INVESTMENT MECHANISM OF ISLAMI BANK

BANGLADESH

Submitted By
Md. Sagor Ahmed
Rumana Pervin
Fatema Mary
Nabila Binta Ahmed
Rajia Sultana
Nimai Chandro
Jannat Ara Sharmin
All- Mamun

Submission Date: 10th Dec 2014

Acknowledgement

Firstly, we would like to express my grateful thanks to the Almighty ALLAH for enabling us to
complete this report successfully.
It is our great privilege to express my gratitude to the almighty to give me the great opportunity
to complete the internship program and to conduct this study under the supervision of Nazneen
Fatema Assistant Professor & Internship supervisor, Department of Business Administration,
International Islamic University Chittagong, Dhaka Campus
I also have to put my heartfelt gratitude for his kindness and guideline during the period of
internship to complete my assigned report as on the topic Investment mechanism of IBBL.
In preparing the proposed report we have taken great assistance support and guidance from the
persons of Islami Bank Training and Research Academy (IBTRA) and Dhanmondi branch of
IBBL.
We express my heart full thanks to all the faculty members of Islami Bank Training and Research
Academy (IBTRA), especially thanks to Sikder Md.Shehabudin,( senior vice presendent ),
Mahmuda Sultana,CDCS(Assistant vice presedent& Manager Operations) ,Md. Abu Taher
Talukder (Offcer) , Dhali Sajjad Ahmed, Officer, Md.Sazzad Hossain,

Md. Khairul Bashar,

Dhanmondi branch and other faculty members as well as all the employees from top to bottom of
IBTRA, who gave me necessary information and excellent guidance to prepare this internship
report.
Finally, there is the most important acknowledgement of all we feelings for & gratitude to our
parents, who are the foundation of my life.

Executive Summary

Islami Bank Bangladesh Ltd. (IBBL) started commercial operation on March 30, 1983 under the
ambit of Banking Companys Ordinance 1962 later on the Banking Companies Act, 1991 as the
first interest free Shariah based commercial bank with an objective of catering Islamic
Shariah based financial products. At present IBBL is operating with286 Branch different areas of
the country. In conventional bank the investor is assured of a predetermined rate of interest
whereas, IBBL promotes risk sharing between providers of capital (investor) and the user of
funds (entrepreneur).
This internship report is prepared as a partial fulfillment for the BBA program of the Faculty of
Business under International Islamic University Chittagong Dhaka Campus.
The report is prepared on Investment mechanism of IBBL. Title Investment mechanism of
IBBL.
This report focuses three months theoretical & practical working experiences in investment
mechanism of IBBL. This report will give a clear idea about investment mechanism of Islami
Bank Bangladesh Limited.
The main focus of this report is to show in which sector they invest and the way/ mode of their
investment. This report contains seven main parts. First part is introductory part.
Second part is Islami Banking Industry of Bangladesh. In the parts of this report a detail
description of IBBL of their history, distingue of conventional banking & Islamic banking.
Third part is overview of Islami Bank Bangladesh of Limited of their mission , vision, paid up
capital, product & service , principal activities, and Achievement.

Fourth part is modes of investment mechanism of IBBL. It contains most important part of this
report, here I tried to input overall performance of the whole sector they invest and also the way/
of their investment mode.

IBBL has their own modes and schems and they have enough capital for investing. But, because
of their rules and regulation they are failed to invest in all the banking sectorless than the
conventional bank.
Investment process should be make easier than conventional banks and they have to make their
investment schemes more attractive for availing high return.
So, overall investment performance of IBBL is increasing day by day. Because most of the
people in our country are religious minded and they want to invest their money according to
Islamic Shariah. Moreover people of all walks of life can easily transact with IBBL comparing to
other commercial private banks in the country.

Table of content
Chapte
r

Particulars
Letter of Transmittal
Acknowledgement

Executive Summary
Acronyms

One

Introduction
1.1 Origin of the report
1.2 Objectives of the study
1.3 Scope of the report
1.4 Methodology
1.5 Limitations of the study

Two

Islamic banking industry in Bangladesh

2.1 Concepts of Islamic banking
2.2 Conventional Vs Islamic Banking
2.3 History and Growth of Islamic banking
2.4 Islamic banking in Bangladesh

Three

An Overview Of Islami Bank Bangladesh Limited

3.1 IBBL at a glance
3.2 Historical background of IBBL
3.3 Vision
3.4 Mission
3.5 Objectives of IBBL
3.6 Special feature of IBBL
3.7 Principal activities of IBBL
3.8 Membership &affiliation
3.9 Sharia concept
3.10 Hierarchy of management
3.11 Branch expansion
3.12 Paid-up capital &reserves
3.13 Products &services of IBBL
3.14 Core risk management
3.15 Achievements of IBBL

Four

Modes of investment of IBBL

4.1 Investment
4.2 Investment objectives of IBBL
4.3 Salient features of IBBL
4.4 Investment policy of IBBL
4.5 Composition of Portfolios
4.6 Investment mechanism of IBBL
4.6.1

Bai Mudarabah

33

4.6.2

Bai- Muajjal

37

4.6.3

Bai- Salam

39

4.6.4

Bai Murabaha

42

4.6.5

Bai- Musharakah

Hire purchase under

Shirkatul Melk
4.7 Special investment Schemes of IBBL
4.8 Trends of investment of IBBL
4.9 Performance of rural development scheme
4.10 Investing in SMEs
4.6.6

Five

46
52

SWOT analysis
5.1 SWOT analysis
5.2 Strength
5.3 Weakness
5.4 Opportunities
5.6 Threats

Six
Seven

Findings
Findings
Conclusion & Recommendations
Conclusion
Recommendations
Reference
Bibliography

Acronyms (Elaboration of Abbreviated words)

Abbreviation
AD

Elaboration
Authorized Dealer

ATM
BB
BEFTN
CD
C&F
CSR
CIB
CRR
EIBS
FDI
FBP
HBIS
IBBL
IBP
IBTRA
IDB
L/C
MPI
MICR
OBC
PAD
RDS
SWIFT
TD

Automated Teller Machine

Bangladesh Bank
Bangladesh Electronic Funds Transfer Network
Credit Department
Clearing &Forwarding
Corporate Social Responsibility
Credit Information Bureau
Cash Reserve Requirement
Electronic Integrated Banking System
Foreign Direct Investment
Foreign Bill Purchase
House Building Investment Scheme
Islami Bank Bangladesh Limited
Inland Bill Purchase
Islami Bank Training &Research Academy
Islamic Development Bank
Letter Of Credit
Murabaha Post Investment
Magnetic Ink Character Recognition
Outward Bill For Collection
Payment Against Document
Rural Development Scheme
Society For Worldwide Interbank Financial
Transfer Delivery

Introduction
1.1 Origin of the Report
Todays business world is continuously changing. The operation of business is getting complex
in every moment. That is why, today, the management of any business activity requires so much
expertise from the part of its employees. The business graduates are the core part of

management. So a business graduate has to have so much theoretical as well as practical

knowledge to manage the ever-changing business activity. Besides the theoretical knowledge,
practical experience is provided to business graduates & internship is the well practiced
mechanism in this regard. The internship program is an integral part of the BBA program. We
was assigned to Islamic Bank Bangladesh Limited to complete the program.
As a student of BBA major in Finance, internship is an academic requirement. For doing
internship We were sent to the Islamic Bank Bangladesh, Dhanmondi Branch, The completion of
my general class for internship program in Islamic Bank Training and Research Academy
(IBTRA), the IBTRA authority gave me the selecting topics for preparing the internship report.
My supervisor Nazneen Fatema, Assistant professopr of Department of Business Administration,
also support me to prepare a report on Islamic Bank Bangladesh Limited with special focus on
INVESTMENT MECHANISM OF IBBL. That is why we have made this report with this
topic.

1.2 Objectives of Study

General objectives of the study is to gather knowledge investment mechanism of IBBL.
The specific objectives aimed for this report are:

To find out the Investment policy of IBBL.

To understand the basic difference in relation to conventional bank.

To find out problems and possible remedies of investment programs of IBBL.

To study the performance of modes of finance of Islami bank.

To highlight the characteristics of modes of finance of Islami bank.

1.3 Scope of the report

In this report we 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. This report is confined to only this bank
other than conventional bank.

1.4 Methodology
Mainly we have collected data from two sources. These two sources are Primary sources &
Secondary source.

The primary sources of my information are as below:

Direct observation.

Investment outlook.

Conversation with Officers

The secondary sources of my information are as below:

Web site of IBBL.

Annual report of IBBL.

Other manual information from Islamic Bank Training and Research Academy
(IBTRA).

Desk report of the related department.

1.5 Limitations of the study

There are some limitations in my study. We faced some problems during the study which is
mentioned below:
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.

Lack of current information

Islamic Banking
Industry of
Bangladesh
2.1 Concept of Islamic Banking
In the Islamic banking system the bank receives no interest. In this case Islamic Bank 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 Islamic Banking 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.
The Organization of Islamic conference (OIC) defined an Islamic Bank as a financial institution
whose statutes, rules and procedures expressly state its commitment to the principles of Islamic
Shariah and to the banning of the receipt and payment of interest on any of its operations.
Ziauddin Ahmed says, 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.
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 banking system
whose operation is based on Islamic principles of transactions of which profit and loss haring
(PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic bank is
often known as PLS-banks.
Islamic bank is essentially a normative concept & could be defined as conduct of banking in
consonance with the ethos of the value system of Islam. The period 1930 to 1940 is considered
as the period of Philosophical foundation of Islamic Banking.

2.2 Conventional Banking versus Islamic Banking

Conventional banking

The functions and operating modes of

conventional banks are made on manmade
system.

The investor is assured of a predetermined

rate of interest.

Islamic banking
The functions and operating modes of Islamic
banks are based on the principles of the Islamic
shariah.
In contrast, it provides risk sharing between
the provider of the capitol (investor) and the
users of the fund (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 and does not pay

any zakat.

In the modern Islamic Banking system, it has

become one of the service-oriented functions of
the Islamic banks to collect and distribute
zakat.

Lending 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 Islamic banks.

Its scopes of activities are narrower when

compared to the Islamic banks

Its scope of activities is wider when compared

with a conventional bank. It is, in effect, a
multipurpose institution.

It can charge additional money (compound

rate of interest) in case of defaulters.

The Islamic bank has no provision to charge

extra money from its 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 money market is relatively
easy.
Since income from the advances is fixed, it
gives little importance to developing
expertise in project appraisal and
evaluations.

Conventional banks give greater emphasis

on credit-worthiness of the clients.

For Islamic banks, it is comparatively difficult

to borrow money from the money market.
Since it shares profit and loss, Islamic banks
pay greater attention to developing project
appraisal and evaluations.
Islamic banks, on the other hand, give greater
emphasis on the viability of the projects.

2.3 History & Growth of Islamic Banking

The History of Islamic Banking could be divided in to two parts. First When it still remained an
Idea, Second when it becomes a reality-by private initiative in some counties and by law in
others.
Islamic Banking as an Idea:

The scholar of the recent past in early fifties started writing for Islamic Banking in place of
Interest Free Banking. In the next two decades Islamic Banking attracted more attention.
Early seventies saw the institutional involvement. Conference of the Finance Ministers of the
Islamic Countries was held. The involvement of institutions and Government led to the
application of theory to practice and resulted in the establishment of the Islamic Banks. In this
process the Islamic Development Bank (IDB) was established in 1975.
The coming into being of Islamic Banks:
The first private Islamic Bank, the Dubai Islamic Bank was also set up in 1975 by a group of
Muslim businessmen from several countries. Two more private banks were founded in 1977
under the name of Faisal Islamic Bank in Egypt and Sudan. In the same year the Kuwaiti
Government set up the Kuwait Finance House.
In the ten years since the establishment of the first private commercial bank in Dubai, more than
50 Islamic Banks have come into being. Though nearly all of them are in Muslim countries, there
are some in Western Europe as well: in Denmark, Luxembourg, Switzerland and the UK.
In most countries the establishment of Islamic banking had been by private initiative and was
confined to that bank. In Iran and Pakistan, however, it was by government initiative and covered
all banks in the country. The Governments in both these counties took steps in 1981 to introduce
Islamic Banking.
The world most famous Islamic Banks are:

Kuwait Finance House

Jordan Islami Bank

Bahrain Islami Bank

Al Rajhi Co.

Dubai Islamic Bank.

2.4 Islamic Banking in Bangladesh

Islamic banking in Bangladesh started in the year 1983 with the establishment of Islami bank
Bangladesh limited as the first Islamic bank in south East Asia. Thereafter 4 Bangladeshi Islamic
banks were established and 2 conventional banks were converted in to Islamic banks. As such
there are 7 fully fledged Islamic banks in Bangladesh. Moreover 7 Bangladeshi conventional

banks & 2 foreign commercial banks started Islamic Banking operations in our country. Also 4
conventional banks have started window based Islamic banking operations here.
Now in our country total 48 banks are giving banking service and among them 7 Islamic banks
with their market share of 14.58% are operating successfully. Their amount of deposits covers
17.27% of total amount of all banks & investment covers 18.89% of total investment of all
banks. There are 3 institutions which set rules & guides Islamic banking operations in
Bangladesh. Those are as follows;

Islamic Banks Consultative Forum (IBCF)

Central Shariah Board For Islamic Banks Of Bangladesh (CSBIBB)

Bangladesh Government Islamic Investment Bond (BGIIB)

An Overview of Islami Bank

Bangladesh Limited
3.1 Islami Bank Bangladesh Limited: At a Glance

Name of the company

Islami Bank Bangladesh Limited

(IBBL)

Legal form

Public Limited Company

Date of incorporation

13thMarch, 1983

Inauguration of 1stbranch

(Local office, Dhaka) 30thMarch 1983

Formal inauguration

12thAugust, 1983

Head office (Registered office)

Islami Bank Tower, 40, Dilkusha

Commercial Area, Dhaka-1000

Share of Capital
Local Shareholders
42.12%
Foreign Shareholders
58.03%
Authorized Capital
Tk.20,000.0Million
Paid-up Capital

Tk.
14636.28 Million

Deposits

Tk.

(Provisional)
Investments (including Investment in Shares)

417,844.17

Million

Tk. 414,629 Million (Provisional)

Foreign Exchange Business

Import
Tk.284,588
Million (Provisional)
Tk. 197,095 Million (Provisional)

Export
Remittance

Tk.300,915
Million (Provisional)
286

Number of Branches
Number of SME Service Centers

Total Branches

30
316

Number of AD Branches

43

Number of Shareholders

63,001

Manpower

11,465

3.2 Historical Background

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. Islamic Bank now a days not only operate 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 Mitghamar Local
Savings Bank in 1963 is said to be a milestone for modern Islami Banking. The history of Islami
Banking can nevertheless be traced back to the birth of Islam.
In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to
reorganize 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).
The body mobilized mainly equity capital for emerging Islamic Bank. Finally, in 1983 Islami
Bank Bangladesh Limited (IBBL) came out to take the challenge of doing banking business.
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.

3.3 Mission
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 in through diversified investment operations particularly in the priority
sectors and less developed areas of the country. To encourage socio-economic upliftment and
financial services to the loss-income community particularly in the rural area.

3.4 Vision
Our vision is to always strive to achieve superior financial performance, be considered a leading
Islamic Bank by reputation and performance.

Our goal is to establish and maintain the modern banking techniques, to ensure soundness
and development of the financial system based on Islamic principles and to become the
strong and efficient organization with highly motivated professional, 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

To ensure customers' satisfaction.

To ensure welfare oriented banking.

To establish a set of managerial succession and adopting technological changes to

ensure successful development of an Islamic Bank as a stable financial institution.

To prioritize the clients welfare.

To emerge as a healthier & stronger bank at the top of the banking sector and continue
stable positions in ratings, based on the volume of quality assets.

To ensure diversification by Sector, Size, Economic purpose & geographical location

wise Investment and expansion need based Retail and SME/Women entrepreneur
financing.

To invest in the thrust and priority sectors of the economy.

To strive hard to become a employer of choice and nurturing & developing talent in a
performance-driven culture.

To pay more importance in human resources as well as financial capital.

To ensure lucrative career path, attractive facilities and excellent working environment.

To ensure zero tolerance on negligence in compliance issues both shariah and

regulatory issues.

To train & develop human resources continuously & provide adequate logistics to
satisfy customers need.

To be excellent in serving the cause of least developed community and area.

To motivate team members to take the ownership of every job.

To ensure development of devoted and satisfied human resources.

To encourage sound and pro-active future generation.

To achieve global standard.

To strengthen corporate culture.

To ensure Corporate Social Responsibilities (CSR) through all activities.

To promote using solar energy and green banking culture and ecological balancing.

3.6 Essential Features of Islamic Bank

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.

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.
Abolition of interest (Riba): Since Riba is prohibited in the Quran and interest in all its forms is
akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first
distinguishing feature of an Islamic bank must be that it is interest-free.
Adherence to public interest: Activity of commercial banks being primarily based on the use of
public funds, public interest rather than individual or group interest will be served by Islamic
commercial banks. The Islamic banks should use all deposits, which come from the public for
serving public interest and realizing the relevant socio-economic goals of Islam. They should
play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves to
the different needs of the Islamic economy.
Multi-purpose bank: Another substantial distinguishing feature is that Islamic banks will be
universal or multi-purpose banks and not purely commercial banks. These banks are conceived
to be a crossbreed of commercial and investment banks, investment trusts and investment
-management institutions, and would offer a variety of services to their customers. A substantial
part of their financing would be for specific projects or ventures. Their equity-oriented
investments would not permit them to borrow short-term funds and lend to long-term
investments. This should make them less crisis-prone compared to their capitalist counterparts,
since they would have to make a greater effort to match the maturity of their liabilities with the
maturity of their assets.
More careful evaluation of investment demand: Another very important feature of an Islamic
bank is its very careful attitude towards evaluation of applications for equity oriented financing.
It is customary that conventional banks evaluate applications, consider collateral and avoid risk
as much as possible. Their main concern does not go beyond ensuring the security of their
principal and interest receipts. Since the Islamic bank has a built in mechanism of risk sharing, it
would need to be more careful in how it evaluates financing requests. It adds a healthy
dimension in the whole lending business and eliminates a whole range of undesirable lending
practices.

Work as catalyst of development: Profit-loss sharing being a distinctive characteristic of an

Islamic bank fosters closer relations between banks and entrepreneurs. It helps develop financial
expertise in non-financial firms and also enables the bank to assume the role of technical
consultant and financial adviser, which acts as catalyst in the process of industrialization and
development.

3.7 Principal Activities of IBBL

All kinds of commercial banking service e.g. acceptance of deposited, providing of investments
issuance of bank guarantees, demand draft, telegraphic transfer, payment order, & providing of
banking services through on-line, ATM, SMS& all services related to foreign exchange business
including import, export & remittance are being provided by the bank to the customers following
the principles of Islamic Shariah, the provisions of the Bank company Act 1991 and Bangladesh
Banks & other regulatory authorities directives.

3.8 Membership & Affiliation

IBBL has become a member of Dhaka Stock Exchange in 2006. It has started opening of 2
subsidiaries namely Islami Bank Securities Limited & Islami Bank Capital Management
Limited. IBBLs memberships in National bodies are as follows:

Bangladesh Institute Of Bank Management (BIBM)

The Institute Of Bankers, Bangladesh(IBB)

Bangladesh Association Of Banks (BAB)

Bangladesh Foreign Exchange Dealer Association (BAFEDA)

Central Shariah Board For Islamic Banks In Bangladesh(IBCF)

Dhaka Chambers Of Commerce & Industry (DCCI)

IBBL Is A Member Of the Under Noted Foreign Organizations:

Accounting & Auditing Organizations For Islamic Financial Instructions (AAOIFI)

Council For Islamic Banks & Financial Institutions(CIBAFI)

International Chamber Of Commerce Bangladesh

Islamic Financial Service Board (IFSB)

International Islamic Financial Market (IIFM)

International Islamic Center For Reconciliation & Arbitration(IICRA)

3.9 Shariah Council

The Shariah Supervisory Committee of the Bank plays a vital role in framing and exerting
policy for strict adherence of Shariah principles in the Bank. As per Islamic Banking Guideline
circulated by Bangladesh Bank, The Shariah Supervisory Committee is represented by 12
members consisting of prominent Ulama having adequate knowledge in Fiqhul Moamalat,

renowned lawyers and eminent economists. The Shariah Supervisory Committee of IBBL gives
opinions and guidelines to implement and comply of Shariah principles in all activities of the
Bank particularly in the modes of investment. The Committee is governed by a bye-laws
approved by the Board of Directors.
As part of major responsibilities of the Committee Shariah, inspections is also conducted in all
the branches under its direct supervision to ensure Shari`ah compliance in all activities of the
Bank.

3.10 Hierarchy Of managemen

Figure: Legitimate hierarchy of management of IBBL

3.11 Branch Expansion

The particulars of Zones, branch & SME/Agriculture branches are given below:

Serial no.

Name of the Zones

No. of branches

Dhaka Division

86

01

Dhaka Central Zone

15

02

Dhaka North Zone

21

03

Dhaka South Zone

26

04

Corporate Branches

04

05

Mymensingh Zone

20

Chittagong
Division

80

06

Chittagong North Zone

18

07

Chittagong South Zone

22

08

Comilla Zone

21

No. of
SME/Agriculture
branches

08

09

09

Noakhali Zone

19

Khulna Division
10

Khulna Zone

03
26

Sylhet Division
11

Sylhet Zone

02
20

Rangpur Division
12

01

Rangpur Zone

17

Rajshahi Division

34

13

Rajshahi Zone

17

14

Bogra Zone

17

06

Barisal Division
15

Barisal Zone
Total

01
23
286

30

Table: IBBL Branch Expansion

3.12 Paid-up Capital & Reserve

The Authorized Capital of the Bank is Tk. 20,000.00 Million ($244.87 Million) and Paid-up
capital is Tk. 14636.28 Million($188.25 million) in 31-12-2013. The Paid-up Capital was Taka

67.50 million in 1983. The Reserve Fund of the Bank has been increasing steadily. on 31st
December 1983, it was Taka 0.36 million and stood at:
Date
31-12-2012

Amount
12,509.64 million

31-12-2011

10,007.71 million

31-12-2010

7,413.12 million

31-12-2009

6,177.60 million

31-12-2008

4,752.00 million

31-12-2007

3,801.60 million

31-12-2006

3,456.00 million

31-12-2005

2,764.80 million

31-12-2004

2,304.00 million

31-12-2003

1,920.00 million

31-12-2002

640.00 million

31-12-2001

640.00 million

31-12-2000

320.00 million

Table: Paid-up Capital & Reserve of IBBL

3.13 Services & Products

Deposit schemes/General banking: The Bank mobilizes deposits through the

operation of the following account.
Al-Wadeah Current Account (AWCA)

Mudaraba Savings Account (MSA)

Mudaraba Term Deposit Account (MTDR)

Mudaraba Special Notice Account (MSNA)

Mudaraba Hajj Savings Account (MHSA)

Mudaraba Special Savings (Pension) Account (MSSA)

Mudaraba Savings Bond (MSB)

Mudaraba Monthly Profit Deposit Account (MMPDA)

Mudaraba Muhor Savings Account (MMSA)

Mudaraba Waqf Cash Deposit Account (MWCDA)

Mudaraba NRB Savings Bond (MNSB) Account

Mudaraba Foreign Currency Deposit Account (MFCD)

Mudaraba School Student Savings Account (MSSSA)

Mudaraba Farmers Savings Account (MFSA) (Ready for launching)

Current account is operated on Al-Wadeah Principle and all other deposit accounts on Mudaraba
principle of Islamic Shari'ah. The bank distributes minimum of 65% of its investment-income
earned through deployment of the Mudaraba deposits among the Mudaraba depositors.

Investment modes: The special feature of the Investment Policy of the Bank is to
invest on the basis of profit-loss sharing system in accordance with the tenets and
principles of Islamic Shari'ah. Earning of profit is not the only motive and objective of
the Bank's Investment Policy rather emphasis is given in attaining social goal and
objective in creating employment opportunities.

Bai-Murabaha

Bai-Muajjal

Hire Purchase Under Shirkatul Melk

Mudaraba

Musharaka

Bai Salam

Under consumer financing, the Bank finances to the individuals for meeting their personal family
and household needs. The Bank has taken up various welfare oriented investment Schemes

Investment Scheme

Household Durable Scheme

Housing Investment Scheme

Real Estate Investment Scheme

Transport Investment Scheme

Car Investment Scheme

Investment Scheme for Doctors

Small Business Investment Scheme

Agriculture Implements Investment Scheme

Rural Development Scheme

Woman Entrepreneurs Investment Scheme

Micro Industries Investment Scheme

Mirpur Silk Weavers Investment Scheme

NRB(Non Resident Bangladeshi) Entrepreneurs Services

Remittance Card

Investment Scheme for Foreign Expatriate

Mudaraba NRB Saving Bond

Rural Development Scheme: Islami Bank Bangladesh Limited launched its Rural
Development Scheme (RDS) in 1995. In the mean time, 197 Branches of the Bank have
been operating the activities of the Scheme in their respective areas. These Branches are
working among the poor in 15,370 villages covering 1251 unions under 392 Thanas of
61 districts of the country. Present number of members is 5, 01,941 since beginning the
scheme. The members are provided investment facilities an amount of BDT 28,100.10
million ($ 407.25m) up to 30-06-2012 against which the outstanding was BDT 4,320.41
million ($ 62.61m). Rate of recovery of the Scheme is more than 99%.

Locker Service: IBBL safe deposit locker service offered from select branches gives
you a completely secured facility for safekeeping of precious items, confidential
documents and other valuables.

Services:

Personalized service

Facilities to access outside scheduled time

Parcel handling

Safe custody of goods and bonds/shares

Lockers available in various sizes. I.e. Small, Medium and Large.

Charges:

Yearly Charges: Small- Tk.700/-, Medium- Tk. 1000/-, Large- Tk.

1,500/-

Security Deposit (Tk.) 500.00 (refundable).

The rent may be conveniently paid from your deposit account with us.

Direct debits for locker rentals from your account rid you of the hassles
in writing out cheques.

Foreign Exchange Business: There are 18 foreign representatives of IBBL in 6

countries such as Oman, UAE-Dubai, Singapore, Qatar, and KSA-Riyadh, Bahrain.

Others Services:

One line banking

SMS banking

SWIFT(Society for Worldwide Inter-Bank Financial Telecommunication)

Remittance Card Service

ATM card service

Internet Banking Service

VISA card

M cash /Mobile Banking

3.14 Core Risk Management

As per guidelines given by Bangladesh Bank, the bank has by this time

prepared & introduced

manuals on:

Asset Liability management

Investment (credit) risk management

Foreign exchange management

Internal control & compliance

Prevention of money laundering

Information & Communication Technology Risk Management

Accounts & Finance

3.15 Achievements of IBBL

Obtaining best Bank Award from the ministry of expatriates welfare and overseas
employment among the participant Banks on the occasion of International Migrants
Day2012.
obtained membership of American Chamber of Commerce(AMCHAM)
Participated in Remittance Fair in South Korea, Malaysia, Singapore and Kuwait
with huge response of expatriate Bangladeshis particularly in our stall.
Obtained 3 AD licenses Viz . Mtijheel Branch, Dhanmondi Branch&pahartoli Brach

South Asian Federation of Accountants (SAFA) awarded IBBL as joint Winner in the
Corporate Governance Disclosure Award-2010.

South Asian Federation of Accountants (SAFA) also awarded IBBL with Certificate of
Merit in Banking Sector in the Annual Report for the year 2010.

The Institute of Cost and Management Accountants of Bangladesh (ICMAB), awarded

IBBL as the ICMAB National Best Corporate Award-2007 (First Position, Local Bank)
and ICMAB Best Corporate Performance Award 2008 (Second Position, Private
Commercial Bank).

The Institute of Chartered Accountants of Bangladesh (ICAB) awarded IBBL with 3rd
position under the catergory-1, banking in the best published accounts and reports for the

year 2010, the Certificate of Appreciation for the year 2001 & 2010 and Certificate of
Merit for the year 2008.

The Global Finance, a reputed U.S.A. based quarterly Financial Magazine, awarded
IBBL as the best Islamic Financial Institution of the country for the years 2008, 2009,
2010 & 2011. The Global Finance also awarded IBBL as the best bank of the country for
the year 1999, 2000, 2004 and 2005.

ICICI Bank, Hong Kong, awarded IBBL as The Quality Recognition Award-2009 for
U.S. Dollar Clearing (2009).

Bankers Forum awarded IBBL as the Best Bank for Corporate Social Responsibility for
2008 and 2009.

The Bank-Bima Patrika, a Fortnightly Magazine, awarded IBBL as the Best Islami
Banking Award 2007.

Exclusive economic weekly The Industry awarded IBBL as the Best Rated Bank
Award-2010.

The Citi Bank NA awarded IBBL as the Largest Contributor in Foreign Trade
Operations in Europe- Bangladesh corridor in 2009.

The UAE Exchange awarded IBBL for mobilizing around 30% of total foreign
remittance of the country.

Investment Mechanism of
IBBL

4.1 Investment
Investment is the action of deploying funds with the intention and expectation that they will earn
a positive return for the owner. Funds may be invested in either real assets or financial assets.
When resources are used for purchasing fixed and current assets in a production processor 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.
The special feature of the Investment Policy of the Bank is to invest on the basis of profit-loss
sharing system in accordance with the tenets and principles of Islamic Shari'ah. Earning of profit
is not the only motive and objective of the Bank's Investment Policy rather emphasis is given in
attaining social goal and objective in creating employment opportunities.
Modes of finance followed by Islami bank are exercised under three principles.

Bai- Mechanism (Buy & Selling)

Sharing Mechanism (Profit & Loss)

Ownership Sharing Mechanism

4.2 Objectives and Principles of Investment of IBBL

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&

p r i v a t e ) , b y industrial, commercial, and agriculture.

To make investment keeping the socio-economic requirement of the country

in view.

To invest in the form of goods and commodities rather than give out cash money to the
investment clients

To extend co-operation to the poor, the helpless and low income group for their economic
uplift.

To contribute in achieving the ultimate goal of Islamic economic system.

4.3 Salient feature of investment

Observing of legal investment limit of the bank.

Observance of the legal investment limit of the client.

Optimum utilization of investable fund

Profitable of the investments.

Safety and security of the investments.

Investments at minimum possible risk.

Liquidity of investments.

Preference to short term investment restrictions.

Preference to the investments for small size.

4.4 Investment policy of IBBL

The special feature of the Investment Policy of the Bank is to invest on the basis of profit-loss
sharing system in accordance with the tenets and principles of Islamic Shari'ah. Earning of profit

is not the only motive and objective of the Bank's Investment Policy rather emphasis is given in
attaining social goal and objective in creating employment opportunities.
As investment policy the banks top priority has been given toward the industrial development of
the country. The banks investment portfolio is gradually being increased towards industrial
finances along with commercial investment.

4.5 Composition of the portfolio

Following may be the compositions of investments portfolio of the bank

Money market portfolio (having tenor up to the year)

Capital market portfolio (having tenor above one year)

General investment portfolio

4.6 Investment mechanism of IBBL

The investment modes of IBBL are set by head office of the bank and then followed by
selected branches. Thus, efforts have been made in this report to reveal the investment modes of
IBBL in order to explore the investment modes of IBBL, Mirpur-10 Branch. When money is
deposited in the IBBL, the bank, in turn, makes investments in different forms approved by the
Islamic Shariah with the intention to earn a profit. Not only a bank, but also an individual or
organization can use Islamic modes of investment to earn profits for wealth maximization. Some
popular modes of IBBLs Investment are discussed below.
Islamic bank Bangladesh ltd operates its investment activities mainly through three mechanisms:

Bai- Mechanism (Buy & Selling)

Sharing Mechanism (Profit & Loss)

Ownership Sharing Mechanism

4.6.1 Bai- Murabaha

Meaning:
The terms 'Bai- Murabaha' have derived from Arabic words Bai and Ribhun. The word Bai
means purchase and sale and the words Ribhun means an agreed upon profit. Bai Murabaha
means sale on agreed upon profit.

Definition:
Bai-Murabaha may be defined as a contract between a Buyer and a seller under which the seller
sells certain specific goods p0ermissible under Islamic Shariah and the Law of the land to the
Buyer at a cost plus agreed profit payable on cash or on any fixed future date in lump- sum or by
installments. The profit marked-up may be fixed on lump sum or in percentage of the cost price
of the goods. There are different types of Murabaha as given bellow:

Types of Murabaha:
In respect of dealing parties Bai-Murabaha may be of two types.
1. Ordinary Bai-Murabaha: Ordinary Bai-Murabaha happens between the two parties, i.e., the
buyer and the seller, where the seller as an ordinary trader purchases the goods from the market
without depending on any order and promises to buy the same from him and sells those to a
buyer for cost plus profit, then the sale is called ordinary Bai-Murabaha. In this case the seller
undertakes full risks of his capital invested on the business with a view to earn profit out of
selling the goods purchased for.
2. Bai-Murabaha on order and promise: It occurs between the 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. In this case, capital with profit is almost secured by promise.
This Murabaha upon order and promise is generally used by the Islami Banks, which undertakes
the purchase of commodities according to the specification requested by the clients and sale on
Bai- Murabaha to the one who order 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.
Therefore, it is a sale of goods on profit by which ownership of the goods is transferred by the
Bank to the client but the payment of the sale price (cost plus profit) by the client is deferred for
a fixed period.
To make it more clear, it may be noted here that Islamic Bank is financier to the client not in the
sense that the bank finances the purchase of goods by the clients as conventional Bank does,
rather it is a financier by deferring the receipt of sale price of the goods sold by the Bank to the
client. There is a chance for happening of a loan and earning of interest under the wrong practice
of Bai-Murabaha.
If the bank does not purchase the goods or does not make any purchase agreement with seller
under this Agreement of Bai-Murabaha that will be a remittance of the amount on behalf of the
client, which shall be nothing but a loan to him and any profit on this amount shall be nothing
but Interest (Riba that are practiced in the traditional Banking system).
Therefore, to make a true practice of Bai-Murabaha, purchase of goods by the Bank should be
for and on behalf of the Bank and the payment of price of goods by the Bank must be made for
and on behalf of the Bank. But on any way, the payment of price of goods is turned into a
payment for and on behalf of the client or it is paid to the client any profit on it will be Reba
(Interest that is allowed in traditional banking system but not allowed in the Islami Banking
system because Islam prohibits all kind of interest.

Important Features:
It is permissible for the client to offer an order to purchase particular goods by the Bank dealing
its specification and committing himself to buy the same from their bank on Murabaha. I.e. Costplus agreed upon profit.

It is permissible to make the promise binding upon the client to purchase from the Bank that is he
is to either satisfy the promise or to indemnify the damages caused by breaking the promise
without excuse.
It is permissible to take cash/collateral security to guarantee the implementation of the promise
or to indemnify the damages.
It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor or a
mortgage or both like any other debt is permission. Mortgage/ Cash Security may be obtained
prior to the signing of the Agreement or at the time of signing the Agreement.
Stock and 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 shall 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, of the goods are defective (defect that id nor 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 sell the goods at a higher price (Cost +Profit) to earn profit. The cost of goods
sold and profit mark-up therewith shall separately and clearly be mentioned on the BaiMurabaha 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 circumstances, the percentage of the
purchase/cost price of goods. But under no circumstances, 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's
behalf the authorization must be in a separate contract. These features make Bai-Murabaha
identical from all other modes of Islamic Investment. There are certain steps to accomplish a deal
of Bai- Murabaha as shown below.

Steps of Bai-Murabaha Practiced by Islami Bank:

First Step:
Submission of proposal: The client's sends a proposal with the specifications of the commodity
for purchasing through the Bank and requests to make him known the date and method of
payment of price, etc.
The Bank sends a quotation valid for a certain period mentioning the cost of the goods plus profit
of the bank.

Second step:
Signing a promise to purchase: The client promises to buy the commodity from the bank on
Bai-Murabaha basis (for the cost of the commodity plus the agreed upon profit).The Bank
studies the request and determines the securities with terms and conditions for approval.

Third step:
The first sale contract: The bank informs the client of its approval of purchasing the
commodity. The bank may pay the price immediately pr as per the agreement.
The seller expresses its approval to the sale and sends the invoice.

Fourth step:
Signing of a Murabaha Sale Contract: Two parties (the bank and clients) sign the BaiMurabaha sale contract according to the agreement of the promise to purchase.

Fifth Step:
Delivery and Receipt of the commodity:
The Bank authorizes the client or his nominee to receive the commodity the seller sends the
commodity to the place of delivery agreed upon. The client undertakes the receipt of the
commodity in its capacity as legal representative and notifies the bank of the execution of the
proxy.

4.6.2 Bai-Muajjal (Deferred Sale)

Meaning:
The terms "Bai" and "Muajja" have been derived from Arabic words 'Bai' and 'Ajal'. The word
Bai means purchase and sale and the word 'Ajal' 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.

Definition:
The Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the
seller sells certain specific goods (permissible under Shariah and law of the country), to the
Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or 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.
Bai-Muajjal is treated as a contract between the bank and the client under which the bank sells to
the client certain specific goods, purchased as per order and specification of the client at an
agreed price payable with in a fixed future date in lump sum or by fixed installments.
Thus it is a credit sale of goods by which ownership of the goods is transferred by the bank to the
client but the payment of sale price by the client is deferred for a fixed period.
It may be noted here that in case of Bai- Muajjal and Bai-Murabaha, the Islamic bank is a
financier to the client not in the sense that the bank finances the purchase of goods by the client,
rather it is a financier by deferring the receipt of the sale price of goods, it sells to the client. If
the bank does not purchase the goods or does not make any purchase agreement with seller but
only makes payment of any goods directly purchased and received by the client from the seller
under Bai-Muajjal / Bai-Murabaha agreement, that will be a remittance/ payment of the amount
on behalf of the client, which shall be nothing but a loan to the client and any profit on this
amount shall be nothing but interest.

There for, purchase of goods by the bank should be for and on behalf of the bank and the
payment of price of goods by the bank must be made for and on behalf of the bank. If in any way
the payment of price of goods is turned in to a payment for and on behalf of the client, or it is
paid to the client any profit on it will be Riba.
There are some important features of Bai- Muajjal as given bellow:

Important Features:
It is permissible for the Client to offer an order to purchase by the bank particular goods deciding
its specification and committing himself to by the same from the bank on Bai-Muajjal I.e.
deferred payment sale at fixed price.
It is permissible to make the promise binding upon the Client to purchase from the bank, i.e. he
is to either satisfy the promise or to indemnify the damages caused by breaking the promise
without excuses.
It is permissible to take cash/collateral security to guarantee the implementation of the promise
or to indemnify the damages.
It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a
mortgage or both like any other debt. Mortgage/ Guarantee/ Cash security may be obtained prior
to the signing of the Agreement or at the time of signing the Agreement.
Stock and availability of goods is a basic condition for signing a Bai- Muajjal Agreement.
Therefore, the Bank must purchase the goods as per specification of the client to acquire
ownership of the same 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 Bank may sell the goods at a higher price than the purchase price to earn profit.
The price once fixed as per agreement and deferred cannot be further increased.

The Bank may sell the goods at one agreed price, which will include both the cost price and the
profit. Unlike Bai- Murabaha, the bank may not disclose the cost price and the profit mark- up
separately to the Client.

4.6.3 Bai- Salam

Meaning:
The terms Bai and Salam have been derived from Arabic words. The words Bai means
sale and purchase and the word Salam means Advance. Bai-Salam means advance sale
and purchase.

Definition:
It is a sale in which an advance payment is made by the buyer, but the delivery is delayed to an
agreed date. In the Bai-Salam, a financial transaction happens in advance in cash as a price of
commodity whose delivery will be in a future date. It means deferred is the commodity sold
(debt in kind) and price of the commodity described is to be aid immediately in advance.

The Bai-Salam sales serve the interests of both parties:

1. The seller- gets in advance the money he wants in exchange of his obligation to deliver the
commodity later. He benefit from the Salam sale by covering his financial needs whether they
are personal expenses for productive activity.
2. The purchaser-heretic is the financing bank. The bank gets the commodity it is planning to
trade on in the time it decides. Because of the commodity become the liability of the seller who
meets his obligation. The bank will also benefit from the cheap prices for usually Salam sale is
cheaper than a cash sale. This way the bank will be secured against the fluctuations of prices.
The bank can sell on parallel Salam commodity in the same kind as it has previously purchased
on first Salam without making one contract depend on the other. The bank also has the option of
waiting to receive the commodity and then sell it for cash or deferred payment.

Important feature:

Bai-Salam is a mode of finance allowed by Islamic Shariah in which commodity or product can
be sold without having the said commodity or product either in existence or physical possession
of the seller. If the commodity is ready for sale Bai-Salam is not allowed in Shariah. Then the
sale may be done either in Bai-Murabaha or Bai-Muajjal mode of finance.

Bai-Salam is a mode of investment allowed by Islamic Shariah in which

commodity(ies)

product(s)

can

be

sold

without

having

the

said

commodity(ies)/ product(s) either in existence or physical / constructive possession of the

seller. If the commodity (ies)/product(s) are ready for sale, Bai- Salam is not allowed in
Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjall mode of
investment.

Generally, industrial and agricultural products are purchased/sold in advance under BaiSalam mode of investment to infuse finance so that product is not hankered due to
shortage fund/cash.

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

(ies)/product(s), supply of low quality commodity (ies) /product(s).

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 to signing the Agreement

Bai-Salam on a particular commodity (ies)/product(s) or on a product of a particular field

or firm cannot be affected (for Agricultural Product(s) only).

The seller (manufacturer) client may be made agent of the Bank to sell the goods
delivered to the Bank by her provided a separate agency agreement is executed between
the bank and the client (agent).

Practical Steps of the Salam Sale:

1. Cash sale or sale on Credit- The Bank pays the price in the contract meeting so that the seller
makes use of it and covers his financial needs. The seller abides the delivery of the commodity
on the specific due date.
2. Delivery and receipt of the commodity on the specific due Date: The bank there is several
options at the disposal of the bank to choose one of them.

a) The bank receives the commodity on the specific due date, and either for cash or on credit.
b) The bank can authorize the seller to sell the commodity on its behalf as against fees (or
without fees).
c) Direct the seller to deliver the commodity to a third part (the Buyer) according to pervious
promise of purchase that is at an emphatic demand of purchase.
3. The sale Contract: The bank agrees to sell the commodity for cash or a deferred price higher
than the Salam purchase price. The buyer agrees to purchase and to pay the price according to
the agreement.

Rules of Bai-Salam:
1. Commodity Should be Known: It is a condition that the commodity should be known
Ignorance about the commodity leads to dispute which invalidates the contract.
2. Monitoring By Specification: It is a condition that the commodity can be monitored by
specification to the maximum possible degree, only negligible variation is tolerated If the
commodity cannot Be monitored by specification salam is impermissible, because of ignorance
that leads to dispute.
3. Availability of Goods for Delivery: It is a condition that the commodity is possible to deliver
when it is due. That is the probability of its existence at the time of delivery is deemed to be
high, if the contrary is the case, Salam, is impermissible.
4. Salam n the Whole to be possessed partly: It is permissible to draw a Salam sale contract on
one whole thing but to be possessed at different times in specific parts.
5. Commodity a Liability Debt on the Seller: It is a condition that the commodity is a liability
debt, The seller is obliged to deliver the commodity when it is due, according to the specification
stipulated in the contract without abiding as to whether it is the product of his factory or the
produce of his private firm or from others.
6. Salam on Existing Goods: Salam sale is impermissible on existing commodities because
damage and deterioration cannot be assured before delivery on the due date. Delivery may
become impossible, anything which is risky and elevator.

7. Salam on Land and Real Estates Salam: Is impermissible on Land lots and real estates
because the description or the real estate entails the location. If the location is determined then it
is specified, which contradicts what the jurists agreed upon, that Salam is a liability debt.
8. Salam on Special Item: Salam is permissible on a commodity of a specific locality if it is
assured that it is almost always available in that locality and it rarely becomes unavailable.
9. Advance Payment: It is a condition that the purchase price in Salam is specified and
advanced to the seller at the contract meeting.
10. Date of Delivery Known: It is a condition in Salam sale that the due date is known to avoid
ignorance which leads to dispute.
11. Delivery mechanism Specified: It is a condition that the place of delivery is started in the
contract if the commodity needs loading or transportation expenses.
12. Provision for Mortgage: It is permissible to take mortgage and guarantor on Salam debt to
guarantee that the seller satisfies his obligation by delivering the commodity sold, which is a
liability on the due date.
13. Parallel Salam Contract: It is impermissible for the buyer of a Salam commodity to sell it
before receiving it .It is known that the Salam commodity is a liability debt of the seller and not
an existing commodity. Instead of that, it is permissible for the buyer to draw a parallel salam
contract without connecting it to the first salam contract.

Bai- Istishna
Meaning and Definition:
Istishna has been derived from Arabic word which means Industry.
Istishna is a contract whereby a part undertakes to produce specific goods and services, and
made according to certain agreed upon specification at a determined price and for a fixed date of
delivery. The production of goods includes any process of manufacturing, construction,
assembling or packaging.

Features of Istishna

Istishna is an exceptional mode of investment allowed by Islamic Shariah in which

product(s)

can be sold without

having the same in existence. If the product(s) are

ready for sale.Istishna is not allowed is Shariah. Then the sale may be done either in BaiMurabaha or Bai- Majjal mode of investmentin this mode, deliveries of goods are
deferred and payment of price may also be deferred.

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

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

It is a binding contract and no party or is allowed to cancel the Istishna contract after the
piece is paid and received in full or in part or the manufacturer starts the work.

Istishna is specially practiced in manufacturing and industrial sectors; however, it can be

practiced in agricultural and construction sectors also

4.6.4 Mudarabah
Definition:
It refers to a contact between two parties in which one party supplies capital to the other party for
the carrying on of some trade on the condition that the resulting profits are distributed in a
mutually agreed proportion while all loss is borne by the provider of the capital. Mudarabah is
also known as Qirad and Muqaradah.
Mudaraba is a contract of those who have capital with those who have expertise where the first
party provides capital and the other party provides the expertise with the purpose of earring
"halal" (Lawful) profit which will be devised between them in ration agreed upon. This mode
serves the business interest of the capital owner and the mudharib (agent).

The capital owner may not have the opportunity or the experience to make turn over capital and
trade with it. On the other hand, the agent (the Mubarib) may not have the adequate capital to put
to materialize his experience; such lacking of both parties bring them into a contract of
Mudarabah. It had certain steps to be followed. The following is the steps of the Mudarabah
contract.

Steps of Mudarabah:
1. Establishing a Mudharabah Project: The bank- the bank provides the capital as a capital
owner.
The Mudharib- provides the effort and expertise for the investment of capital in exchange of a
share in profit agreed upon.
2. The Results of Mudharabah: The two parties calculate the earrings and divide the profits at
the end of Mudharabah; this can be done periodically in accordance with the agreement along
with observance to legal rules.
3.Payment of Mudharabah Capital: The banks recovers the Mudharabah capital it contributed
before dividing the profits between the two parties because profit is protection to capital in case
of agreement to distribute profits periodically before the final settlement it must be on account
until the security of capital is assured.
4. Distribution of wealth resulting from Mudharabah: In case of loss, the capital owner (the
bank) bears the loss. In the event of profits, they are divided between the two parties in
accordance with the agreement between them with observance to the principle "profit is
protection to capital".
There are some legal rules for Mudharabah Mode of Finance, which are as follows.

Rules of Mudharabah:
1. Capital Must be Specific: It is a condition in Mudharabah that capital must be specific or its
return to owner, so its amount must be known at the contract, and because the uncertainty about
the amount of capital necessarily leads to uncertainty about the amount of profit, which
represents an increment to capital.

2. Capital must be in Currency: it is a condition that capital must be a currency in circulation.

However, It can be merchandise only in condition that it is evaluated at the contract and the
agreed upon value becomes the capital of Mudharabah.
3. Capital Not a Liability debt on Mudarib: It is a condition that in capital must not be a
liability debt on the Mudharib, because the Mudharib is a trustee and in respect to the debt, it is a
guarantor who can only be absolved after payment.
4. Mixing of Private Capital Permissible: It is permissible for a mudharib to mix its private
capital with the capital of the Mudharabah, thus it becomes a partner, as well, and its disposal of
capital on the basis of Mudharabah is permissible.
5. Delivery of Capital to Mudarib: It is a condition that the capital of Mudharabah must be
delivered to the mudharib because not delivering it imposes constrictions on the withhold it
imposes constrictions on the mudharib and restricts its power disposal. Some of the jurists permit
the capital owner to withhold capital and release it gradually according to the needs of the
mudharib since Mudharabah adjudges unrestricted disposal but not deliver.
6. Imposition of Restriction on Mudarib: It is permissible to impose restrictions on the
mudharib if the restriction is beneficial and does not constitute a constriction on the agent to
attain the profit required and is not counterproductive to the purpose of the Mudharaba if the
mudharib violates the restriction contravenes the beneficial condition, it becomes a usurper and
guarantees capital to the capital owner.
7. Hiring Helping Hands by Mudarib: It is permissible for the Mudharib to hire assistance in
difficult work, which it is unable to do by itself. Recourse shall be made to prevailing custom to
determine that.
8. Disposal of the Mudharib: The disposal of the Mudharib is confined to what is conducive to
the Mudharabah. It must lend or donate nothing of the Mudharabah capital it is also not allowed
to purchase, for Mudharabah with more than its capital, nor is it allowed to go into partnership
with others using the Mudharabah capital. All of the above is permissible if the capital owner
consents and authorizes the agent to use its discretion.
9. No Security or Guarantee except Negligence: No security on the Mudharib shall be stated in
the Mudharabah contract except in case of negligence or trespass because the mudharib is a
trustee on what is in its hold, capital is judged as a deposit. It is permissible to take a surety
mortgage from the mudharib to guarantee the payment in case of negligence or trespass or

violation of conditions, but it is impermissible to take that as a guarantee to capital or profit,

because it is impermissible for the Mudharib to guarantee neither Capital nor profit.
10. Profit Sharing as per Agreed Ratio: It is a condition that profit should be specific because
it the subject of the contract and being unknown abrogates the contract. The contraction parties
should stipulate in the contract the profit shares (in percentage) for each one. It is impermissible
to stipulate a lump sum as profit to either party so as not to lead to the termination of profit by
one of them. Profit in Mudharabah is distributed according to the agreement of the two
contraction parties. They may agree on specific rations, be more or less.
11. Loss to be borne by the Owner of the Capital: It is a condition that the capital owner bears
alone the loss (the Mudharib bears nothing of it) because loss is a decrease in capital and capital
belongs to the owner.
12. Profit is Protection to Capital: The Mudharib shall collect its share of the profit only after
obtaining the permission of the capital owner. Also the Mudharib is entitled to collect its share of
profit only after capital is recovered , because the principle says "profit is protection to capital"
In case of temporary division of profit before the final settlement, and the Mudharabah is
contenting, the loss incurred later shall be made good from the profit distributed.
13. Recovery of Capital: The ownership of the mudharib becomes secure after the liquidation of
the Mudharabah and the capital owner recovered its capital. Some of the Jurists hold the view
that auditing is like division and possession. If two parties reach a final settlement after the
liquidation of the assets and leave the Mudharabah, it is considered to be a new mudharabah and
neither one makes good the loss of the other.
14. Not a Binding Contract: Mudharabah is terminated if one of the two parties rescinds it
because it is an optional not a binding contract. Some of the jurists hold the view that
Mudharabah is binding and it cannot be rescinded if the Mudharib commences work.

4.6.5 Musharakah (Partnership)

Meaning and definition:

The word Musharakah is derived from the Arabic word Sharikah meaning partnership. Islamic
jurists point out that the legality and legality and permissibility of Musharakah is based on the
injunctions of the Holy Qura'n, Sunnah, and Ijma (consensus) of the scholars. It may be noted
that Islamic Banks are inclined to use various forms of Shariakt- al -Inan because of its built on
flexibility. At an Islamic bank, a typical Musharakah transaction may be conducted on the
following manner.
One two or more entrepreneurs approach an Islamic Bank for the finance required for a project.
The bank along with other partners provides complete finance. All partners, including the bank
have the right to participate in the project. They can also waive this right. The profits are to be
distributed according to an agreed ratio, which need not be the same as the different partners
have provided the finance for the project Musharakah may be of two types:
1.Permanent and
2. Diminishing Musharaka which have been discussed below.
a. Permanent Musharakah:
In this case the bank participates in the equity of a company and receives an annual share of the
profits on a pre-rate basis. The period of termination of the contract is not specified. This
financing technique is also referred to as continued Musharakah.
b. Diminishing Musharakah:
Digressive or Diminishing Muaharakah is a special form of Musharakah which ultimately
culminates in the ownership of the asset or the project by the client. It operates in the following
manner.
The bank participates as a financial partner, in full or in part, in a project with a given income
forecast. An agreement is signed by the partner and the bank through which the bank receives a
share of the profit as a partner. However, the agreement also provides payment of a portion of the
net income of the net income of the project as repayment of the principal financed by the bank.
The partner is entitled to keep the rest.

Definition of permanent Musharakah:

The contributions of the partners under this mode may be equal or unequal ratios of capital to
establish a new income-generating project or to participate in an established one, whereby each
participant owns a share in the capital structure permanently and deserves his share of the profit
income. Such a partnership originally is intended to continue up to the dissolution of the
company. But one can sell his share in the capital to withdraw from the project.
The Islamic Banks can use the mode of Permanent Musharakah in many income-generating
projects. They can finance their customers, for an intended projects, with pare of the capital
required for the project in exchange of a share of the output as they may agree upon. They can
also mostly leave the responsibility of management of the customer- partner and retain the right
of super vision and follow up.
It follows from the above discussion that there are three steps of permanent Musharakah which
are given below.
One- partnership in Capital
The bank tenders part of the capital required in its capacity as a partner and authorizes the
customer partner to manage the project.
The partner tenders part of the capital required for the project and be a trustee on what he holds
from the bank funds.
Two-Results of the projects
The work in the project is for the growth of capital. The project may achieve positive or negative
results.
Three-The Distribution of wealth accrued from the project.
In case of loss, each partner bears part of the loss proportionate to its share in capital. In case of
earning profits, they are divided between the two parties (the bank and the partner) in accordance
with the agreement.

Rules for Permanent Musharakah:

1. Capital should be Specific: It is a condition that the capital of the company is specific,
existent and under disposal. It is invalid to establish a company on non-existent fund of debt, for
the purpose of profit,
2. Share of Equity: It is not a condition that partners have equal shares in capital, though
variation in shares is permissible. It is subject to agreement.
3. Nature of Capital: It is a condition that the capital of the company is money and valuables.
Some of the jurists permit participating with merchandise on condition it is evaluated in the
contract and the value agreed upon becomes the capital of the company.
4. Active Participation of Partners: It is impermissible to impose conditions forbidding one of
the partners from work, because the company is build on and each partner implicitly permits and
gives power of attorney to the other partner to dispose of and work wit capital but it is
permissible for one partner to singly work in the company by mandate of other partners.
5. No Security for Profit: A partner is a trustee on the funds in his hand from the company and
he guarantees only in case of trespass or negligence and it is permissible to take a mortgage or a
guarantee against trespass and negligence but it is impermissible to take security or profit or
capital.
6. Ratio of Profit Prefixed: It is a condition that profit for each partner must be known to avoid
uncertainty and it must be a prorate ratio to all partners and must not be a lump sum, because this
contravene the requirement of partnership.
7. Variation in Share of Profit Permissible: In Principe, profit must be divided among partners
in ratios proportionate to their shares in capital but some of the jurists permit variation in profit
shares whereupon it is determined by agreement for one of the partners may be more dexterous
and more diligent and may not agree to parity, so variation in profit becomes necessary.
8. Not a binding contract: In principle, partnership is a permissible and not a binding contract,
so it is admissible for any partner to rescind the contract whenever it wishes provided that this
occurs with the knowledge of the other partner or partners, because rescinding the contract
without the knowledge of other partners prejudices their interests. Some of the jurists are of the
view that the partnership contract is binding up to the liquidation of capital or the
accomplishment of the job accepted at the contract.

Application of permanent Musharakah:

Permanent Musharakah is helpful for large amount of investment in modern economic activities
the Islamic banks can use Musharakah to a new or established firm by using permanent
Musharakah as a mode of investment. The Islamic banks can make sufficient fund available to
the customer for the long term. The Islamic banks may become active partners in determining the
methods of production cost control, marketing etc. and to achieve the objectives of the
establishment. They can also supervise and follow up the overall activities of the firm. The
Islamic banks can share profit or loss with the (partners) clients in all situations of the firm.

Definition of diminishing Musharakah:

Diminishing Musharaka is an intention from the very beginning not to stay in and continue the
partnership up to the liquidation of the company. The Islamic bank can give the other partner the
right to purchase portion of the bank on the ownership [the form for full payment at a time or by
installment basis as per agreement with the partners (the client).
The bank gradually can relinquish share to the partner, in exchange the partner pays the price to
the bank periodically during a reasonable period to be agreed upon. After the discharge, the bank
withdraws it claims from the firm and it becomes the property of the partner. Decreasing
partnership is a mode innovated by the Islamic banks. It differs from the partnership. Those are
mentioned below.

Steps of diminishing partnership:

1. Participation in capital: The bank-tenders part of the capital required to the project In its
capacity as a participant and agrees with the customer partner on a specific method of selling its
share in capital gradually.
The partner-tenders part of the capital required to the project and a trustee in what is in its hands
of the bank funds.
2. Results of the projects: The purpose of the work in the project is the growth of capital. The
results of the project may be positive or negative.
3. The distribution of the wealth accrued from the projects: In the event of loss each partner
bears its share in the loss in a ratio proportionate to its share in capital. In case of earning profits,

are detonated between the two partners (the bank and the customer) in accordance with the
agreement. The shares the sale must be concluded as a separate deal with no connection to the
contract of the company.
4. The Bank sells its Share In Capital: The Bank- expresses its readiness, its readiness, in
accordance with the agreement, to sell a specific percentage of its share in capital.
The partner- pays the price of that percentage of capital to the bank and the ownership is
transferred to the partner.
This process continues up to the end of the partnership of the bank in the project and that's by
gradually transferring the ownership of the project customer/partner. In this way the bank has its
principal returned plus the profit earned during the partnership advice versa.
In the first Conference of the Islamic Banks in Dubai, the conferees studied the topic of
partnership ending with ownership (decreasing partnership) and they decided that this mode can
be applied in one of the following (ways) forms.
The First Form: The Bank agrees with the customer on the share of capital and the conditions
of partnership. The Conference has decided that the bank should sell its shares to the customer
after the completion of the partnership and in an independent contract where the customer has
the same provision.
The Second Form The band agrees with the customer in participating in the total or partial
capital of a firm of prospective earnings on the basis of the agreement with the right to relating
the remainder of the income for the purpose of paying the principal of what the bank has
contributed.
The Third Form The shares of each partner (the bank and the partner) in the company are
determined as stocks co comprising the total value of the asset (real estate) Each partner, (the
bank and the customer) gets its share of the earnings accrued from the real property, If the
partner so wishes it can each year purchase a cretin number of the shares owned by the Bank,
The shares possessed by the bank shall be decreasing until the partner becomes the sole owner of
the real property.

Rules for diminishing Musharakah:

In addition to all the legal rules that apply to the permanent partnership which also apply to the
decreasing partnership, the following matters must the observed.
1. Participation and Sharing profit and Loss: It is a condition in the decreasing partnership
that it shall not be a mere loan financing operation, but there must be real determination to
participate and all the parties shall share profit or loss during the period of the partnership.
2. Banks Ownership and Right to Management: It is a condition that the bank must
completely own it, share in the partnership and must have its complete right in management and
disposal. In case the bank authorizes its partner to perform the work, the bank shall have the right
of supervision and follow up.
3. Redeeming Bank's Share of Capital: It is impermissible to including the contract of
decreasing partnership a condition that adjudges the partner to return to the bank the total of its
shares in capital in assertions in addition to profits accruing from that share, because of
resemblance to RIBA (usury).
4. Banks Promise to Sell It Share to the Partner: It is permissible for the bank to offer a
promise to sell its shares in the company to the partner if the partner pays the value of the shares.
The sale must be concluded as a separate deal with no connection to the contract of the company.

4.6.6 Hire Purchase under Shirkatul Melk

Meaning and Definition:

Hire purchase Under Shirkatul Melk is a special type of contract which has been developed
through practice. Actually, it is a synthesis of three contracts:

Shirkat

Ijarah and

Sale

There may be defined as follows:

Shirkatul Melk:
Shirkatul 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.

Ijarah:
The term Ijarah has been derived from the Arabic words Air and Uirat 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
Hiree and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified
consideration or rent from the asset owned by the Hiree, it is a hire agreement under which a
certain assert is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified
period.

Element of Ijarah:

a. According to the majority of Fuqaha, there are three general and six detailed elements of
Ijarah.

The wording: this includes offer and acceptance.

Contracting parties: this includes a Hiree, the owner of the property, and a Hirer, the party
that benefits from the use of the property.

Subject matter of the contract: this includes the rent and the benefit.

b. The Hiree: the individual or organization hires/rents out the property of service is called the
Hiree.
c. The Hirer: the individual of organization hires / takes the hire of the property or service against
the consideration, rent/ wages/ remuneration is called the Hirer.
d. The benefit / asset: the benefit, which is hired/, rented out is called the benefit.
e. The rent: 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.

Sale:
This is a sale contract between a buyer and a seller under which the ownership of certain goods
or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the
buyer.
Thus, in Hire Purchase under Shirkatul Melk made both the bank and the client supply equity in
equal or unequal proportion for purchase of an asset like land, building, machinery, transport etc.
Purchase the asset with that equity money, own the same jointly; share the benefit as per
agreement and bear the loss in proportion to their respective equity. The share part or portion of
the asset owned by the bank is hired out to the client partner for a fixed rent per unit of time for a
fixed period. Lastly the bank sells and transfers the ownership of its share/ part/ portion to the
client against payment of price fixed for that

part either gradually part by part or in lump sum

within the hire period or after the expiring of the hire agreement.

Stages of Hire Purchase under Shirkatul Melk:

Thus Hire Purchase under Shirkatul Melk agreement has got three stages:

Purchase under joint ownership

Hire and

Sale and transfer of ownership to the other partner Hirer.

Important features:
1. In case of HPSM transaction the asset/ property involved is jointly purchased by the Hiree
(Bank) and the Hirer (Client) the Hiree and the Hirer become co-owner of the asset under
transaction in proportion to their respective equity participation.
2. In HSPM agreement, the exact ownership of both the Hiree and Hirer must be recognized.
3. Under this agreement, the Hirer becomes the owner of the benefit of the asset but not of the
asset itself, in accordance with the specific provisions of the contract, which entitles the Hiree, is
entitled for the rentals.
4. As the ownership of hired portion of the asset lies with the Hiree and rent is paid by the Hirer
against the specific benefit, the rent is not considered as price or part of price of the asset.
5. In the HPSM agreement the Hiree does not sell or the Hirer does not purchase the asset but the
Hiree promise to sell the asset to the Hirer part by part only.
6. The promise to transfer legal title by the Hiree and undertakings given by the Hirer to
purchase ownership of the hired asset upon payment part by part as per stipulations are affected
only when it is actually done by a separate sale contract.
7. As soon as any part of Hirees ownership of the asset is transferred to the Hirer that becomes
the property of the Hirer and hire contract for that share/part and entitlement for rent there of
lapses.
8. In HPSM, the shirkatul melk contract is effected from the day the equity of both partied
deposited and the asset is purchased and continues up to the day on which the full title of Hiree is
transferred to the Hirer.
9. Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the
asset by the Hiree to the Hirer.
10. Under this agreement the bank acts as a partner, as a Hiree and at last as a seller; on the other
hand the client acts as a partner, as a Hirer and lastly as a purchaser.

11. Ownership risk is borne by both the Hiree and Hirer in proportion to their retained ownership
or equity.
12. The Hirer cannot, without obtaining prior written permission of the Hiree make any changes
in the exact item of the hiree, or remove it from its place of installation and transfer into another
location.
13. HPSM transaction facilitates the client to get benefit from the hired asset in exchange of
rental and also to become full owner of the asset by purchasing it part by part.
14. The Hirer to secure the Bank (the Hiree) will pledges hypothecate or mortgage his portion or
share in the asset and or any other asset of his own or third party guarantor to the Bank to fulfill
his all liabilities/commitments including the accrued rental, if any.

Rules:
1. It is a condition that the subject of the contract and the asset should be known
comprehensively.
2. It is a condition that the asset to be hired must not be a fungible one which cannot be used
more than once or in other words the asset must be a non-fungible one which can be utilized
more than once or the service of which can be separated from the asset itself.
It is a condition that the subject of the contract must actually and legally be attainable.
3. It is a condition that the Hirer shall ensure that he will make use of the asset as per provisions
of the Agreement.
4. It is a condition that the Hirer shall ensure that he will make use of the asset as per provision
of the agreement.
5. The hire contract is permissible only when the asset and the benefit derived from it is with in
the category as per Islamic Shariah.
6. In a hire contract, the period of hire and the rental to be paid per unit of time be clearly stated.
7. Everything that is suitable to be considered a price, in a sale, can be suitable to be
considered as rental in a hire contract.
8. It is permissible to advance, defer or install the rental in accordance with the agreement.
9. It is permissible to make the Hirer to bear the cost of ordinary routine maintenance, because
this cost is normally known and can be considered as part of the rental.

10. If the hired asset is damaged or destructed by the act of Allah and if the Hiree offers a
substitute with the same specifications agreed upon in the hire contract the contract does not
terminate.
11. Under HPSM agreement, both the Hiree and the Hirer must pay their respective equity as
agreed upon to purchase the demised asset under joint ownership.
12. Ownership of the asset of both the Hiree and the Hirer should be recognized as per law of the
land.

4.7 Investment schemes of IBBL

There are 13th special number of schemes are now under operation of IBBL in order to extend cooperation to the poor, the helpless and the low income group for their economic uplift as well as
for poverty alleviation, income and employment generation with a view to accelerate sustainable
socio economic growth of the society.
At present thousands of clients is enjoying investment facility through these special schemes
which stands 8.03% of Banks total investment of the bank. Overall recovery of these investment
is about 97% which is 108% including advance recovery.
Among all division/ department of IBBL RCID has the privilege to induct highest number of
new investment clients exclusively through these special schemes resembling the mission and
vision of IBBL.

Figure: Special Investment Schemes

4.8 Trends of Investment of IBBL

Investment of the bank increased to tk. 372,920 Billion as on 31 st Dec, 2012 from tk. 341,853
billion as on 31st Dec, 2011 showing an increase of tk. 26.23 billion I.e. 21.90% growth against
28.27% growth of investment in the bank sector. This increased investment growth of the bank in
2011 is due to the trust given to promote investment, for effective utilization of depositors fund.
The percentage of increase of investment of IBBL in 2010 was 24.24%
The market share of IBBL both in deposit & investment shows increasing trend which are given
below: (Amount in Billion)

Particulars 31.12.2012

31.12.2011

% growth as on 31.12.12
over 31.12.11

Deposit

Islami
banks total
417,844.

Market
share (%)
7.86%

Islami
banks total
341853

Market
share (%)
7.59%

Investment

372,920

9.10%

305,840

8.16%

Market share of IBBL both in deposit & investment

Year wise investment

The share of investment of IBBL in banking sector as on 31st Dec 2012 was 9.10%. a trend of
investment is given below: (Amount in Millions)

Trends of investment 2008 to 2012

Trend in investment (Amount in million)

It is observed that the investment is in increasein trend. As the deposited amount increases year
by year the bank gets more funds to invest and creates more employment opportunities.

Modes wise investment:

The trends in investment according to the different modes are shown below:

Mode

2012

2011

Amount
Bai-Murabaha

117,180

% to total
investment
54.60%

HPSM

73,871

34.42%

63,159

Bai-Muajjal

7,318

3.41%

6,550

Purchase
&Negotiation
Quard

11,289

5.26%

10,223

2,833

1.32%

2,151

Bai-Salam

2,082

0.97%

1,719

Musharaka

43

0.02%

35

214,616

100%

180,054

Total

Amount
96,217

Modes wise investment position of 2012

Sector wise investment:

Sector wise outstanding investment as 31st Dec, 2013 from that of previous year is given below:

SL. No.

Sector

31.12.2012
Amount

31.12.2011

01

Industrial

191,409

% to Total
Investment
5.79%

02

Commercial

113,021

49.38%

105,404

03

Real Estate

23,231

29.16%

18,015

04

Agriculture

22,427

05

Transport

6,887

1.8%

6856

06

RDS

10,393

2.68%

7072

07

Other

10,393

4.00%

7072

100%

312438

Total 372462

5.99%

Amount
142,164

30,278

4.9 Performance of Rural Development Scheme

Islami Bank Bangladesh Limited launched its Rural Development Scheme (RDS) in 1995. In the
mean time, 197 Branches of the Bank have been operating the activities of the Scheme in their
respective areas. These Branches are working among the poor in 15,370 villages covering 1251
unions under 392 Thanas of 61 districts of the country. Present number of members is 5, 01,941
since beginning the scheme. The members are provided investment facilities an amount of BDT

28,100.10 million ($ 407.25m) up to 30-06-2012 against which the outstanding was BDT
4,320.41 million ($ 62.61m). Rate of recovery of the Scheme is more than 99%.
Besides the regular investment program, we have provided with hand tube-well and sanitary
latrine to the successful RDS members on Quard from the fund given by Islami Bank
Foundation. A total of 7,946 tube-wells & 4,322 sanitary latrines have so far been distributed at
a cost of BDT 15.84 million ($ 0.23m) & BDT 4.76 million ($ 0.07m) respectively up to the said
date.

4.10 Investing in SMEs

SME is vering consider as the engine of growth in any economy around the world. Under SME
investment IBBL invests in various manufacturing, trading & other sectors. Its investment in
small enterprises was Tk 45757 million & that of medium enterprises was Tk 57071 million.

SWOT Analysis

5.1 SWOT Analysis:

By doing the SWOT analysis it is possible to find out the strengths, Weaknesses, opportunities,
and threats of IBBL. From the SWOT analysis we can figure out the ongoing scenario of the
Bank. In the competitive area of marketing; SWOT analysis is based on product, price, place and
promotion of a financial institution like a private bank.

Figure: SWOT analysis

5.2 strength
Adequate finance: Islami Bank Bangladesh Ltd. has adequate finance. That is why; they need
not to borrow money from Bangladesh Bang or any other.
More funds for investment: For adequate financial ability, they can provide more investment
facility to their rather than other Banks.
Honest and reliable employees: All of the employees of Islami Bank are honest and reliable.
They are always devoted themselves to the clients for better customer.
Religious felling of the people: Most of the people of Bangladesh are Muslims and they are
trusted the superior performance of IBBL as Sariah based Islami Bank.

5.3 Weakness
Lake of up-to-date equipment: IBBL has lack of modern technologies and equipments like
adequate on line facilities as well as cash card and credit card system.

Deficiency of expertise: Many of the employees are unskilled and from them, superior
performance is unexpected to super vive in the national economy as well as the world economy.
Lack of advertisement: IBBL has lack of aggressive advertising like other banks. They dont
telecast any attractive advertise in the media.
Centralized Decision making: The decision making of the bank is too many centralized. No
decision is made without the authorization of the head office.

5.4 Opportunity
Innovative and modern customer service: This bank can introduce more innovative and
modern customer services to its customers to survive better in the competition market.
Poverty alleviation: IBBL has a great opportunity to save the countys poor people from being
taking loan from different NGOs or few banks with higher interest rate.
Special Image: IBBL has created special image to the people as a more reliable bank. People
believe that if they keep their money in Islami bank it will be more secured than other banks.
Retaining vast customer: IBBL has a vast opportunity to hold most of the customer by
extending his banking operations all over the country as most of the people other country are
religious minded.

5.5 Threats
Rules and regulations: Rules and regulation of Bangladesh Bank defers with Islamic Banking.
So they have to face various problems to operate their activities according to Islamic Shariah.
Lower salary structure: Now many of the bank hiring young talent and expertise employees
with higher remuneration where IBBL could not hire skilled manpower because of lower salary
structure compared to other banks.
Islamic banking system introduced by conventional banking: Few others conventional banks
have opened their Islamic banking branch.

Findings

6.1 Findings
Major findings are given below:

There are three modes of investment such as Bai mode (sales & buy basis), Share mode,
and Ijarah mode (rental).

Part of the investment income i.e. 66% (app) is distributed to the depositors accounts as
profit paid on deposit.

Most of the people in our country have a bad impression of IBBL, operations regarding
indirect generation of interest which meaning no difference between investment of IBBL
& loan / advance of conventional banks. For this reason, they are not too much interested
to make investment with IBBL.

This bank cant invest in all economic sectors, which are prohibited by the law of Islam.

IBBL has no strong promotional activities to increase motivate its present and potential
investment client. But in 2011 it has advertised its services by sponsoring in the
decoration of Bangladesh for ICC World Cup 2011 ceremony and school football
tournament.

In rural area for low income community, IBBL grants investment to a group not
individual.

The bank is planning to invest in eco friendly projects.

A large portion of the banks income from investment is given to the depositors.

IBBL has its own Risk Management Committee which guides the bank to calculate Risk
Weighted Assets properly.

Major portion of the investment is made in the industrial sector.

IBBL investment recovery was 85 to 95%.

Conclusion
& Recommendations

7.1 Conclusion

Islam is a complete way of life and Allahs guidance extents into all areas of our lives. Islam has
given detail regulations for our economic life. Therefore, Islami Bank Bangladesh Limited
(IBBL) is trying to establish the maximum welfare of the society by maintaining the principles
of Islamic Shariah which is based on Quran and Sunnah. Since 1983, IBBL is the pioneer in
welfare banking in this subcontinent and it is trying to do all its activities for the betterment of its
depositors. For the greater interest of the depositors the investment policy of IBBL is to invest on
the basis of profit and loss sharing in accordance with the tents and principles of Islamic Shariah.
Profit earning is not the only motive and objective of the banks investment policy
rather emphasis is given in attaining social good and in creation employment opportunities.
IBBL is not secular in its orientation. IBBL does not finance any project which conflicts with the
moral value system of Islam. IBBL does not strictly consider the credit worthiness of the
entrepreneur. IBBL receives a return only if the project succeeds and produces a profit. IBBL
considers the soundness of the project and business acumen and managerial competency of the
entrepreneur. Therefore, the rate of return of investment of IBBL is greater comparing to that
of conventional banks.
Finally, Islami Bank Bangladesh Limited (IBBL) has been established with a view to conduct
interest free banking to establish participatory banking instead of debtor-creditor relationship and
finally to establish welfare oriented banking through its investment operations that would lead to
a just society.

7.2 Recommendations

Though Islami Bank Bangladesh Ltd. (IBBL) is performing well but it has some crucial areas to
improve which are prescribed below:

IBBL can diffuse its scope of investment through focusing shariah concept regarding
investment among the bank officers; employer and the clients by strong training,
workshops.

IBBL should make its investment schemes more attractive for availing highreturn projects.

IBBLs investment processing should become easier than other conventional banks.

It is a modern banking era. Each and every commercial bank is properly utilizing
technological innovations. So, IBBL needs to utilize these modern technologies to
keep pace with the modern time.

IBBL needs to recruit skilled human resources which can turn the bank ahead.

The bank should offer facilities such as Credit card.

IBBL should consider utilization of rural potentials from both efficiency and equity
grounds in the context of the present-day socio-economic conditions of Bangladesh.
Strong commitments and stepping up through experiment and implementation
of innovative ideas are the appropriate ways to do that.

IBBL should deserve immediate attention in the promotion of the image of Shariah based
banks as PLS (profit-loss-sharing) banks.

IBBL should initiate different investment modes according to changing /diverse needs of
clients by conducting huge research and study.

Bibliography

Websites
www.islamibankbd.com
www.ibtra.com
www.bangladesh-bank.org
www.scribd.com
www.wikipedia.com