
2. The bank can not launch new financial products such as Consumer Credit Scheme. Pension Scheme, Child Education Scheme, etc. So they fail to convince new customer compare to other bank.
3. Some few desk use obstacle instruments and take a huge time to accomplish a particular task.
4. The decoration system of the bank is not a planned way and the floor, furniture, other materials are not cleaned in a right way and every time so the working condition is not comfortable.
5. Internally shifting process is also not a planned way. So employee can not learn every area of total banking activities
6. Some employee can not provide quick customer service because of inefficiency and lack of proper training.
7. Few banking activities are accomplished by several desks and in some case their understanding is not better so, total banking activity is delay.
8. In sometimes, employees lost their working speed and be tired because of special break without lunch. Here there is no canteen system in a bank.
9. In a beginning and ending day of the week, the flow of customer is so high so at time handling of the customer is so difficuU and that show the lack of professional image.
10. In some desk, the employee does not good communicate and not share their particular site with the internship members.
11. The employee could not point out the innovative nature of entrepreneur because of lack of market information
12. Absence of infrastructure for Islami trade financing on international basis and inadequate track record of Islami Banking itself in particular and Islami Banks in general.
13. Lack of honesty and integrity of customer and it is very difficult to define trusty customer and to understand customer nature.
14. Some customer of the bank is not well educated and not aware about the banking activities and that hinders the working speed.
15. At last, whole banking activities is not dynamic and sophisticated from current point of view compare to other bank.
Problems from customers point of view:
Long waiting time for customer
Lack of efficient employees
Scarcity of dynamic working force
Bank uses low quality installment
Bank is doing mass banking for this reason big clients are not getting better service. Scarcity of multi skilled worker
All employees behavior is not good enough
One stop service is not available.
INVESTMENT MECHAINSM OF IBBL
Islamic Bank does not invest in loans and fixed interest securities. It can invest in ordinary share only while interest based bank can invest in loans and different kinds of securities. Islami Bank establishes and participate projects with its client as a partner and bears the risk along with the client on a proportionate basis. Besides, other conventional banks sometimes finance projects but do not bear risk. Finally, the concept of Islamic Bank is to establish on egalitarian society based on principles of social justice and equity. Whereas traditional banks pay a fixed interest on savings, time deposit and grant loans with interest for any purpose. We have gathered the fact that investment management is the theme of IBBL. The bank takes deposits and invests the same based on the profit-loss sharing. Bank go for the investment mainly which are long term and profitable in nature. EBBL also give high concentration on the investment that will generate more employment. As investment is one of the most priority areas for the IBBL, so it needs to cautious in investment decision. To ensure proper investment IBBL always go with in-depth study before making the investment. So in the next phases we are going to demonstrate the way IBBL follow the manage investment.
4.2 Investment policy of IBBL:
Investment policy of Islamic Bank and non Islamic bank are fully different The investment policies of Islamic bank Bangladesh limited are given follows
· Strict observance of Islamic Shariah principles, a Investment to national priority sectors.
· Diversified investment portfolio: Diversification by size, sector, geographical area, economic purpose, securities and mode of investment.
· Preference to short-term Investments.
· Preference to investment of small size.
· To ensure safety & security of investments
· To look profitability of investments.
· To give support to government denationalization industrial program.
· Investment to trade and commerce sector.
· Investment to industrial sectors.
· Investment to Foreign Trade (import & export).
· Exploration of the possibility of investment in the existing Money & capital Market and help organization of Islamic Money & Capital Market
4.3 Investment Strategy of IBBL
Most of the cases Investment strategy of Islamic Bank and interest-based bank are contradictory. The investment strategies of Islami Bank Bangladesh limited are given below:
· To check exodus of investment clients.
· To induct new investment clients.
· To induct good investment clients of other Banks.
· To enhance existing limits of good investment clients.
· Extension of investment transport sector.
· Extension of investment to backward as well as forward linkage industries.
· Extension of investment to real Estate Sector.
· Extension of investment to Jute sector; particularly for trading and export purpose.
· Strengthening supervision, control and monitoring mechanism.
· Training and motivation of manpower to handle increased and diverse volume of investment s.
· To give due consideration to high risk, high return and low risk, low return investment proposals.
· Adaptation of modern technology
4.4 Investment Instrument of IBBL
IBBL invests its money in various sectors of the economy through different modes permitted by Shariah and approved by the Bangladesh Band. The modes of investment are as follows:
A. Bai-Mechanism (Trading mode):
Bai-Murabaha: Bai- Murabaha may be defined as a contract between a buyer and a seller under which the sells certain specific goods (permissible under Islamic Shariah and the law of the land) to the buyer at a cost plus agreed profit payable in cash or on any fixed future data in lump sum or by installments. The marked up profit may be fixed in lump sum or in percentage of the cost price of the goods.
· It is permissible for the client to offer an order to purchase by the bank particular goods deciding its specification and committing him to buy same from the bank on Murabaha, i.e. cost plus agreed upon profit.
· It is permissible to make the promise binding upon the client to purchase from the bank, that is, he is to satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
· It is also permissible to take cash / collateral security to guarantee the implementation of the promise or indemnify the damages.
· Stock availability of goods is a basic condition for signing a Bai-Murabaha agreement. Therefore, the bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Murabaha agreement with the Client.
· After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on Bai-Murabaha to the Client buyer, the bank bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the bank of the defects, that means, if the goods are damaged, bank is liable, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.
· The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
· The bank shall the goods at a higher price (Cost + (profit) to earn profit. The cost of goods sold and profit markup therewith shall separately and clearly be mentioned in the Bai-Murabaha agreement. The profit Mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstance, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc.
· The price once fixed as per agreement and deferred cannot be further increased.
· It is permissible for the bank to authorize any third party to buy and receive the goods on Bank behalf. The authorization must be in a separated contract.
Bai-Muajjal: Bai-Muajjal may be defined as a contract between a buyer and seller under which the seller sells certain specific goods permissible under Islamic 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 within a fixed period by him as per order and specification of the buyer.
I. Bank is not bound to declare cost of goods and profit mark-up separately to the client.
II. Spot delivery of the item and payment is deferred.
III. The bank transfers ownership and possession of the goods to the client before receipt of sale price.
IV. Client may offer an order to purchase by the bank any specified goods and committing himself to buy the same from the Bank on Bai-Muajjal mode.
V. It is permissible to make the promise binding upon the client to purchase from the bank. That is, he is either to satisfy the promise or to indemnify damage caused by breaking the promised.
VI. Cash /Collateral Security should be obtained to guarantee the implementation of the promise or to indemnify the damages.
VII. Mortgage / Guarantee /Cash Security may be obtained before / at the time of signing the agreement.
VIII. Stock and availability of goods is a pre- condition for Bai- Muajjal agreement. V The responsibility of the bank is to purchase the desired goods at the disposal of J the client to acquire ownership of the same before singing the Bai-Muajjala agreement with the client.
IX. The Bank after purchase of good must bear the risk of goods until those are actually delivered to the client.
X. The Bank must deliver the specified goods to client on the specified date and at specified place of delivery as per contract.
XI. The Bank may sell the goods at one agreed price, which will include both the cost price and the profit.
XII. The price once fixed as per agreement and deferred cannot be further in increased.
Bai-Salam: Bai-Salam may be defined as a contract between a buyer and a seller under which the seller in advance in the certain commodity/products permissible under Islamic Shariah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the commodity products to the buyer at a future time in exchange of an advance price fully paid on the spot.
Bai-salam is, mode of investment allowed by Islamic Shariah in which commodity/product can be sold without having the said commodity (ies) product(s) either in existence or physical/constructive possession of the seller. If the commodity /product are ready for sale, Bai-Salam is not allowed in Shariah. Then sale may be done either in Bai-Muajjal mode of investment.
Generally, Industrial and agricultural products are purchased /sold in advance under Bai-Salam mode of investment to infuse finance so that product is not hindered due to shortage of fund/cash.
I. It is permissible to obtain collateral security from the seller to the client to secure the investment from any hazards vis non-supply of supply of commodity (ies)/product, supply of low quality commodity (ies)/ product(s) etc.
II. It is also permissible to obtain mortgage and /or personal guarantee from a third party as security before the signing of the agreement or at the time of signing the agreement.
III. Bai-Salam on a particular commodity (ies)/product(s) or on a product of a particular field or farm cannot be affected.
IV. The seller (manufacture) client may be made agent of the bank to sell the goods delivered to the bank by him provided a separated agency agreement is excited between the bank and the client (agent).
B. Share mechanism
It is a from partnership where one party provides the funds while the other provides the expertise, labor and necessary business activities.
The first party is called the Sahib-al Mail and the letter referred to at the Mudarib. Any profits accrued are shared between the two parties on a pre- agreed basis, while capital loss in exclusively born by the partner providing the capital.
i. Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience.
ii. Administration and management is maintained by the client,
iii. Profit is divided as per agreement,
iv. iv. Bank bears the actual loss alone,
v. Client can not take another investment for that specific business without the permission of the Bank.
The term “Shirkat” and Musharaka” have been derived from Arabic words “Shairkah” and “Sharika” The word shirkah means a partnership between more than one partner. Thus the word “Musharaka” and “Shirkat” means a partnership established between two or more partners for purpose of a commercial venture participated both in the capital and management where the profit may be shared between the partners as per agreed upon ratio and the loss. If any incurred, is to be borne by the partners at per capital/equity ratio.
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.
Bank may move itself with the selected Client for conducting any Shariah permissible business under Musharaka mode.
· Bank and client both supply capital Unequally/equally
· Profit is divided as per agreement and actual loss is divided as per equity.
· Client will maintain all accounts properly bank or its agent may verify or audit it.
· Banks can advice the client in such a business in respect of the business.