Different Modes of Investment of Islami Bank Bangladesh Limited
Islami Bank Bangladesh Limited (IBBL)
This Internship Program as well as this Report is a crucial part of our courses for Department of Business Administration. After completion of courses in the different areas of studies, students are allowed to choose different reputed Business organization to acquire the real life experience. So, there was attached with Islami Bank Bangladesh Limited (IBBL) to understand about the Investment Process of IBBL
1.2 Objective of the Study
The primary objective of this report is to observe the investment related activities for the Investment Department of Islami Bank Bangladesh Ltd., Shyamoli Branch. The other objectives include:
· To understand the different modes of investment.
· To familiarize with the various investment schemes.
· To get the practical exposure of the banking activities.
· To adapt with the corporate environment.
· To understand the investment policy of IBBL with other banks.
1.3 Scope of the Study
In this report have focused on all the qualitative which include profiles of IBBL, investment modes like Bai mode, Profit & loss sharing, bearing mode, Rent sharing mode, different schemes of investment such as household durable schemes, housing investment scheme, transport investment scheme, car investment scheme, investment scheme for doctors small business investment scheme, rural development scheme, etc. and lastly financial performances have been depicted.
1.4 Methodology of the Study
The data required for this study were collected from both primary and secondary sources; however, majority of the information was collected from secondary sources.
a) Primary sources
Primary data has been collected from
· Branch Manager & Second Officer.
· Face to face conversation with employees and staffs.
· Practical work experience.
· Face to face conversation with clients.
b) Secondary sources
The secondary data has been collected from
· Annual Report of Islami Bank Bangladesh Limited.
· Various prescribed forms of investment were analyzed.
· IBTRA Library.
· Manuals of Investment of IBBL.
· Different textbooks & materials.
· Website of the Islami Bank Bangladesh Limited.
The major portion of the data source used for this report is a secondary one.
1.5 Limitations of the Study
The present study was not out of limitations. From the beginning to end, the study has been completed sincerely and truthful. But some problem arises from conducting in the study. During the study it was not possible to visit the whole area covered by the banks although the financial statements and other information regarding the study have been covered. Some limitations are given stated below.
- 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.
- Some information is confidential.
- In many cases up to date information is not published.
BANK & Financial Institutions
2. Bank Licensing
Bank Company Act, 1991, empowers BB to issue licenses to carry out banking business in Bangladesh. Pursuant to section 31 of the Act, before granting a license, BB needs to be satisfied that the following conditions are fulfilled: “that the company is or will be
tion to pay its present or future depositors in full as their claims accrue; that the affairs of the company are not being or are not likely to be conducted in a manner detrimental to the interest of its present and future depositors; that, in the case of a company incorporated outside Bangladesh, the Government or law of the country in which it is incorporated Bangladesh as the Government or law of Bangladesh grants to banking companies incorporated outside Bangladesh and that the company complies with all applicable provisions of Bank Companies Act, 1991.”
Licenses may be cancelled if the bank fails to comply with above provisions or ceases to carry on banking business in Bangladesh.
2.1.1 Commercial Banks
The commercial banking system dominates the financial sector with limited role of Non-Bank Financial Institutions and the capital market. The Banking sector alone accounts for a substantial share of assets of the financial system. The banking system is dominated by the 4 State Owned Commercial Banks, which together controlled more than 30% of deposits and operates 3383 branches (50% of the total) as of June 30, 2008.
2.1.2 Specialized Banks
Out of the 5 specialized banks, 2(Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit need of the agricultural sector while the other two (Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) ) are for extending term loans to the industrial sector of Bangladesh .
2.1.3 Financial Institutions (FIs)
Twenty-nine financial institutions are now operating in Bangladesh. Of these
Institutions, 1(one) is govt. owned, 15 (fifteen) are local (private) and the other 13(thirteen) are established under joint venture with foreign participation. The total amount of loan & lease of these institutions is Tk.99, 091.80 million as on 31 December,
2007. Bangladesh Bank has introduced a policy for loan & lease classification and provisioning for Fist from December 2000 on half-yearly basis. To enable the financial institutions to mobilize medium and long-term resources, Government of Bangladesh (GOB) signed a project loan with IDA, and a project known as `law_article`Financial Institutions
Development Project (FIDP)`law_article` has started its operation from February 2000. Bangladesh Bank is administering the project. The project has established `law_article`Credit, Bridge and Standby Facility (CBSF)`law_article` to implement the financing program with a cost of US$ 57.00 million.
2.2 CAPITAL MARKET
The Capital market, an important ingredient of the financial system, plays a significant role in the economy of the country.
2.2.1. Regulatory Bodies
The Securities and Exchange Commission exercises powers under the Securities and Exchange Commission Act 1993. It regulates institutions engaged in capital market activities. Bangladesh Bank exercises powers under the Financial Institutions Act 1993 and regulates institutions engaged in financing activities including leasing companies and venture capital companies.
2.2.2. Participants in the Capital Market
The SEC has issued licenses to 27 institutions to act in the capital market. Of these, 19 institutions are Merchant Banker & Portfolio Manager while 7 are Issue Managers and 1(one) acts as Issue Manager and Underwriter.
i) Stock Exchanges
There are two stock exchanges ( the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE) ) which deal in the secondary capital market. DSE was established as a public Limited Company in April 1954 while CSE in April 1995. As of 30 June 2000 the total number of enlisted securities with DSE and CSE were 239 and 169 respectively. Out of 239 listed securities with the DSE, 219 were listed companies, 10 mutual funds and 10 debentures.
ii) Investment Corporation of Bangladesh (ICB)
The Investment Corporation of Bangladesh was established in 1976 with the objective of encouraging and broadening the base of industrial investment. ICB underwrites issues of securities, provides substantial bridge financing programme, and maintains investment accounts, floats and manages closed-end & open-end mutual funds & closed-end unit funds to ensure supply of securities as well as generate demand for securities. ICB also operates in the DSE and CSE as dealers.
iii) Specialized Banks
Bangladesh Shilpa Bank (BSB), Bangladesh Shilpa Rin Sangstha (BSRS), BASIC Bank Ltd., some Foreign Banks and NCBs are engaged in long term industrial financing.
The insurance Sector is regulated by the Insurance Act, 1938 with regulatory oversight provided by the controller of Insurance on authority under the ministry of commerce. General insurance is provided by 21 companies and life insurance is provided by 6 companies. The industry is dominated by the two large, state-owned companies–SBC for general insurance and JBC for life insurance–which together command most of the total assets of the insurance sector.
2.4 MICROFINANCE INSTITUTIONS (MFIs)
The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural Financial Market (RFM) in Bangladesh. Micro credit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks), specialized government organizations and Non-Government Organizations (NGOs). The growth in the MFI sector, in terms of the number of MFI as well as total membership, was phenomenal
during the 1990s and continues till today. Over the period of June 2003 to June 2006 the growth rate was over 70% in terms of horizontal expansion of micro credit borrower. The total coverage of MCP in Bangladesh is approximately 30.09 million borrowers without considering overlapping figures. Table-1 shows the coverage of major institutions in the formal and semi-formal sectors.
|Table – 1:Coverage of Microcredit Program|
|Organization||No. of Borrowers||Outstanding Loan
(in million Taka)
|NGO-MFIs (June 2006)||18,415,878||78,930.57|
|Grameen Bank (June 2006)||6908704||33235.46|
|Government Program (December, 2005)||1,997,240||7,710.05|
|Nationalized Commercial Banks (December, 2005)||2311150||32783.45|
|Private Banks (December, 2005)||164113||1106.46|
|Source: Micro credit Regulatory Authority, Grameen Bank|
It is estimated that after considering the overlapping problem, which is expected to be over 40%, the effective coverage would be around 18.05 million borrowers. Out of 18.05 million borrowers covered by micro credit program, about 62% are below poverty line and so over 11.19 million poor borrowers are covered by micro credit program by 2006.
Micro credit programs of NGOs (known as NGO-Microfinance Institutions or NGO-MFIs) and Grameen Bank play dominant role in this financial market, NGO-MFIs serve more than 61 percent and Grameen Bank alone serves 24 percent of the total borrowers. Among NGO-MFIs more than 80 percent of the outstanding loan disbursed by the top 20 NGOs, three of them are very large and have coverage all over the country. Service charge on credit varies from 10% to 20% at flat method of collection, all partners of Palli Karma-Sahayak Foundation (PKSF) charge 12.5%. Average interest offered by NGO-MFIs on savings to the members is 5%. Near about 90% of the clients of this sector are female. Loan recovery rate is generally very high compare to the banking sector, which is over 90%. Average loan size of NGO-MFIs was found around Taka 4,000.
2.5 Banking in Bangladesh
The financial system of Bangladesh consists of Bangladesh Bank (BB) as the central bank, 4 State Owned Commercial Banks (SCB), 5 government owned specialized banks, 30 domestic private banks, 9 foreign banks and 29 non-bank financial institutions. Moreover, MRA has given license to 298 Micro-credit Organizations. The financial system also embraces insurance companies, stock exchanges and co-operative banks.
2.6 CENTRAL BANK
Central Bank and its policies
Bangladesh Bank (BB), as the central bank, has legal authority to supervise and regulate all banks and non-bank financial institutions. It performs the traditional central banking roles of note issuance and of being the banker to the government and banks. Given some broad policy goals and objectives, it formulates and implements monetary policy, manages foreign exchange reserves and lays down prudential regulations and conduct monitoring thereof as they apply to the entire banking system. Its prudential regulations include, among others: minimum capital requirements, limits on loan concentration and insider borrowing and guidelines for asset classification and income recognition. The Bangladesh Bank has the power to impose penalties for non-compliance and also to intervene in the management of a bank if serious problem arise. It also has the delegated authority of issuing policy directives regarding the foreign exchange regime.
2.7 Monetary Policy
Monetary policy is a set of rules that aims at regulating the supply of money in accordance with predetermined goals or objectives. Monetary policy plays a very dominant role in altering the economic activity and the price level in a country. So, it should be very carefully formulated and implemented in achieving the goals and objectives as outlined in the Bangladesh Bank Order, 1972 below:
· Price stability both internal & external
· Sustainable growth & development
· High employment
· Economic and efficient use of resources
· Stability of financial & payment system
2.8 Reserve Management Strategy
(President’s Order No. 127 of 1972) to hold and manage the official foreign exchange reserve of Bangladesh . It maintains its foreign exchange reserve in different currencies to minimize the risk emerging from widespread fluctuation in exchange rate of major currencies and very irregular movement in interest rates in the global money market. BB has established Nostro account arrangements with different Central Banks. Funds accumulated in these accounts are invested in Treasury bills, repos and other government papers in the respective currencies. It also makes investment in the form of short term deposits with different high rated and reputed commercial banks and purchase of high rated sovereign/supranational/corporate bonds. Forex Reserve & Treasury Management Department of BB performs the operational functions regarding investment which is guided by investment policy set by the BB’s Investment Committee headed by a Deputy Governor. The underlying principle of the investment policy is to ensure the optimum return on investment with minimum market risk
The Short-term Agricultural and Micro-Credit will be considered irregular if not repaid within the due date as stipulated in the loan agreement. If the said irregular status continues, the credit will be classified as ‘Substandard ‘ after a period of 12 months, as ‘Doubtful’ after a period of 36 months and as ‘Bad/Loss’ after a period of 60 months from the stipulated due date as per loan agreement.
Besides, if any situational changes occur in the stipulations in terms of which the loan was extended or if the capital of the borrower is impaired due to adverse conditions or if the value of the securities decreases or if the recovery of the loan becomes uncertain due to any other unfavorable situation, the loan will have to be classified on the basis of qualitative judgment.
As regards the provision, banks are required to maintain General Provision against all categories of loans along with off-balance sheet items in the following manner
|Particulars||Short Term Agri. Credit and micro credit||Consumer Financing||Small Enterprise Financing||All other Credit|
|Other than Housing Finance & Loans for Professionals to set up business||Housing Finance||Loans for Professionals to set up business|
Besides, banks are required to maintain general provision against Off-balance sheet exposures in the following manner:
(i) @ 0.5% provision effective from December 31, 2007 and
(ii) @ 1% provision effective from December 31, 2008.
Other instructions such as Eligible securities in determining base for provision along with a revised format for submitting the report on classification of loans and advances are also provided in the respective circulars.
2.9 Deposit and Insurance:
The deposit insurance scheme (DIS) was introduced in Bangladesh in August 1984 to act as a safety net for the depositors aiming at minimizing the risks of loss of depositors’ fund with banks in which all the commercial banks including foreign banks and the specialized banks operating in Bangladesh are the member of this scheme by compulsion as provided under Article of Bank Deposit Insurance Act 2000. The DIS is designed to minimize the risks that the depositors suffer a loss out of placing funds with a bank. The purpose of DIS is to help to increase market discipline, reduce moral hazard in the financial sector and provide safety nets at the minimum cost to the public in the event of bank failure. The direct rationale for the deposit insurance is customer protection. The indirect rationale for deposit insurance is that it reduces the risks of systemic crisis, involving, for example, panic withdrawals of deposits from sound banks and breakdown of payments system. A Deposit Insurance Trust Fund (DITF) has also been created for providing limited protection (not exceeding Taka 0.01 million) to a small depositor in case of winding up of any bank. The Board of Directors of Bangladesh Bank is the Trustee Board for the DITF. Bangladesh bank has adopted a system of risk based deposit insurance premium rates applicable for all scheduled banks effective from the half year January – June 2007. According to new instruction regarding premium rates, problem banks are required to pay 0.09 percent and private banks other than the problem banks and state owned commercial banks are required to pay 0.07 percent where the percent coverage of the deposits is taka one hundred thousand per depositor per bank. With this end in view, BB has already advised the banks for bringing DIS into the notice of the public through displaying the same in their display board.
2.10 Foreign Exchange System
On March 24, 1994 Bangladesh Taka (domestic currency) was declared convertible for current transactions in terms of Article VIII of the IMF Articles of Agreement. Consequent to this, current external settlements for trade in goods and services and for amortization payments on foreign borrowings can be made through banks authorized to deal in foreign exchange, without prior central bank authorization. However, because resident owned capital is not freely transferable abroad (Taka is not yet convertible on capital account), some current settlements beyond certain indicative limits are subject to bonafides checks.
Direct investments of non-residents in the industrial sector and portfolio investments of non-residents through stock exchanges are reparable abroad, as also are capital gains and profits/dividends thereon. Investment abroad of resident-owned capital is subject to prior Bangladesh Bank approval, which is allowed only sparingly.
2.11 List of banks in Bangladesh
The commercial banking system dominates Bangladesh’s financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system is composed of four state-owned commercial banks, five specialized development banks, thirty private commercial Banks and nine foreign commercial banks. The Nobel-prize winning Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh.
· 1 Central Bank
· 2 State-owned Commercial Banks
· 3 Private Commercial Banks
· 4 Foreign Commercial Banks
· <href=”#Specialized_Development_Banks”>5 Specialized Development Banks
· 6 Reference
· 7 External links
2.11.2 Central Bank
· Bangladesh Bank
Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it Bangladesh Bank with retrospective effect from 16 December 1971.
2.11.3 State-owned Commercial Banks
The banking system of Bangladesh is dominated by the 3 Nationalized Commercial Banks , which together controlled more than 54% of deposits and operated 3388 branches (54% of the total) as of December 31, 2004. The nationalized commercial banks are:
· Bangladesh Krishi Bank
· BASIC BANK Ltd.
· NRB Bank Ltd.
2.11.4 Private Commercial Banks
Private banks are the highest growth sector due to the dismal performances of government banks (above). They tend to offer better service and products.
· Agrani Bank Limited
· Krishi Bank
· BRAC Bank Limited
· Eastern Bank Limited
· Dutch Bangla Bank Limited
· Dhaka Bank Limited
· Islami Bank Bangladesh Ltd
· Pubali Bank Limited
· IFIC Bank Limited
· National Bank Limited
· The City Bank Limited
· United Commercial Bank Limited
· NCC Bank Limited
· Prime Bank Limited
· SouthEast Bank Limited
· Al-Arafah Islami Bank Limited
· Social Islami Bank Limited
· Standard Bank Limited
· One Bank Limited
· Exim Bank Limited
· Mercantile Bank Limited
· Bangladesh Commerce Bank Limited
· Mutual Trust Bank Limited
· First Security Islami Bank Limited
· The Premier Bank Limited
· Trust Bank Limited
· Shahjalal Islami Bank Limited
· Jamuna Bank Limited
· ICB Islami Bank
· AB Bank Limited
· BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited)
Foreign Commercial Banks
· Standard Chartered Bank
· Commercial Bank of Ceylon
· State Bank of India
· Habib Bank
· National Bank of Pakistan
· Woori Bank
· Bank Alfalah
2.11.5 Specialized Development Banks
Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending term loans to the industrial sector.<href=”#cite_note-bbk1-0″> The Specialized banks are:
· Grameen Bank
· Bangladesh Krishi Bank
· Bangladesh Development Bank Ltd
· BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited)
· Bangladesh Somobay Bank Limited(Cooperative Bank)
3.1 History of Islami Bank Bangladesh Ltd.
In the late seventies and early eighties, Muslim countries were awoken by the emergence of Islami Bank, which provided interest free banking facilities. There are currently more than 300 interest free institutions all over the world. Islami Bank now a days not only operating ate in almost all Muslim countries but have extended their wings to the western world to serve both Muslim and non Muslim customers. In case of Islami Banking, the establishment of Mishear Local Savings Bank in 1963 is said to be a milestone for modern Islami Banking.
In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganise its economic and financial system as per Islamic Shariah (legal framework of Islamic Ideology).
In 1978, Bangladesh recommended in Islamic Foreign Minister Conference in Senegal towards systematic efforts to Islamic Banking.
In 1980, Foreign Minister Conference in Pakistan where Bangladesh Foreign Minister Prof. Shamsul Hoq, proposed for taking steps for Islamic Banking. Further, Bangladesh Bank sent representation abroad to study Islamic Banking System. Also, International Seminar held in Dhaka inaugurated by Bangladesh Bank Governor for early introduction of Islamic Banking.
In 1981, President of the Peoples Republic of Bangladesh addressed the 3rd Islamic Summit Conference held at Makkah and Taif suggested, ”The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.”
In 1982, IDB visited Bangladesh for study. They found contributions done by Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA); they mobilized the seminars, public opinion through symposia & workshop. Professional activities reinforced by Muslim Businessman Society (now reorganized as Industrialists and Businessman Association). Islami Bank Bangladesh Limited (IBBL) is considered to be the first interest free bank in Southeast Asia. It was incorporated on 13-03-1983 as a Public Company with limited liability under the companies Act 1913. The bank began operations on March 30, 1983, with major share by the foreign entrepreneurs.
IBBL is a joint venture multinational Bank with 63.92% of equity being contributed by the Islamic Development Bank and financial institutions. The total number of branches in 2009 stood at 207. Now the authorized capital of the bank is Tk.20, 000.00 million and subscribed capital is Tk 7, 413.10. Million.
3.2 Islamic Banking
“Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations”. -OIC
It appears from the above definitions that Islamic bank is systems of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic bank is often known as PLS-banks.
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 encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas.
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 the 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.
3.5 Objectives of Islamic Bank
The primary objective of establishing Islamic Bank all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic bank when viewed in the context of its role in the economy are listed as following:
- To offer contemporary financial services in conformity with Islamic Shariah;
- To contribute towards economic development and prosperity within the principles of Islamic justice;
- Optimum allocation of scarce financial resources; and
- To help ensure equitable distribution of income.
The functions of Islami Bank Bangladesh Limited are as under.
· To maintain all types of deposit accounts.
· To make investment.
· To conduct foreign exchange business.
· To extend other banking services.
· To conduct social welfare activities through Islami Bank Foundation
3.7 Essential Features of Islamic Bank
3.7.1 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.
3.7.2 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.
3.7.3 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.
3.7.4 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.
3.8 Distinguishing Features of Conventional Banks and IBBL
The distinguishing features of the conventional banking and IBBL are shown below:
|The functions and operating modes of conventional banks are based on manmade principles.||The functions and operating modes of IBBL is based on the principles of Islamic Shariah.|
|The investor is assured of a predetermined rate of interest.||In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).|
|It aims at maximizing profit without any restriction.||It also aims at maximizing profit but subject to Shariah restrictions.|
|It does not deal with Zakat.||In the modern IBBL system, it has become one of the service-oriented functions of the IBBL to collect and distribute Zakat.|
|Leading money and getting it back with interest is the fundamental function of the conventional banks.||Participation in partnership business is the fundamental function of the IBBL.|
|Its scope of activities is narrower when compared with IBBL||Its scope of activities is wider when compared with a conventional bank. It is, in effect, a multi-purpose institution.|
|It can charge additional money (compound rate of interest) in case of defaulters.||The IBBL has no provision to charge any extra money from the defaulters.|
|In it very often, banks own interest becomes prominent. It makes no effort to ensure growth with equity.||It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.|
|For interest-based commercial banks, borrowing from the money market is relatively easier.||For the IBBL, it is comparatively difficult to borrow money from the money market.|
|Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations.||Since it shares profit and loss, the IBBL pay greater attention to developing project appraisal and evaluations.|
|The conventional banks give greater emphasis on credit-worthiness of the clients.||The IBBL, on the other hand, give greater emphasis on the viability of the projects.|
|The status of a conventional bank, in relation to its clients, is that of creditor and debtors.||The status of IBBL in relation to its clients is that of partners, investors and trader.|
|A conventional bank has to guarantee all its deposits.||Strictly speaking, IBBL cannot do that.|
3.9 Corporate information at a glance (As on December 31, 2010)
|Date of Incorporation||13th March 1983|
|Inauguration of 1st Branch
(Local office, Dhaka)
|30th March 1983|
|Formal Inauguration||12th August 1983|
|Share of Cap ital 8413.20 million|
|Authorized Capital||Tk.20,000.00 million|
|Paid-up Capital||Tk.7,413.10 million|
|Investments (including Investment in Shares)||Tk.292084.00 million|
|Foreign Exchange Business||Tk609331.00 million|
|Total Number of Branches||251|
|Number of SME Service Centers||30|
|Number of Shareholders||52,164|
|Address of the Head office
Islami Bank Tower
40, Dilkusha C/A
Dhaka – 1000
|GPO Box no.||: 233|
|Telephone||: (02) 9563040(Auto Hunting), 9560099, 9567161, 9567162, 9569417|
|Telex||: 642525 IBANK BJ 632403 IBANK BJ 671620 IBANK BJ|
|Fax||: 880- 2- 9564532, 880 -2- 9568634|
3.10 Structure of the organization
3.11 Profile of the IBBL, Shyamoli Branch
3.11.1 About the Shyamoli Branch
I worked for 45 days in this Branch. Islami Bank Bangladesh Ltd. of Shyamoli Branch is situated at Shyamoli, Dhaka, Bangladesh. This Branch was established on 27.09.1989. This is an Authorized Dealer Branch. There are 76 employees including SVP and AVP. Total investment of Shyamoli Branch is 2521.23 million and the total deposit is 4091.43 million. The employees of Shyamoli Branch are very co-operative to each other and the always maintain the rules and regulation of the office.
3.11.2 Objectives of the Islami Bank in Shyamoli Branch
· To conduct interest-free banking.
· To invest on profit and risk sharing basis.
· To establish a welfare-oriented banking system
· To establish a well-balanced economic system.
· To keep position in the competitive market.
· To provide Islamic banking service for the customer.
3.11.3 Deposit Products of the Islami Bank in Shyamoli Branch
IBBL has the scope to explore the market niche through various types of IBBL instruments. IBBL offers wide range of IBBL products and services. It provides
· Mudaraba Savings Account,
· Mudaraba Term Deposit,
· Mudaraba Special Savings (Pension),
· Al-Wadeeah Current Account,
· Mudaraba Savings Bond, Mudaraba
· Mudaraba Monthly profit Deposit,
· Mudaraba Special Deposit,
· Mudaraba Hajj Savings,
· Mudaraba Muhor Savings
· Mudaraba Foreign Currency Deposit,
· And Mudaraba Waqf Cash Deposit.
3.11.4 Services of the Islami Bank Shyamoli Branch
· ATM Services
· Different types of Special Services
· Foreign Exchange Business
· Online Service
· And other Services
· Money Express Services
3.11.5 Department of Islami Bank in Shyamoli Branch
There are three main departments. These are as follows:
General Banking Department. It includes
· Account opening section
· Cash Section
· Clearing & chequebook section
· ATM section
· DD, TT, PO
· Balance verify & Information section
· Accounts section
Investment Department. It includes
· Commercial section
Foreign Exchange Department. It includes
- Export section
- Import section
- Remittance section
- And Local trade
3.11.6 Investment Scheme in Shyamoli Branch
The following Products are offering by the branch to the clients by the different mechanism:
· Housing Investment Scheme.
· Transport Investment Scheme.
· Small Business Investment scheme.
· Car Investment Scheme.
· Micro Industries Investment Scheme.
· Doctors Investment Scheme.
· Real Estate Investment Scheme.
· Rural Development Scheme.
· And Others.
3.11.7 Client of the Islami Bank Shyamoli Branch
Shyamoli Branch has many clients because this Branch is situated at the Shyamoli area. There are 101890 clients of Shyamoli Branch of the IBBL (As on 31 March, 2011)
3.11.8 Account holder of the Islami Bank in Shyamoli Branch
3.11.9 Hierarchy Management of the Islami Bank in Shyamoli Branch
4.3.2 Information Section
Lot of customers arrives every day for collecting information about the products, facilities, and foreign exchange of this branch. Clients wanted to know the balance of their account by coming to this branch personally or by phone. They come to collect account statement, certificate, 7 days notice, address change, sign change and account transfer in this section.
4.3.5 Investment Section
That worked for total 9 days in this section. Although Islami Bank Bangladesh Ltd. (IBBL) has been the most profitable banking organization in Bangladesh since the last few years but it has also got some limitations. These limitations exist in their operations, management and environment of the Bank. When I engaged in the IBBL Mirpur-10 Branch, then I able to talk to some of clients and employees of this Branch and also talk about Banking Activities of this Branch. The investment procedures, modes of investment & its limitations that are found in the period of my internship are given below:
4.3.6 Investment Procedures of IBBL
There are three types of investment Mechanism. Every mechanism of investment is strictly followed investment procedures. These are as follows:
· Selection of the client
· Application stage
· Appraisal stage
· Sanctioning stage
· Documentation stage
· Disbursement stage
· Monitoring and Recovery stage
4.3.7 Modes of investment & its limitations
This mode is binding upon the Client to purchase from the Bank. The Bank sells the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit mark-up therewith are separately and clearly be mentioned in the Bai-Murabaha agreement. After purchasing of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client/buyer.
This mode is binding upon the Client to purchase from the Bank but bank is not bound to declare the cost of goods and profit mark-up separately to the client. Stock and availability of goods is a pre-condition for Bai-Muajjal agreement. The responsibility of the bank is to purchase the desired goods at the disposal of the client to acquire ownership of the same before signing the Bai-Muajjal agreement with the client. Bank must bear the risk of goods until those are actually sold and delivered to the client/buyer.
Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodities can be sold without having commodities either in existence or physical /constructive possession of the seller. If the commodities are ready for sale, Bai-Salam is not allowed by Islamic Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjall mode of investment.
220.127.116.11 Higher purchase under Shirkatul Melk
In case of Hire Purchase under Shirkatul Melk, the asset / property involved is jointly purchased by the Hire (Bank) and the Hirer (Client) with specified equity participation under a Shirkatul Melk Contract in which the amount of equity and share in ownership of the asset of each partner (Hire Bank & Hirer Client) are clearly mentioned. Under this agreement, the Hire and the Hirer becomes co-owner of the asset under this transaction in proportion to their respective equity participation.
Most of investment of IBBL is formed under Mudaraba Mode. It is a form of partnership where one party provides the funds while the other provides the expertise and management. Any profits generated are shared between two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital. But IBBL is an expert organization in business sector so they face less failure and if there is any loss they can overcome it by other sector
The partners (entrepreneurs, bankers) share both capital and management of a project so that profits will be distributed among them as per ratio, where loss is shared according to ratio of their equity participation.
Investment division is the most important for all banks. In investment division maintain all types of investment procedures of Mirpur-10 branch and support the branch to take different types of initiatives. So prepared to report mode of investment as result majority time work in the Investment department.
4.3 Learning Points
Basically the learned about the Investment division and something tried to gather from the several sector about the banking activities. Now it is clear to me how Shyamoli Branch operates their operations. Through internship work learned about-
- Products & Services of the Shyamoli Branch
- Investment procedures Shyamoli Branch
- Different types of investment modes
- I have learnt about Bai murabaha investment
- I have learnt about Bai muajjal investment
- I have learnt about Bai salam investment
- I have learnt about the Share Mechanism including Mudaraba & Musharaka
- How to collect their principals & profits
- How to apply their investment rules
- How to open several types of account in this bank
- What are the requirements for the account opening?
- What types of account they are dealing etc.
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. Specific examples of financial investments are: deposits of money in a bank account, the purchase of Mudaraba Savings Bonds or stock in a company. Since Islam condemns hoarding savings and a 2.5 percent annual tax (Zakat) is imposed on savings, the owner of excess savings, if he is unable to invest in real assets, has no option but to invest his savings in financial assets.
5.2 Objectives and Principles of Investment
The objectives and principles of investment operations of the Bank are:
· To invest fund strictly in accordance with the principles of Islamic Shariah.
· To diversify its investment portfolio by the size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial, and agriculture.
· To ensure mutual benefit both for the bank and the investment-client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring thereof.
· To make investment keeping the socio-economic requirement of the country in view.
· To increase the number of potential investors by making participatory and productive investment.
· To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and uplift of the society.
· To invest in the form of goods and commodities rather than give out cash money to the investment clients.
5.3 Categories of Investment /modes of Investment
IBBL, New Market Branch has provided various types of Investment modes for their different types of customers according to their