The principle objective of this report is to analysis the General Banking, Investment Management and Social Responsibility of Islami Bank, report also observe the overall activities and performance of Islami Bank Bangladesh Limited. Other objectives are to show the investment policy and product offerings in various modes of IBBL and show the differences with conventional banking in investments aspects. Finally identify strength and weakness of investments and recommend actions that may be necessary to redesign the investments of IBBL.
Objectives of the study
Following are the main objectives
- To familiar the history and operations of Islami Banking in Bangladesh.
- To show the investment mechanism and product offerings in different modes of IBBL.
- To show overall investment proposal, appraisal procedures, documentation system of IBBL and Conventional Banks.
- To show the differences with conventional banking regarding investments aspects
- To identify strength and weakness of investments of IBBL
- To recommend actions that may be necessary to redesign the investments of IBBL.
In the Islamic Banking Perspective
Definition of Islamic Bank
Islamic Banking has been defined in a number of ways. The definition of Islamic bank, as approved by the General Secretariat of the Organization of the Islamic Conference (OIC) is stated in the following manner.
“An Islamic Bank is a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation”.
As a Muslim country people of Bangladesh are deeply committed to Islamic way of life and follow the Holy Qur’an and the Sunnah. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh.
Bangladesh Bank License for IBBL Operation
The bank operates within the frame work of the existing banking laws, rules and regulation subject to such minor adjustment that may be considered for an Islami Bank to function. In addition to the above all requirements of Banking Companies Ordinance 1962 (as adapted in Bangladesh) as also the relevant position of Bangladesh Bank Order, 1972 (P.O. No. 127 of 1972) and instructions issued from time to time there under by Bangladesh Bank will also apply to the bank.
Historical Background of IBBL
Islami Bank Bangladesh Limited (IBBL) was incorporated on March 13, 1983 under the Company Act 1913 as the first interest free Shariah based commercial bank in South-East Asia. Normally, its modes of operations are different from conventional commercial Banks. IBBL started its functioning through formal inauguration on August 12,1983. Twenty-three local sponsors and thirteen foreign sponsors promoted the Bank in 1983- Bank Record Page No. 7.
Before that in August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah. In January 1981. Islamic Summit Conference held at Macca and Taif Suggested, “The Islamic Countries should develop a separate banking system of their own in order to facilitate their trade and commerce.”
This statement of Late President Ziaur Rahman indicated favorable attitude of the Government of the People’s Republic of Bangladesh towards establishing Islamic banks and financial institutions in the country. Earlier in November 1982, Bangladesh Bank, the country’s Central Bank, sent a representative to study the working of several Islamic Bank abroad.
In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Banker’s Association (BIBA) made significant contributions towards introduction of Islamic banking in the country.
They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking.
Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of the then Muslim Businessmen society (now reorganized as Industrialist & Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islamic Bank.
At last, the long drawn struggle to establish an Islamic bank in Bangladesh becomes a reality. Islamic Bank Bangladesh Limited was established in March 1983. In Which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe including IDB and two eminent personalities of the kingdom of Saudi Arabia joined hands to make the dream a reality- Bank Recods page No 20
Justification for Separate Islami Banking Act
For smooth and better functioning of Islamic Banks & Financial Institutions a complete separate Act for Islamic Banks and Financial Institutions is essential for the following reasons:
- The nature of deposits of Islamic Banks is different from that of conventional Banks. The Islamic Banks mobilize deposit on Mudaraba and Al-Wadiah basis under Islamic Shariah, while conventional Banks do this on prefixed interest basis. The Depositors of Islamic Banks are business partners of the Banks and they share the Profit/loss of the business.
- It is obligatory for Islamic Banks as per Shariah to pay Zakat while Conventional Banks do not act on such obligation. In the Bank Company Act, 1991 there is no provision to pay Zakat by the Islamic Banks.
- The Islamic Banks deploy their funds as per different modes of Investment/Financing approved by Islamic Shariah. Most of the Investments of Islamic banks are on Bai-Mode. In this mode Banks sell specified goods to the clients on cost plus agreed upon profit or at a negotiable price payable after a certain fixed period. If, the client fails to pay the price within the fixed period, the Islamic Banks cannot impose or realize additional amount as income of the Bank.
- As activities and operations of Islamic Banks particularly Investment Port-folio is completely separate form that of Conventional Banks, the Act and Procedures for initiation of legal action against the default clients should be separate under the framework of Islamic Jurisprudence.
- Inspections of Islamic Banks are made as per system adopted for Conventional Banks and sometimes by the Inspectors without having any knowledge of Islamic system and law.
Distinguishing Features of IBBL
An Islamic bank has several distinctive features as compared to its conventional counterpart. Chapra had outlined six essential differences as below:
(i) Abolition of interest (Riba): Since riba is prohibited in the Holy Quran and interest in all its forms is akin to riba, as confirmed by Fukaha and Muslim economists with rare exceptions, the first distinguishing feature of an Islamic bank must be that it is interest-free.
(ii) 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-maximising role and should adjust themselves to the different needs of the Islamic economy.
(iii) 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.
(iv) 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.
(v) 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- Babk file page no-19
Conventional Banking versus Islamic Banking
Table: Differecne between conventional banking & Islami banking
|Conventional banking||Islamic banking|
|The functions and operating modes of conventional banks are made on man made system.||The functions and operating modes of Islamic banks are based on the principles of the Islamic shariah.|
|The investor is assured of a predetermined rate of interest.||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 zakats.|
|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, bank’s 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.||For Islamic banks, it is comparatively difficult to borrow money from the money market.|
|Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations.||Since it shares profit and loss, Islamic banks pay greater attention to developing project appraisal and evaluations.|
Source: Bank File, Page- 30
Activities of IBBL
Islami Bank is a financial institution whose statutes, rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations. The perception of Islamic banking has been bloomed from the inspiration of building up a society on justice in accordance with basic socio-economic principles of Islam. The difference between Islamic bank and conventional bank is on principles. The functions of this type of bank are completely different. This bank is established on Islamic Shariah and all types of transactions are free from interest. Justified profit is the basis financial transaction of this bank. This bank is committed of establish socio-economic justice- Bank file page no-21
Objectives of IBBL
The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:
- To offer contemporary financial services in conformity with Islamic Shariah;
- To contribute towards economic development and prosperity, within the principles of Islamic justice;
- Optimum allocation of scarce financial resources;
- To help ensure equitable distribution of income.
- Offer Financial Services: Interest-based banking, which is considered a practice of riba in financial transactions, is unanimously identified as anti-Islamic. That means all transactions made under conventional banking is unlawful according to Islamic Shariah approved financial transactions.
- Islamic Banking for Development: Islamic banking is claimed to be more development oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the banks return on investment and the successful operation of the business by the entrepreneurs.
- Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be most profitable and beneficial to the economy.
- Islamic Banking for Equitable Distribution of Resources: Another important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties: the bank, the depositors and the entrepreneurs.
The functions of the Bank are as under:
- General Banking.
- foreign exchange and foreign business.
- Remittance: To remit money to home and abroad through T.T, D.D, Pay- Order, Travelers Cheque etc.
- Other Services e.g. Locker Service to receive different types of bills of clients, to issue guarantees and counseling etc. Besides, Islami Bank Bangladesh Limited conducts social welfare activities through Islami Bank Foundation.
Mission Of IBBL
- To establish Islamic Banking through the introduction of a welfare oriented banking system.
- To ensure equity and justice in the field of all economic activities.
- To achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country.
- To encourage socio-economic upliftment and financial services to the low income community particularly in the rural areas.
Vision Of IBBL
The vision of IBBL 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 professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems.
- We will try to encourage saving 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.
Role of Shariah Council over the Islamic Bank
Formation of Shariah Council of Islami Bank Bangladesh Limited:
In practice the Bank has already established a strong Shariah Council consisting of 10(ten) members appointed by Board of Directors and prepared its terms of reference. Out of ten members at least 7(seven) members should be Fuquha/Mufti/Islamic scholars well versed in the Quran, Sunnah and fully conversant with the opinion of all school of Islami thought. Out of the remaining 3(three) members there must be at least one Economist, one Banker and one Lawyer. The Shariah Council is appointed and they are not salaried. The tenure of the 1st Shariah Council was 3yearsb and that of subsequent Council will be reconstituted after every three years and a retiring member is eligible for re-appointment. Five members including not less than three Fuquha/Mufti shall form the quorum in meeting of the Council.
Functions and Objectives of Shariah Board:
According to the Bye-laws of Shariah Board, it performs the following activities:
- To advise the members Banks regarding Shariah Issues.
- To conduct Shariah inspection in the member Banks..
- To play Intermediately role if necessary.
- To insure the Shariah Compliance in Islami Banks by sending Shariah
- Inspection report to the Bank Management.
To conduct training course on Shariah issues for Human Resources
- Development of the members bank.
- To arrange Seminar and Symposium on banking issues.
- To identify the problems and making recommendation.
- To collect data and information regarding Islami banking the same to others.
- To publish Books, Journal, Manual, Brushier and distributing the same among the members bank.
One of the most significant and revolutionary development in the banking area of the world during the last four decades is the emergence and extraordinary development of Islamic Banking in different countries of the world which has drawn the attention of the scholars and general public of the Muslim and non-Muslim countries including the world bodies like International Monetary Fund, World Bank etc. The special feature of the investment policy of IBBL is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of the profit is not the only motives and objectives of the Bank’s investment policy; rather emphasis is given in attaining social good and in creating employment opportunities- Bank File, Page- 25.
Objectives and Principles
The objectives and principles of investment operations of IBBL are
- To invest fund strictly in accordance with the principles of Islamic Shariah.
- To diversify its investment portfolio by size of investment, by sectors (public & private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural.
- To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment close and constant supervision and monitoring thereof.
- To make investment keeping the socio economic requirement of the country in view.
- To increase the number of potential investors by making participatory and productive investment.
- To finance various development schemes for poverty alleviation, income and employment generation with a view to accelerate sustainable socio-economic growth and upliftment of the society.
- To invest in the form of goods and commodities rather than give out cash money to the investment clients.
- To shun even highly profitable investment in fields forbidden under Islamic Shariah and that are harmful for the society.
- IBBL usually extend investments under the principles of Bai-Murabaha, Bai-Muazzal, Hire Purchase under Sheraton Meelk and Mudaraba. Sincere efforts must be made for investment under Musharaka principle
Meaning of Murabaha
The terms “Bai-Murabaha” have been derived from Arabic words and (Bai and Ribhun). The word means purchase and sale and the word means an agreed upon profit.” Bai-Murabaha” means sale on agreed upon profit.
Types of Murabaha
In respect of dealing parties Bai-Murabaha may be of two types.
Trasaction between two parties buyer & seller without any promise.
If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary Bai-Murabaha.
Bai-Murabaha on Order and Promise
If there are three parties, the buyer, the seller and the Bank as an intermediary trader between the buyer and the seller, where the Bank upon receipt of order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the sale is called “Bai-Murabaha on Order or Promise”, generally known as Murabaha.
This Murabaha upon order and promise is generally used by the Islami Banks, which undertake the purchase of commodities according to the specification requested by the Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to buy those for its cost price plus a marked-up profit agreed upon previously by the two parties, the Bank and the Client.
In this Bank, Bai-Murabaha is treated as a contract between the Bank and the Client under which the Bank purchases the specified goods as per order and specification of the Client and sells those to the ordering Client at a cost plus agreed upon profit payable within a fixed future date in lump sum or by fixed installments.
Thus 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.
It may be noted here that, in case of Bai-Muajjal and Bai-Murabaha, 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 sale price of the goods sold by the Bank 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 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) – Official file of IBBL-2012
Therefore, 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 into a payment for and on behalf of the Client or it is paid to the Client any profit on it will be Riba.
- It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same from the Bank on Murabaha, i.e. cost plus agreed upon profit. It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to 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. 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-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, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.
- The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract
The Bank shall 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 in the Bai-Murabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no 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- Official file of IBBL.
Application of Bai-Murabaha
Murabaha is the most frequently used form of finance in Islamic banking throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finished goods, procurement of raw materials, machinery, and other required plant and equipment purchases
Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the country), to the buyer at an agreed fixed price payable at a certain fixed future date in lump-sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the buyer.
The terms ” Bai ” and ” Muajjal ” . The word Bai means purchase and sale and the word Laza means a fixed time or a fixed period. ” Bai-Muajjal ” means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit.
Bai-Muajjal in IBBL
In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installments.
Thus it is a Credit sale of goods by which ownership of the goods is transferred by the Bank to the Client but the paymet 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..
Therefore, 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 into a payment for and on behalf of the Client or it is paid to the Client any profit on it will be Riba.
- It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy 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, 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-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 can not 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- Official file of IBBL page no-47.
Bai-Salam may be defined as a contract between a buyer and a seller under which the seller sells in advance certain goods permissible under Islamic Shari a and the Law of the country to the buyer at an agreed price payable on execution of the said contract and commodities are delivered as per specification, size, quality, quantity at a future time in a particular place.
Under this mode Bank will execute purchase contract with the client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit is to be negotiated. In this mode the payment as the price of the goods is made at the time of Agreement and the delivery of the goods is deferred.
Important Features of Bai- Salam:
- Bai- Salam is a mode of investment allowed by Islamic Shariah in which commodities can be sold without having the said commodities either in existence or physical possession of the seller. If the commodities are 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 Investment.
- Generally, Industrial and Agricultural products are purchased/ sold in advance under Bai-Salam mode of investment to infuse finance so that production is not hindered due to shortage of fund / cash.
- It is permissible to obtain collateral security from the seller client to secure the investment from any hazards viz. non-supply/ partial supply of commodities, supply of low quality commodities etc.
- It is also permissible to obtain Mortgage and or Personal Guarantee from a third party as security before the signing of the Agreement or the time of signing Agreement.
- Bai-Salam on a particular commodity/ product of a particular field or a farm can not be effected
Application of Bai-Salam
Salam sales are frequently used to finance the agricultural industry. Banks advances cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end prod
Istisna’a is a sale contract by which al-Sani (the seller) on the basis of the order placed by al-mustasni (buyer) after having manufactured or otherwise acquired al-masnoo’s (the goods) as per specification sells the same to al-mustasni’ for an agreed upon price and method of settlement whether that be in advance, by installments or deffered to the specific time. It is a condition of Istisna’a contract that al-sani should provide either the raw material or the labour.
Hire Purchase Under Shirkatul Meelk
Under this mode Bank may supply implements/ equipment/goods on rental basis. The ownership of the implements/equipment/goods will be with the Bank and the client jointly and the portion of the client will remain to the Bank as mortgage until the closure of the investment account, but the client will be authorized to possess the equipment for certain period. The client, after completion of the installments, will be the owner of the implements/ equipment/goods- Official file of Bank page no-25.
Meaning and Definition
Hire Purchase under Shirkatul Meelk is a Special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts:
These may be defined as:
Shirkat means partnership. Shirkatul Meelk 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 Meelk contract.
The term Ijarah has been derived from the Arabic works (Air) and (Ujrat) which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an asset. Ijarah has been defined as a contract between two parties, the Hire and Hirer where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hire. It is a hire agreement under which a certain asset is hired out by the Hire to a Hirer against fixed rent or rentals for a specified period.
Related Terminologies or Elements of Ijara
According to the majority of Fuqaha, there are three general and six detailed elements of Ijarah.
- The wording: This includes offer and acceptance.
- Contracting parties: This includes a Hire, 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.
- The Hire (Muajjir)- The individual or organization hires/rents out the property of service is called the Hire (muajjir).
- The Hirer (Mustajir)- The individual or organization hires/takes the hire of the property or service against the consideration rent / wages / remuneration is called the Hirer (mustajir).
- The benefit / asset (Maajur) – The benefit which is hired / rented out is called the benefit (maajur).
- The Rent (Aj’r or Ujrat) – The consideration either in monetary terms or in kinds fixing quantity of goods / money to be paid against the benefit of the asset or service of the asset is called the rent or ujrat or aj’r.
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 Meelk mode both the Bank and the Client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transports 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 expiry of the hire agreement.
Stages of Hire Purchase under Shirkatul Meelk
- Thus Hire Purchase under Shirkatul Meelk Agreement has got three stages:
- Purchase under joint ownership.
- Hire and
- Sale and /or transfer of ownership to the other partner Hirer.
Types of sale contract in Hire Purchase Under Shirkatul Meelk
As per procedure of transfer of ownership and legal title of the part owned by the Bank is transferred to the other partner, the sale contract may be of various forms, some of the major forms are mentioned below:
Hire Purchase Under Shirkatul Meelk through gradual transfer (sale) of legal title/ownership of the hired asset/property.
Under this type certain ‘asset / property’ is purchased with equal or unequal equity participation and owned jointly by the two parties – the Bank and the Client. The Bank’s share / portion of the asset is hired out to the Client partner against fixed rent/rentals per unit of time for a fixed period with a promise that the Hire Bank will sell or transfer the ownership of its portion to the Client Hirer gradually part by part in proportion to the consideration paid. So that the Hirer may acquire the full title of the Hire’s portion of the asset on payment of the total price at the end of the hire period.
Under this system the total price of the hired property / asset should be determined and divided over the period of hire contract (per unit of time) so that the Hirer in addition to the payment of fixed rent / rentals may pay gradually the proportionate consideration of the total price of the hired property or asset to acquire proportionate ownership of the same part by part and become full owner of the hired asset at the end of the hire period.
It should be noted that there should be a separate sale contract for payment / acquisition of each share (per unit of time as per hire deal) / part of asset sold to the Hirer and the amount of rent should be decreased proportionately with decrease of Hire’s ownership and increase of Hirer’s ownership on the property/asset.
If, for any reason, the hire contract is revoked prior to the payment / transfer of full title to the Hirer, the Hirer will share that part of the title to the hired property which has been transferred to him against payment made by him and the remaining part will be shared by the Hire Bank. If any loss arises to the Bank after the sale of Bank’s share to the property / asset that shall be recouped from the Client / Client’s security.
In our Bank, we shall be following this type of Sale Contract in Hire Purchase under Shirkatul Meelk.
Hire Purchase Under Shirkatul Meelk Through Transfer of legal title by gifts
Under this type the portion of asset owned by the Hire partner is hired out to the Hirer partner with a prior promise that the Hire, upon settlement of all the rent / rentals / installments by the Hirer, will transfer his ownership / title to the property to the Hirer through gift without any further consideration.
After the expiry of the hire period and payment of all the rent / rentals / installments, the title of property may be transferred by a separate gift deed executed by the Hire or, the title may be transferred by issuing a gift deed by the Hire making it conditional on the settlement of all rental installments. In the later case, the legal title is automatically transferred as soon as the hire period expires and the fixed rent installments for rent are settled. The working of the agreement would be: If the agreed upon rental installments are settled within the agreed upon period, ownership of the asset will be transferred to the Hirer as gift.
Under this mode the rentals fixed and agreed upon will be sufficient not only to amortize the capital outlay but also to yield an adequate amount of profit for the Hire. However, the rent / rentals agreed upon shall not be considered as price or part of price of the asset and the full ownership of the asset shall lie with the Hire till final settlement of the rent / rental installments.
Hire Purchase under Shirkatul Meelk Through transfer of legal title (sale) at the end of hire period for a token consideration.
Under this contract the possession of the asset owned by the Hire is hired out to the hire for a fixed period against fixed rent / rentals and at the end of the hire period the title to the asset is transferred to the Hirer by a separate sale contract on payment of agreed upon token consideration. The consideration may be equal to the value of the asset or not and it would be sufficient if a mutual agreement is reached on the consideration.
Hire Purchase Under Shirkatul Meelk through transfer of legal title (sale) at the end of Hire period for payment of a specified amount to the hire by the hirer
This agreement includes an ijarah / hire contract and a sale contract. Under this agreement a specific asset is hired out for a fixed period against specific rent mentioning a specific consideration to be paid by the Hirer (buyer) after the expiry of the hire period and upon payment of the agreed upon consideration. The hired asset becomes sold and its title transferred to the Hirer (the buyer). Under the agreement, the hire contract becomes effective firstly and the sale contract will be effective only after the expiry of the hire contract.
Hire Purchase Under Shirkatul Meelk through transfer of legal title (sale) period to the end of the hire term for a price that is equivalent to the remaining ijarah /rental instruction.
This is an ijarah / hire agreement which includes a promise made by the Hire that he will transfer the title of the hired property to the Hirer at any time during the hire period on payment of the remaining ijarah / rental installments, if the Hirer wishes so. Under this system first, the ijarah/hire contract becomes effective and remains so until the legal title is transferred to the Hirer. As soon as the title to the asset is transferred to the Hirer the ijarah/hire contract lapses for the remaining period, because both the benefit and the hired property become the Hirer’s property. This type of sale should be executed by a separate sale contract at the time of sale.
- In case of Hire Purchase under Shirkatul Melk transaction the asset / property involved is jointly purchased by the Hire (Bank) and the Hirer (Client) with specified equity participation under a Shirkatul Melk Contract in which the amount of equity and share in ownership of the asset of each partner (Hire Bank & Hirer Client) are clearly mentioned. Under this agreement, the Hire and the Hirer become co-owner of the asset under transaction in proportion to their respective equity participation.
- In Hire Purchase under Shirkatul Melk Agreement, the exact ownership of both the Hire (Bank) and Hirer (Client) must be recognized. However, if the partners agree and wish that the asset purchased may be registered in the name of any one of them or in the name of any third party, clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement. However, in IBBL, no third party registration shall be allowed.
- The share / part of the purchased asset owned by the Hire (Bank) is put at the disposal / possession of the Hirer (Client) keeping the ownership with him (Bank) for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are also to be clearly stated. Under this agreement, the Hirer (Client) 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 Hire (Bank) is entitled for the rentals.
- As the ownership of hired portion of the asset lies with the Hire (Bank) and rent is paid by the Hirer (Client) against the specific benefit, the rent is not considered as price or part of price of the asset.
- In the Hire Purchase under Shirkatul Melk Agreement the Hire (Bank) does not sell or the Hirer (Client) does not purchase the asset but the Hire (Bank) promise to sell the asset to the Hirer (Client) part by part only, if the Hirer (Client) pays the cost price / equity / agreed price as fixed for the asset as per stipulations within agreed upon period on which the Hirer also gives undertakings.
- The promise to transfer legal title by the Hire and undertakings given by the Hirer to purchase ownership of the hired asset upon payment part by part as per stipulations are effected only when it is actually done by a separate sale contract.
- As soon as any part of Hire’s (Bank’s) ownership of the asset is transferred to the Hirer (Client) that becomes the property of the Hirer and hire contract for that share / part and entitlement for rent thereof lapses.
- In Hire Purchase under Shirkatul Melk Agreement, the Shirkatul Melk contract is affected from the day the equity of both parties deposited and the asset is purchased and continues up to the day on which the full title of Hire (Bank) is transferred to the Hirer (Client).
- The hire contract becomes effective from the day on which the Hire transfers the possession of the hired asset in good order and usable condition to the Hirer, so that the Hirer may make use of the same as per provisions of the agreement.
- Effectiveness of the sale contract depends on the actual sale and transfer of ownership of the asset by the Hire to the Hirer. It is sold and transferred part by part, it will become effective part by part and with the sale and transfer of ownership of every share / part. The hire contract for that share / part will lapse and the rent will be reduced proportionately. At the end of the hire period when the full title of the asset will be sold out and transferred to the Hirer (Client), the Hirer will become the owner of both the benefit and the asset consequently the hire contract will fully end.
- Hire Purchase under Shirkatul Melk is a binding contract for the parties to it – the Bank and the Client who are committed to fulfill / meet their undertakings / obligations in accordance with the relevant agreement.
- Under this agreement the Bank acts as a partner, as a Hire and at last as a seller ;on the other hand the Client acts as a partner, as a Hirer and lastly as a purchaser.
- Ownership risk is borne by both the Hire and Hirer in proportion to their retained ownership / equity.
- Under this agreement the role of Hirer is one that of a trustee, the hired asset being a trust property in his hands; he will manage, maintain the asset in favor of the interest of the Hire at his own cost as the exact subject of hirer except in cases of any accident due to any event entirely beyond control of the hirer and natural calamity/disaster (acts of Allah) to be determined by the Bank after proper investigation within the knowledge of the hirer.
- The Hirer is responsible for keeping the hired asset(s) in good condition throughout the whole period of hire and if the asset is damaged or destroyed due to mismanagement, corruption, negligence, transgressions, default, etc. of the Hirer, he shall be responsible to compensate the Hire (Bank) for that. Of course, such mismanagement, corruption, negligence, transgressions, default, etc. of the hirer shall be determined by the Hire (Bank) after proper investigation within the knowledge of the hirer.
- The Hirer cannot, without obtaining prior written permission of the Hire (Bank) make any changes in the exact item of the hire, and / or remove it from its place of installation and transfer it to another location.
- In a Hire Purchase under Shirkatul Melk agreement any stipulation may be made, provided it is not against the nature and requirements of the contract itself, nor does it violate the /this may be the last one divine laws of Islam and is also acceptable to both the parties.
- Hire Purchase under Shirkatul Melk facilities may be for medium-term or long-term period which may be utilized for the expansion of production and services, as well as housing activities. The duration of Hire Purchase under Shirkatul Melk contract shall not exceed the useful life of the subject / asset of the transaction. The Bank should not normally enter a Hire Purchase under Shirkatul Melk transaction for items with useful life of less than two years.
- Hire Purchase under Shirkatul Melk transaction facilitates the Client (Hirer) 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.
- If, for any reason, the hire contract is revoked prior to the transfer of full title of the asset to the Hirer, then the title of the asset will be shared by both Hire and Hirer – the Hirer will share that part of title which has been transferred to him against payment and the Hire will share the remaining part.
- The Hirer to secure the Bank (the Hire) will pledge / hypothecate / mortgage his portion / part / share in the asset (acquired / to be acquired) and or any other asset / property of his own / third party guarantor to the Bank to fulfill his all liabilities / commitments including the accrued rental, if any- Official file of IBBL.
It is a form of partnership where one party provides the funds while the other provides the expertise and management. The first party is called the Sahib-Al-Maal and the latter is referred to as the Mudarib. Any profit accrued are shared between the two parties on a pre-agreed basis, while capital loss is exclusively borne by the partner providing the capital.
An Islamic financial technique that adopts “equity sharing” as a means of financing projects. Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, bankers, etc.) share both capital and management of a project so that profits will be distributed among them as pre-agreed ratios, where loss is shared according to ratios of their equity participation.
Induction of Client
Hold preliminary discussion with the prospective client regarding his investment needs, business experience, viability of the project and Shariah permissibility of the asset the business and the uses of the asset.
Bank considers five C’s of the client. After successful completion of the discussion between the bank and the clients, bank selects its client. It is to be noted that client and customer must agree with the banks rules and regulations. Generally banks analysis the five C’s of the clients:
- Collateral, and
Look up past performances of the Client, check-up Head Office Current Investment Policy and Branch’s track record of previous investment
If the Proposal is found permissible under Islamic principles, advise the Client to submit formal Application. If not found suitable, regret politely
Request potential Client to open an Al-Wadeeah Current account. Let him maintain the Current account.
Obtain application in triplicate from the client of F-167A and record the same in the Investment Proposal Received and Disposal Register (B-53).
- Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/ Trustee/ Administrator on the top right hand corner of the application.
- Trade license photocopy (for proprietorship)
- Abridged pro forma income statement
- Attested copy of partnership deed (For partnership business).
- Prior three years audited balance sheet
- Prior three years three years business transaction statement for the musharaka/ mudaraba investment.
- Abridged pro forma income statement for musharaka/mudaraba investment.
- Attested copy of memorandum of Association & Articles of Association for Joint Stock Company.
- Attested copy of the Tax Identification Number (TIN) including final assessment.
- Tenders of the proposed assets (in case of HPSM).
- Detailed summery of the sundry debtors & creditors.
- Summery of the personal moveable & immovable assets, and others.
- Scrutinize the application of the Client to see that-
- All columns are properly filled in;
- Particulars and information given therein are complete and correct in all respects;
- All required documents/papers as listed in the footnote for the application submitted;
- It is signed by the client as per specimen signature with the Bank and duly verified by the authorized official of the Bank.
Categorize the proposal as under:
- Hire Purchase under Shirkatul Meelk Commercial: Investment on hire purchase under Shirkatul Meelk mode to individual /firm/company /society for commercial purpose shall be termed as hire purchase under Shirkatul Meelk Commercial.
- Hire Purchase under Shirkatul Meelk Industrial: Hire Purchase under Shirkatul Meelk investment to industrial undertaking in the form of land, building, machineries, equipment, transport, etc shall be termed as Hire Purchase under Shirkatul Meelk Industrial
- Hire Purchase under Shirkatul Meelk Agriculture: Hire Purchase under Shirkatul Meelk investment to agriculture sector in the form of Agriculture equipments, machineries, shallow Tube–well, Tractor, trailers, Transport etc. shall be termed as Hire Purchase under Shirkatul Meelk agriculture.
- Hire Purchase under Shirkatul Meelk Transport: Hire Purchase under Shirkatul Meelk Industrial in the form of transport –Bus, truck, car, taxi, lunch, steamer, cargo vessel, air transport etc. shall be termed as Hire Purchase under Shirkatul Meelk transport.
- Hire Purchase under Shirkatul Meelk Real Estate: Hire Purchase under Shirkatul Meelk Industrial in the form of land building, market, apartments, for use /rental shall be termed as Hire Purchase under Shirkatul Meelk Real Estate.
Processing and Appraisal
- Enter the Application in the “Investment Proposal Received and Disposal Register (B-53) and allot a Serial Number to it.
- Examine shariah permissibility of the goods. Reject the proposal outright, if not permitted by Islamic Shariah.
- Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current Investment Policy Guidelines.
- Visit the Business establishment of the Client. Talk to the business and important personalities of the locality to ascertain the Honesty, Integrity and Business dealings of the Client.
- Request for confidential report of the client from local Bank Branches. Confident Report from Credit Information Bureau (CIB) of Bangladesh Bank through Head Office Investment Division as per Instruction Circular of Head Office in this Regard.
- Obtain Financial Statement/Balance Sheet of the Client for the last three consecutive years for Investment Proposals of Tk. 50.00 lac or above as per Head Office Instruction.
- Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or Hypothecated.
- Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of the Bank for examination and furnishing his opinion.
- Effective demand, price of the goods, short or long-term duration, quality and other specifications of the goods, availability, etc. of the said or projected goods.
- Where sale price of the goods is payable by the client at specified future date in lump sum or installments as per proposal.
For Bai-Murabaha Commercial and Bai Murabaha Industrial Investment, prepare Appraisal Report on F-167B. For appraisal Bai-Murabaha agriculture and For Bai-Murabaha Import use special Appraisal Form devised for each of those, if any, otherwise F-167B providing the available/required supplementary information. In course of preparation of the appraisal report please ensure incorporation of all information of all information, particulars figures and statistics in Appraisal Form correctly with special attention to the following: Contact primarily with the producers/sellers/suppliers of the goods in the market, study the market price and work out the purchase and sale prices of the goods as per guidelines.
- On completion of Appraisal as provided herein above, of the Proposal is found viable, issue Sanction Advice (F-188) if it is within the business power of the Branch mentioning all the terms and condition is duplicate to the Client and endorse copies to Zonal and Head Offices retaining one copy in the Client’s file duly accepted by the Client.
- If the proposal is not within the Discretionary Power of the Branch, the Branch shall with Appraisal Report on F-167A and F-167B to Zonal Office/Head Office.
- If the proposal is within the Business Power of the Zonal Office, Zonal Office shall accord Approval /Regret the Proposal.
- If the proposal is not within the Business of the Zonal Office shall forward the proposal to Head Office with their views and recommendations.
- On receiving the proposal and the Appraisal Report along with supporting papers Head Office will either approve or Regret.
- If the Branch/the Zonal Office /Head Office, the branch will issue the Sanction advice (F-188) with a copy to Zo/HO duly recorded in /Facility Sanctioned Register (B-119) with authority to the investment Client for the limit.
- If the client duly accepts the sanction terms and conditions enter the particulars of the sanctioned proposal in the limit Register (B-117) allotting a Fixed Serial number for each Client as per Limit Register which shall remain permanent irrespective of the mode(s) so long the Client continues business with the Bank.
- Open file Client-wise, affixing the Fixed Number allotted to him as per Limit Register (B-117) and Client’s name, address, telephone number be recorded prominently in the inner side of the investment File for easy tracing in case of need.
In case of investment to the existing Client, obtain required papers, document with the past performance and outstanding liabilities of the Client, if any and process of sanction the proposal as per instruction laid down here-in-above after due evaluation or study.
At this stage, usually the bank analysis whether required documents are in order. In the documentation stage, Islami Bank Bangladesh Limited (IBBL) checks the following documents of the clients.
- Tax payment Certificate.
- Stock report.
- Trade license (renewal).
- VAT certificate.
- Liability Statement for different parties.
- Receivable from different clients.
- Other assets statements.
- Commitment deed.
- Declaration letter.
- Three years net income business transaction.
- Performance report with the bank.
- Account Statement from of the bank.
- Valuation certificate.
- Particulars of the proposal.
- Particulars of the mortgagors.
- Particulars of the properties.
- Outstanding liability position of the bank.
- Credit information bureau report (CIB).
At this stage bank decides to pay out money. Here the clients get his/her desired fund or goods. It is to be noted that before disbursement a “site plan” showing the exact location of each mortgage property needs to be physically verified.
Monitoring and Recovery Stage
At the final stage of investment processing of the Islami Bank Bangladesh Limited (IBBL), bank will contract with the client continually; for example-bank can obtain monthly stock report from the client in case of macro investment. Here the bank will keep his eye on over the investment taker .if needed bank will physically verify the clients operations. Also if bank feels anything is going wrong then it tries to recover its investment by some way. Example:
- Telephonic communication
- Issuing letter.
- Final notice
- Legal notice.
- Suit filing.
Investment schemes of IBBL:
Household Durable Investment Scheme
In a developing country like Bangladesh people of middle and lower class especially service holders with limited income find it difficult to purchase articles like refrigerator, television, cot, almirah, wardrobe, sofa-set, pressure cooker, sewing machine etc. which are part of modern and decent living. They cannot enhance the standard and quality of life to the desired level due to the constraints of their limited income. Islami Bank Bangladesh Limited has, therefore, introduced Household Durables Investment Scheme that has already created great enthusiasm among the people and received tremendous response from them.
Housing Investment Scheme
One of the basic human needs is to have a house to live in. A house is an abode of peace and happiness. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis. With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem. To meet this basic human need, Islami Bank Bangladesh Limited is committed to contribute to this end to provide a peaceful and happy living. The Bank has introduced “Housing Investment Scheme” with the objective to ease and minimize the housing problem and assist service holders and professionals with limited income in materializing their dream of becoming owner of housing.
Real Estate investment Program
Professionals, Service-holders, Businessmen, Real Estate developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under thisprogram. Investment is to be extended to build new houses and for extension / completion of the house already constructed, commercial building, shopping complex, flat/apartment etc.
Transport investment Program
The role of modern communication is most vital for the socio-economic growth and uplift of a developing country like Bangladesh. A sound and efficient communication network is the pre-requisite for sustained development through the expansion of trade, commerce and industry. In this backdrop the demand for road and water transport has increased manifold throughout the country. Moreover, the use of modern transports has increased keeping pace with the rise of standard of living of professionals. Considering all these facts, Islami Bank Bangladesh Limited has introduced ‘Transport Investment Scheme’ Under this scheme investment on easy terms is being extended to the existing successful businessmen in road and water transports and potential entrepreneurs in this sector for different types of road and water transport. Besides, Multinational companies, established business house and well to do officials and professionals can become owner of various kinds of transports through Hire Purchase under scheme.
Car Investment Scheme
Islami Bank, as welfare oriented banking institution, has now deigned and implemented a good number of investment schemes keeping in view the needs of different sectors and various sections of the people for their socio-economic upliftment and to improve their quality of life. The investment schemes including the “Transport Investment scheme” and the “Household Durables Investment scheme” so far introduced have gained popularity and received wide response from the people.
Car is considered as on essential mode of transport in the modern society, particularly by a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. Many of these categories of people cannot purchase a car on payment of entire purchase value at a time out of their own sources. To meet this need Islami Bank has introduced the ‘Car Investment Scheme’ for the mid and high ranking officials of government and semi-government organizations, corporations, executive and directors of big business houses and companies and also forepersons of different professional group on easy payment terms and conditions.
Investment Scheme for doctors
One of the fundamental rights of every man is to receive necessary Medicare facilities. Majority of our people are denied and deprived of this right and a large number of our children are ill fed and suffer from malnutrition and ill health. Subsequently they become victims of various diseases due to lack of education and knowledge about health care and preventive measures. Medicare facilities as a whole are very limited in the country.
Although medical facilities are available to some extent in the clients and towns, majority of the people of the rural area die without Medicare and treatment after prolong sufferings from disease.
A good number or newly graduated doctors from Medical Colleges are unemployed. Many of the medical graduates are waiting for job because the opportunity for Government service is limited. If these young doctors could be self-employed by extending investment facilities, they could make modern medical facilities available at the doorsteps of rural people.
Besides, experienced and specialist physicians who are providing Medicare facilities to the people in different towns with their limited and outdated Medical equipment will be able to improve the standard of their techniques of treatment and also make the modern treatment facilities available to more people, if investment facilities are extend to them for procurement of modern and improved medical equipment. The constitution of Bangladesh has made it obligatory to ensure good health for all and the government is also committed to ensure good health for all.
In view of the above facts, Islami Bank Bangladesh Limited has taken the initiative and introduced the “Doctors Investment Scheme” to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment.
Small Business Investment Scheme
Bangladesh, a third-world developing country, is rich in natural and human resources. In spite of vast possibilities, the majority people of the country live in hardship-below poverty line, as these resources are not being property trapped, explored and exploited. Physical labor is their only means of earning. A large segment of this population is active youth force. Many of them are efficient, intelligent and energetic with initiative & drive and have courage to take risk. But they cannot uplift their socio-economic condition due to poverty, lack of financial support and other required facilities. Lack of capital compelled many small traders to leave their profession. As a result the unemployment problem has been increasing day by day, and the unemployment youths, finding no avenues of employment, are getting themselves involved in ant-social activities creating threat to the social life.
Agriculture Implements Investment Scheme
Bangladesh is predominately an agricultural country with vast majority of people living in rural areas. Most of our people, for their living, are dependent on agriculture. Agriculture still contributes the lion share of the gross domestic product. But we could not as yet become self-sufficient in food production. We still import a bulk quantity of food grains from abroad to meet the deficit. This reliance on import has made us dependent on others. We must modernize our agriculture and establish more and more industries in order to minimize imports. We can bring about revolutionary changes in the agriculture sector by adopting modern agriculture technology replacing the age-old traditional way of cultivation and increasing the use of fertilizer. This can be done by collective efforts of both public and private sectors.
Islami Bank Bangladesh Limited is a welfare oriented Bank. It can ply positive and important role in the economic development, progress and uplift of the country by investing in the agriculture sector. The Bank has, therefore, introduced “ Agriculture Implements Investment Scheme” to provide power tillers, power pumps shallow tube wells, thrasher machine etc. on easy terms to the unemployed youths for self-employment and to the farms to help augment production in agricultural sector.
Micro Industries Investment Scheme
Bangladesh as a developing country has been trying for its overall economic growth. One of the major problems confronting its growth is lack of development of enterprises and potential entrepreneurs who can create more job opportunities by establishing new enterprises in the industrial sector. There are a number of educated unemployed youths and also skilled & semi skilled unemployed persons in the country. Besides, every year quite a good number of youths are coming out of the general/technical educational institutions to add to this already crisis ridden employment market. Development programs and efforts will bring no meaningful result unless and until income-generating employment opportunities can be created for the growing number of unemployed people including the educated unemployed youths. Establishment and expansion of micro industries can play a vital role in creating more employment opportunities as well as in the overall socio-economic development of the country.
Islami Bank Bangladesh Ltd. has been appreciably participating in this direction by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch “Micro Industries Investment Scheme” through its Branches. This scheme has been devised to cater to the investment needs of those persons who intend to set-up new micro industrial ventures or to restructure their old units by way of BMRE involving a total cost of Tk. 5.00 lac. This is intended mainly to create new jobs for the educated, skilled & semi skilled unemployed and also to encourage those who remain outside the purview of investment due to shortage of funds and insufficient collaterals. The scheme has been prepared with easy terms and conditions to encourage the small entrepreneurs, educated unemployed youths and skilled/semi skilled persons to come forward for establishment of micro industries commensurate with the local demand.
Rural development Scheme
Bangladesh with its 60% people living below poverty line and 30% living in absolute poverty is suffering from acute rural-urban economic disparity coupled with illiteracy, lack of proper health and sanitation facilities. The country’s economy is basically an agrarian one with vast majority living in rural areas. The agricultural sector is unable to provide any further scope of employment resulting in influx of rural population towards urban areas.
Rural areas are characterized by stagnant and scanty
Underemployment and unemployment is the regular feature particularly in rural areas. The vast human resources have remained unutilized due to lack of education and training and also concerted efforts directed towards the rural economy. This results in uneven distribution of income which causes serious set back in balanced geographical growth as well as growth of GDP. Islami Bank Bangladesh Limited has been founded with the major objective of establishing Islamic economy for balanced economic growth by ensuring reduction of rural-urban disparity and equitable distribution of income.
In view of the above, Branches of the Bank have been encouraged to invest their deposits in their respective areas and in particular for the economic uplifting of the rural people.
Accordingly, a Scheme in the name and style of ‘Rural Development Scheme’ has been introduced to cater tot eh investment needs of the agricultural and rural sector to create opportunity for generation of employment and raising income of the rural people with a view to alleviate poverty- Bank file page no-18.
Mode wise investment Performance:
Table: Mode wise investment performance
|Amount||% to total investment||Amount||% to total investment||Amount||% to total investment|
Annual report of IBBL 2012
Islami Bank Bangladesh Limited (IBBL) has established not only to contribute to the national economy but also conducted various social work for welfare to the society as a business organization to perform corporate social responsibility (CSR). To distribute the fruit of interest free banking system, IBBL is continuously conducting their social welfare activities through their journey of success. IBBL established “ISLAMI BANK FOUNDATION” which tremendously contributed to the welfare of society.
6.2 Islami Bank Foundations
One of the distinguishing features of Islami Bank is that its overall activities are directed towards the welfare of the society. The Bank, since its inception, has dedicated itself for the uplift and emancipation of the helpless and downtrodden people of the society. With this end in view, the Bank has created a separate fund, which was earlier known as Sadaqua Tahbil. In 1991, the Sadaqua Tahbil was reorganised and enlarged under the new name of ‘Islami Bank Foundation’ with a fund of Taka 38.00 million in order to conduct social-welfare activities on a wider scale. As one of the leading non-government voluntary organisations of the country, the Foundation has been working with unique and special Programs for the welfare of distressed humanity and to make poor, down-trodden, landless and asset-less people self-reliant.
The aims and objectives of the Foundation are to serve distressed humanity, promote people oriented mass education, extend health and Medicare facilities to the poverty-stricken people in urban and rural areas, create facilities for productive self-employment and develop human resources for improving economic condition and quality of life, assist healthy growth of art, culture and literature, science and technology, sports, research and propagation of Islamic teachings. The Foundation has taken up a number of schemes covering the whole of Bangladesh.
Income generating programs
Access to required finance and other related inputs may help many to become self employed. In absence of such opportunity the unemployed youths entangle themselves in various anti-social activities. Islami Bank Foundation has, therefore, taken up the following Self-employment projects:
- Poultry Keeping
- Rural Health Work
- Milch Cow/Goat rearing
- Small Trade
Education is the backbone of a nation. Awareness building, skill training, access to information-all depends on education. But it is regrettable that the rate of literacy is still very low in Bangladesh. Most of the children are deprived of the light of education due to poverty, lack of sufficient educational institutions, non-availability of text books and equipments etc. In a ward, the unfavorable socio-economic conditions are responsible for this chaotic situation.
The Foundation has, therefore, taken up the following Programs to improve the country’s educational scenario:
- Support to Model Forqania Maktab
- Scholarship/lump grant for poor and Meritorious Students
- Financial support to Educational Institutions
Health and Medicare Programs
Health and Medicare facilities are the basic and fundamental rights of each individual but most of the people of our country are still deprived of it. The Foundation has, therefore, taken up the following Programs to extend health, Medicare and sanitation facilities to the urban and rural areas:-
- Establishment of Medical Centers
- Supporting Charitable dispensaries
- Lump-sum help for medical treatment
- Tube well Installation
- Sanitary Latrine construction etc.
Such Assistance is also extended to the members of Rural Development Scheme (RDS) of IBBL. Under Health and Medicare Programs preventive measures have also been taken. Special steps have been taken for construction of sanitary latrines and installation of tube wells in the villages covered under to whom Islami Bank Bangladesh Ltd. is providing finance for income generation activities.
Humanitarian Help Programs
These programme aims at providing help to distressed people who are unable to meet their basic needs like food, clothing, shelter and medicine. The old widow and children without guardians get preference. Besides, the programme extends assistance to orphanages, provide fund for the marriage of poor girls, assist indebted people, help distressed wayfarers etc.
Relief and Rehabilitation Programs
Participation in relief and rehabilitation activities in natural disasters and in emergency forms an important programme of Islami Bank Foundation. During calamities like flood, tornado, tidal surge etc. the Foundation mobilizes its own people as well as donates to the relief fund opened at the government level. The Foundation also tries its best to extend hands of assistance and co-operation to the Muslim brethren elsewhere in the world.
One important objective of Islami Bank Foundation is to disseminate the true knowledge and teachings of Islam. The Foundation has, therefore, taken up various schemes to enlighten the common people as well as the elite and make them familiar with the concept of Islam. Islamic research magazines and other Islamic Literatures are being distributed among the Academicians, Journalists, Justices, Lawyers, High Officials, Bankers, Literatures and important Libraries and Institutions of the country. The Foundation is also working among the prisoners for their moral reforms.
The foundation has taken up some special projects with the objective to ensure integrated social development. The special projects are as under:
Islami Bank Hospital
With the objective of providing low-cost curative services to the less affluent segment of the society, the Foundation has so far set up Hospitals at three Divisional Headquarters in Dhaka, Rajshahi and Khulna. Services of eminent general practitioners and specialists in various fields of treatment like Medicine, Surgery, Gynae, Pediatric, E.N.T. Urology, Neuro-surgery, Skin, Orthopedic etc. are harnessed in these hospitals. Standard diagnostic, medical and surgical equipments are in used in these hospitals. The Foundation plans to establish Hospitals at each Divisional Headquarters of the country.
Islami Bank Medical College, Rajshahi
The number of Doctors in Bangladesh is not sufficient compared to the total population. The Govt. Medical Colleges are also a very few and a good number of meritorious students can not get admitted into the Govt. Medical Colleges due to insufficient number of seat capacities. Though some private medical colleges have been established mostly in and around the capital but the tution fees and other charges are so high that the students of poor and middle class families can not afford it.
Besides establishing Hospitals at the Divisional Headquarters, IBF has a plan to assist local initiatives in setting up Hospitals at District level. Establishment of Four such Hospitals is planned during 1999.
Monoram: Islami Bank Crafts & Fashion
The project has been taken up as a sales outlet of home-made garments, handicrafts and other items produced by the distressed women. The main objective of the project is to create conducive and healthy atmosphere in which women can contribute to the family income by working within the limits of Shariah.The other objective of this project is to develop designs of women-wear, which will conform, to the principles of decency and modesty as laid down by Islam and at same time compare well with the modern-day-fashions.
To save the people of coastal and river belt from natural disaster, erosion etc. a special project has been taken in the name and style of “Service Centre”. Under this programme pucca structure constructed in coastal areas, river belts and off-shore islands would be used for integrated social development of the people as well as provide safe shelters during natural calamities. Two such Service centres (in Noakhali and Manikgonj) have already been established.
Islami Bank Institute of Technology
The large number of unemployed youth of the country may be turned as assets through taking up Human Resource Development (HRD) Programme.The youths with skills in various sectors of technology may become self-employed in the land and can also get employment opportunities abroad. Islami Bank Foundation has, therefore, established 3 Technical Institutes, two in Dhaka and another in Bogra, which are rendering training facilities in Computer, Secretarial Science, Driving, Electrical, Refrigeration and Air Conditioning, Radio & TV, Tailoring and Garments etc.
Islami Bank International School and College
As Dhaka, the capital of Bangladesh, is turning to be a Mega City, a large number of English Medium Schools are creeping up which follows curriculum not conforming fully to the need of the country. As an attempt to combine modern education (which are secular) with religious education for a total development of the children, Islami Bank Foundation has established an English medium Model School and College in Dhaka. Establishment of a Bangla medium school affordable by lower and middle class economic strata of the society is also being envisaged.
Islami Bank Physiotherapy and Disabled Rehabilitation Centre
In Bangladesh there are a great number of unfortunate disabled persons who have no other means to maintain themselves without resorting to beggary. The burden of the society might be lessened and these people can be helped to become self-reliant through imparting special skills. Keeping this in view, Islami Bank Foundation has decided to rehabilitate these unfortunate disabled persons through establishing a centre named “Islami Bank Physiotherapy and Disabled Rehabilitation Centre”.
Centre for Development Dialogue
Alongside with the governmental efforts at National level and multilateral and bi-lateral institutions at the international level, Non Govt. Organizations (NGOs) in different parts of the world especially in the developing countries are playing increasing role in experimentation with Development models.Most of the organisations unfortunately, try with development techniques from a standpoint, which often turn antagonistic to the belief and social norms of the people. The renowned foreign and national NGOs have their established training centre(s) where they train their own people and also rent out the facilities to others. Islami Bank Foundation has decided to establish a training centre of its own named “Centre for Development Dialogue” which will create opportunity for imparting training facilities for its own staff members as well as the staff members of other development organisations.
Bangladesh Sangskritic Kendra (Cultural Centre):
Culture is very important leading factor of a nation. A nation is considered developed which is culturally advanced. Now-a-days, no state is conquered through applying physical force but through ideas, thinking, norms, belief, etc. Like many other Muslim countries, the elite, affluent section and new generation of Bangladesh are presently motivated by western culture which is very harmful for the nation. Islami Bank Foundation has, therefore, established “Bangladesh Sanskrit Kendra (Cultural Centre) in Dhaka for upholding and promoting national culture and heritage of the country. Islami Bank Foundation, through it’s various welfare activities, has been working to serve the destitute and distressed people as well as for the socio-economic development of the country. Islami Bank Foundation wants to expand the on-going projects throughout the country and also wishes to undertake new ones for the overall development of the country. Zakat and Donations may be credited to Islami Bank Foundation Account Nos. 02101005 (Zakat) and 02101014 (Donation) maintained with lslami Bank Bangladesh Ltd., Head Office Complex Branch, 40, Dilkisha Commercial Area, Dhaka-1000, Bangladesh.
ROLE AND CONTRIBUTION OF IBBL TO BANGLADESH ECONOMY
Islami Bank Bangladesh Limited has many success stories of achievements. These are summarized below:
- IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh.
- The success of IBBL has imbibed other sponsors at home and abroad to establish Islamic Banking in Bangladesh. Four national, one international Islamic banks have since been established in the country. A private sector traditional bank has also established two full fledged Islamic Banking branches. Several other existing and proposed traditional banks hove also expressed their intention to introduce Islamic Banking.
- An IBBL has successfully mobilized deposits from a section of people who hither-to-before did not make any deposit with interest based banks.
- The Islamic Banking products which are offered by IBBL through its 118 branches located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic banking.
- IBBL’s market share of deposit investment and ancillary business is steadily increasing.
- IBBL, though still a tiny bank, handles more than 15% of country’s export and import trade.
- Among the contemporary commercial Banks IBBL’s position is first in respect of mobilization of deposit, deployment of fund and earning profit.
- Investment in industrial sector occupies nearly 33% of IBBL’s investment portfolio. This is a unique example of industrial Finance by a commercial Bank.
- More than 1.15,000 workers are employed in the industrial projects financed by IBBL. IBBL has thus made significant contribution to solving unemployment problem of the country.
- Dhaka- the capital of Bangladesh being a Mega city- has acute transport problem. IBBL has joined hands with an enterprising of introducing a fleet of Premium Bus service, which has attracted the attention of all section of the people and mitigated transportation problem of the city to some extent.
- IBBL has introduced several other welfare oriented Investment schemes, such as Small Transport Investment Scheme, Small Business Investment Scheme, Agriculture Implements Investment Scheme, Poultry Investment Scheme, Household Durable Investment Scheme, Housing Investment Scheme etc.
- IBBL launched a Rural Development Scheme for providing finance to drown-trodden section of the populace- an area where no other Commercial Bank has extended any finance. IBBL’s mission is to reach to all 68,000 villages of the country as early as possible.
- An IBBL has contributed a remarkable amount million Taka as income tax to the Government Exchequer on its net profit over the last 18 years, a At the initiative and drive of IBBL, several Universities in Bangladesh, have introduced Courses on Islamic Banking and finance.
- IBBL has organized a good number of national and international Seminars on Islamic Banking and Economics. Importantly, IBBL sponsored a Seminar at Dhaka with a view to forming an Islamic Common Market.
- Due to constant persuasion of IBBL the Government has granted license for establishment of an Islamic Insurance Company. By now two (2) Islamic Insurance Companies have started business.
- IBBL has earned reputation in the country as a corruption free institution.
- IBBL is held in high esteem in the banking circle as a good managed bank.
- Under the leadership of IBBL, Bangladesh Association of Banks (BAB) has been formed. This is a platform to ventilate the stand-points on banking issues of the private sector banks. a IBBL has taken initiative to form an Association of Islamic Banks in Bangladesh for furtherance of the causes of Islamic banking.
- IBBL has established a foundation called Islami Bank Foundation1 for carrying out social welfare activities. The foundation has taken up a number of schemes covering the whole of Bangladesh
The following are the findings found on the basis of previous analysis and practical experience of 45 days internship program:
- Investment position of this Bank is at moderate level. The Bank is situated in a commercial place and that’s why its commercial investment is very high in every mode.
- Investment re-collection position of this branch is very good. Some clients are in overdue position but maximum clients pay their installments regularly.
- Bai-Murabaha investment position was slightly lower in previous years but Bai Muajjal & HPSM investment is increasing day by day.
- High attention on recovery of overdue and classified investment and on pre-overdue situation.
- High attention on making quality investment & quick disposal of proposals
- Variety of investment schemes
- Poor marketing of investment products
- Strict controlling of Central Bank over IBBL sometimes creates problems in sanctioning investment proposals.
After observing the operation procedure of IBBL, the following recommendation can be made. IBBL should launch new financial products to attract deposit through Consumer Credit Scheme, Child Education Scheme, and Plastic Money etc. IBBL can also lunch ATM as diversification.
On Line Banking
IBBL should also proceed to incorporate “On Line Banking”, or “Electronic Banking” keeping in mind upcoming competition of the 21st century. The prescribed system will provide quick and superior service to customers.
To increase the faith of former mentioned depositors and people, IBBL should convince them in the best manner, so that market share can be captured. A separate marketing division should be set up for this matter.
Diversify Assets Portfolio:
Leading portfolio of IBBL should be diversified. Not to concentrate or give weight only in working capital financing.
IT facilities of IBBL are not satisfactory good. Computer system which owned by branch are not up to date, not sufficient and moreover some of computer system not work properly when they are needed. There is no sufficient and high bandwidth Internet connection available in the bank. So, IBBL should develop Information Technology to ensure better service for the customer and support communication with outside.
The concept of Islami banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950¢s with the establishment of a local islami bank in a rural area (Wilson 1983). After 42 years, Islamic banking system is established in Bangladesh as a financial institution that is named “Islami bank Bangladesh limited”.
Islamic bank Bangladesh limited is a bank which operates its activities according to Quaran and Sunnah. It’s banking activities based on profit \ loss sharing. It does not create any illegal pressure on client.
The strengths of islami bank Bangladesh limited are – employees of Islamic Bank Bangladesh Ltd. are honest because they strongly believes in Islamic rules and Allah and they do not take any types of bribe form clients. So the trusts of people are increasing on the activities of Islamic bank Bangladesh limited. Many people of Bangladesh are involving with IBBL for doing their daily financial activities. It has a bright future because it has got huge customer then other conventional bank in Bangladesh that are based on interest.
The weaknesses of Islamic bank Bangladesh limited are – although it is getting bright future but it does not operate its activities 100% based on Islamic shariah. Because still there is not existed an Islamic environment in the economic activities of Bangladesh. It is performing its daily financial transaction with other financial institution that are not based on Islam. In this case, it is involving with some unislamic activities unintentionally. On the other hand every client is not 100% honest. So they are taking investment form IBBL and after maturity, they are showing loss on that project intentionally. So IBBL is losing some profit form their investment .For this reason, Islami bank Bangladesh limited has closed its bai – mechanism. Now it is not providing investment under this mechanism.
Threats of Islamic bank Bangladesh limited are – at this time, many financial institutions have commenced their financial activities according to Islamic shariah. This type of organization will create more competition in the financial market. So it is a threat for Islamic bank Bangladesh limited.
Although the bank has been it is facing some problems, it has a bright future and day-by-day it is enhancing it¢s financial activities over the country. Many organizations are following IBBL and they are also doing their banking business based on Islamic shariah in the economy of Bangladesh.
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