Rural Development Scheme (RDS) of Islamic Bank Bangladesh Limited

view with charts and images

Rural Development Scheme (RDS) of Islamic Bank Bangladesh Limited


Islamic Bank Bangladesh Limited is a joined Venture Public Limited Company engaged in commercial banking business based on Islamic Shariah with 53.03% foreign shareholding having largest branch network( 221 Branches & 30 SME/Krishi Branches i.e. total 251 Branches) among the private sector Banks in Bangladesh. It was established on the 13th March 1982 as the first Islamic Bank in the South East Asia. Now the authorized capital of the Bank is TK10, 000 million and Paid-up capital is TK 7.413.12 million having 58,923 shareholders. To execute this logically arrange the report as chapter wise that includes introductory part, Overview of the Company, Theoretical Background Investment Process & Disbursement stages, Findings and Recommendation parts, hi introductory part describe the way and the method in which collect all the necessary data in preparing the report, hi theoretical Background part tried to give the definitions of the terms that are related to the Investment Division, hi Investment Process & Disbursement stage describe the Application stages, Sanctioning stage, Disbursement stage etc. hi the year 2006 (he investment was TK 1,13,575 million and in 2010 it stands at TK 263225 million. The investment amount increases year by year. The bank makes investment in various investment mechanism but they make maximum investment in Bai-mechanism and lowest in Share-mechanism. In analysis part, I showed the various investment, Mode wise investment, Sector wise Investment etc over the last five years. From the study we get some findings about The Islamic Banking. IBBL invest following the Islamic shariah and to monitor this they also have a shariah council. Among the different modes they invest highly in bai-Murabaha then the other modes. The income from the investment was increasing significantly in every year. It was 10,999 in 2006 and it increased by 24,931 in 2010. On the basis of findings it can be recommend for IBBL by which they can achieve their mission, Vision and objective, such as: to improve bank’s financial position, recommend them to strictly monitor their investments, to provide more investment agriculture sector, reduce the overdue. The bank is trying to increase its investment quality by following Islamic rules strictly.

Chapter- One

1.1 Introduction

Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Quran and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The Bank is the lifeblood of an economy to keep the wheels moving forward and to play the vital role in the economic development of the economy. The present economic state of Bangladesh demands immediate development of the financial intuitions. Banking sector had lot of areas to improve upon. After participating in internship program conducted to IBBL of Haji Camp Branch. assigned to submit a report on “Investment Mechanism”. This report helps significantly to build a perception about day to day affairs of the bank and some recommendation for improvement and efficiently of those functions.

1.2 Origin of the Report

For any business student only curriculum activity is not enough for handling the real business situation, therefore it is opportunity for the students to about the field of business though the internship program. As internship program is a perfect blend of the theoretical and Practical knowledge. This report is originated to fulfill the requirement of the assign project internship report on “Investment Mechanism of IBBL”. In this regard an organization attachment at Haji Camp branch of IBBL has been given to me a period of two months commencing from 07th may, 2012 to 11th June, 2012 .During this period learned how the host organization works with the help of internal supervisor.

The internal supervisor assigned one of the project s and shuffled me aground to educate about the operation of the bank.

1.3 Background of the Report

As a part of the Internship Program of Bachelor of Business Administration, Was assigned for doing internship in Islami Bank Bangladesh Limited (IBBL) for the period of 60 days. In IBBL was assigned for the different activities. report topic is “Rural Development Scheme (RDS): its problems and prospects” which was assigned by organizational supervisor of the said bank. So it has become a moral obligation to gain proper knowledge on Islami Banking Practice, Islamic banking ideology and its application.

1.4 Significance of the report

This Internship Report is an import partial requirement of BBA program. This is because knowledge and learning become perfect when it is associated with theory and practice. By this program student can establishes contracts and networking. Contracts may help to get a job in life. That is, student can train and prepare themselves for the job market. A developing country like Bangladesh has an overwhelming number of unemployed educated graduates. As they have no internship networking system, which is important in getting a job. Therefore, it is obvious that the significance of Internship is clearly justified as the crucial requirement of BBA Program.

1.5 Scope of the study

Islami Bank Bangladesh Limited is one of the first generation banks in Bangladesh. scope of the study is limited to the Haji camp branch only. The report covers the organizational structure; background, functions and the performance of the bank have mainly worked in the investment so my report covers all the activities of investment department in the Haji Camp Branch. While preparing this report haven’t any limitation the employees of investment department has helped me a lot and I have use both primary and secondary data which available.

1.6 Objectives

Primary Objective is to learn the real world experience because gathered theoretical knowledge of BBA course and to match real world experience with the theoretical knowledge.

1.6.1 The broad of objective

The prime objective of this report is to analyze the “Investment Mechanism of IBBL”.

1.6.2 Specific objective:

The study was conducted to achieve the following secondary objective-

· To conduct interest-free investment and strictly observance of the Islamic Shariah Principles.

· To know the Investment Mechanism of IBBL

· To show the investment mechanism and product offerings in different modes of IBBL.

· To show overall investment proposal, appraisal procedures, documentation system of IBBL.

· To show the different modes of investment.

· To show about the different investment schemes of IBBL.

· To identify strength and weakness of investments of IBBL.

· TO identify some finding and raise possible recommendations.

1.7 Methodology of the Study

This report has been prepared on the basis of experience gathered during the period of internship. The methodology of the report is given below-

1.7.1 Type:.

This is a “Descriptive Research”, which briefly reveals the investment Mechanism of Islami Bank Bangladesh Ltd.

1.7.2 Sources of Information:

To accomplish the report, manly used secondary sources of data.

· Secondary sources:

The finding part of the report has been also prepared on the basis of secondary data. However, to find out the secondary data the following sources have been used-

· Annual Report of Islamic Bank Bangladesh Ltd.

· Manuals of Islamic Bank Bangladesh Limited (Bai-Murabaha, Bai-Muajjal, Bai-Salam, Musharaka, Hire Purchase under shirkatul Melk etc.

· Training sheets which are provided by Islamic Bank Training and Research (IBTRA).

· Different books, booklets, papers, brochures, reports, information, circulars,

· Instructions, circulars published by Islamic Bank Bangladesh Limited

· From the banks web site.

1.7.3 Data Analysis &reporting:

Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting, conclusions, and supporting decision making.

1.8 Limitations of this Report

There are some limitations in our study. The faced some problems during the study, which are mentioning them as below-

i) Lack of time: The time period of this study is very short. The only 2 months in my hand to complete this report, which was not enough. So could not go in depth of the study. Most of the times, the officials were busy and were not able to give me much time.

ii) Insufficient data: Some desired information could not be collected due to confidentiality of business.

iii) Lack of monitory support: Few officers sometime felt disturbed, as they were busy in their job. Sometime they didn’t want to supervise us out of their official work.

iv) Other limitations: As newcomer, there is a Lac of previous experience in this concern. And many practical matters have been written from my own observation that may vary from person to person.

Chapter- Two

Profile of the Organization

2.1 Introduction.

Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Quran and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islamic Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islami banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh

2.2 Corporate Information

(As on December 2011)

Date of Incorporation 13th March 1983
Inauguration of 1st Branch

(Local office, Dhaka)

30th March 1983
Formal Inauguration 12th August 1983
Zone 12
Equity TK 28,400.03 million
Deposit TK 291,934.60 million
Investment TK. 275,493.94 million
Foreign Exchange Business TK. 610,331.00 million
Share of Capital
Local Shareholders 41.77%
Foreign Shareholders 58.23%
Authorized Capital Tk10,000 Core
Paid-up Capital Tk. 7,413.12 million
Total number of Branches 251
-Regular Branches 221
-SME Service Centers 30
Number of Shareholders 58,923
Manpower 10,349

Source: Lecture Sheet, Islami Bank Training & Research Academy

2.3 Definition and Concept of Islamic Bank

The definition of “Islamic Banking” and prove whether its activities are unequal to the conventional banking system & satisfy the principle of Islamic Shariah. Definition given by ‘OIC’ is- “An Islami bank is financial institution whose statutes, rules and regulations expressly state it’s commitment to the principle of Islamic shriah and to he banning of the receipt and payment of interest on any of its operation”. This definition indicates that IBBL is more convenient and acceptable to the Muslim mankind.

Islamic Bank is committed to conduct all kinds of banking activities on the basis of profit-loss sharing system. The objective of the Islamic Shariah is to promote the welfare of the people which lies in safe guarding their faith, their life, their intellect, their posterity and their wealth. The basis of this Shariah is wisdom and welfare of the people in this world as well as the hereafter, which lies in complete justice, mercy, well-being and widow.

2.4 Vision of IBBL

Islamic bank vision to always strive to achieve superior financial performance is considered a leading Islamic bank by reputation and performance. They are:

· To establish and maintain the modern banking technology,

· To ensure the soundness and development of the financial system based on Islamic principles

· 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 finical systems.

· Try to encourage savings in the form of direct investment.

· Try to encourage investment particularly in project, which are more likely to lead to higher employment.

2.5 Mission of IBBL

· To establish Islamic banking through the introduction of welfare oriented banking 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 development areas of the country.

· Its main concern is to encourage social-economic up liftman and financial services to the low -income community particularly in the rural areas.

2.6 Aims and Objectives of IBBL

The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. Its objectives are different from conventional banking that is as follows:

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

· Investing through different modes permitted under Islamic Shariah.

· Accepting deposits on profit- loss sharing basis

· Establishing welfare oriented banking system.

· Extending co-operation to the poor, the helpless and the low-income group for their economic enlistment

· Conducting interest- free banking

· Playing a essential role in human development and employment generation.

2.7 Goals of IBBL

· To establish Ihsan (gracious conduct or kindness) in economic affairs

· Establishment of Maroof (proper and good acts, institutions) in economic life.

· Elimination of Munker (Evil, wrong of injurious practices) from economic life.

· To achieve maximum economic growth

· To maximized employment to ensure maximum distribution of wealth in society

· To achieve universal education and to encourage co-operation in society.

2.8 Core Values

· Trust in Almighty Allah

· Strict Observation of Islami Shariah

· Welfare Banking

· Personalized service

· Equity and Justice

· Environment Consciousness

2.9 Commitment

· To Islami Shariah

· To the Regulators

· To the Shareholder

· To the customers

· To the Community

· To the Employees

· To the Stakeholder

· To the Environment

2.10 Business Philosophy of IBBL

The philosophy of IBBL is to the principles of Islamic Shariah. The organization of Islamic conference (OIC) defines an Islamic bank as “a financial institution whose status, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banking of the receipt and payment of interest on any of its operations. The sponsor, perception is that IBBL should be quite different from other privately owned and managed commercial bank operating in Bangladesh, IBBL to grow as a leader in the industry rather than a follower. The leadership will be in the area of service, constant effort being made to add new dimensions so that clients can get “Additional” in the matter of services commensurate with the needs and requirements of the country’ growing society and developing economy.

2.11 Management Commitment

As a internee it is obvious that wouldn’t get the management completely committed to assessment. Though did not have full access to all the documents and information for corporate secrecy reasons, still got full co-operation from the management, they gave us all the time that they could manage from their busy schedule, they did take an interest in what were trying to do and they had a very encouraging attitude towards .

2.12 Document Research:

I have looked at IBBL’s prospectus and organizational chart. They did not provide any system documents but, have some documents and information system from the bank web’s site ( of company policy and secrecy, was not been provided with any problem documents.

2.13 Features of Islamic Bank:

2.13.1. 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.

2.13.2. 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.

2.13.3. 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.

2.13.4. Halal Paths and Procedures

Islamic Shariah also rejects any harems path or process in case of a halal business. Therefore, Islamic bank system only allows the halal path procedures of halal business.

2.14 Organ Gram of IBBL

2.15 Information of Haji Camp Branch

Haji Camp Branch



Particular Information
Date Of Incorporation December 19th 2009
No. of Division At That Time Two Division
Period Of Investment December 19th 2009
No. Of Employee At Now 24
Total Deposit At Now 154 core(as on 27 May 2012)
Total Investment At now 23,40,00,000
Total Profit 4.54 core
Situated At Haji Camp, Ashakona

Uttara ,Dhaka

Figure– : Information of Haji Camp Branch

2.16 Financial Highlights of IBBL from FY2006 to FY2010.

Taka in million(Where applicable)

Particular 2006 2007 2008 2009 2010
Authorized Capital 5,000.00 5,000.00 10,000.00 10,000.00 10,000.00
Paid-up Capital 3456.00 3801.00 4752.00 6177.60 7413.12
Share Money Deposit 1.99 1.99 1.99 1.99 1.99
Reserves fund 6551.23 7418.05 9308.49 13927.94 16081.14
Retained Earnings 1400.59 1427.36 2674.80 3804.55 2594.59
Total Equity 10435.96 14957.74 18572.08 23619.81 28400.03
Total Deposit (Including bill payable) 132419.40 166325.29 202115.45 244292.14 291934.60
Total Investment(Including Inv in share) 117132.83 16586.32 18786.55 22572.41 275493.94
Import Business 96810.00 137086.00 168329.00 161230.00 246281.00
Export Business 51133.00 6690.00 93962.00 10624.00 148421.00
Remittance 53819.00 84143.00 140404.00 194716.00 214629.00
Total Foreign exchange Business 201822.00 287919.00 402695.00 462370.00 609331.00
Total Income 14038.30 17699.52 23756.33 25403.86 30128.90
Total Expenditure 11129.63 13918.70 17408.50 18886.20 20559.21
Net profit before tax 2908.67 3780.82 6347.83 6517.67 8454.71
Payment to Government(Income tax) 1490.12 2322.46 3245.08 3253 4108.98
Dividend Cash 15%


25% (Stoke) 30% (Stoke) 10%(Cash)


35% (Stoke)
Total Asset (including contra) 188115.27 250012.79 288017.19 340638.49 443684.79
Fixed Asset 3724.69 3987.23 4407.22 6512.36 6748.44
Number of Foreign Correspondent 254 884 906 919 919
Number of Shareholders 20960 26488 33686 52164 58923
Number of Employees 7459 8426 9397 9888 10349
Number of Branches 176 186 206 231 251
Book value of per share(taka) 263 236 228 271.22 316.93
Cost of fund % 9.34% 9.06% (.56% 8.76% 8.65%
Cost of income ratio 0.79 0.79 0.73 0.74 0.72
Retune on Equity(ROE) % 13.42% 13.00% 19.02% 16.93% 19.00%
Retune on Asset(ROA) % 1.03% .84% 1.27% 1.34% 1.37%
Price Earnings ratio 10.97 17.88 10.78 12.87 13.29
Earnings Per Share 3 4.33 4.59 4.46 4.84

Equity ratio

1.57 1.69 2.05 2.18 2.52
Market Value per Share (taka) 474.90 70 83 89 90
Capital Adequacy Ratio 9.43% 10.61 10.72 11.65 11.06

Chapter Three

Theoretical Background

3.1 Divisions of Islami Bank Bangladesh Ltd

The functions of IBBL are divided into three sections these are

· General Banking

· Foreign Exchange

· Investment

Above these three sections of IBBL do their services. Each of this section serves various service for satisfying their client.

3.2 General Banking

General banking department is one of the most important departments of Islamic Bank Bangladesh Limited. Basically bank provides the main services to the customer through this department. In general this section of the Islamic Bank Bangladesh Limited is divided into the following categories:

· Accounts opening section

· Cash section

· Remittance section

· Bills and clearing section

· Accounts section

· Online branch banking section

3.3 Foreign Exchange Department

Banks play a very important role in effecting foreign exchange transaction of a country. Mainly transactions with overseas countries are in respect of imports; exports and foreign remittance come under the purview of foreign exchange department. Banks are the vital sectors by which such transactions are effected/settled. Central Bank records all sorts of foreign exchange transactions. The other banks dealing with foreign exchange are to report to Bangladesh Bank regularly (viz. daily, monthly, quarterly, yearly etc.).

3.3.1 Sub Division Foreign Exchange

The foreign exchange department consists of three sections. They are:

· Import section

· Export section

· Foreign remittance section

3.4 Investment Division

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., The establishment of a factory or the purchase of raw materials and machinery for production purposes are examples in point. On the other, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investments Specify examples of financial investments are deposits of money in bank account, the [purchase of Mudaraba Savings Bonds or stock in a company. Ultimately, the savings of investors in financial assets are invested by the respective company into real asserts in the form of the expansion of plant and equipment.

3.5 Investment Mechanism

2. Ijara Mechanism

IBBL, Haji Camp Branch has provided various types of Investment Mechanism for her different types of customers according to their requirements. The Investment provided by IBBL can be divided into three types first. These three types again are sub-classified into various types which are given bellows:

3.6 Bai-Mechanism (Trading Mode)

Under Bai Mechanism banks are invested their money in some different way. Such as:

Figure 03: Bai-Mechanism (Trading Mode)

3.6.1 Bai-Murabaha (Contract Sale on Profit)

The terms “Bai-Murabaha” come from Arabic words .The word Bai means purchase and sale and the word Murabaha means an agreed upon profit. “Bai-Murabaha” means sale on agreed upon profit.

Bai-Murabaha may be described as a contract between a Buyer and a Seller under which the Seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the Buyer at a cost plus 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.

Inrespect of dealing parties Bai-Murabaha may be of two types.

I) Ordinary Bai-Murabaha

If there are only two parties, the seller and the buyer, where the seller as 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 a buyer for cost plus profit, then the sale is called Ordinary Bai-Murabaha.

ii) 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 outstanding 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-Murabaha on Order or Promise”, generally known as Murabaha. This Murabaha upon order and promise is generally used by the Islami Banks, which undertake the purchase of commodities according to the specification requested

The Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to buy those for its cost price plus a marked-up profit agreed upon previously by the two Parties the Bank and the Client. Important Features:

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 the same from the Bank on Murabaha, i.e. cost plus agreed upon profit.

· It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages.

· Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement.

· The Bank must purchase the goods as per specification of the Client to acquire ownership of the same/goods before signing the Bai-Murabaha agreement with the Client.

· The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.

· The price once fixed as per agreement and deferred cannot be further increase. Application of Bai-Murabaha

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

3.6.2 Bai-Muajjal (Deferred Sale) Meaning and Definition of Bai-Muajjal

The terms “Bai- Muajjal” come from Arabic words. ‘Bai’ means purchase and sale and the word ‘Mujjal’ means a fixed time or a fixed period. Bai­Muajjal” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit

Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods (permissible under Shariah and Law of the Country), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer. 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:

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 the same from the Bank on Bai-Muajjal i.e. deferred payment sale at fixed price.

· Stock and availability of goods is a basic condition for signing a Bai-Muajjal Agreement.

· The Bank must purchase the goods as per specification of the Client to acquire ownership of the same/goods before signing the Bai-Muajjal Agreement with the Client.

· After purchase of goods the Bank must bear the risk of goods until those are actually delivered to the Client.

· The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.

· The price once fixed as per agreement and deferred can not be further increased The Bank may sell the goods at one agreed price and here profit is not mentioned.

3.6.3 Bai-Salam (Advance Payment) Meaning and Definition of Bai-Salam

The terms “Bai” and “salam” have come from Arabic words. The word “Bai” means “sale and purchase” and the word “salam” means “advance”. Bai-salam means advance sale and purchase.

Bai salam may be defamed as a contract between a buyer and a seller under which the seller sells in advance the certain commodities/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 commodities/products is delivered as per specification, size, quality, quantity at a future time in a particular place. Important Features:

Bai-Salam is a Investment Mechanism allowed by Islamic Sharia in which commodity /product can be sod without having the said commodity /product 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 the sale may be done either in Bai-Murabaha or Bai-Muajjal Investment Mechanism.

· Industrial and agricultural products are purchased/sold in advance under Bai-Salam.

· It is permissible to obtain collateral security from the seller client to secure the investment from any hazards via non-supply/partial supply of commodity /product supply of low quality commodity /product.

· It is also permissible to obtain Mortgage and Personal Guarantee from a third party as security before the signing of the Agreement or at the time to signing the Agreement

· Bai-Salam on a particular commodity /product or on a product of a particular field or firm cannot be affected (for Agricultural Product(s) only). Application of Bai-Salam

Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. Istisna’a means to purchase specific products by placing order to a manufacturer or to sale specific.

3.6.4 Bai-Istisna’a

Products after having the same manufactured against order of a buyer. Definition of Bai-Istisna’a

The Istisna’a sale is a contract in which the price is paid in advance at the time of the contract and the object of sale is manufactured and delivered later. It is a contract with a manufacturer to make something and it is a contract on a commodity on liability with the provision of work. IBBL can utilize Istisna’a in two ways.

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

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

· Istisna’a is an exceptional Investment Mechanism allowed by Islamic Shariah in which products can be sold without having the products/goods in existence. If the product are ready for sale. Istisna’a is not allowed in Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal Investment Mechanism, in this mode deliveries of goods are deferred and payment of price may also be preferred.

· It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods.

· It gives the buyer opportunity to pay the price in some future dates or by installments.

· It is building contract and no party is allowed to cancel the Istisna’a contract after the price is paid and received in full or in part or the manufacturer starts the work.

· Istisna’a is specially practiced in manufacturing and industrial sectors. However it can be practiced in agricultural and constructions sectors also. Application of Istisna’a Sale

The Istisna’a contract allows Islamic banks to finance the public needs and the vital interests of the society to develop the Islamic economy in accordance with Islamic teachings. Finally, the Istisna’a contract is also applied in the construction industry such as apartment buildings, hospitals, schools, and universities to whatever that makes the network for modern life.

3.7 Share Mechanism:

Under Share Mechanism banks are invested their money in two different way. Such as:

Figure: Share Mechanism

3.7.1 Mudaraba (Share Mechanism) Meaning and Definition of Mudaraba

The term Mudaraba come from Arabic word “Travel” means for undertaking business.

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

· Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his experience.

· Administration and management is maintained by the client. Profit is divided as per management.

· Bank bears the actual loss alone.

· Client cannot take another investment for that specific business without the permission of the Bank.

3.7.2 Musharaka (Partnership)

3.7.2. Meaning and Definition of Musharaka

The word Musharaka is derived from the Arabic word Shirkat meaning partnership or sharing.

It’s An Islamic financial technique that involves different types of profit and loss sharing partnership. Share both in the capital and management of a project so that profits will be distributed among them as per rations, where loss is shared according to ratios of their equity participation. In this case both the bank and the client provide capital at an agreed upon ratio and manage the business jointly. Share the cent as per agreed upon ratio and bear the loss, If any, in proportion to their respective equity.

Bank may move itself with the selected client for conducting any shariah permissible business under Musharaka mode. Important feature:

· The investment client will normally run and manage the business.

· The Bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operations of the business of the client. The Bank may appoint suitable person(s) to manage the business and to maintain books of accounts of the business property.

· As the investment client shall manage the enterprise, the Bank may pay more share of profit to him than that of his proportionate capital contribution. As the investment client shall manage the enterprise, the Bank may pay more share of profit to him than that of his proportionate capital contribution.

· Loss, if any, shall be shared on the basis of capital ratio Concluding Remark

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

3.8 Ijara mechanism (Leasing Mode)

Under Ijara Mechanism banks are invested their money in two different way. Such as:

Figure 0: Ijara mechanism (Leasing Mode)

3.8.1 Hire purchase (HP) (Ijara)

The term Ijarah has been derived from the Arabic works Ajr and Ujrat which means consideration, return, wages or rent. Ijarah has been defined as a contract between two parties; the Hiree and Hirer where the Hirer enjoys or reaps a specific service on benefit gains a specified consideration or rent from the asset owned by the Hiree.

3.8.2. Hire Purchase under Shirkatul Melk (HPSM):

Figure 0: Hire Purchase under Shirkatul Melk (HPSM)

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:

1) Shirkat Melk

2) Ijara

3) Sale

These may be defined as follows: Shirkatul Melk

Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract. Ijarh

The term Ijarah has come from the Arabic words “Air” and “Ujrat” which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the hire and hirer where the hirer(lessee) enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the hire(lessor). It is a hire agreement under which a certain asset is hired out by the hire to a hirer against fixed rent or rentals for a specified period.

Related terminologies or elements of Ijara. According to the majority of Fuqaha, there are seven elements of Ijarah.

They are given below:-

1) The wording: This includes offer and acceptance.

2) Contracting parties: This includes a Hire, the owner of the property, and a Hirer, the party that benefits from the use of the property.

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

4) The Hire (Muajjir): The individual or organization hires/rents out the property of service is called the Hire (muajjir).

5) The Hirer (Mustajir): The individual or organization hires/takes the hire of the property or service against the consideration rent / wages / remuneration is called the Hirer (mustajir).

6) The benefit / asset (Maajur): The benefit which is hired / rented out is called the benefit (maajur).

7) The Rent (Ujrat): The consideration either in monetary terms or in kinds fixing quantity of goods / money to be paid against the benefit of the asset or service of the asset is called the rent or ujrat.

3.9 Some Special Investment Schemes

The Bank, since its inception, has been working for the uplift and emancipation of the underprivileged, downtrodden and neglected sections of the populace and has taken up various schemes for their well being. The objectives of these schemes are to raise the standard of living of low-income group, development of human resources and creation of avenues for self-employment.

3.9.1 Household Durables Scheme

The objective of the scheme is to increase standard of filing and qualify of life of the fixed income group by extending them investment facilities to purchase household articles such as furniture like Almirah, sofa set, wardrobe; electric and electronic equipment like television, refrigerator, gas cooker; air conditioner, PC, washing machine; electric generator-IPS, UPS; motor cycle; corrugated iron sheet, cement, rod, wood etc, for construction of dwelling house; gold ornaments, tube-well, mobile telephone set etc; medical/ engineering instruments/equipment, computer, books etc for students.


· To increase standard of living and

· To increase quality of life of the fixed income group.

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

Mode of Investment

Bai-Muajjal / HPSM (item wise).

3.9.2. Investment Scheme for Doctors

A good number or newly graduated doctors from medical College are unemployed. Many of the medical graduated are waiting for because the opportunity for Government service is limited.

The Bank has taken up this Scheme to help unemployed qualified doctors to go for self- employment and to provide latest medical equipments to specialist doctors to extend modern Medicare facilities throughout the country.


· To help unemployed qualified doctors to go for self-employment

· To provide latest medical equipments to specialist doctors to extend modern medical facilities throughout the country.

· To assist specialists and consultant physicians to procure specialized medical equipment for extending improved to the people

. Mode of Investment

Bai-Muajjal / HPSM (item wise).

3.9.3 Transport Investment Scheme

To ease the existing transportation problem and ensure speedy economic growth and development of the country particularly the expansion of trade, commerce and industry, the Bank has taken up this Scheme. Under this Scheme investment is being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport like bus, mini-bus, truck, launch, cargo-vessel, transport for rent-a-car service; and baby taxi, tempo, pick-up van for self-employment; and ambulance for clinic & hospital. The Bank is also extending investment facilities to multinational companies, established business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.


· To ease the existing transportation problem.

· To ensure speedy economic growth and development of the country particularly the expansion of trade, commerce & industry.

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

Mode of Investment

Bai-Muajjal / HPSM

3.9.4 Housing Investment Scheme

A house is in a abode of peace and happiness. Housing has now an acute problem in the country, especially in the town, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class. The Bank has introduced this scheme recently to ease the serious housing problem in the urban areas and to make arrangement for comfortable accommodation of the fixed income group.


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

· To assist the service holder and professionals with fixed income to arrange for of their own

· To extend the benefits of the investment of the bank under the scheme to deferent sections of the people.

3.9.5 Car Investment Scheme

Car is considered as an essential mode of transport in the modern society, particularly by a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. To meet this need, Islami Bank has introduced the “Car investment Scheme” for the mid and high ranking officialsof government and semi-government organizations, corporations, executives and directors of big business houses and companies and also for persons of different professional groups on easy payment terms and conditions.


· To help a section of the officials, business houses and business executives

· To established professionals for movement in discharging their duties and responsibilities punctually and efficiently.

· To diversify the investment portfolio of the bank by size, sector, and volume

Mode of Investment

Hire Purchase under Shirkatul Melk (HPSM)

3.9.6. Real Estate Investment Program

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


· To ease the housing problem in the urban areas.

· To make arrangement for comfortable accommodation of the fixed income group.

Mode of Investment

Bai-Muajjal / HPSM

3.9.7 Small Business Investment Scheme

This Scheme has been taken up for self-employment of educated unemployed youths of rural and urban areas and to provide investment to small businessmen and entrepreneurs. Investment is extended for about 200 economic activities in sectors as live-stock, fishery, agro-trading/shop-keeping, transportation, agricultural implements, forestry and service viz. laundry, signboard painting etc.


· To help the educated unemployed youths of rural and urban areas for self-employment.

· To provide investment to small businessmen and entrepreneurs.

Mode of Investment

Bai-Muajjal / HPSM (item wise).